<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 17, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
MAGINET CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
CALIFORNIA (PRIOR TO 4841 77-0407677
REINCORPORATION) (PRIMARY STANDARD (I.R.S. EMPLOYER
DELAWARE (AFTER INDUSTRIAL IDENTIFICATION NUMBER)
REINCORPORATION) CLASSIFICATION CODE
NUMBER)
(STATE OR OTHER JURISDICTION
OF INCORPORATION OR
ORGANIZATION)
405 TASMAN DRIVE
SUNNYVALE, CALIFORNIA 94089
(408) 752-1000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
KENNETH B. HAMLET
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MAGINET CORPORATION
405 TASMAN DRIVE
SUNNYVALE, CALIFORNIA 94089
(408) 752-1000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
THOMAS C. DEFILIPPS, ESQ. EDWARD M. LEONARD, ESQ.
WILSON SONSINI GOODRICH & ROSATI BROBECK, PHLEGER & HARRISON LLP
PROFESSIONAL CORPORATION TWO EMBARCADERO PLACE
650 PAGE MILL ROAD 2200 GENG ROAD
PALO ALTO, CA 94304 (415) 493-9300 PALO ALTO, CA 94303 (415) 424-0160
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration
Statement.
----------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(1)(2) FEE
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<S> <C> <C> <C> <C>
Common Stock, $.001 par
value................. 5,750,000 $14.00 $80,500,000 $27,758.62
</TABLE>
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(1) Includes shares that the Underwriters have the option to purchase to cover
over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a) promulgated under the Securities
Act of 1933, as amended.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated September 17, 1996
PROSPECTUS
5,000,000 SHARES
(PASTE-UP LOGO OF MAGINET)
COMMON STOCK
------------
Of the 5,000,000 shares of Common Stock, $.001 par value ("Common Stock"), of
MagiNet Corporation ("MagiNet" or the "Company") being offered hereby,
4,000,000 shares are being offered initially in the United States and Canada by
the U.S. Underwriters (the "U.S. Offering") and 1,000,000 shares are being
offered initially outside the United States and Canada by the International
Managers (the "International Offering"). Such offerings are referred to
collectively as the "Offerings."
Prior to the Offerings, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering
price per share will be between $12.00 and $14.00 per share. See "Underwriting"
for a discussion of factors to be considered in determining the initial public
offering price. Application has been made to have the Common Stock approved for
quotation on the Nasdaq National Market under the symbol "MGNT."
------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
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<S> <C> <C> <C>
Per Share.................................. $ $ $
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Total(3)................................... $ $ $
</TABLE>
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(1) The Company has agreed to indemnify the U.S. Underwriters and the
International Managers against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of the Offerings estimated at
$1,050,000 payable by the Company.
(3) The Company has granted to the U.S. Underwriters a 30-day option to
purchase up to 600,000 additional shares of Common Stock on the same terms
and conditions as set forth above solely to cover over-allotments, if any.
The International Managers have been granted a similar option to purchase
up to 150,000 additional shares solely to cover over-allotments, if any. If
such options are exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
------------
The shares of Common Stock offered by this Prospectus are offered by the U.S.
Underwriters, subject to prior sale, to withdrawal, cancellation or
modification of the offer without notice, to delivery to and acceptance by the
U.S. Underwriters and to certain other conditions. It is expected that delivery
of such shares will be made at the offices of Lehman Brothers Inc., New York,
New York, on or about , 1996.
------------
________________________________________________
LEHMAN BROTHERS HAMBRECHT & QUIST
, 1996
<PAGE>
[INSIDE FRONT COVER]
[GRAPHIC: MAGINET LOGO]
Interactive on-demand entertainment and information to guests of the world's
leading hotels.
----------------
IN CONNECTION WITH THE OFFERINGS, THE U.S. UNDERWRITERS AND INTERNATIONAL
MANAGERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE
MARKET PRICE OF THE COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH
MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED
ON THE NASDAQ NATIONAL MARKET, THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
[GATEFOLD--FIRST PAGE]
MagiNet is the largest provider of in-room on-demand video entertainment and
information systems outside North America.
[Graphic: Underneath the above caption on both the first and second page of
the gatefold is a map of the continents outside of North and South America
America with the countries where there are MagiNet installations indicated]
[Graphic: Two images of a television screen showing the Company's welcome
channel.]
Currently being tested in Australia, our new Welcome Channel introduces the
quality and impact of network broadcasting to the MagiNet systems when guests
turn on their TV. The Welcome Channel is designed to feature Hollywood movie
trailers, advertising commercials, promotions and instructions in five
languages.
MagiNet guests are senior level business professionals, sophisticated
leisure travelers with some of the highest disposable incomes in the world.
Full-service offices provide local support.
[Graphic: One image of a television screen showing casino-style gaming, and
two images of a television screen showing Bloomberg Information TV.]
In an exclusive agreement with InterGame, MagiNet will be able to provide
in-room, interactive casino-style gaming in hotel rooms worldwide where
jurisdictions allow. MagiNet also expects to distribute Bloomberg Information
Television, a 24-hour financial news program to hotels, starting with a test
in Israel in late 1996.
<PAGE>
[GATEFOLD-SECOND PAGE]
[Graphic: Three images of a television screen: one showing a welcome screen;
one showing a movie menu; and one showing text describing a movie.]
MagiNet's mainstay is on-demand entertainment, such as Hollywood
blockbusters and adult theme movies. Plus, hotel information and guest
services such as in-room check out and folio review. Providing guests as many
choices as possible is MagiNet's formula for winning the world's leading
hotels.
MagiNet has over 50,000 rooms installed with on-demand systems
250% annualized growth in rooms since 1993
[Graphic: Three images of a television screen showing an information
directory known as iLook.]
iLook is an interactive information and resource directory for travelers
that can provide hotel guests immediate and easy access to thousands of
businesses, services, restaurants, shops and cultural information. iLook is
expected to be launched in Thailand in early 1997, and is one of several
products being developed as additional revenue sources.
The world's best hotels have selected MagiNet for their interactive
entertainment and information systems.
Sheraton On The Park, australia Yokohama Grand Inter-Continental
Hotel, japan
Inter-Continental Sydney, australia Regent Auckland, new zealand
Guam Hilton, Guam The Orchard Hotel, Singapore
Mandarin Oriental, Hong Kong Sandton Sun & Towers, South Africa
JW Marriott, Hong Kong Durban Crowne Plaza, South Africa
Island Shangri-La, Hong Kong Hotel Lotte, South Korea
Regent Hong Kong, Hong Kong Hotel Shilla, South Korea
Hilton Tel Aviv, Israel Grand Formosa Regent, Taiwan
Sheraton Tel Aviv, Israel Grand Hyatt Taipei, Taiwan
Hotel Inter-Continental Tokyo Bay, Shangri-La Hotel, Thailand
Japan
Hotel Okura Tokyo, Japan Regent Bangkok, Thailand
Grand Hyatt Fukuoka, Japan
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the Consolidated Financial Statements
and Notes thereto, appearing elsewhere in this Prospectus.
THE COMPANY
MagiNet is the leading supplier of on-demand interactive video entertainment
and information services to the hospitality industry outside of North America.
The Company installs integrated video systems that allow hotel guests to order
pay-per-view movies on-demand. MagiNet has recently expanded these systems into
entertainment and information gateways that offer an increasingly varied range
of services, such as on-demand billing summaries, express checkout,
personalized messaging, guest surveys and room service ordering. The Company
expects to implement additional revenue enhancing services such as in-room
casino-style gaming, advertising, video games, financial news, Internet access
and in-room shopping in selected markets beginning in 1997.
To date, the Company has focused principally on leading hotels in the Pacific
Rim. Recently, the Pacific Rim has been experiencing a higher rate of economic
expansion and hotel construction than any other region in the world. Leading
hotels in this region are generally characterized by high occupancy and room
rates. The Company currently has operations and installations in Thailand,
Australia, Japan, Taiwan, Guam/Saipan, Hong Kong, Singapore, South Korea, South
Africa, Israel, New Zealand and France, and plans to expand its presence in the
Pacific Rim, Europe, the Middle East and Africa. MagiNet began installing its
systems in 1993 and, between 1993 and 1995, increased its installed base of
rooms from 2,087 to 39,122 and increased revenue from $395,000 to $8.7 million.
As of June 30, 1996 MagiNet served 138 hotels having 49,683 rooms, with an
additional 20,868 rooms in backlog. There are approximately two million hotel
rooms in MagiNet's current and targeted markets.
The Company's installed base includes certain hotels in the Hilton
International, Hyatt International, Inter-Continental, Mandarin Oriental,
Marriott, Okura, Regent/Four Seasons, Shangri-La, Sheraton, Southern Pacific
Hotel Corporation, Westin and other hotel chains. The Company has preferred
vendor status for future installations in hotels within the Hyatt
International, Shangri-La and Southern Pacific Hotel Corporation chains. In
addition, the Company believes there is a substantial opportunity to penetrate
the mid-market hotel sector in its target markets.
The Company holds an exclusive license to provide the on-demand interactive
video system developed by On Command Video Corporation in more than 30
countries outside of North America, and a license to provide the on-demand
interactive video system developed by Guestserve Development Group to all
countries outside of North America. MagiNet installs its systems in hotels at
the Company's cost and receives revenue from guest usage pursuant to five-to-
seven year contracts giving MagiNet the exclusive right to provide the hotel
with in-room on-demand video entertainment and information services. To date,
the Company's principal on-demand video entertainment services have provided a
reasonably predictable stream of recurring revenue during the term of these
exclusive contracts. The Company believes its new services will appeal to a
broader group of hotel guests than traditional purchasers of in-room video
entertainment and should increase revenue per installed room.
Beginning in early 1996, the Company added several key members to its
management team, including Kenneth B. Hamlet, its Chief Executive Officer, and
Gordon E. (Ned) Druehl, Jr., its Chief Operating Officer, both having over
twenty years of experience in the hospitality industry. Mr. Hamlet and Mr.
Druehl, as part of their executive responsibilities at Holiday Inns, Inc.,
managed a division known as HiNet which provided free-to-guest scheduled
broadcast and on-demand video entertainment to Holiday Inns hotels. This
management team further defined the Company's strategy to expand its installed
room base by (i) leveraging its strong market position to obtain contracts with
other leading hotels, (ii) penetrating existing or new target markets, directly
or through acquisition, and (iii) offering services to mid-market hotels in
target regions. In addition, this management team was influential in
establishing strategic relationships with Bloomberg for information and news
television programming, with InterGame for in-room casino-style gaming, and
with Trinity Group for in-room advertising.
The Company incorporated in California in July 1991, changed its name from
Pacific Pay Video Limited to MagiNet Corporation in August 1995 and will
reincorporate into Delaware prior to the completion of the Offerings. Unless
the text otherwise requires, references in this Prospectus to "MagiNet" and the
"Company" refer to MagiNet Corporation, a California corporation, and its
Delaware successor, together with their subsidiaries. The Company's principal
executive offices are located at 405 Tasman Drive, Sunnyvale, California 94089,
and its telephone number at that address is (408) 752-1000.
3
<PAGE>
THE OFFERINGS
<TABLE>
<S> <C>
Common Stock initially offered in:
The U.S. Offering.................. 4,000,000 shares
The International Offering......... 1,000,000 shares
Total Common Stock offered........ 5,000,000 shares
----------
Common Stock to be outstanding after 18,435,436 shares(1)
the Offerings......................
Use of proceeds..................... System installations, working capital and
general corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market MGNT
symbol.............................
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------- -------------------
1993 1994 1995 1995 1996
------- ------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER
DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenue.................. $ 395 $ 2,342 $ 8,689 $ 3,302 $ 7,923
Direct costs............. 294 1,156 3,731 1,687 3,854
Depreciation and
amortization............ 171 957 3,682 1,510 3,149
Operations expenses...... 464 2,876 3,108 1,213 1,016
Selling, general and
administrative.......... 1,497 4,294 8,420 3,563 4,652
Research and
development............. 1,320 856 1,247 571 937
------- ------- -------- -------- --------
Operating loss........... (3,351) (7,797) (11,499) (5,242) (5,685)
Interest income
(expense), net.......... (28) (253) (991) 4 (1,382)
------- ------- -------- -------- --------
Loss before income taxes
and minority interest in
net losses of
consolidated
subsidiaries............ (3,379) (8,050) (12,490) (5,238) (7,067)
Provision for income
taxes .................. -- -- (554) (300) (383)
Minority interest in net
losses of consolidated
subsidiaries............ -- 124 248 153 124
------- ------- -------- -------- --------
Net loss................. $(3,379) $(7,926) $(12,796) $ (5,385) $ (7,326)
======= ======= ======== ======== ========
Pro forma net loss per
share(2)................ $ (1.03) $ (0.59)
======== ========
Shares used in
computation of pro forma
net loss per share(2)... 12,392 12,407
OTHER DATA:
EBITDA (In
thousands)(3)........... $(3,180) $(6,840) $ (7,817) $ (3,732) $ (2,536)
EBITDA margin............ (805)% (292)% (90)% (113)% (32)%
New rooms installed...... 2,087 10,929 26,106 14,632 10,561
Total rooms served(4).... 2,087 13,016 39,122 27,648 49,683
Rooms in backlog......... -- 10,941 12,194 10,574 20,868
Average monthly gross
video revenue per room.. -- $ 32.39 $ 29.10 $ 30.05 $ 29.60
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------
ACTUAL AS ADJUSTED(5)
-------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments..... $ 14,772 $ 74,172
Working capital....................................... 13,571 72,971
Total assets.......................................... 52,185 111,585
Long-term debt........................................ 25,403 25,403
Accumulated deficit................................... (32,800) (32,800)
Total stockholders' equity............................ 20,163 79,563
</TABLE>
4
<PAGE>
(1) Based on shares outstanding as of June 30, 1996. Excludes as of June 30,
1996, an aggregate of 1,487,394 shares of Common Stock issuable upon
exercise of options outstanding under the Company's 1992 Key Personnel
Stock Option Plan and 1992 Stock Option Plan at a weighted average exercise
price of $1.55. See "Management--Stock Plans," "Certain Transactions,"
"Description of Capital Stock" and Note 5 of Notes to Consolidated
Financial Statements. Also excludes an aggregate of 2,560,528 shares
reserved for issuance after June 30, 1996 under the 1992 Key Personnel
Stock Option Plan, the 1996 Director Stock Option Plan and the 1996
Employee Stock Purchase Plan. See "Management--Stock Plans."
(2) See Note 1 of Notes to Consolidated Financial Statements for a discussion
of the computation of net loss per share.
(3) Indicates earnings (loss) before interest expense, income taxes,
depreciation and amortization, and minority interest in net losses of
consolidated subsidiaries and is not intended to represent an alternative
to net income (as determined in accordance with generally accepted
accounting principles) as a measure of performance. Management of the
Company believes that EBITDA provides an additional perspective on the
Company's operating results and its ability to service its long-term debt
and fund its operations.
(4) Includes all rooms installed with Company-owned systems.
(5) Adjusted to reflect the net proceeds of the sale of Common Stock offered by
the Company hereby at an assumed initial public offering price of $13.00
per share and the application thereof. See "Use of Proceeds."
----------------
Except as set forth in the Consolidated Financial Statements or otherwise
indicated herein, all information in this Prospectus (i) reflects the
reincorporation of the Company into Delaware which will be effected prior to
the effectiveness of the registration statement covering the Offerings, (ii)
reflects the conversion of all the Company's outstanding shares of Preferred
Stock into 10,908,878 shares of Common Stock, which will occur automatically
upon the closing of the Offerings, (iii) reflects the filing, upon the closing
of the Offerings, of the Company's Restated Certificate of Incorporation
authorizing 5,000,000 shares of undesignated Preferred Stock, (iv) assumes the
net exercise of warrants to acquire up to an aggregate maximum of 3,704,840
shares of Common Stock and Preferred Stock into 2,045,800 shares of Common
Stock in connection with the Offerings at an assumed fair market value of
$13.00 per share, and (v) assumes that the U.S. Underwriters' and International
Managers' over-allotment options are not exercised. See "Description of Capital
Stock," "Underwriting" and Note 5 of Notes to Consolidated Financial
Statements.
----------------
MagiNet and iLook are trademarks of the Company. This Prospectus also
contains trademarks and tradenames of other companies.
5
<PAGE>
RISK FACTORS
This Prospectus contains forward-looking statements relating to future
events or the future financial performance of the Company, which involve risks
and uncertainties. The Company's actual results and the timing of certain
events could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth in the
following risk factors and elsewhere in this Prospectus. In addition to the
other information contained in this Prospectus, the following factors should
be carefully considered in evaluating the Company and its business before
purchasing the Common Stock offered hereby.
DEPENDENCE ON HOTEL INDUSTRY AND GUEST VIEWING PATTERNS
MagiNet's business is closely linked to the performance of the hotel
industry in the Company's targeted geographic markets. A decline in hotel
occupancy from current levels or changes in the mix of hotel business and
leisure guests as a result of general business, economic, seasonal or other
factors could have a material adverse effect on the Company's business,
financial condition and results of operations. MagiNet's performance is also
dependent on the frequency with which hotel guests purchase its services ("buy
rates"). Buy rates are subject to a variety of factors including censorship of
adult theme movies, pricing of the movies, availability of popular titles,
general guest preferences and general economic conditions. MagiNet's
performance is also dependent on the relative buy rates of major motion
pictures to adult theme movies. For major motion pictures, the Company
generally pays ongoing licensing royalties equal to a percentage of the film's
gross revenue to the Company. For most adult theme movies, from which the
Company currently derives a majority of its revenue, the Company generally
pays a comparatively small, one-time fee. As a result, a shift in viewing
patterns away from these movies, or any limitation imposed on the offering of
such movies (including censorship by governmental authorities, unavailability
of titles, or restrictions imposed by customer hotels), would adversely affect
the Company's business, financial condition and results of operations. For
example, the Company has experienced significantly lower buy rates in censored
markets than in uncensored markets. Free-to-guest services such as HBO and
other cable stations compete directly with the Company's services. Such
alternative viewing choices available to hotel guests may reduce the buy rate
in the rooms installed with MagiNet's systems. Any change in guest viewing
patterns that reduces the buy rate of the Company's services could have a
material adverse effect on the Company's business, financial condition and
results of operations.
HISTORY OF LOSSES; FUTURE CAPITAL NEEDS; ANTICIPATED FUTURE LOSSES
MagiNet has recorded cumulative net losses of approximately $32,800,000
since its inception, including a loss of approximately $7,326,000 for the six
months ended June 30, 1996. MagiNet's business requires substantial investment
on a continuing basis for the installation of MagiNet's systems in additional
hotel rooms and the upgrading of existing installations. Capital expenditures
expected to be incurred by the Company will likely exceed cash flows from its
operating activities for the foreseeable future. The Company intends to use
the net proceeds of the Offerings and may use other secured and/or unsecured
borrowings to expand its installed base of rooms and support its projected
growth. If the Company cannot obtain sufficient funds to support installations
of rooms, the Company may have to reduce the rate of room installations.
Whether or when the Company can achieve cash flow levels from operations
sufficient to support its projected growth cannot be accurately predicted, and
unless and until such cash flow levels are achieved, the Company may require
additional borrowings or the sale of additional equity securities, or some
combination thereof. There can be no assurance that the Company will be able
to borrow additional amounts or sell additional equity on terms acceptable to
the Company, or at all.
RELIANCE ON NEW HOTEL CONTRACTS AND INSTALLATIONS
MagiNet's future growth will depend principally on its ability to obtain
contracts with new hotels and to install systems in such hotels in a timely
manner. The timing of obtaining new contracts is dependent upon the level of
competition in a particular market, the length of the negotiating process with
each individual hotel, and the amount of the Company's local personnel
resources allocated to obtaining contracts as opposed to servicing
6
<PAGE>
existing hotel customers. To the extent new contracts are not obtained in
future periods at the rate anticipated by the Company, there could be a
significant shortfall in the Company's anticipated growth in installed rooms.
The timing of system installations has historically been reasonably
predictable after a contract has been executed, although, for certain prior
installations, technical and other issues have delayed installations in
specific hotels. Under the Company's master hotel contracts, the Company must
install the interactive video entertainment and information system specified
in the contract with the hotel chain. The inability to provide the particular
system specified could delay installations of such systems in the individual
hotels within such chain, which could have a material adverse effect on the
Company's business, financial condition and results of operations. The
inability of the Company to obtain new contracts and install systems at the
rate it currently anticipates for these or other reasons could have a material
adverse effect on the Company's future results of operation.
FLUCTUATIONS IN OPERATING RESULTS
MagiNet's operating results have historically been, and will continue to be,
subject to quarterly and annual fluctuations due to a variety of factors,
including: the time required to obtain new contracts and install systems;
timely introduction, enhancement and market acceptance of new services;
changes in the pricing policies by the Company or its competitors; increased
competition; the gain or loss of contracts with hotels or hotel chains; the
introduction of new products, product enhancements or new services by
competitors; currency fluctuations and other uncertainties related to
operating in multiple jurisdictions; hotel occupancy, buy rates, availability
of programming and the ability to anticipate changing hotel or guest
preferences. A significant portion of MagiNet's installations are in tropical
climates where occupancies are generally higher in the first and fourth
quarters of the year, and buy rates are typically lower in the third quarter
of each year. As a consequence, revenue per room is generally lowest in the
third quarter. There can be no assurance that new contracts can be obtained in
a timely manner, or at all, or that systems can be installed in a timely
manner after contracts are obtained. The Company's operating results will also
be affected by general economic and other conditions affecting the timing of
contracts and installations, capital spending, and order cancellations or
rescheduling.
SUBSTANTIAL FIXED COMMITMENTS
Funds generated by existing operations are not sufficient to enable the
Company to meet its debt service obligations on the Senior Secured Notes due
2000 (the "Notes"), together with other fixed charges. Net proceeds from the
Offerings will be used by the Company primarily to install new systems. If
sufficient revenue is not generated from these installations, the Company's
ability to make necessary payments with respect to the Notes would be
impaired, and the Company's ability to service the Notes would then depend
upon the Company's ability to secure additional funds from other sources.
There can be no assurance that the Company will be able to obtain such
additional funds on favorable terms, if at all. Further, the instruments
governing the Company's debt obligations contain or will contain financial
covenants, and no assurance can be given that the Company's operating results
in the future will be sufficient to comply with such covenants. Failure to
comply with the covenants could result in acceleration of the maturity of the
Company's borrowings, which would have a material adverse effect on the
Company's business, financial condition and results of operations. The
Company's debt obligations will be subject to acceleration in the event that
the Company does not meet its principal and interest payments or comply with
its other covenants.
IMPORTANCE OF POTENTIAL NEW SOURCES OF REVENUE
MagiNet's strategy includes developing new applications and markets for its
interactive entertainment and information systems. This strategy presents the
risks inherent in assessing the value of development opportunities and
committing capital to unproven markets. The Company expects that its future
performance will be dependent on usage of additional services such as in-room
casino-style gaming and advertising provided over the Company's systems to
hotel guests. There can be no assurance that the Company's new products will
generate additional revenue or earnings for the Company or that the Company
will successfully penetrate these additional markets. In addition, any new
services provided by the Company could induce guests to change their viewing
patterns away from an existing service of the Company and toward a new service
resulting in either no additional revenue or decreased actual revenue from the
installed base of rooms, depending upon the pricing of the new
7
<PAGE>
services and the change in guest viewing patterns that may result. MagiNet
will devote resources to developing such services through licensing agreements
and other arrangements and marketing such services to hotels and to hotel
guests. To the extent that such services are not attractive to hotels and
hotel guests, that hotel guests do not utilize such services to the extent
necessary to generate a sufficient return on the Company's development and
marketing expenditures, or that governmental regulation prohibits the
provision of these services, the Company's business, financial condition and
results of operations would be adversely affected.
EXPANSION OF BUSINESS THROUGH ACQUISITIONS
Part of MagiNet's business strategy is to pursue acquisitions that will
complement its existing business. The Company has had preliminary discussions
with, or has evaluated the potential acquisition of, several companies.
Although no such transaction is being considered at this time, the Company is
unable to predict whether or when any prospective acquisition candidates will
become available or the likelihood of a material transaction being completed
should any negotiations commence. There can be no assurance that any
acquisitions will occur, that the Company can be successful in integrating the
operations and personnel of an acquired entity into the Company's business,
incorporating any acquired product lines into the Company's business,
establishing and maintaining uniform standards, controls, procedures and
policies, avoiding the impairment of relationships with employees and
management as a result of changes in management, or overcoming other problems
that may be encountered in connection with the integration of acquired
businesses. To the extent MagiNet proceeds with such a transaction, and if
such transaction is relatively large and consideration is in the form of cash,
a substantial portion of the Company's available cash, including the net
proceeds of the Offerings, could be used in order to consummate any such
acquisition. The Company may also seek to finance any such acquisition through
issuances of equity or debt financings, which could be dilutive to, or have an
adverse impact on, the Company's earnings. There can be no assurance that any
such financings will be available on acceptable terms or at all.
SYSTEM RELIABILITY
MagiNet has experienced and continues to experience problems with certain
equipment, including converters and remote control units. The Company has had
to replace equipment at some hotels to correct problems that affected the
delivery of the Company's services to the hotel guests. It is possible that
the Company's systems may be found to be unreliable after installation at a
hotel or hotels. Such occurrences could result in the Company devoting
substantial resources to maintenance services for the systems, and could
result in a substantial number of installed rooms not having the Company's
services available for an extended period of time. Because substantially all
of the Company's revenue is derived from use of the Company's on-demand
services, system unreliability could result in reduced revenue for the Company
and/or dissatisfaction among hotels because of reduced commission revenue to
the hotel and disruption of certain hotel operations, any of which could have
a material adverse effect on the Company's business, financial condition and
results of operations.
DEPENDENCE ON LOCAL PARTNERS; INTERNATIONAL BUSINESS
All of MagiNet's revenue is generated outside of the United States,
subjecting the Company to a variety of risks that, individually or in the
aggregate, may adversely affect the Company's business, financial prospects
and results of operations. These risks include changes in political and
economic conditions; the availability and reliability of local independent
contractors for installation and maintenance services; differing legal and
business practices, particularly in regard to interpretation and
enforceability of contracts; changes in taxes, tariffs, freight rates and
foreign exchange regulations; foreign currency fluctuations; censorship by
governmental authorities or restrictions imposed by hotels; and changes in the
regulatory environment relating to the telecommunications and media industries
in any of the Company's target markets. The Company has entered into joint
ventures or similar arrangements in certain of its markets with local
businesses and individuals believed by the Company to be familiar with local
laws, customs and practices and to be otherwise advantageous to the Company's
business prospects in that market. The Company believes that its success in
penetrating markets for its products depends in large part on its ability to
maintain these relationships, to cultivate additional relationships and to
cultivate alternative relationships if distribution channels change. Despite
these efforts, there can be no assurance that the Company will be successful
in avoiding or minimizing such risks or that such arrangements, if successful,
will
8
<PAGE>
continue to provide significant benefits to the Company and will not expose
the Company to potential liability as a consequence of actions taken by the
Company's local joint venture partners.
Most of MagiNet's revenue is denominated in foreign currencies. The Company
has not historically attempted to reduce the risk of currency fluctuations by
hedging except in certain limited circumstances. The Company may attempt to
reduce these risks by hedging in the future. Changes in the exchange rates of
foreign currencies or exchange controls may adversely affect the Company's
results of operations. There can be no assurance that the Company's current or
any future currency exchange strategy will be successful in avoiding exchange
related losses or that any of the factors listed above will not have a
material adverse effect on the Company's future international revenue and,
consequently, on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
DEPENDENCE UPON SUPPLIERS; SOLE SOURCES OF SUPPLY
MagiNet currently subcontracts the manufacture of its systems, including
head-ends, converters and remote controls. The Company's remote controls for
the OCV-based systems are manufactured by one company in Hong Kong, the remote
controls for the Guestserve-based systems are manufactured by one company in
China and the Company's converters are manufactured by three companies, one in
each of Taiwan, Japan and Singapore. The OCV-based head-ends are currently
available solely from OCV, and the Guestserve-based head-ends are available
solely from Guestserve. OCV is a majority-owned subsidiary of Ascent
Entertainment Group, Inc., which has recently acquired the assets of
SpectraVision, Inc. ("SpectraVision"), a competitor of the Company in the
Pacific Rim. MagiNet believes that similar contract manufacturing can be
obtained from other vendors, including those located in the Pacific Rim,
although no assurance can be given that such manufacturing resources will
continue to be available on reasonable terms, or at all. The Company will
pursue such alternative manufacturing arrangements when and if it appears
likely that significant cost savings or quality improvements can be achieved.
At present, the Company has no plans for alternative sourcing of the system or
major system sub-assemblies.
The Company has experienced delays in receiving converters for installations
planned for the Guestserve-based systems, and these delays caused an
approximately three to four month delay in installing certain hotels. Delays
in receiving products could delay a large number of planned room
installations. There can be no assurance that the Company will not face such
difficulties or delays in the future. An inability of the Company to obtain
sole-sourced or other components in a timely manner could significantly delay
installations of systems, which could have a material adverse effect on the
Company's business, financial condition and results of operations. In
addition, any increase in cost to manufacture the system components from
existing or alternative sources could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Manufacturing."
DEPENDENCE ON KEY PERSONNEL
MagiNet's success depends upon the continued contributions of certain senior
corporate managers and key employees, the loss of whose services could have a
material adverse effect on the Company. The Company also depends on its
continued ability to attract and retain other highly skilled and qualified
personnel, and there can be no assurance that the Company will be successful
in attracting and retaining such personnel. See "Management."
COMPETITION
MagiNet competes with a number of companies, including SpectraVision,
Movielink Corporation Limited ("Movielink") and LodgeNet Entertainment
Corporation ("LodgeNet"), that specialize in providing in-room video services.
Certain of these competitors have greater financial, technical, sales and
marketing resources to devote to the development, promotion and sale of their
products, and may have longer operating histories, greater name recognition,
and greater market acceptance for their products and services compared to
those of the
9
<PAGE>
Company. SpectraVision was one of the earliest entrants into the hotel
entertainment market, and has developed its GuestChoice technology which
allows for guests to choose movies to watch on demand. Movielink, a privately-
held Australian company, represents the Company's primary competition in the
Pacific Rim. Movielink, which recently introduced an on-demand system, has a
large base of free-to-guest systems in Australia and in Singapore and has a
small number of installations in Hong Kong and Thailand. Although LodgeNet
markets its systems primarily in the United States, LodgeNet has recently
entered certain of the Company's markets.
The Company also experiences separate competition in certain specific
countries. For example, in Japan certain large international corporations,
such as Toshiba Corporation, Pioneer Electronic Corp., Hitachi, Ltd., and
Matsushita Electric Industrial Co., Ltd., which supply the Japanese
hospitality industry with master antenna television systems, sometimes offer a
scheduled broadcast, pay-per-view movie capability. In addition, Gosoh, Ltd.
competes in Hong Kong with a scheduled broadcast, pay-per-view system.
In Europe the Company faces competition from PRODAC Prozebdatentechnik GmbH,
Thorn-EMI Plc, Video Management Services, Inc. and Granada Group Plc, which
have installed mainly free-to-guest and scheduled systems. The Company
believes that penetration of the European market with on-demand video systems
by these or other competitors is fairly low.
The Company could also face competition in the future from existing and
emerging cable, direct broadcast satellite and other communications companies
providing entertainment and other in-room services to hotels and hotel guests.
Certain of these potential competitors have greater financial, managerial and
marketing resources than the Company. There can be no assurance that the
Company will continue its current level of success in obtaining new contracts
with hotels or that the Company will be able to retain contracts with the
hotels it serves when those contracts expire. The loss of one or more of its
major hotel chains could have a material adverse impact on the Company's
business, financial condition and results of operations. As competition
increases, the Company anticipates that system life cycles may shorten and
hotel commissions may increase resulting in reduced operating margins for the
Company.
The Company's ability to compete successfully depends on many factors,
including the success of competitors' systems and services, the ability to
interface directly with hotel property management systems, the ability to
provide appropriate programming for an international audience, obtaining
leading hotel contracts and name recognition among hotels, the quality of its
programming and services, the reliability of its systems, general economic
conditions, and protection of Company and third-party licensor products by
effective utilization of intellectual property laws. In particular,
competitive pressures from existing or new competitors who offer lower prices
or other incentives or introduce new systems could result in price reductions
which would adversely affect the Company's profitability. There can be no
assurance that the Company's current or other new competitors will not develop
enhancements to, or future generations of, competitive systems and services
that offer superior price or performance features, that the Company will be
able to compete successfully in the future, or that the Company will not be
required to incur substantial additional investment costs in connection with
its development, marketing and customer service efforts in order to meet any
competitive threat. The Company expects competition in its markets to
intensify. See "Business--Competition."
RISK OF OBSOLESCENCE
The markets for MagiNet's systems and services are characterized by changing
technologies, varying customer requirements in different markets, significant
new system designs, frequent new service introductions and changes in customer
requirements. The Company believes that its future success will depend upon
its ability to license on commercially acceptable terms and market systems and
services which meet changing user needs, to continue to enhance its systems
and services and to develop and introduce in a timely manner new systems and
services that take advantage of technological advances, keep pace with
emerging industry standards, and address the increasingly sophisticated needs
of its customers. There can be no assurance that the Company will be
successful in developing, licensing and marketing, on a timely basis, new
systems and services that respond
10
<PAGE>
to technological change or evolving industry standards, that the Company will
not experience difficulties that could delay or prevent the successful
installation and introduction of these systems or services, or that any such
enhancements will adequately meet the requirements of the marketplace and
achieve market acceptance. The Company's failure or inability to license new
technology, adapt its systems and services to technological changes or to
develop new products and services successfully would have a material adverse
effect on the Company's business, financial condition and results of
operations. In addition, there can be no assurance that the introduction or
announcement of new systems and services by the Company or one or more of its
competitors will not cause hotels to defer installation of systems or that the
Company will successfully manage the transition from older systems to new or
enhanced systems in order to minimize disruption in customer installations.
Such deferment of installations or inability to manage the transition of
installations could have a material adverse effect on the Company's business,
financial condition and results of operations.
TECHNOLOGY AND PROPRIETARY RIGHTS
MagiNet's success and ability to compete is dependent in part upon its own
proprietary technology. The Company relies primarily on a combination of
patent, copyright and trademark laws, trade secrets, software security
measures, and nondisclosure agreements to protect its proprietary technology.
There can be no assurance, however, that such protection will be adequate to
deter misappropriation of or deter unauthorized third parties from copying
aspects of, or otherwise obtaining and using, the Company's proprietary
technology. Moreover, the Company licenses from OCV and Guestserve the right
to install and operate on-demand video systems incorporating proprietary
technology of such companies. If for any reason the Company's rights under
such license agreements were to be successfully challenged by these or other
companies, the Company's business, financial condition and results of
operations would be materially adversely affected. Furthermore, there can be
no assurance that any confidentiality agreements between the Company and its
employees or any agreements with third parties will provide meaningful
protection for the Company's proprietary information or the technology
licensed from others in the event of any unauthorized use or disclosure of
such proprietary information. A substantial amount of the Company's sales are
in international markets, and the laws of the other countries may afford the
Company little or no effective protection of its intellectual property or the
intellectual property of its licensors.
While MagiNet believes that its products and trademarks do not infringe upon
the proprietary rights of third parties, there can be no assurance that the
Company will not receive future communication from third parties asserting
that the Company's products infringe, or may infringe, on the proprietary
rights of third parties. The Company's trademark registration of the name
"MagiNet" has been initially challenged by the U.S. Patent and Trademark
Office. Any infringement claims, with or without merit, could be time
consuming, result in costly litigation and diversion of technical and
management personnel, require the Company to develop non-infringing technology
or enter into royalty or licensing agreements, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations. Such royalty or licensing agreements, if required, may
not be available on terms acceptable to the Company or at all. In the event of
a successful claim of product infringement against the Company or similar
adversarial proceeding and failure or inability of the Company to develop non-
infringing technology, license the infringed or similar technology, or require
the Company to cease the marketing or use of certain products there could be a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Technology and Proprietary Rights."
CONTROL BY CURRENT STOCKHOLDERS
MagiNet's officers, directors and principal stockholders and their
affiliates totaling 11 stockholders will in the aggregate beneficially own
approximately 46.3% of the Company's outstanding shares of Common Stock
11
<PAGE>
after the Offerings. As a result, these stockholders, acting together, would
be able to effectively control most matters requiring approval by the
stockholders of the Company, including the election of directors and any
merger, consolidation or sale of all the Company's assets. See "Principal
Stockholders" and "Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of shares by existing stockholders could adversely affect the
prevailing market price of the Common Stock. Upon completion of the Offerings,
approximately 5,005,000 shares of Common Stock, including the 5,000,000 shares
offered hereby, will be eligible for immediate sale in the public market
without restriction. Ninety days after the date of this Prospectus,
approximately 31,000 additional shares will be eligible for sale pursuant to
Rule 144 or Rule 701 under the Securities Act of 1933. Following expiration or
release from 180-day lock-up agreements, approximately 9,448,000 additional
shares will be eligible for immediate sale, subject in some cases to
compliance with Rule 144. Thereafter, approximately 3,977,000 shares held by
existing stockholders will become eligible for sale at various times over a
period of less than two years and could be sold earlier if the holders
exercise registration rights. See "Description of Capital Stock--Registration
Rights," "Shares Eligible for Future Sale" and "Underwriting."
NO PRIOR PUBLIC MARKET
Prior to the Offerings, there has been no public market for MagiNet's Common
Stock. There can be no assurance that an active trading market will develop
and continue upon the completion of the Offerings or that the market price of
the Common Stock will not decline below the initial public offering price. The
initial public offering price of the Common Stock will be determined by
negotiations between the Company and the Underwriters, in conformity with
Schedule E of the By-Laws of the National Association of Securities Dealers,
Inc. As such, the initial public offering price is not necessarily related to
the Company's net worth or any other established criteria of value and may not
bear any relationship to the market price of the Common Stock following the
completion of the Offerings. See "Underwriting."
MARKET VOLATILITY
The market prices for securities of companies such as the Company have
historically been highly volatile. Announcements of technological innovations
or new products by the Company or its competitors, developments concerning
proprietary rights, including patents and litigation matters, and publicity
regarding actual or potential results with respect to products under
development by the Company or others may have a significant impact on the
market price of the Common Stock. Further, it is likely that in some future
quarters the Company's revenue or operating results will be below the
expectations of public market analysts and investors. In such event, the price
of the Company's Common Stock would likely be materially adversely affected.
See "Selected Consolidated Financial and Other Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
ANTITAKEOVER PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND
DELAWARE LAW
Certain provisions of MagiNet's Certificate of Incorporation and Bylaws may
have the effect of making it more difficult for a third party to acquire, or
discouraging a third party from attempting to acquire, control of the Company.
Such provisions could limit the price that certain investors might be willing
to pay in the future for shares of the Company's Common Stock. Certain of
these provisions eliminate the right of stockholders to act by written consent
without a meeting and specify procedures for director nominations by
stockholders and submission of other proposals for consideration at
stockholder meetings. In addition, the Company's Board of Directors has the
authority to issue up to 5,000,000 shares of Preferred Stock and to determine
the price, rights,
12
<PAGE>
preferences, privileges and restrictions of those shares without any further
vote or action by the stockholders. The rights of the holders of Common Stock
will be subject to, and may be adversely affected by, the rights of the
holders of any Preferred Stock that may be issued in the future. The Company
has no present plans to issue shares of Preferred Stock. Certain provisions of
Delaware law applicable to the Company could also delay or make more difficult
a merger, tender offer or proxy contest involving the Company, including
Section 203 of the Delaware General Corporation Law, which prohibits a
Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years unless certain conditions
are met. Additionally, the issuance of Preferred Stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, may have the effect of delaying, deferring or preventing a
change in control of the Company, may discourage bids for the Common Stock at
a premium over the market price of the Common Stock and may adversely affect
the market price of and the voting and other rights of the holders of the
Common Stock. Such provisions could have the effect of delaying, deferring or
preventing a change in control of the Company, including without limitation,
discouraging a proxy contest or making more difficult the acquisition of a
substantial block of the Company's Common Stock. These provisions could also
limit the price that investors might be willing to pay in the future for
shares of the Company's Common Stock. See "Description of Capital Stock--
Preferred Stock," "--Antitakeover Effects of Provisions of Certificate of
Incorporation and Bylaws" and "--Effect of Delaware Antitakeover Statute."
DILUTION
Purchasers of the Common Stock offered hereby will experience immediate,
substantial dilution in the net tangible book value per share of the Common
Stock from the initial public offering price. See "Dilution."
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
in the Offerings are estimated to be approximately $59,400,000 (approximately
$68,467,500 if the U.S. Underwriters' and International Managers' over-
allotment options are exercised in full) assuming an initial public offering
price of $13.00 per share and after deducting the estimated underwriting
discounts and commissions and estimated offering expenses.
The Company currently anticipates that the net proceeds of the Offerings
will be used for system installations, working capital and for general
corporate purposes. The Board of Directors has broad discretion in determining
how the net proceeds of the Offerings will be applied. In the event
opportunities arise, net proceeds of the Offerings also may be used to acquire
businesses, technologies or products that complement MagiNet's business.
However, the Company is not currently in negotiations regarding any such
acquisitions. Although the Company believes the net proceeds of the Offerings,
together with its existing resources will be adequate to satisfy its capital
needs until at least December 1997, the timing and amount of spending of such
capital resources cannot be accurately determined at this time and will depend
upon several factors, including the availability of acquisition candidates,
installation costs, costs associated with penetrating new markets, competing
technological and market developments, and market acceptance and demand for
the Company's products. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
Pending such uses, the Company intends to invest the net proceeds in short-
term, interest-bearing investment grade securities.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its capital stock.
The Company currently expects to retain future earnings, if any, for use in
the operation and expansion of its business and does not anticipate paying any
cash dividends in the foreseeable future. A note agreement entered in
connection with the issuance of the Company's Senior Secured Notes due 2000
contains a restrictive covenant which limits the Company's ability to pay cash
dividends or make stock repurchases. See Note 3 of Notes to Consolidated
Financial Statements.
14
<PAGE>
CAPITALIZATION
The following table sets forth as of June 30, 1996 the total capitalization
of the Company and the total capitalization as adjusted to reflect (i) the
reincorporation of the Company into Delaware which will be effected prior to
the effectiveness of the registration statement covering the Offerings, (ii)
the conversion of all the Company's outstanding shares of Preferred Stock into
10,908,878 shares of Common Stock, which will occur automatically upon the
closing of the Offerings, (iii) the filing, upon the closing of the Offerings,
of the Company's Restated Certificate of Incorporation authorizing 5,000,000
shares of undesignated Preferred Stock and 45,000,000 shares of Common Stock,
(iv) the net exercise of warrants to acquire up to an aggregate maximum of
3,704,840 shares of Common Stock and Preferred Stock into 2,045,800 shares of
Common Stock in connection with the Offerings, at an assumed fair market value
of $13.00 per share, (v) that the U.S. Underwriters' and International
Managers' over-allotment options are not exercised and (vi) the sale by the
Company of 5,000,000 shares of Common Stock in the Offerings at an assumed
offering price of $13.00 per share and the application of the net proceeds
therefrom. The capitalization information set forth in the table below is
qualified by, and should be read in conjunction with, the more detailed
Consolidated Financial Statements and Notes thereto appearing elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt(1)........................................ $ 25,403 $ 25,403
Stockholders' equity:
Preferred Stock, no par value; 12,121,788 shares
authorized, 10,908,878 shares issued and outstanding,
actual; $.001 par value, 5,000,000 shares authorized,
no shares issued and outstanding, as adjusted.......... 53,241 --
Common Stock, no par value; 20,000,000 shares
authorized, 480,758 shares issued and outstanding,
actual; $.001 par value, 45,000,000 shares authorized,
18,435,436 shares issued and outstanding, as
adjusted(2)............................................ 255 18
Additional paid in capital.............................. -- 112,979
Warrants to purchase Common Stock....................... 101 --
Accumulated deficit..................................... (32,800) (32,800)
Cumulative translation adjustment....................... (634) (634)
-------- --------
Total stockholders' equity............................. 20,163 79,563
-------- --------
Total capitalization................................... $ 45,566 $104,966
======== ========
</TABLE>
- --------
(1) See Note 3 of Notes to Consolidated Financial Statements.
(2) Excludes an aggregate of 1,487,394 shares of Common Stock issuable upon
exercise of options outstanding under the Company's 1992 Key Personnel
Stock Option Plan and 1992 Stock Option Plan as of June 30, 1996 at a
weighted average exercise price of $1.55. Also excludes an aggregate of
2,560,528 shares reserved for issuance after June 30, 1996 under the 1992
Key Personnel Stock Option Plan, the 1992 Stock Option Plan, the 1996
Director Stock Option Plan and the 1996 Employee Stock Purchase Plan. See
"Management--Stock Plans," "Description of Capital Stock" and Note 5 of
Notes to Consolidated Financial Statements.
15
<PAGE>
DILUTION
The net tangible book value of the Company at June 30, 1996 was
approximately $19,070,000 or $1.42 per share of Common Stock. Net tangible
book value per share represents the Company's total tangible assets less total
liabilities, divided by the number of outstanding shares of Common Stock then
outstanding (assuming the conversion of all then outstanding Preferred Stock
into Common Stock and the net exercise of certain warrants to acquire an
aggregate of 3,704,840 shares of Common Stock into 2,045,800 shares of Common
Stock and Preferred Stock assuming, for purposes of such net exercises, a fair
market value of $13.00 per share of Common Stock). Dilution per share
represents the difference between the amount per share paid by investors in
the Offerings and the net tangible book value per share after the Offerings.
After giving effect to the sale of 5,000,000 shares in the Offerings (at an
assumed initial public offering price of $13.00 per share and after deducting
the estimated underwriting discounts and commissions and offering expenses
payable by the Company), the Company's net tangible book value as of June 30,
1996 would have been $78,470,000 or $4.26 per share of Common Stock. This
represents an immediate increase in net tangible book value of $2.84 per share
to existing stockholders and an immediate dilution in net tangible book value
of $8.74 per share to new investors. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $13.00
Net tangible book value per share as of June 30, 1996........... $1.42
Increase in net tangible book value per share attributable to
new investors.................................................. 2.84
-----
Net tangible book value per share after offering.................. 4.26
------
Dilution per share to new investors............................... $ 8.74
======
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1996,
the number of shares of Common Stock, including Common Stock issuable upon the
net exercise of warrants and the shares into which the outstanding Preferred
Stock (including the Preferred Stock issuable upon net exercise of the
warrants) will convert, purchased from the Company, the total consideration
paid and the average price per share paid by the existing stockholders and by
new investors purchasing shares in the Offerings (at an assumed initial public
offering price of $13.00 per share and before deducting underwriting discounts
and commissions and estimated offering expenses payable by the Company).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ -------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 13,435,436 72.9% $ 56,758,000 46.6% $ 4.22
New investors................. 5,000,000 27.1 65,000,000 53.4 13.00
---------- ----- ------------ -----
Total....................... 18,435,436 100.0% $121,758,000 100.0%
========== ===== ============ =====
</TABLE>
The foregoing computations assume no exercise of stock options after June
30, 1996 and the net exercise of outstanding warrants to acquire up to an
aggregate of 3,704,840 shares of Common Stock and Preferred Stock into
2,045,800 shares of Common Stock, assuming, for purposes of such net
exercises, a fair market value of $13.00 per share of Common Stock. The
foregoing net exercises are anticipated to occur upon either the effectiveness
of the registration statement covering the Offerings, the closing of the
Offerings, or the tenth business day following such closing as set forth in
the applicable warrant agreement. As of June 30, 1996, there were outstanding
options to purchase 1,487,394 shares of Common Stock under the Company's 1992
Key Personnel Stock Option Plan and 1992 Stock Option Plan at a weighted
average price of $1.55 per share. After June 30, 1996 (i) an additional
1,800,000 shares of Common Stock were reserved for issuance under the
Company's 1992 Key Personnel Stock Option Plan, (ii) 200,000 shares were
reserved for issuance under the Company's 1996 Director Stock Option Plan and
(iii) 200,000 shares of Common Stock were reserved for issuance under the
Company's 1996 Employee Stock Purchase Plan. To the extent that any shares are
issued upon exercise of options, warrants or rights that are presently
outstanding or granted in the future, or reserved for future issuance under
the Company's stock plans, there will be further dilution to new investors.
See "Management--Stock Plans," "Description of Capital Stock" and Note 5 of
Notes to Consolidated Financial Statements.
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The selected consolidated statement of operations and balance sheet data
presented below for, and as of the end of, each of the years in the five-year
period ended December 31, 1995, and for the six-month period ended June 30,
1996 are derived from the Consolidated Financial Statements of MagiNet
Corporation and its subsidiaries, which financial statements have been audited
by Ernst & Young LLP, independent auditors. The Consolidated Financial
Statements as of December 31, 1995 and 1994, and as of June 30, 1996, and for
each of the years in the three-year period ended December 31, 1995, and for
the six-month period ended June 30, 1996 and the report thereon of Ernst &
Young LLP, independent auditors, are included elsewhere in this Prospectus.
The selected consolidated statement of operations data set forth below for the
six months ended June 30, 1995 were derived from unaudited consolidated
financial statements, which are included elsewhere in this Prospectus, and
include, in the opinion of the Company, all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the
Company's financial position at that date and results of operations for those
periods. The results for the six months ended June 30, 1996 are not
necessarily indicative of the results for any future period. The selected
consolidated financial and other data set forth below is qualified by, and
should be read in conjunction with, the Consolidated Financial Statements and
Notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in the Prospectus. The Company
has never declared or paid cash dividends on its capital stock.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
----- ------- ------- ------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenue................ $ -- $ -- $ 395 $ 2,342 $ 8,689 $ 3,302 $ 7,923
Direct costs........... -- -- 294 1,156 3,731 1,687 3,854
Depreciation and
amortization.......... -- 2 171 957 3,682 1,510 3,149
Operations expenses.... -- -- 464 2,876 3,108 1,213 1,016
Selling, general and
administrative........ 149 514 1,497 4,294 8,420 3,563 4,652
Research and
development........... -- 665 1,320 856 1,247 571 937
----- ------- ------- ------- -------- -------- --------
Operating loss......... (149) (1,181) (3,351) (7,797) (11,499) (5,242) (5,685)
Interest income
(expense), net........ -- (43) (28) (253) (991) 4 (1,382)
----- ------- ------- ------- -------- -------- --------
Loss before income
taxes and minority
interest in net losses
of consolidated
subsidiaries.......... (149) (1,224) (3,379) (8,050) (12,490) (5,238) (7,067)
Provision for income
taxes................. -- -- -- -- (554) (300) (383)
Minority interest in
net losses of
consolidated
subsidiaries.......... -- -- -- 124 248 153 124
----- ------- ------- ------- -------- -------- --------
Net loss............... $(149) $(1,224) $(3,379) $(7,926) $(12,796) $ (5,385) $ (7,326)
===== ======= ======= ======= ======== ======== ========
Pro forma net loss per
share(1).............. $ (1.03) $ (0.59)
======== ========
Shares used in
computation of pro
forma net loss per
share(1).............. 12,392 12,407
OTHER DATA:
EBITDA (In
thousands)(2)......... $(149) $(1,179) $(3,180) $(6,840) $ (7,817) $ (3,732) $ (2,536)
EBITDA margin.......... -- -- (805)% (292)% (90)% (113)% (32)%
New rooms installed.... -- -- 2,087 10,929 26,106 14,632 10,561
Total rooms served(3).. -- -- 2,087 13,016 39,122 27,648 49,683
Rooms in backlog....... -- -- -- 10,941 12,194 10,574 20,868
Average monthly gross
video revenue per
room.................. -- -- -- $ 32.39 $ 29.10 $ 30.05 $ 29.60
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1996
---------------------------------------- ------------------------
1991 1992 1993 1994 1995 ACTUAL AS ADJUSTED(4)
---- ------ ------ -------- -------- -------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Cash, cash equivalents
and short-term
investments........... $ 1 $ 77 $ 315 $ 10,961 $ 18,823 $ 14,772 $74,172
Working capital........ (24) (386) (1,652) 7,751 14,542 13,571 72,971
Total assets........... 2 1,458 4,711 23,999 46,540 52,185 111,585
Long-term debt......... 125 349 1,400 -- 24,900 25,403 25,403
Accumulated deficit.... (149) (1,373) (4,752) (12,678) (25,474) (32,800) (32,800)
Total stockholders'
equity (net deficit).. (149) 648 1,208 19,924 14,611 20,163 79,563
</TABLE>
- --------
(1) Reflects the assumed conversion of the Company's outstanding Preferred
Stock into 10,908,878 shares of Common Stock upon the closing of the
Offerings. See Note 1 of Notes to Consolidated Financial Statements for a
discussion of the computation of net loss per share.
(2) Indicates earnings (loss) before interest expense, income taxes,
depreciation and amortization, minority interest in net losses of
consolidated subsidiaries and is not intended to represent an alternative
to net income (as determined in accordance with generally accepted
accounting principles) as a measure of performance. Management of the
Company believes that EBITDA provides an additional perspective on the
Company's operating results and its ability to service its long-term debt
and fund its operations.
(3) Includes all rooms installed with Company-owned systems.
(4) Adjusted to reflect the net proceeds of the sale of Common Stock offered
by the Company hereby at an assumed initial public offering price of
$13.00 per share and the application thereof.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements relating to
future events or the future financial performance of the Company, which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward looking statements as a
result of certain factors, including those set forth under "Risk Factors" and
elsewhere in this Prospectus.
OVERVIEW
Since its inception in 1991, MagiNet has focused on developing its in-room
on-demand video entertainment systems, signing contracts with hotels,
installing systems and servicing its installed base of rooms. As of June 30,
1996, the Company had 49,683 rooms installed with its systems in 138 hotels
and had an installation backlog of 20,868 rooms in 58 hotels. In addition,
MagiNet has instituted a focused expansion plan that includes direct entry or
acquisition in attractive existing and new markets. The Company's revenue
consists primarily of fees paid by guests for viewing MagiNet's on-demand
video programming on a pay-per-view basis.
The Company is actively developing, with its partners, several new in-room
video services to be provided through its installed systems. These new
interactive entertainment and information services include video games,
casino-style gaming, financial news and advertising. In addition, MagiNet is
exploring the possibility of providing other services, including in-room
shopping, news and Internet access. MagiNet believes that these new services
will appeal to a broader group of users than the traditional purchasers of in-
room video entertainment and should increase monthly revenue per installed
room.
MagiNet operates according to a financial model similar to the cable
television, cellular telephone and paging industries. Following an initial
capital expenditure for system installation in hotels, the Company derives
reasonably predictable, recurring revenue from system usage for the term of
each hotel contract, which is on an exclusive basis typically for five-to-
seven years. Since inception, the Company's installation costs have averaged
approximately $525 per room, including a video server in each hotel, in-room
converter and remote control, upgrade of the hotel's master antenna television
network, system installation, shipping, duties and taxes.
Revenue generated from on-demand movies are dependent upon four factors at
each hotel (i) the number of rooms in each hotel, (ii) the occupancy rate at
the hotel, (iii) the "buy rate" or percentage of occupied rooms that buy
movies and (iv) the price of the movie. Occupancy rates vary by hotel and
region based on the hotel's competitive position within its marketplace, on
seasonal factors and general economic conditions. Buy rates generally reflect
the hotel's guest mix profile, the popularity of the motion pictures available
to the Company in each country and the availability of other entertainment
alternatives. Buy rates also vary over time with general economic conditions.
Costs and expenses include (i) direct costs such as royalties and fees paid
for programming and licensed technology, hotel commissions, video materials,
maintenance expenses and cost of equipment and systems sold, (ii) depreciation
and amortization, (iii) operations activities such as purchasing, programming
and headquarters technical support, (iv) selling, general and administrative
expenses consisting of headquarters and foreign office expenses and (v)
research and development of the Company's systems. The Company currently has
systems installed in twelve countries, all outside of North America. The
Company operates through subsidiary offices in ten countries and through
representatives in two countries. In addition, MagiNet sells systems directly
to hotel owners and to distributors in certain other countries. Costs and
expenses other than direct costs are expected to grow at a slower rate than
revenue as the Company spreads its overhead costs over a larger installed base
of rooms.
18
<PAGE>
The Company has incurred net losses since inception as a result of (i) costs
associated with establishing its headquarters and foreign subsidiaries
infrastructure, (ii) depreciation and amortization associated with its
investment in installed systems and acquired technology licenses and (iii)
research and development costs associated with the Company's systems. All of
the Company's systems are installed outside of North America. To date, MagiNet
has not experienced material foreign exchange transaction gains or losses but
has $634,000 in accumulated translation losses which are reflected in
stockholders' equity as of June 30, 1996. A significant change in exchange
rates could give rise to material translation or transaction gains or losses
in the future.
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of revenue, items from the
Company's consolidated statement of operations for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- -------------
1993 1994 1995 1995 1996
------- ------- ------- ----- -----
<S> <C> <C> <C> <C> <C>
Revenue.......................... 100% 100% 100% 100% 100%
Costs and expenses
Direct costs.................... 74 49 43 51 49
Depreciation and amortization... 43 41 42 46 40
Operations expenses............. 118 123 36 37 13
Selling, general and administra-
tive........................... 379 183 97 108 59
Research and development........ 334 37 14 17 12
------- ------- ------- ----- ----
Total costs and expenses....... 948% 433% 232% 259% 173%
------- ------- ------- ----- ----
Operating loss................... (848) (333) (132) (159) (73)
Interest income (expense), net... (7) (11) (11) -- (17)
Provision for income taxes....... -- -- (6) (9) (5)
Minority interest in net losses
of consolidated subsidiaries.... -- 5 3 5 2
------- ------- ------- ----- ----
Net loss......................... (855)% (339)% (146)% (163)% (93)%
======= ======= ======= ===== ====
EBITDA........................... (805)% (292)% (90)% (113)% (32)%
======= ======= ======= ===== ====
</TABLE>
SIX MONTHS ENDED JUNE 30, 1995 AND 1996
The following table sets forth information regarding revenue, average
monthly gross video revenue per room, average movie price, average movie buy
rate, average hotel occupancy and installed base of rooms for the six months
ended June 30, 1995 and 1996.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------
1995(1) 1996(1)
------------ ------------
<S> <C> <C>
Revenue............................................. $3,302,000 $7,923,000
Average monthly gross video revenue per room........ $ 30.05 $ 29.60
Average movie price................................. $ 11.17 $ 10.85
Average movie buy rate.............................. 12.1% 12.2%
Average hotel occupancy............................. 74% 73%
Installed base of rooms............................. 27,648 49,683
</TABLE>
- --------
(1) Other than revenue and installed base of rooms, the numbers in this table
were derived in part from information that is reported to the Company by
hotels installed with the Company's systems. The Company believes that
such information is accurate.
19
<PAGE>
Revenue Analysis
During the six months ended June 30, 1996, the Company installed its systems
in an additional 10,561 hotel rooms, bringing the total number of installed
rooms to 49,683. The Company's revenue for the first six months of 1996
increased 140% to $7,923,000 compared to $3,302,000 for the same period in
1995. The increase was principally attributed to the increase in the number of
rooms receiving one or more of the Company's services in 1996.
During the six months ended June 30, 1996, overall average monthly gross
video revenue per room has declined approximately one-and-one-half percent
compared to that of the same period in 1995, principally as a result of price
decreases in certain countries and currency fluctuations affecting average
movie prices. Average monthly gross video revenue per room is the product of
buy rates, movie price, occupancy and the number of days in the month. Movie
buy rates have remained relatively constant principally as a result of
installations in new countries and improved buy rates in certain existing
countries, offset by lower buy rates in other existing countries.
Expense Analysis
The following table sets forth information regarding the Company's costs and
expenses for the six months ended June 30, 1995 and 1996.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------------------------
1995 1996
--------------------- ----------------------
% OF % OF
AMOUNT REVENUE AMOUNT REVENUE
---------- ---------- ----------- ----------
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C>
Costs and expenses
Direct costs..................... $ 1,687 51% $ 3,854 49%
Depreciation and amortization.... 1,510 46 3,149 40
Operations expenses.............. 1,213 37 1,016 13
Selling, general and
administrative.................. 3,563 108 4,652 59
Research and development......... 571 17 937 12
---------- ------- ----------- -------
Total costs and expenses.......... $ 8,544 259% $ 13,608 173%
========== ======= =========== =======
</TABLE>
Direct costs. Direct costs increased by $2,167,000 for the first six months
of 1996 compared to the same period in 1995 but declined marginally as a
percentage of revenue, due principally to lower film royalty and licensing
fees resulting from greater efficiencies achieved through expanded operations
and direct management of film contracts rather than relying on Comsat
Corporation. Prior to July 1995, the Company obtained substantially all of its
programming through Comsat Corporation. As a percentage of revenue, these
reduced royalty and licensing fees have been partially offset by increased
maintenance expenses associated with repairing or replacing faulty equipment
installed in hotel rooms during the first half of 1996 and transitioning
MagiNet's in-room converters and remote controls to higher quality devices.
Although the failure rates experienced with this equipment have declined since
the second quarter of 1996, there can be no assurance that the Company will
not experience similar technical problems or equipment failures in the future,
the occurrence of which could have a material adverse effect on the Company's
results of operations.
Depreciation and amortization. Depreciation and amortization consists of
depreciation of installed video systems, equipment and office furniture, and
amortization of prepaid royalties related to licensed technologies. These
expenses increased by $1,639,000 for the first six months of 1996 compared to
the same period in 1995 as a result of additional video system installations
in hotels. Depreciation and amortization expense represented a smaller
percentage of revenue in 1996 as a result of lower cost of installed systems
achieved in late 1995 and equipment and system sales in the 1996 period for
which there was no depreciation expense. The lower installed costs were
principally the result of using lower cost converters manufactured by a new
supplier to the Company as well as lower average installation costs. The
Company has taken a more direct role in managing hotel
20
<PAGE>
installation projects and performing certain installations using its own
employees, resulting in lower costs and improved quality. In prior periods,
most installations were performed by outside contractors.
Operations expenses. Operations expenses decreased by $197,000 for the first
six months of 1996 compared to the same period in 1995 due to write-downs of
certain video system equipment taken in the first six months of 1995,
partially offset by increased headquarters personnel expenses in 1996
necessary to provide programming services for expanded operations. Operations
expenses, as a percentage of revenue, fell from 37% for the first six months
of 1995 to 13% for the same period in 1996 as the Company's investment in
headquarters operational support was leveraged over a larger installed base of
rooms.
Selling, general and administrative. Selling, general and administrative
expenses increased by $1,089,000 for the first six months of 1996 compared to
the same period in 1995 due to significant increases in local country
activities to support the Company's larger base of installed rooms. A new
office was opened in South Africa in 1996, and the offices in Israel and South
Korea, which opened in 1995, were fully staffed in the 1996 period. Overall,
employment in the Company's local country activities increased from 51
employees at June 30, 1995 to 107 employees at June 30, 1996. Headquarters
marketing expenses increased to support promotion and merchandising
initiatives as well as to provide leadership for new product development.
Headquarters administrative expenses in 1996 increased as a result of the
hiring of new members of senior management and the expansion of the accounting
and finance staff. Selling, general and administrative expenses decreased as a
percentage of revenue from 108% for the first six months of 1995 to 59% for
the same period in 1996. Selling, general and administrative expenses are
expected to decline as a percentage of revenue in the future as a result of
leveraging the Company's infrastructure over a larger installed base of rooms.
Research and development. Research and development expenses increased by
$366,000 for the first six months of 1996 compared to the same period in 1995
due to increases in engineering personnel, materials and related expenses.
Research and development decreased as a percentage of revenue from 17% for the
first six months of 1995 to 12% for the same period in 1996. The new
engineering personnel are focused on new product development and integration,
enhancements to existing systems, including technology and products licensed
from others, and quality improvements. All research and development personnel
are located at the Company's headquarters.
Interest income (expense), net. During the first half of 1996, the Company
incurred net interest expense of $1,382,000 as a result of the issuance in
August 1995 of its Senior Secured Notes due 2000 with an aggregate principal
amount of $24.9 million. During the first half of 1995, the Company earned net
interest income from short-term investments of excess cash.
Provision for income taxes. The Company has not incurred U.S. federal or
state income taxes. However, most of the Company's foreign subsidiaries and
branches are required to withhold local country income taxes relating to
payments of royalties and inter-company charges. As a result, a provision for
local country income taxes is accrued at the time the royalty or inter-company
charge is accrued. Following the utilization of the parent company's net
operating loss carryforward, the parent company may offset the withheld local
country income taxes against any U.S. federal income taxes payable. However,
there can be no assurance that the parent company will be able to fully
utilize its loss carryforwards or to offset U.S. federal income taxes payable
by the withheld local country income taxes.
21
<PAGE>
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
Revenue Analysis
The following table sets forth information regarding revenue, average
monthly gross video revenue per room, average movie price, average movie buy
rate, average hotel occupancy and the installed base of rooms for the years
ended December 31, 1994 and 1995. Certain of this information was not
available for the year ended December 31, 1993, as the Company's limited
number of installed rooms during that year did not provide a meaningful year-
to-year comparison.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1994(1) 1995(1)
----------- -----------
<S> <C> <C>
Revenue............................................... $ 2,342,000 $ 8,689,000
Average monthly gross video revenue per room.......... $ 32.39 $ 29.10
Average movie price................................... $ 11.74 $ 10.96
Average movie buy rate................................ 12.6% 11.7%
Average hotel occupancy............................... 72% 75%
Installed base of rooms............................... 13,016 39,122
</TABLE>
- --------
(1) Other than revenue and installed base of rooms, the numbers in this table
were derived in part from information that is reported to the Company by
hotels installed with the Company's systems. The Company believes that
such information is accurate.
The Company's revenue for the years ended December 31, 1995, 1994 and 1993
were $8,689,000, $2,342,000, and $395,000 respectively, representing year-to-
year increases of 271% between 1994 and 1995 and 493% between 1993 and 1994.
The growth of revenue in each of these periods is attributable to increases in
the Company's installed base of rooms and rooms installed in the prior period
generating revenue for a complete fiscal year. Prior to 1994, the Company had
installed its systems only in Guam. Average monthly gross video revenue per
room and average movie price declined between 1994 and 1995 principally as a
result of a broader mix of hotels and countries served in 1995 compared to the
small installed base of rooms in 1994. On an individual country basis, average
monthly gross video revenue per room increased between 1994 and 1995 in all
countries except Hong Kong and Taiwan, where the limited number of installed
rooms in 1994 compared to 1995 do not permit a meaningful comparison. Buy
rates in Guam declined from 12.3% in 1994 to 10.5% in 1995 although gross
revenue per room increased slightly because occupancy rates increased in Guam.
Average movie prices in U.S. dollars increased between 1994 and 1995 in all
countries except Australia and Taiwan. Australian prices have since recovered.
However, the overall average movie price declined as a result of increased
installations in countries with lower average movie prices.
Expense Analysis
The following table sets forth information regarding the Company's costs and
expenses for the years ended December 31, 1993, 1994 and 1995:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1993 1994 1995
-------------- --------------- ---------------
% OF % OF % OF
AMOUNT REVENUE AMOUNT REVENUE AMOUNT REVENUE
------ ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C>
Costs and expenses
Direct costs................... $ 294 74% $ 1,156 49% $ 3,731 43%
Depreciation and amortization.. 171 43 957 41 3,682 42
Operations expenses............ 464 118 2,876 123 3,108 36
Selling, general and
administrative................ 1,497 379 4,294 183 8,420 97
Research and development....... 1,320 334 856 37 1,247 14
------ --- ------- --- ------- ---
Total costs and expenses........ $3,746 948% $10,139 433% $20,188 232%
====== === ======= === ======= ===
</TABLE>
22
<PAGE>
Direct costs. Direct costs increased by $2,575,000 in 1995 compared to 1994
and by $862,000 in 1994 compared to 1993 due to the increase in installed
rooms. Direct costs as a percentage of revenue declined from 74% in 1993 to
49% in 1994 and 43% in 1995 principally due to lower programming costs,
particularly in the second half of 1995, and greater efficiencies achieved by
servicing the increasingly larger installed base of rooms.
Depreciation and amortization. Depreciation and amortization increased by
$2,725,000 in 1995 compared to 1994, due primarily to depreciation of video
systems and other property and equipment added in 1995 as well as 1994
installations that were depreciated for a full year in 1995. Such increases
were substantially in line with revenue growth achieved by the Company as
lower depreciation resulting from lower per-room installation costs were
offset by increased depreciation on office furniture and equipment and
computer equipment. Between 1993 and 1994, depreciation and amortization
increased by $786,000 due primarily to depreciation of video systems and other
property and equipment added in 1994 and 1993 installations that were
depreciated for a full year in 1994.
Operations expenses. Operations expenses increased by $232,000 in 1995
compared to 1994, but declined as a percentage of revenue from 123% to 36%
year-to-year. The modest increase in spending was attributed to additional
personnel in technical services and video programming, offset by a reduction
in operations management personnel and lower materials expenses. Between 1993
and 1994, operations expenses increased by $2,412,000 as a result of the
creation of an installation support department, increased spending in customer
support services and video programming to support the expanded number of rooms
installed during 1994. Operations headcount increased from five employees at
December 31, 1993, to 13 employees at December 31, 1994, and to 15 employees
at December 31, 1995. As a percentage of revenue, operations expenses rose
from 118% in 1993 to 123% in 1994. Prior to 1994, installation support was
performed by research and development personnel.
Selling, general and administrative. Selling, general and administrative
expenses increased by $4,126,000 in 1995 compared to 1994 due to significant
spending increases in foreign offices that resulted from the creation of new
offices in Israel and South Korea and continuing selling, general and
administrative costs incurred for a full fiscal year by country offices that
opened in 1994. Foreign office headcount increased from 31 employees at
December 31, 1994 to 81 employees at December 31, 1995. Selling, general and
administrative expenses as a percentage of revenue decreased from 183% in 1994
to 97% in 1995, as the Company leveraged its expenses over the larger
installed base of rooms.
Selling, general and administrative expenses increased by $2,797,000 from
1993 to 1994 due to the establishment of new offices in Australia, Hong Kong,
Japan, New Zealand, Singapore, Taiwan and Thailand and an increase from seven
to 12 employees in the Company's headquarters. Selling, general and
administrative expenses as a percentage of revenue decreased from 379% in 1993
to 183% in 1994 as a result of economies of scale associated with an
increasing installed base of rooms.
Research and development. Research and development expenses increased by
$391,000 in 1995 compared to 1994 due to increases in employee compensation
and materials expenses. From December 1994 to December 1995, one additional
employee was added to the department, but 1995 expenses reflect a full year of
compensation expense for employees hired in 1994. Significant projects
completed during 1995 included development of new versions of the Company's
in-room converter and remote control unit and enhancing the system operating
software and screens, including enhancements to support additional foreign
languages.
Research and development expenses decreased by $464,000 from 1993 to 1994,
while engineering personnel increased from three employees to ten employees
over the same period. The decrease in spending is the result of significant
expenditures incurred in 1993 in connection with hiring outside contractors
and consultants, which enabled the Company to complete the major portions of
its development on the first generation of its proprietary room equipment and
the conversion of licensed technology to meet local market conditions. In
particular, the Company completed new versions of its in-room converter to
allow installations in countries not using the video standard employed in the
United States.
23
<PAGE>
Interest income (expense), net. Net interest expense increased by $738,000
in 1995 compared to 1994 and represented primarily interest accrued on $24.9
million of Senior Secured Notes due 2000, which the Company issued in August
1995. Between 1993 and 1994, net interest expense increased by $225,000
representing interest on bridge financing prior to the Company's issuance of
Series C Preferred Stock in September 1994.
Provision for Income Taxes. In 1995, the Company began accruing income tax
expense relating principally to foreign withholding of taxes relating to
inter-company charges for the provision of headquarters services and
programming and system royalties due third parties. No provision for foreign
or domestic income taxes was made during either 1994 or 1993.
SEASONALITY
The Company's quarterly operating results are subject to fluctuation
depending upon hotel occupancy and buy rates, and foreign currency exchange
rates as well as other factors. Although the Company generally believes that
such fluctuations are partially mitigated by operations in both the Northern
and Southern Hemispheres as well as by the breadth of its operations across
multiple economies, revenue per room has historically been lowest in the third
quarter because a significant portion of MagiNet's installations are in
tropical climates where occupancies are generally higher in the first and
fourth quarters of the year and buy rates are typically lower in the third
quarter of each year.
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited consolidated financial
information for the six quarters ended June 30, 1996, as well as such data
expressed as a percentage of the Company's total revenue for the periods
indicated. This data has been derived from unaudited consolidated financial
statements that, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of such information when read in conjunction with the Company's
audited Consolidated Financial Statements and Notes thereto appearing
elsewhere in this Prospectus. The results of operations for any quarter and
any quarter-to-quarter trends are not necessarily indicative of the results to
be expected for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1995 1995 1995 1995 1996 1996
-------- -------- --------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenue................. $ 1,287 $ 2,015 $ 2,353 $ 3,034 $ 3,549 $ 4,374
Costs and expenses
Direct costs........... 700 987 899 1,145 1,827 2,027
Depreciation and
amortization.......... 646 864 1,054 1,118 1,388 1,761
Operations expenses.... 665 548 948 947 468 548
Selling, general and
administrative........ 1,524 2,039 2,084 2,773 2,074 2,578
Research and
development........... 314 257 319 357 421 516
------- ------- ------- ------- ------- -------
Total costs and
expenses............... 3,849 4,695 5,304 6,340 6,178 7,430
------- ------- ------- ------- ------- -------
Operating loss.......... (2,562) (2,680) (2,951) (3,306) (2,629) (3,056)
Interest income
(expense), net......... 77 (73) (383) (612) (667) (715)
Provision for income
taxes.................. (148) (152) (123) (131) (213) (170)
Minority interest in net
losses of consolidated
subsidiaries........... 67 86 51 44 78 46
------- ------- ------- ------- ------- -------
Net loss................ $(2,566) $(2,819) $(3,406) $(4,005) $(3,431) $(3,895)
======= ======= ======= ======= ======= =======
EBITDA.................. $(1,916) $(1,816) $(1,897) $(2,188) $(1,241) $(1,295)
======= ======= ======= ======= ======= =======
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1995 1995 1995 1995 1996 1996
-------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenue................. 100% 100% 100% 100% 100% 100%
Costs and expenses
Direct costs........... 55 49 38 38 52 46
Depreciation and
amortization.......... 50 43 45 37 39 40
Operations expenses.... 52 27 40 31 13 13
Selling, general and
administrative........ 118 101 89 91 58 59
Research and
development........... 24 13 14 12 12 12
----- ----- ----- ----- ---- ----
Total costs and
expenses............... 299 233 226 209 174 170
----- ----- ----- ----- ---- ----
Operating loss.......... (199) (133) (126) (109) (74) (70)
Interest income
(expense), net......... 6 (4) (16) (20) (19) (16)
Provision for income
taxes.................. (12) (8) (5) (4) (6) (4)
Minority interest in net
losses of consolidated
subsidiaries........... 5 4 2 1 2 1
----- ----- ----- ----- ---- ----
Net loss................ (200)% (141)% (145)% (132)% (97)% (89)%
===== ===== ===== ===== ==== ====
EBITDA.................. (149)% (90)% (81)% (72)% (35)% (30)%
===== ===== ===== ===== ==== ====
</TABLE>
Revenue Analysis
The following table sets forth, for each quarter presented, information
regarding revenue, average monthly gross video revenue per room, average movie
price, average movie buy rate, average hotel occupancy, for each of the
quarterly periods presented, and the installed base of rooms at the end of
each period presented.
<TABLE>
<CAPTION>
QUARTER ENDED(1)
----------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1995 1995 1995 1995 1996 1996
-------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenue (in thousands).. $ 1,287 $ 2,015 $ 2,353 $ 3,034 $ 3,549 $ 4,374
Average monthly gross
video revenue per
room................... $ 29.56 $ 30.16 $ 27.03 $ 30.08 $ 30.00 $ 29.24
Average movie price..... $ 11.16 $ 11.18 $ 10.85 $ 10.83 $ 10.83 $ 10.88
Average movie buy rate.. 11.6% 12.3% 11.0% 11.9% 12.0% 12.5%
Average hotel
occupancy.............. 76% 72% 73% 75% 76% 71%
Installed base of
rooms.................. 18,424 27,648 31,091 39,122 42,940 49,683
</TABLE>
- --------
(1) Other than revenue and installed base of rooms, the numbers in this table
were derived in part from information that is reported to the Company by
hotels installed with the Company's systems. The Company believes that
such information is accurate.
During the six quarters ended June 30, 1996, the Company installed an
average of 6,111 rooms per quarter, with installations varying principally
upon the rate at which new contracts have been signed with hotels. Average
monthly gross video revenue per room has remained relatively constant as
improvements in certain countries have been offset by declines in others.
Increases in buy rates in the first two quarters of 1996, compared to the
first two quarters of 1995, have been offset by modest declines in average
hotel occupancy and average movie price in these same periods. Generally,
occupancies in the tropical climates, which represent the majority of the
Company's current installed base of rooms, are lower during the summer
quarters and higher in the first and fourth quarters, except during holidays.
Buy rates have been a function of the quality of movies available, the quality
of installed equipment, alternative entertainment available to guests and
other factors.
The U.S. dollar equivalent of foreign denominated average movie prices
declined during the last two quarters of 1995 principally as a result of an
increasing proportion of installed rooms in countries with lower average movie
prices than historical averages and the strengthening U.S. dollar as foreign
currency denominated
25
<PAGE>
prices in most countries have remained relatively constant. The Company is
instituting a program of multiple price points for movies installed in each
hotel in an effort to increase overall prices and revenue in each country.
Expense Analysis
Direct costs. Direct costs, as a percentage of revenue, declined quarter
over quarter during the first three quarters of 1995, from 55% to 38%, before
increasing to 52% in the first quarter of 1996. The decline was principally
the result of reductions in programming costs and greater efficiencies
achieved by servicing the increasingly larger installed base of rooms.
Starting in the fourth quarter of 1995 the Company began to experience
significant quality problems resulting in increased maintenance expenses for
labor and materials to fix in-room equipment. Direct costs declined to 46% of
revenue in the second quarter of 1996 reflecting a decrease in maintenance
expense.
Depreciation and amortization. The Company amortized a larger portion of
prepaid royalties during the first quarter of 1995 reflecting minimum annual
royalties required to maintain an exclusive technology license. Amortization
of prepaid royalties has remained relatively constant as a percentage of
revenue during the five quarters ended June 30, 1996. Depreciation expense has
trended downwards, as a percentage of revenue over the last six quarters,
reflecting marginally lower installed costs of rooms during these periods.
Operations expenses. Operations expenses, as a percentage of revenue,
fluctuated from an average of 37% in 1995 to 13% in the first half of 1996.
The quarterly variances, as a percentage of revenue, are primarily attributed
to reserves taken against video systems throughout 1995, and to a lesser
extent, to other operations expenses spread over increased revenue.
Selling, general and administrative. Selling, general and administrative
expenses, as a percentage of revenue, declined from 118% in the first quarter
of 1995 to 89% in the third quarter of 1995. These expenses increased slightly
to 91% in the fourth quarter of 1995 before decreasing to 58% and 59% in the
first two quarters of 1996. The decreases as a percentage of revenue are
primarily attributed to subsidiary and headquarters expenses spread over a
larger revenue base. Selling, general and administrative expenses have
increased in foreign subsidiaries and at the Company's headquarters but at a
lesser rate than revenue increases.
Research and development. Research and development expenses declined, as a
percentage of revenue, from 24% in the first quarter of 1995 to 13% and 14% in
the second and third quarters of 1995. The decrease, as a percentage of
revenue, between the first and second quarter of 1995 is attributed to a
combination of increased revenue and a decrease in research and development
spending. Research and development, as a percentage of revenue, has stayed
constant at 12% over the three quarters ended June 30, 1996 as increases in
research and development expenses were proportional to revenue increases.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations and funded its
capital expenditure requirements primarily through private issuances of
Preferred Stock, bank lines of credit, debt securities and capital equipment
leases. From inception through June 30, 1996, the Company raised an aggregate
of $53.2 million from the sale of Preferred Stock, net of related expenses. In
August 1995, the Company issued its Senior Secured Notes due 2000 (the
"Notes") with an aggregate principal amount of $24.9 million to New York Life
Insurance Company, Mutual Life Insurance Company of New York and two other
investors. The Notes currently bear interest at an annual rate of 11.5%,
subject to certain adjustments. In connection with the issuance of the Notes,
the Company also issued to the purchasers of such Notes warrants to acquire up
to an aggregate of 1,622,857 shares of Common Stock at an exercise price of
$7.00 per share, subject to adjustments of the number of shares and exercise
price as set forth in the applicable warrants. The Notes are secured by a
pledge of the stock of each of the Company's subsidiaries.
The continued expansion of the Company's business will require significant
capital investments to finance the installation of equipment in hotel rooms.
Historically, cash flow generated from the Company's operations
26
<PAGE>
has not been sufficient to fund the costs associated with expanding the
Company's business. The Company believes that the net proceeds from the
Offerings, together with cash flow from operations, will be sufficient to
support the Company's focused expansion plans and capital expenditures as well
as working capital requirements until at least December 1997. Thereafter, if
cash generated from operations is insufficient to satisfy the Company's
capital requirements, the Company may be required to raise additional funds.
No assurance can be given that additional financing will be available or that,
if available, that such financing could be obtained by the Company on terms
favorable to the Company and its stockholders. If the Company cannot obtain
sufficient funds to support installations of rooms, the Company may have to
reduce the rate of room installations. To the extent the Company raises
additional capital by issuing equity or convertible debt securities, ownership
dilution to the Company's stockholders will result.
The Company used cash from operating activities totaling $6,975,000 for the
six months ended June 30, 1996, $7,619,000 in 1995, $6,137,000 in 1994, and
$1,753,000 in 1993. The increased use of cash in 1995 as compared to 1994 and
1993 was primarily attributable to expansion into new geographic markets and
the expansion of headquarters and local country offices. The Company used
$10,145,000 for the six months ended June 30, 1996, $14,477,000 in 1995,
$8,932,000 in 1994 and $3,091,000 in 1993 to fund capital expenditures,
consisting principally of video systems in hotels. For the six months ended
June 30, 1996, financing activities provided $13,984,000. Financing activities
provided $30,656,000, $25,715,000 and $5,082,000 for 1995, 1994 and 1993,
respectively.
27
<PAGE>
BUSINESS
The following Business section contains forward-looking statements relating
to future events or the future financial performance of the Company, which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors" and
elsewhere in this Prospectus.
THE COMPANY
MagiNet is the leading supplier of on-demand interactive video entertainment
and information services to the hospitality industry outside of North America.
The Company installs integrated video systems that allow hotel guests to order
pay-per-view movies on-demand. MagiNet has recently expanded these systems
into entertainment and information gateways that offer an increasingly varied
range of services, such as on-demand billing summaries, express checkout,
personalized messaging, guest surveys and room service ordering. To date, the
Company's principal on-demand video entertainment services have provided a
reasonably predictable stream of recurring revenue during the term of its
exclusive five to seven year contract. The Company expects to implement
additional revenue enhancing services such as in-room casino-style gaming,
advertising, video games, financial news, Internet access and in-room shopping
in selected markets beginning in 1997. To date, the Company has focused
principally on leading hotels in the Pacific Rim. Recently, the Pacific Rim
has been experiencing a higher rate of economic expansion and hotel
construction than any other region in the world. The Company currently has
operations and installations in Thailand, Australia, Japan, Taiwan,
Guam/Saipan, Hong Kong, Singapore, South Korea, South Africa, Israel, New
Zealand, and France, and plans to expand its presence in the Pacific Rim,
Europe, the Middle East and Africa. MagiNet began installing its systems in
1993 and as of June 30, 1996 served 138 hotels having 49,683 rooms with an
additional 20,868 rooms in backlog.
Beginning in early 1996, the Company added several key members to its
management team, including its current Chief Executive Officer and Chief
Operating Officer, both having over twenty years of experience in the
hospitality industry. This management team further defined the Company's
strategy to expand its installed room base by (i) leveraging its strong market
position to obtain contracts with other leading hotels, (ii) penetrating
existing or new target markets, directly or through acquisition and (iii)
offering services to mid-market hotels in target regions. In addition, this
management team was influential in establishing strategic relationships with
Bloomberg for information and news television programming, with InterGame for
in-room casino-style gaming, and with Trinity Group for in-room advertising.
INDUSTRY BACKGROUND
Pacific Rim Hospitality Industry
The Pacific Rim has recently been experiencing a higher rate of economic
expansion and hotel construction than any other region in the world. As the
number of business and leisure travelers visiting the region has grown, most
of the leading hotel chains including Accor, Choice International, Conrad,
Hilton International, Holiday Inn Worldwide, Hyatt International, Marriott,
Regent/Four Seasons, Shangri-La, Sheraton, Southern Pacific Hotel Corporation
and Westin have focused their efforts on expanding in the Pacific Rim. The
growth in business and leisure travel has contributed to occupancy rates and
average daily room rates higher than those in the United States. In addition,
there has been a significant expansion of mid-market hotels, which offer less
expensive rooms and fewer services than leading hotels. The travel and tourism
industry in the Pacific Rim as a whole generated $804 billion of goods and
services and employed 134 million people in 1995 and is expected to generate
$2.0 trillion of goods and services and employ 239 million people in 2005.
Video Entertainment and Information Services
Leading hotels throughout the Pacific Rim have become increasingly focused
on providing the same high caliber of guest amenities, including on-demand
video entertainment and information services, typically found in
28
<PAGE>
leading hotels in the United States. Mid-market hotels also are increasingly
providing on-demand video entertainment and information services as guests in
these hotels are becoming accustomed to such hotel amenities.
Video entertainment services first appeared in the U.S. hospitality industry
over 20 years ago. Originally, "free-to-guest" video entertainment was
provided by broadcasting a limited selection of movies to every room in a
hotel on fixed schedules for a fee paid by the hotel. In the 1980s, a new
service was developed that offered a limited selection of movies available at
scheduled intervals on a pay-per-view basis, transferring the expense of the
offerings to hotel guests and generally providing hotel operators with a
commission based on revenue from these pay-per-view services. Typically, four
to eight movies would be offered, each of which would be shown once every two
to four hours.
The subsequent development of on-demand video technology enabled providers
of in-room services to offer scheduling flexibility to guests for movie
viewing on a pay-per-view basis. The convenience of on-demand video technology
increased average buy rates significantly, increased revenue and related hotel
commissions and made on-demand video entertainment the leading segment of the
hotel interactive video market. Technological advances have allowed providers
of video entertainment and information services to offer other interactive
services to hotels and hotel guests including room billing summaries, express
checkout, personalized messaging, interactive guest surveys, and room service
ordering. New guest pay services such as in-room video games, shopping,
advertising, news, Internet access, and casino-style gaming are under
development in order to provide new amenities to guests and offer additional
revenue sources per installation to the system providers and hotels.
Today, free-to-guest services and on-demand video entertainment services
have become standard amenities offered by most U.S. hotels serving all but the
budget hotel market. Leading hotels internationally are now adopting new
interactive video technologies. Hotels in the Pacific Rim are installing new
on-demand video entertainment and information systems at a rapid rate, and the
new international hotels being constructed in this region are expected to
install the most current on-demand systems available. Some leading hotels in
South Africa and Israel have free-to-guest systems, and a number of these
hotels are now converting to the Company's in-room interactive on-demand video
systems. The remainder of the rooms in Africa and the Middle East are largely
unpenetrated. In Europe, interactive video systems have been installed in only
a few leading hotels, and a number of major hotel chains are beginning to
convert to interactive video technology.
The Company targets high-growth markets outside of North America, Central
America and South America. The following table illustrates the size and the
growth of the Company's target markets:
<TABLE>
<CAPTION>
REGION TOTAL MARKET HOTELS WITH 100+ ROOMS
------ ------------------------- ----------------------
# OF ROOMS 9-YEAR CAGR(1) # OF ROOMS # OF HOTELS
---------- -------------- ---------- -----------
<S> <C> <C> <C> <C>
Pacific Rim................ 1,700,000 7.1% 670,000 2,412
Middle East and Africa..... 600,000 3.9% 288,000 1,272
Europe..................... 5,500,000 4.0% 1,108,000 5,637
The Americas(2)............ 4,500,000 2.9% N/A N/A
</TABLE>
--------
(1) Compound Annual Growth Rate, 1985-1994.
(2) Includes North America, Central America and South America.
29
<PAGE>
MAGINET'S OPPORTUNITIES
MagiNet provides in-room interactive video entertainment and information
services to leading business and resort hotels located in underpenetrated and
underserved international markets. The Company installs integrated video
systems that allow hotel guests to order pay-per-view movies on demand.
MagiNet has recently expanded these systems into entertainment and information
gateways that offer an increasingly varied range of services, such as on-
demand billing summaries, express checkout, personalized messaging, guest
surveys and room service ordering. The Company expects to implement additional
revenue-enhancing services such as in-room casino-style gaming, advertising,
video games, financial news, Internet access and in-room shopping in selected
markets beginning in 1997. The Company believes that by continuing to partner
with leading international hotels in each of its targeted markets and
subsequently focusing on mid-market hotels in these markets, it can further
exploit its leadership position.
STRATEGY
The Company's objective is to be the leading provider of in-room video
entertainment and information services to hotels in its target markets. Key
elements of the Company's strategy to achieve this objective are as follows:
Expand Installed Base of Rooms. The Company, which already has the largest
number of installed on-demand video rooms in the Pacific Rim, believes there
is a significant opportunity to expand its installed base of rooms in the
underpenetrated Pacific Rim, European and other targeted international markets
through the following three-pronged approach:
. Leverage industry leading position. The Company has entered into anchor
contracts with leading hotels in each of its target markets and leverages
the success of these installations to encourage installations in
competing hotels in those markets. The Company intends to continue to
capitalize on its strong market position by aggressively marketing the
breadth of its programming, new interactive entertainment and information
services and high-level of local customer service to leading business and
resort hotels in the Company's targeted international markets.
. Penetrate target markets directly or through acquisition. The Company has
instituted a focused expansion plan that includes direct entry or
acquisition in attractive existing and new markets. Historically, the
Company has entered target markets in the Pacific Rim, Africa, Europe and
the Middle East directly; however, the Company also intends to evaluate
potential acquisitions in order to further penetrate its target markets.
The Company believes that growth through acquisition will be part of the
Company's growth strategy.
. Offer services to mid-market hotel sector. Mid-market hotels, which have
lower room rates and fewer services than do leading hotels, represent an
opportunity for the Company to expand its installed base of rooms in its
target markets by leveraging the reputation it has established with
leading hotels. To date, penetration of on-demand video systems into mid-
market hotels has been limited. The Company believes that mid-market
hotels represent an attractive additional source of revenue.
Implement New Interactive Entertainment and Information Revenue Sources. The
Company's current system provides a full range of interactive video
entertainment and information services including movies, on-demand billing
summaries, express check-out services, personalized messaging, guest surveys
and room service ordering. Currently, the Company is in the process of
enabling hotels to further maximize guest revenue and differentiate hotel
services by offering new interactive entertainment and information services,
including in-room casino-style gaming, video advertising, video games,
financial news, Internet access and in-room shopping. The Company believes
that these new services will appeal to a broader group of users than the
traditional purchaser of in-room videos and will serve to increase revenue per
installed room.
Increase Revenue Per Room by Effectively Merchandising Available
Services. The Company is promoting the MagiNet brand name and awareness of the
Company's product and service offerings. A key element to the
30
<PAGE>
Company's marketing strategy is to work closely with hotels to develop an
effective campaign for increasing the use of video-based services. These
strategies include in-room advertising and entertainment packages that
highlight the Company's services and feature films. The Company also assists
hotels in marketing hotel services to their guests through the Company's
systems.
Employ Cost-Effective, Proven Technology. The Company seeks to minimize
technology risk and rapidly incorporate technological enhancements by
licensing and purchasing cost-effective, leading-edge equipment and software
in addition to developing equipment and software in-house. Currently, the
Company utilizes the successful on-demand video technologies developed by OCV
and Guestserve. The Company has also developed its own proprietary technology
which enables its systems to operate with a number of different television
standards that exist in its target markets, and to increase functionality and
reduce the cost of existing systems. The Company is continuously evaluating
new technologies to enable the provision of a wide variety of services at a
cost-effective price. For example, the Company is evaluating the use of
digital server technology to increase system capacity and allow for the
provision of additional interactive services when such technology is proven to
be reliable and cost effective.
Utilize Relationships with Local Partners. To facilitate the marketing,
installation and maintenance of the Company's system in certain of its
markets, the Company has entered into joint ventures or similar arrangements
with local businesses and individuals believed by the Company to be familiar
with local customs and practices and to be otherwise advantageous to the
Company's business prospects in such markets. The Company has established such
joint ventures in Japan, South Korea, Taiwan, and Thailand, and expects to
establish further ventures with local partners as and when the need and
opportunity arise.
Establish Strategic Relationships. The Company establishes strategic
relationships to facilitate the introduction of new interactive entertainment
and information services. The Company has signed a license agreement with
InterGame, Ltd. to provide in-room casino-style gaming in certain countries
where such services are permitted. The Company has also established a
relationship with Trinity Group in Thailand to sell advertising for display on
its iLook interactive information directory being introduced on MagiNet's
systems in Thailand, the country which represents the Company's largest
installed base of rooms. In addition, MagiNet has entered into a letter of
intent with Bloomberg L.P. to distribute Bloomberg Information Television, a
24-hour financial news program, to hotels in the Pacific Rim, Europe and
Israel.
PRODUCTS AND SERVICES
Current Products and Services
To date, MagiNet has focused primarily on providing in-room on-demand video
entertainment systems. The Company has recently expanded its systems into
entertainment and information gateways that offer an increasingly varied range
of services to hotel guests.
On-Demand Video. The Company's video entertainment and information systems
consist of a microprocessor controlling the converter and the television in
each room, a handheld remote control, and a central "head-end" video storage
unit and system computer located elsewhere in the hotel. The in-room terminal
unit may be integrated within, or located behind, the television. These
systems allow each hotel guest to use the remote control to choose, at their
own convenience, from a large selection of pay-per-view major motion pictures
(including new releases), independent motion pictures for adult audiences, as
well as free-to-guest broadcast, cable, or satellite programming. Generally,
guests can choose from approximately 30 to 60 video titles on-demand,
depending on the size of the hotel and the capacity of the installed system.
Hotel Video Information Services. Pursuant to contracts with each individual
hotel, the Company currently offers a variety of interactive information
services, including on-demand billing summaries, express check-out services,
personalized messaging, interactive guest surveys and room service ordering as
well as information screens to enable hotels to promote their facilities. The
Company provides these hotel services in selected languages as appropriate for
the hotel market. The Company also contracts with third parties to provide
information services such as on-line airline schedules and weather reports to
certain hotels. These services allow
31
<PAGE>
the hotel to increase the productivity of its staff by automating certain
hotel services that would otherwise require additional personnel.
Future Products and Services
The Company intends to begin implementation of a number of interactive
entertainment and information services beginning in 1997 in selected markets.
MagiNet believes these services will further differentiate the Company from
competitors and enhance revenue per installed room.
In-room Casino-style Gaming. The Company has an exclusive, worldwide license
from InterGame, Ltd. to provide its casino-style gaming for use in the
hospitality industry. The hotel guest will be charged through standard credit
card verification, and the Company will receive a share of the net guest
losses. The initial market for this service will be certain hotels the Company
expects to install in the Pacific Rim, and if successful the Company intends
to offer this service to hotels in countries where allowed by local law, and
will enter into arrangements with local gaming authorities as necessary.
Advertising. The Company has executed an agreement to provide its "yellow
page" style iLook advertising directory to guests in hotels utilizing the
Company's system. The Company will initiate this service in Thailand and later
identify local partners to assist the Company in soliciting advertisers for
the system in other markets. With this service, MagiNet's local partner in
Thailand will market the advertising space, and the Company will provide the
advertising to the hotel guest on its systems. The Company expects
restaurants, travel agencies, airlines, hotels in other destinations, and
local stores and general services, which an international traveler may desire,
to subscribe for this service. The Company has also developed the Welcome
Channel, currently being tested in Australia. The Welcome Channel has been
designed to accommodate 30-second commercials as well as Hollywood-studio
movie previews, corporate identity advertising and hotel promotions.
Financial News and Information. MagiNet has entered into a letter of intent
with Bloomberg L.P. ("Bloomberg") to distribute Bloomberg Information
Television, a 24-hour financial news program, to hotels in the Pacific Rim,
Europe and Israel. The hotel providing this service to its guests will pay the
Company a monthly per-room charge to receive this service, and MagiNet and
Bloomberg will share in the revenue received from the hotels. This service is
expected to be provided on a free-to-guest basis.
Other. The Company has under development or under discussion with potential
partners the provision of video games, in-room shopping and Internet access to
hotel guests.
ON-DEMAND VIDEO PROGRAMMING
The Company obtains first-run motion pictures and other programming through
distribution agreements with the authorized distributors of the major movie
studios in the United States (including Columbia, HBO, MGM, Miramax,
Paramount, TriStar, Twentieth Century Fox, United Artists and Universal) and
other countries, along with other studios and movie production companies. The
Company prepares monthly line-ups for video titles, arranges the ordering and
duplication of those titles and changes actual video cassettes for new movies
monthly. In recent months, the Company has been successful in acquiring major
theatrical films from European sources, enhancing its capability to serve
various hotel clientele. The Company obtains French, German, Japanese,
Chinese, Thai and Korean language programming from distributors in those
countries, and plans to establish similar arrangements with additional local
suppliers.
The distribution agreements relating to first-run motion pictures generally
provide for a specified license period and percentage of revenue of each
motion picture that are negotiated separately, with the studio receiving a
percentage generally ranging from 30% to 45% of the Company's gross revenue
from a major motion picture. For recently released motion pictures, the
Company typically obtains rights to exhibit the picture in a specific country
after the motion picture has been released in theaters in that country, but
prior to its release to the video rental market or exhibition on cable
television in that country.
32
<PAGE>
In addition to first-run motion pictures, most of the Company's
installations also offer programming independent of the major motion picture
studios originating in the United States, Europe and the Pacific Rim including
titles considered appropriate for adult audiences only. Access to such titles
may be blocked from either the front desk or in-room remote control. The
Company typically obtains such programming for a one-time fee, with no ongoing
royalty obligation. Such films provide higher operating margins because of the
relatively low acquisition cost. Such programming can therefore account for a
significant portion of the Company's operating income in certain of its
markets.
INSTALLED BASE AND BACKLOG
MagiNet's installed base consists of rooms installed in hotels that have
signed five-to-seven year contracts for the Company to provide hotel guests
with its interactive entertainment and information services. The Company's
backlog consists of rooms not yet installed with the Company's systems at
hotels that have signed such contracts or, in Japan, have signed a memorandum
of understanding. The Company does not include in backlog the rooms in
individual hotels within hotel chains that have signed master contracts with
the Company until the Company executes a contract with an individual hotel in
that chain.
The Company's installed base of rooms and backlog as of June 30, 1996 are
set forth below:
<TABLE>
<CAPTION>
ROOMS INSTALLED BACKLOG
------------------ ------------------
COUNTRY ROOMS # OF HOTELS ROOMS # OF HOTELS
------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C>
Australia.............................. 6,356 27 2,480 8
France................................. 377 1 11 --
Guam/Saipan............................ 4,310 14 -- --
Hong Kong.............................. 3,885 7 1,473 3
Israel................................. 2,507 9 3,227 9
Japan.................................. 6,121 15 2,156 6
New Zealand............................ 1,794 7 -- --
The Philippines........................ -- -- 1,502 3
Singapore.............................. 3,115 6 830 1
South Africa........................... 2,630 8 3,996 19
South Korea............................ 2,974 6 2,964 5
Taiwan................................. 4,822 12 150 --
Thailand............................... 10,792 26 2,079 4
------ --- ------ ---
Total................................ 49,683 138 20,868 58
====== === ====== ===
</TABLE>
SALES, DISTRIBUTION AND MARKETING
The Company currently targets leading hotels generally in excess of 100
rooms in the Pacific Rim, the Middle East, Africa and in Europe. The Company
markets its system as requiring no capital investment by the hotel and then
pays the hotel a monthly commission based on gross revenue derived from its
interactive video entertainment and information services. Except in smaller
markets, where the Company utilizes local distributors or representatives, the
Company markets its products through controlled subsidiaries located in each
market and generally uses its own personnel to supervise installation and
provide maintenance services. The Company currently maintains offices and
personnel in the metropolitan areas of Auckland, Bangkok, Hong Kong,
Johannesburg, Seoul, Singapore, Sydney, Taipei, Tel Aviv and Tokyo. The
Company's worldwide headquarters in Sunnyvale, California provides strategic
direction, management, finance and accounting, research and development, as
well as support for the local offices in programming, marketing, sales,
installations and maintenance.
The Company provides service for its installed systems. Pursuant to a five-
to-seven year contract, the Company installs at its own cost its system in the
hotel and retains ownership of, and responsibility for, all equipment utilized
in providing interactive entertainment and information services.
Traditionally, the hotel
33
<PAGE>
provides and owns the televisions. The Company undertakes a significant
investment when it installs its system in a hotel, sometimes requiring
significant changes to be made to a hotel's master antenna television system.
The Company's contract with each hotel provides that the Company will be the
exclusive provider of interactive entertainment and information services to
hotel guests and generally permits the Company to set the price for each pay-
per-view event. The hotels collect viewing charges from their guests and
retain a commission equal to a percentage of the total pay-per-view revenue.
Some contracts also require the Company to upgrade its system to the extent
that new technologies and features are introduced during the term of the
contract. Based upon contracts entered into as of June 30, 1996, contracts for
approximately 6% of the Company's installed rooms expire on or before December
31, 1998, 21% of the Company's installed rooms expire during 1999, and 28% of
the Company's installed rooms expire during 2000.
The Company has signed master contracts with Hyatt International-Asia
Pacific Limited and Hyatt Chain Services Limited, Shangri-La and the Southern
Pacific Hotel Corporation. These master contracts establish the Company as a
preferred vendor of certain of MagiNet's interactive entertainment and
information systems and services without guaranteeing any commitments from
individual hotels within the chain. The Company must sign agreements with
individual hotels within the chain to install its systems in such hotels. The
Company also has individual hotel contracts with other hotels within
recognized chains with which the Company does not have master contracts such
as the Mandarin Oriental, Marriott, Sheraton, Regent/Four Seasons, Hilton
International, Inter-Continental, Westin and Okura.
The Company is currently developing additional marketing strategies and
obtaining and analyzing market data to promote the MagiNet brand name and the
awareness of the Company's product and service offerings. A key element to the
Company's marketing strategy is to work closely with the hotels to develop an
effective campaign for increasing the use of video-based services. These
strategies include in-room advertising and entertainment packages that
highlight the Company's services and feature films. The Company also assists
the hotels in marketing hotel services to their guests through the Company's
systems.
REGIONAL AND STRATEGIC RELATIONSHIPS
Local Partners
The Company's markets reflect a variety of different business cultures and
legal environments. To facilitate the marketing, installation and maintenance
of the Company's systems in certain of its markets, the Company has entered
into joint ventures or similar arrangements with local businesses and
individuals believed by the Company to be familiar with local customs and
practices and to be otherwise advantageous to the Company's business prospects
in such markets. The Company has established such joint ventures in Japan,
South Korea, Taiwan and Thailand, and expects to establish further ventures
with local partners as and when the need and opportunity arise.
In Australia, Hong Kong, Israel, New Zealand, Singapore and South Africa,
the Company operates through its local country subsidiaries and provides
sales, installations, service and maintenance through its own local employees
and independent contractors. The Company believes that the existing
familiarity its local employees and independent contractors have with the
business cultures of these countries will enable the Company to further
penetrate these markets successfully without assistance of a joint venture or
similar arrangement.
Distributors and Representatives
The Company installs and services hotels in Guam and Saipan through one
distributor and one representative. In addition, the Company has retained a
distributor to install and service the Company's Guestserve-based systems in
Malaysia, Singapore, Indonesia and Brunei. The representative installs and
services systems owned by the Company, in exchange for a monthly fee and a
percentage of revenue. The distributors purchase, install and service the
systems and pay the Company a royalty based on rooms installed or revenue.
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<PAGE>
Strategic Relationships
On Command Video. Pursuant to a Technology License Agreement dated April 15,
1992 (the "OCV License"), OCV has granted the Company an exclusive,
transferable license in 30 countries outside North America to manufacture,
modify, market and sell products incorporating OCV's proprietary technology.
Following an initial term of ten years, the OCV License is automatically
renewable for an indefinite number of five-year periods. Although the Company
is not required to use OCV technology, it is currently incorporated into most
of the Company's installed systems. Pursuant to the OCV License, the Company
pays OCV certain royalties based on the Company's revenue derived from OCV
patented technology. The Company has paid OCV, in advance, a license fee which
is credited against its future royalty obligation to OCV under the OCV
License. These prepaid royalties are expected to be fully amortized before
December 1996, at which time the Company will begin to incur a monthly cash
payment in order to fulfill its continuing royalty obligations to OCV.
Guestserve. Pursuant to a Technology License Agreement dated December 20,
1995 (the "Guestserve License"), Guestserve has granted the Company a
transferable license to manufacture, modify, market, and sell products
incorporating Guestserve's technology in all countries outside of North
America. The Guestserve License is exclusive for the hospitality industry and
non-exclusive for apartments serviced by hospitality providers. Following an
initial term of ten years, the Guestserve License is automatically renewable
for an indefinite number of five-year periods. Guestserve has granted the
Company a license to future technological improvements along with the right to
purchase hardware on favorable terms and the Company has granted Guestserve a
license to all technological improvements to the Guestserve system engineered
by the Company. Pursuant to the Guestserve License, the Company pays
Guestserve certain royalties, payable in installments upon the Company's
acceptance of specified Guestserve technology and on a per-room basis. The
royalties are capped and payable over a seven-year period.
InterGame, Ltd. The Company has entered into an agreement (the "InterGame
Agreement"), effective as of July 8, 1996, with InterGame, Ltd. ("InterGame"),
a company engaged in designing, implementing and operating electronic video
gaming programs for use with interactive PC and other platform-based systems.
Pursuant to the InterGame Agreement, InterGame will deliver its network
systems and software to MagiNet, develop an interface for the system to
operate on MagiNet's interactive video systems, and grant to MagiNet an
exclusive worldwide license to provide casino-style gaming in hotels, as
permitted by law. The Company will bear the capital costs of the equipment
necessary to deliver the gaming services, and net revenue from the operation
of the system (after certain payments are made) are to be divided between the
Company and InterGame. MagiNet has exclusivity for the hospitality industry
with respect to the technology, provided certain installation milestones are
achieved. The InterGame Agreement will remain in force until July 8, 2001, and
thereafter is automatically renewable for an indefinite number of one-year
periods. To the extent the Company engages third parties to assist the Company
in installing and operating the casino-style gaming systems, the Company may
share with such parties a percentage of the revenue from the system.
Trinity Group. The Company has entered into an agreement with the Trinity
Group ("Trinity"), the Company's partner in Thailand, for Trinity to sell
advertising to be displayed to hotel guests using the Company's iLook service.
iLook is a service developed by the Company, which will display video
advertising directories on MagiNet systems installed in Thailand. MagiNet has
agreed to install the technology on the Company's systems in Thailand to allow
guests to interactively search the iLook system for businesses and services,
and to provide training to the Trinity sales force. MagiNet will retain
control over the content of the advertising. MagiNet will receive
approximately one-half of the gross iLook revenue. The agreement will remain
in force until December 31, 2002, and thereafter automatically renew annually,
unless terminated by either party.
Bloomberg. The Company has entered into a letter of intent dated as of
September 6, 1996 with Bloomberg L.P. ("Bloomberg") to distribute Bloomberg
Information Television, a 24-hour financial news program, to hotels in the
Pacific Rim, Europe and Israel. The Company will sell the service to the
hotels for a monthly per-room fee to be divided between the Company and
Bloomberg. Pursuant to this agreement, MagiNet is to ensure that the Bloomberg
service is to be provided on a free-to-guest basis. MagiNet may, subject to
the
35
<PAGE>
consent of Bloomberg, offer to install a Bloomberg terminal in a hotel's
business center or a concierge floor, subject to certain conditions.
MANUFACTURING
Although under its technology agreements the Company has the right to
manufacture the components and sub-assemblies of its systems, the Company
currently subcontracts the manufacture of its systems including head-ends,
converters and remote controls. The Company's remote controls for the OCV-
based systems are manufactured by one company in Hong Kong, the remote
controls for the Guestserve-based systems are manufactured by one company in
China and the Company's converters are manufactured by three companies, one in
each of Taiwan, Japan and Singapore. The OCV-based head-ends are currently
available solely from OCV, and the Guestserve-based head-ends are available
solely from Guestserve. OCV is a majority-owned subsidiary of Ascent
Entertainment Group, Inc., which has recently acquired the assets of
SpectraVision, Inc. ("SpectraVision"), a competitor of the Company in the
Pacific Rim. MagiNet believes that similar contract manufacturing can be
obtained from other vendors, including those located in the Pacific Rim,
although no assurance can be given that such manufacturing resources will
continue to be available on reasonable terms, or at all. The Company will
pursue such alternative manufacturing arrangements when and if it appears
likely that significant cost savings or quality improvements can be achieved.
At present, the Company has no plans for alternative sourcing of the system or
major system sub-assemblies.
The Company has experienced delays in receiving converters for installations
planned for the Guestserve-based systems, and these delays caused an
approximately three to four month delay in installing certain hotels. Delays
in receiving products could delay a large number of planned room
installations. The Company believes that the delays in receiving converters
for the Guestserve systems have been resolved, however, there can be no
assurance that the Company will not face such difficulties or delays in the
future. An inability of the Company to obtain sole-sourced or other components
in a timely manner could significantly delay installations of systems, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, any increase in cost to
manufacture the system components from existing or alternative sources could
have a material adverse effect on the Company's business, financial condition
and results of operations.
MAINTENANCE AND SUPPORT
The Company believes that high quality and consistent systems support and
maintenance are essential to competitive success in its industry. As of June
30, 1996, the Company's installation and service organization consists of 41
installation and service personnel in 11 countries. The Company emphasizes the
use of Company- employed installation and service personnel but also uses
Company-supervised subcontractors in areas where there is not a sufficient
concentration of systems to warrant a full-time installation and service
representative. Currently, the Company's in-house service organization is
responsible for a substantial majority of the Company's installed base of
rooms. Installation and service personnel are responsible for systems
maintenance and distribution and collection of video cassettes. In addition,
the Company's installation employees prepare site surveys to determine the
type of equipment to be installed at each particular hotel, install the
Company's systems or supervise third-party installers, train the hotel staff
and perform quality auditing in each country.
MagiNet receives on-line data daily through modem connections to its
systems, enabling the Company to track the status of all of its installed
systems. The on-line diagnostic capability of the Company's systems enable
MagiNet to identify and resolve a number of the reported system malfunctions
from the Company's service control center without visiting the hotel property.
When a service visit is required, the modular design of the Company's systems
permits installation and service personnel to replace defective components at
the hotel site. The Company generally maintains a fully-trained technical
support staff in each country, which is available on a 24 hour-a-day basis.
The Company also maintains a toll-free technical support line at its
headquarters, used by country service personnel.
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<PAGE>
COMPETITION
The Company competes with a number of companies that specialize in providing
in-room video services, and such competitors may have greater financial,
technical, sales and marketing resources to devote to the development,
promotion and sale of their products, and may have longer operating histories,
greater name recognition, and greater market acceptance for their products and
services compared to those of the Company. The Company could also face
competition in the future from existing and emerging cable, direct broadcast
satellite and other communications companies providing entertainment and other
in-room services to hotels and hotel guests.
The Company's primary competitors in the on-demand video systems market are
SpectraVision, Movielink, and LodgeNet. SpectraVision was one of the earliest
entrants into the hotel entertainment market, and has developed its
GuestChoice technology which allows for guests to choose movies to watch on
demand. Movielink, a privately-held Australian company, represents the
Company's primary competition in the Pacific Rim. Movielink, which recently
introduced an on-demand system, has a large base of free-to-guest customers in
Australia and in Singapore and has a small number of installations in Hong
Kong and Thailand. Although LodgeNet markets its systems primarily in the
United States, it has recently entered certain of the Company's markets.
The Company also experiences separate competition in certain specific
countries. For example, in Japan certain large international corporations,
such as Toshiba Corporation, Pioneer Electronic Corp., Hitachi, Ltd., and
Matsushita Electric Industrial Co., Ltd., which supply the Japanese
hospitality industry with master antenna television systems, sometimes offer a
scheduled broadcast, pay-per-view movie capability. In addition, Gosoh, Ltd.
competes in Hong Kong with a scheduled broadcast, pay-per-view system.
In Europe, the Company faces competition from PRODAC Prozebdatentechnik
GmbH, Thorn-EMI Plc, Video Management Services, Inc. and Granada Group Plc,
which have installed mainly free-to-guest and scheduled systems. The Company
believes that penetration of the European market with on-demand video systems
by these or other competitors is fairly low.
The Company's ability to compete successfully depends on many factors,
including the success of competitors' systems and services, the ability to
interface directly with hotel property management systems, the ability to
provide appropriate programming for an international audience, obtaining
leading hotel contracts and name recognition among hotels, the quality of its
programming and services, the reliability of its systems, general economic
conditions and protection of Company and third-party licensor products by
effective utilization of intellectual property laws. In particular,
competitive pressures from existing or new competitors who offer lower prices
or other incentives or introduce new systems could result in price reductions
which would adversely affect the Company's profitability. There can be no
assurance that the Company's current or other new competitors will not develop
enhancements to, or future generations of, competitive systems and services
that offer superior price or performance features, that the Company will be
able to compete successfully in the future, or that the Company will not be
required to incur substantial additional investment costs in connection with
its development, marketing and customer service efforts in order to meet any
competitive threat. The Company expects competition in its markets to
intensify.
TECHNOLOGY AND PROPRIETARY RIGHTS
The patents to the basic architecture of the Company's system are held by
the Company's licensors in the United States and corresponding patent
applications for the OCV technology have been filed in Japan, the United
Kingdom and under the European Patent Cooperation Treaty. The Company has
engineered, and filed patent applications for, further improvements to the
system to increase its cost-efficiency and flexibility. Hardware enhancements
to the system include engineering new single-channel modulators, compatibility
with television standards in other countries, and a universal television
controller/interface to reduce the need for custom interfaces. The Company has
also designed eight different television formats, frequency plans and AC
voltage requirements for 11 different countries. Software enhancements include
foreign language prompts and menus, hotel information services, hotel
maintenance programs, as well as simplified systems configuration and
37
<PAGE>
management. OCV has incorporated certain of the Company's enhancements in its
system installations in the United States.
MagiNet's success and ability to compete is dependent in part upon its own
proprietary technology. The Company relies primarily on a combination of
patent, copyright and trademark laws, trade secrets, software security
measures, and nondisclosure agreements to protect its proprietary technology.
There can be no assurance, however, that such protection will be adequate to
deter misappropriation of or deter unauthorized third parties from copying
aspects of, or otherwise obtaining and using, the Company's proprietary
technology. Moreover, the Company licenses from OCV and Guest Serve the right
to install and operate on-demand video systems incorporating proprietary
technology of such companies. If for any reason the Company's rights under
such license agreements were to be successfully challenged by these or other
companies, the Company's business, financial condition and results of
operations would be materially adversely affected. Furthermore, there can be
no assurance that any confidentiality agreements between the Company and its
employees or any agreements with third parties will provide meaningful
protection for the Company's proprietary information or the technology
licensed from others in the event of any unauthorized use or disclosure of
such proprietary information. A substantial amount of the Company's sales are
in international markets, and the laws of the other countries may afford the
Company little or no effective protection of its intellectual property or the
intellectual property of its licensors.
While MagiNet believes that its products and trademarks do not infringe upon
the proprietary rights of third parties, there can be no assurance that the
Company will not receive future communication from third parties asserting
that the Company's products infringe, or may infringe, on the proprietary
rights of third parties. The Company's trademark registration of the name
"MagiNet" has been initially challenged by the U.S. Patent and Trademark
Office based on the use of similar names by other companies in the
entertainment industry. However, the Company has used such name since August
1995 and intends to continue to use such name. Any infringement claims, with
or without merit, could be time consuming, result in costly litigation and
diversion of technical and management personnel, require the Company to
develop non-infringing technology or enter into royalty or licensing
agreements, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations. Such royalty or
licensing agreements, if required, may not be available on terms acceptable to
the Company or at all. In the event of a successful claim of product
infringement against the Company or similar adversarial proceeding and failure
or inability of the Company to develop non-infringing technology, license the
infringed or similar technology, or require the Company to cease the marketing
or use of certain products there could be a material adverse effect on the
Company's business, financial condition and results of operations.
EMPLOYEES
As of June 30, 1996, the Company had 164 employees, of which 107 are located
in offices in the Company's local markets. The Company believes its
relationships with its employees are good.
FACILITIES
The Company's administrative, sales, marketing and product development
headquarters are located in Sunnyvale, California, where the Company leases
approximately 28,000 square feet under a lease expiring in March 1997. The
Company anticipates that it will be necessary to obtain a larger facility upon
the termination of its headquarters lease but believes that suitable
additional or substitute facilities will be available in the future as needed
on commercially reasonable terms. The Company also leases office space in the
metropolitan areas of Auckland, Bangkok, Hong Kong, Johannesburg, Seoul,
Singapore, Sydney, Taipei, Tel Aviv and Tokyo.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The following table sets forth certain information concerning the directors,
executive officers and certain other key employees of the Company as of August
30, 1996.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Kenneth B. Hamlet....... 52 Chairman of the Board, President and Chief Executive Officer
Robert R. Creager....... 51 Founder, Executive Vice President, Corporate Development, and Director
James A. Barth.......... 53 Executive Vice President and Chief Financial Officer
Gordon E. (Ned) Druehl,
Jr. ................... 54 Executive Vice President and Chief Operating Officer
Pang T. Ho, Ph.D........ 50 Vice President of Engineering
Stuart J. Ellman(1)(2).. 29 Director
Michael D. Granoff(1)... 38 Director
Michael Ramsay(2)....... 44 Director
James D. Robinson
IV(2).................. 34 Director
</TABLE>
- --------
(1)Member of the Audit Committee.
(2)Member of the Compensation Committee.
Kenneth B. Hamlet has served as the Company's President and Chief Executive
Officer and as a member of its Board of Directors since January 1996 and as
Chairman of the Board since September 1996. Between 1991 and 1995, Mr. Hamlet
was Chairman and Chief Executive Officer of Hamlet & Associates, a private
investment banking and consulting firm. During such period, Mr. Hamlet
provided management consulting services to a number of companies, including
serving as Director, Chairman and Chief Executive Officer of Caretenders
Healthcorp, a health care company, and Director and Co-Chairman of NTN
Communications, Inc., a telecommunications equipment company. From March 1984
to January 1991, Mr. Hamlet served as President and Chief Executive Officer
for Holiday Inns, Inc., a wholly-owned subsidiary of Holiday Corporation that
owned, operated and franchised 1,750 hotels worldwide. From 1975 to 1984, Mr.
Hamlet served in numerous executive capacities within Holiday Inns Inc. Mr.
Hamlet holds a B.S. in hotel administration from the Cornell University School
of Hotel Administration.
Robert R. Creager founded the Company and has served as Executive Vice
President, Corporate Development, since September 1996 and as a member of the
Company's Board of Directors since the Company's inception. From January 1996
to September 1996, Mr. Creager served as Chairman of the Board of Directors.
From July 1991 to January 1996, Mr. Creager served as President and Chief
Executive Officer of the Company. From 1988 to 1990, Mr. Creager was Vice
President, Corporate Development, and General Counsel of Arix Corporation, a
UNIX minicomputer manufacturer. Mr. Creager holds a B.A. in Business
Administration from Pacific Union College and a J.D. from the University of
California, Hastings College of Law.
James A. Barth has served as the Company's Executive Vice President and
Chief Financial Officer since September 1995. From October 1994 to September
1995, Mr. Barth was Vice President of Finance and Chief Financial Officer of
the Company. From March 1994 to October 1994, Mr. Barth was Vice President and
Chief Financial Officer of ACC Microelectronics Corporation, a semiconductor
company. From 1982 to March 1994, he served as Vice President and Chief
Financial Officer of Rational Software Corporation, a developer of object-
oriented software engineering tools. Mr. Barth is a certified public
accountant and holds a B.S. in business administration from University of
California at Los Angeles.
Gordon E. (Ned) Druehl, Jr. has served as the Company's Executive Vice
President and Chief Operating Officer since August 1996. From January 1992 to
July 1996, he served as Chairman and Chief Executive Officer of Sandusky
Cabinets Manufacturing, Inc., a metal cabinet manufacturing company. From 1990
through October 1991, Mr. Druehl founded and operated NKI Hospitality, a hotel
management company, and subsequently worked as Vice President of RFS Real
Estate, Inc., a diversified property management company, which acquired
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<PAGE>
NKI Hospitality. From 1975 to 1990, Mr. Druehl held various management
positions at Holiday Corporation, including President of the Hotel Services
Division and Senior Vice President of U.S. Operations. Mr. Druehl holds a B.S.
in hotel administration from the Cornell University School of Hotel
Administration.
Pang T. Ho, Ph.D. has served as the Company's Vice President of Engineering
since August 1994. From February 1994 until August 1994, Dr. Ho served as
Chairman of Spectrum, Inc., a cable television equipment distributor in
Taiwan. From December 1991 until January 1994, Dr. Ho was President of Po-Hsin
Entertainment, Inc., a cable television system operator located in Taiwan.
From 1985 to 1991, Dr. Ho served as Vice President of Commercial Products for
Pacific Monolithics Inc., a wireless communications equipment company. Dr. Ho
holds a B.S. in electrical engineering from National Taiwan University, an
M.S. in electrical engineering from Princeton University and a Ph.D. in
electrical engineering from Rutgers University.
Stuart J. Ellman has served as a member of the Company's Board of Directors
since October 1994. Since August 1994, he has served as a Managing Director of
RRE Investors, L.L.C., a venture capital investment firm. From August 1992 to
August 1994, he was Vice President of Advisory Capital Partners, an investment
firm. From June 1988 to July 1990, Mr. Ellman was an associate at Dillon, Read
& Co. Inc., an investment banking firm. Mr. Ellman holds a B.A. from Wesleyan
University and an M.B.A. from Harvard University.
Michael D. Granoff has served as a member of the Company's Board of
Directors since October 1994. Since January 1994, Mr. Granoff has served as
Chief Executive Officer of Pomona Capital, L.P., a private investment company.
From October 1988 to December 1993, Mr. Granoff was President of Golodetz
Ventures and a member of the Board of Directors of Golodetz Corporation. From
March 1981 to January 1985, Mr. Granoff served on the staff of the U.S. House
of Representatives Appropriations Subcommittee on Foreign Operations and was a
member of the 1992 Presidential Transition Team. Mr. Granoff holds a B.A. from
the University of Pennsylvania and a J.D. from Georgetown University Law
Center.
Michael Ramsay has served as a member of the Company's Board of Directors
since September 1993. Since April 1996, he has served as a Senior Vice
President of Silicon Desktop Group of Silicon Graphics, Inc., a developer and
manufacturer of computer workstations. From August 1994 to March 1996, he
served as President of Silicon Studio, Inc., a subsidiary of Silicon Graphics,
Inc. From July 1992 to August 1994, he served as Senior Vice President of
Silicon Graphics' Visual System Group, from February 1987 to July 1992, he
served as Senior Vice President of Silicon Graphics' Entry Systems Division,
and from May 1986 to July 1991, he served as Director of Engineering, Vice
President, and Senior Vice President of various Silicon Graphics divisions.
Mr. Ramsay received his B.S. degree in electrical engineering from the
University of Edinburgh in Scotland.
James D. Robinson IV has served as a member of the Company's Board of
Directors since October 1994. Since December 1994, he has served as Managing
Director of RRE Investors, L.L.C., a venture capital investment firm. From
September 1992 to December 1994, he served as Vice President of Hambrecht &
Quist Venture Partners, a venture capital firm. From July 1986 to March 1990,
he was an associate at J.P. Morgan & Co. Incorporated, a commercial and
investment banking firm. From January 1984 to June 1986, he was President of
IV Systems, Inc., a software consulting firm. Mr. Robinson holds a B.A. from
Antioch College and an M.B.A. from Harvard University.
DIRECTOR COMPENSATION
The Company reimburses each member of the Company's Board of Directors for
out-of-pocket expenses incurred in connection with attending Board meetings.
No member of the Company's Board of Directors currently receives any
compensation for serving as a Director. The Company's 1996 Director Option
Plan (the "Director Plan") provides that options will be granted to non-
employee directors of the Company pursuant to an automatic nondiscretionary
grant mechanism. On the effective date of the Offerings, each of the Company's
non-employee directors who is neither the beneficial owner nor an affiliate of
a beneficial owner of more than 3% of the Company's outstanding Common Stock
will automatically be granted an option to purchase 25,000 shares of the
Company's Common Stock at an exercise price equal to the initial public
offering price. In addition,
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<PAGE>
upon joining the Board of Directors, each new non-employee director will
automatically be granted an option to purchase 25,000 shares of Common Stock.
Each non-employee director will subsequently be granted an option to purchase
5,000 shares of Common Stock at each annual meeting of stockholders beginning
with the 1997 Annual Meeting of Stockholders. Each such option will be granted
at the fair market value of the Common Stock on the date of grant. The initial
options granted to non-employee directors will vest at a rate of 25% on the
first anniversary of the date of grant and at a rate of 1/48 of the shares per
month thereafter, and subsequent options granted to non-employee directors
will become exercisable at a rate of 1/48 of the shares subject to such
additional options on the monthly anniversary of the date of grant subject to
continued Board service. See "Stock Plans--1996 Director Stock Option Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is responsible for determining salaries,
incentives and other forms of compensation for directors, officers and other
employees of the Company and administers various incentive compensation and
benefit plans. The Compensation Committee currently consists of Stuart J.
Ellman, Michael Ramsay, and James D. Robinson IV. During 1995, the
Compensation Committee consisted of Michael Ramsay, Michael D. Granoff, James
D. Robinson III and James D. Robinson IV. Kenneth B. Hamlet, President, Chief
Executive Officer and a director of the Company, participates in all
discussions and decisions regarding salaries and incentive compensation for
all employees and consultants of the Company, except that he is excluded from
discussions regarding his own salary and incentive compensation. No
interlocking relationship exists between any member of the Company's
Compensation Committee and any member of any other company's board of
directors or compensation committee.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth in summary form information concerning the
compensation awarded to, earned by, or paid for services rendered to the
Company in all capacities during the fiscal year ended December 31, 1995 by
(i) the Company's Chief Executive Officer as of the end of fiscal year 1995,
(ii) the Company's next four most highly compensated executive officers whose
salary and bonus for such fiscal year exceeded $100,000 and who were serving
as an officer of the Company as of the end of such fiscal year, (iii) Kenneth
B. Hamlet, who became the Company's President and Chief Executive Officer in
January 1996, and (iv) Gordon E. (Ned) Druehl, Jr., who became the Company's
Executive Vice President and Chief Operating Officer in August 1996
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
FISCAL 1995
------------
LONG-TERM
COMPENSATION
FISCAL 1995 AWARDS
------------------------------------
ANNUAL COMPENSATION(1) SECURITIES
------------------------ UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS(2) OPTIONS
--------------------------- ----------- ------------------------
<S> <C> <C> <C>
Current Executive Officers
Kenneth B. Hamlet (3)..................... $ -- $ -- --
Chairman of the Board, President and
Chief Executive Officer
Robert R. Creager (4)..................... 175,000 -- 349,500
Founder and Executive Vice President,
Corporate Development
James A. Barth............................ 131,245 7,219 150,000
Executive Vice President and Chief
Financial Officer
Gordon E. (Ned) Druehl, Jr. (5)........... -- -- --
Executive Vice President and Chief
Operating Officer
Pang T. Ho, Ph.D.......................... 125,683 12,870 81,800
Vice President of Engineering
Former Executive Officers
Jeffrey A. Bixler (6)..................... 96,708 134,875 75,000
Vice President of Sales and Marketing
Eric S. Hass(7)........................... 147,406 -- 169,000
Executive Vice President and Chief
Operating Officer
</TABLE>
- --------
(1) Other than salary and bonus described herein, the Company did not pay the
persons named in the Summary Compensation Table any fringe benefits,
perquisites or other compensation in excess of 10% of such executive
officer's salary and bonus.
(2) Except as otherwise indicated, bonus compensation consists of performance
or contractually based cash incentive payments.
(3) Mr. Hamlet succeeded Robert R. Creager as President and Chief Executive
Officer of the Company in January 1996. In connection with Mr. Hamlet's
employment, the Company agreed to pay him an annual salary of $250,000. In
addition, Mr. Hamlet is entitled to receive a cash bonus, and a
corresponding stock bonus, based on performance. See "--Employment
Agreements and Change in Control Arrangements" and "Certain Transactions."
In January 1996, the Company granted Mr. Hamlet an option expiring January
2001 to acquire 654,324 shares of the Company's Common Stock at an
exercise price of $2.00 per share, with vesting to occur ratably over 36
months.
(4) Mr. Creager resigned as President and Chief Executive Officer in January
1996. The Company and Mr. Creager are parties to an agreement governing
Mr. Creager's employment with the Company under which Mr. Creager's salary
is set at $175,000. See "--Employment Agreements and Change in Control
Arrangements" and "Certain Transactions."
(5) Mr. Druehl became the Company's Executive Vice President and Chief
Operating Officer in August 1996. In connection with Mr. Druehl's
employment, the Company agreed to pay him an annual salary of $155,000 and
a cash bonus equal to 33% of his salary, based on performance. See "--
Employment Agreements and Change in Control Arrangements" and "Certain
Transactions." In August 1996, the Company granted Mr. Druehl an option
expiring August 2001 to acquire 150,000 shares of the Company's Common
Stock at an exercise price of $5.25 per share, with 25% of the shares
vesting in July 1997, and the remaining shares vesting ratably over the
succeeding 36 months of service.
(6) Mr. Bixler resigned from the Company effective in December 1995. Bonus for
Mr. Bixler includes $39,375 in severance payments, a bonus of $67,500 paid
pursuant to an employment agreement with the Company, a $25,000 signing
bonus and a $3,000 housing allowance.
(7) Mr. Hass resigned from the Company effective in March 1996.
42
<PAGE>
OPTION GRANTS IN FISCAL YEAR 1995
The following table provides information relating to stock options awarded
to each of the Named Executive Officers during the fiscal year ended December
31, 1995. All such options were awarded under the Company's 1992 Key Personnel
Stock Option Plan. No stock appreciation rights were granted to the Named
Executive Officers during the fiscal year ended December 31, 1995.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------- POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTIONS TERM(1)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ----------------------
NAME GRANTED FISCAL 1995 SHARE(2)(3) DATE(4) 5% 10%
---- ---------- ------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Current Executive Officers
Kenneth B. Hamlet(5)............ -- -- % $ -- -- $ -- $ --
Robert R. Creager............... 349,500 36.7 1.00 1/30/00 96,560 213,373
James A. Barth.................. 100,000 10.5 1.00 1/30/00 27,628 61,051
50,000 5.3 2.00 9/18/00 27,628 61,051
Gordon E. (Ned) Druehl, Jr.(6).. -- -- -- -- -- --
Pang T. Ho, Ph.D................ 61,800 6.5 1.00 1/30/00 17,074 37,730
20,000 2.1 2.00 9/18/00 11,051 24,420
Former Executive Officers
Jeffrey A. Bixler(7)............ 75,000 7.9 1.00 4/18/00 20,721 45,788
Eric S. Hass(8)................. 169,000 17.8 1.00 1/30/00 46,692 103,176
</TABLE>
- --------
(1) Potential realizable value is based on the assumption that the Common
Stock of the Company appreciates at the annual rate shown (compounded
annually) from the date of grant until the expiration of the five year
option term. These numbers are calculated based on the requirements
promulgated by the Securities and Exchange Commission and do not reflect
the Company's estimate of future stock price growth.
(2) Options were granted at an exercise price equal to the fair market value
of the Company's Common Stock, as determined by the Board of Directors on
the date of grant.
(3) Exercise price may be paid in cash, by check, by delivery of already-owned
shares of the Company's Common Stock subject to certain conditions, or
pursuant to a cashless exercise procedure under which the optionee
provides irrevocable instructions to a brokerage firm to sell the
purchased shares and to remit to the Company, out of the sale proceeds, an
amount equal to the exercise price plus all applicable withholding taxes.
(4) Twenty-five percent (25%) of the option shares vest on the first
anniversary of the date of grant, and the balance vests at the rate of
1/48 of the total option shares for each month of service thereafter,
except for Mr. Robert R. Creager's option, which vests ratably over 36
months.
(5) Mr. Hamlet became President and Chief Executive Officer of the Company in
January 1996. In January 1996, the Company granted Mr. Hamlet an option
expiring January 2001 to acquire 654,324 shares of the Company's Common
Stock at an exercise price per share of $2.00 with vesting to occur
ratably over 36 months.
(6) In August 1996, the Company granted Mr. Druehl an option to acquire
150,000 shares of the Company's Common Stock at an exercise price of $5.25
per share, with 25% of the shares vesting in July 1997 and the remaining
shares subject to the option vesting ratably over the succeeding 36 months
of service.
(7) Mr. Bixler resigned from the Company effective in December 1995. No shares
subject to the option had vested as of the date of Mr. Bixler's
resignation, and the option terminated.
(8) Mr. Hass resigned from the Company effective in March 1996. In connection
with his resignation, Mr. Hass exercised the option with respect to 66,895
shares. The option expired with respect to all unvested shares on the
effective date of Mr. Hass' resignation.
43
<PAGE>
AGGREGATE OPTION EXERCISES
IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
No Named Executive Officer exercised a stock option during fiscal 1995. The
following table sets forth certain information regarding stock options held as
of December 31, 1995 by the Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1995 DECEMBER 31, 1995(1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Current Executive Officers
Kenneth B. Hamlet (2)...... -- -- $ -- $ --
Robert R. Creager ......... 135,917 213,583 1,631,004 2,562,996
James A. Barth............. 32,292 117,708 384,379 1,365,621
Gordon E. (Ned) Druehl,
Jr.(3).................... -- -- -- --
Pang T. Ho, Ph.D. ......... 29,583 75,417 353,746 886,254
Former Executive Officers
Jeffrey A. Bixler(4)....... -- -- -- --
Eric S. Hass(5)............ 73,000 146,000 876,000 1,752,000
</TABLE>
- --------
(1) Based on an initial public offering price of $13.00 per share minus the
exercise price of outstanding options.
(2) Mr. Hamlet became President and Chief Executive Officer of the Company in
January 1996 and, accordingly, held no outstanding options as of December
31, 1995. In January 1996, the Company granted Mr. Hamlet an option
expiring January 2001 to acquire 654,324 shares of the Company's Common
Stock at an exercise price per share of $2.00 with vesting to occur
ratably over 36 months.
(3) Mr. Druehl became Executive Vice President and Chief Operating Officer in
August 1996 and, accordingly, held no outstanding options as of December
31, 1995. In August 1996, the Company granted Mr. Druehl an option
expiring August 2001 to acquire 150,000 shares of the Company's Common
Stock at an exercise price per share of $5.25 with 25% of the shares
vesting in July 1997 and the remaining shares vesting ratably over the
succeeding 36 months of service.
(4) Mr. Bixler resigned from the Company effective in December 1995. No shares
subject to the option granted to Mr. Bixler had vested as of the date of
his resignation, and the option terminated as of such date. Accordingly,
Mr. Bixler held no outstanding options as of December 31, 1995.
(5) Mr. Hass resigned from the Company effective in March 1996. In connection
with his resignation. Mr. Hass exercised two outstanding options for
19,791 and 66,895 shares, respectively. All remaining shares subject to
options held by Mr. Hass were unvested and terminated on the effective
date of his resignation.
STOCK PLANS
1992 Key Personnel Stock Option Plan. The Company's Restated 1992 Key
Personnel Stock Option Plan (the "1992 Plan") was originally adopted by the
Board of Directors in December 1992 and approved by the Company's stockholders
in December 1993. The Board of Directors approved the amendment and
restatement of the 1992 Plan in September 1996. A total of 3,800,000 shares of
Common Stock, less the number of shares issued under and not returned to the
Company's now-terminated 1992 Stock Option Plan, has been reserved for
issuance under the 1992 Plan. The 1992 Plan provides for the grant to
employees of incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), and
for the grant to employees and consultants of nonstatutory stock options.
Unless terminated sooner, the 1992 Plan will terminate automatically in
December 2002.
The 1992 Plan may be administered by the Board of Directors or a committee
of the Board (the "Committee"), which Committee shall, in the case of options
intended to qualify as "performance-based compensation" within the meaning of
Section 162(m) of the Code, consist of two or more "outside directors" within
the meaning of Section 162(m) of the Code. The Committee has the power to
determine the terms of the
44
<PAGE>
options granted, including the exercise price, the number of shares subject to
each option, the exercisability thereof, and the form of consideration payable
upon such exercise. In addition, the Committee has the authority to amend,
suspend or terminate the 1992 Plan, provided that no such action may affect
any share of Common Stock previously issued and sold or any option previously
under the 1992 Plan.
Options granted under the 1992 Plan are not generally transferable by the
optionee, and each option is exercisable during the lifetime of the optionee
only by the optionee. Options granted under the 1992 Plan must generally be
exercised within three months of the end of optionee's status as an employee
or consultant of the Company, or within twelve months after the optionee's
termination by death or disability, but in no event later than the expiration
of the option's term. The exercise price of all incentive stock options
granted under the 1992 Plan must be at least equal to the fair market value of
the Common Stock on the date of grant. The exercise price of nonstatutory
stock options granted under the 1992 Plan is determined by the Committee, but
with respect to nonstatutory stock options intended to qualify as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the exercise price must be at least equal to the fair market value of
the Common Stock on the date of grant. With respect to any participant who
owns stock possessing more than 10% of the voting power of all classes of the
Company's outstanding capital stock, the exercise price of any incentive stock
option granted must equal at least 110% of the fair market value on the date
of grant, and the term of such incentive stock option may not exceed five
years. The term of all other options granted under the 1992 Plan may not
exceed ten years.
The 1992 Plan provides that in the event of a merger of the Company with or
into another corporation, a sale of substantially all of the Company's assets
or a like transaction involving the Company, each option shall be assumed or
an equivalent option substituted by the successor corporation. If the
outstanding options are not assumed or substituted for as described in the
preceding sentence, the Committee shall provide for the Optionee to have the
right to exercise the option as to all of the optioned stock, including shares
as to which it would not otherwise be exercisable. If the Committee makes an
option exercisable in full in the event of a merger or sale of assets, the
Administrator shall notify the optionee that the option shall be fully
exercisable for a period of fifteen (15) days from the date of such notice,
and the option will terminate upon the expiration of such period. Certain
options outstanding under the 1992 Plan contain a provision providing for
accelerated vesting of options following an assumption by the successor
corporation in the event the optionee's employment is terminated within
certain time periods after the consummation of the merger. The Committee may,
in its discretion, include such provision in the vesting arrangement for
future option grants.
1992 Stock Option Plan. The Company's now-terminated 1992 Stock Option Plan
(the "1992 Stock Option Plan") provided for the granting to employees of
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code and for the granting to employees and consultants of nonstatutory
stock options. The 1992 Stock Option Plan was approved by the Board of
Directors and stockholders in December 1992. A total of 2,000,000 shares of
Common Stock were originally reserved for issuance pursuant to the 1992 Stock
Option Plan. The Board terminated the 1992 Stock Option Plan in August, 1996,
although shares of Common Stock previously issued and sold and any option
previously granted under the 1992 Stock Option Plan will not be affected by
the termination of this plan. No further grants will be made under the 1992
Stock Option Plan.
Options granted under the 1992 Stock Option Plan are not generally
transferable by the optionee, and each option is exercisable during the
lifetime of the optionee only by such optionee. Options granted under the 1992
Stock Option Plan must generally be exercised within three months of the end
of optionee's status as an employee or consultant of the Company, within six
months after such optionee's termination by disability or within twelve months
after such optionee's termination by death (but in no event later than the
expiration of the option's ten year term). The exercise price of all incentive
stock options granted under the 1992 Stock Option Plan was at least equal to
the fair market value of the Common Stock on the date of grant. The exercise
price of nonstatutory stock options granted under the 1992 Stock Option Plan
was at least equal to 85% of the fair market value of the Common Stock on the
date of grant. With respect to any participant who owned stock possessing
45
<PAGE>
more than 10% of the voting power of all classes of the Company's outstanding
capital stock at the date of grant, the exercise price of any option granted
was at least 110% of the fair market value on the date of grant, and the term
of such option did not exceed five years. The term of all other options
granted under the 1992 Stock Option Plan did not exceed ten years.
The 1992 Stock Option Plan provides that in the event of a merger of the
Company with or into another corporation, a sale of substantially all of the
Company's assets or a like transaction involving the Company, each option
shall be assumed or an equivalent option substituted by the successor
corporation. If the outstanding options are not assumed or substituted for as
described in the preceding sentence, the Committee shall notify the optionee
that the option shall be exercisable to the extent it has vested for a period
of fifteen (15) days from the date of such notice, and the option shall
terminate upon the expiration of such period.
1996 Employee Stock Purchase Plan. The Company's 1996 Employee Stock
Purchase Plan (the "Purchase Plan") was adopted by the Board of Directors in
September 1996 but will not become effective until the effectiveness of the
Registration Statement related to the Offerings. A total of 200,000 shares of
Common Stock has been reserved for issuance under the Purchase Plan. The
Purchase Plan, which is intended to qualify under Section 423 of the Internal
Revenue Code, is implemented by consecutive and overlapping twenty-four month
offering periods beginning on the first trading day on or after May 1 and
November 1 each year, except for the first such offering period which
commences on the first trading day on or after the effective date of the
Offerings and ends on the last trading day on or before October 31, 1998. Each
offering period contains four intervening purchase periods of approximately
six months duration, during which payroll deductions of participants are
accumulated and, at the end of which, shares of Common Stock are purchased.
The Purchase Plan is administered by the Board of Directors or by a committee
appointed by the Board. Employees are eligible to participate if they are
customarily employed by the Company or any participating subsidiary for at
least 20 hours per week and more than five months in any calendar year. The
Purchase Plan permits eligible employees to purchase Common Stock through
payroll deductions of up to 15% of an employee's compensation (excluding
commissions, overtime and other bonuses and incentive compensation). The price
of stock purchased under the Purchase Plan is 85% of the lower of the fair
market value of the Common Stock at the beginning of the offering period or
the end of the purchase period. Employees may end their participation at any
time during an offering period, and they will be paid their payroll deductions
to date. Participation ends automatically upon termination of employment with
the Company.
Rights granted under the Purchase Plan are not transferable by a participant
other than by will, the laws of descent and distribution, or as otherwise
provided under the Purchase Plan. The Purchase Plan provides that, in the
event of a merger of the Company with or into another corporation or a sale of
substantially all of the Company's assets, the Board of Directors shall
shorten the offering period then in progress (so that employees' rights to
purchase stock under the Plan are exercised prior to the merger or sale of
assets). The Purchase Plan will terminate in September 2006. The Board of
Directors has the authority to amend or terminate the Purchase Plan, except
that no such action may adversely affect any outstanding rights to purchase
stock under the Purchase Plan.
1996 Director Stock Option Plan. The Company's 1996 Director Stock Option
Plan (the "Director Plan") was adopted by the Board of Directors in September
1996 but will not become effective until the date of the effectiveness of the
Registration Statement relating to the Offerings. Non-employee directors are
entitled to participate in the Director Plan. The Director Plan has a term of
ten years, unless terminated sooner by the Board. A total of 200,000 shares of
Common Stock have been reserved for issuance under the Director Plan.
The Director Plan provides for the grant of 25,000 shares of Common Stock
(the "First Option"), to each non-employee director on the earlier of (i) the
effective date of the Director Plan or (ii) the date on which the person first
becomes a non-employee director. The Board of Directors may, in its
discretion, grant a First Option covering a different number of shares of
Common Stock. No non-employee director will be granted a First Option if
either (i) immediately prior to becoming a non-employee director, such person
was a director of the Company or (ii) such individual is the direct or
indirect beneficial owner or an affiliate of a direct or indirect
46
<PAGE>
beneficial owner of 3% or more of the Company's outstanding Common Stock. Each
non-employee director, including non-employee directors not entitled to
receive a First Option, will also be granted an option to purchase 5,000
shares of Common Stock (a "Subsequent Option") each year on the date of the
annual shareholder's meeting of the Company, if on such date he or she shall
have served on the Board for at least six months. The First Option shall have
a term of 10 years and the shares subject to each such option shall vest as to
25% of the shares of Common Stock subject to the option one year after its
date of grant, and as to 1/48th of the shares subject to the option each month
thereafter, and each Subsequent Option will become exercisable at a rate of
1/48 of the shares subject to such additional options on the monthly
anniversary of the date of grant. The exercise prices of the First Option and
each Subsequent Option shall be 100% of the fair market value per share of the
Common Stock, generally determined with reference to the closing price of the
Common Stock as reported on the Nasdaq National Market on the date of grant.
In the event of a merger of the Company or the sale of substantially all of
the assets of the Company, each option may be assumed or an equivalent option
substituted by the successor corporation. If an option is assumed or
substituted for, it shall continue to vest as provided in the Director Plan.
If a non-employee director's status as a director of the Company or the
successor corporation, as applicable, is terminated other than upon a
voluntary resignation by the non-employee director, each option granted to
such non-employee director shall become fully vested and exercisable. If the
successor does not agree to assume or substitute the option, each option shall
also become fully vested and exercisable for a period of thirty days, after
which period the option shall terminate. Options granted under the Director
Plan must be exercised within three months of the end of the optionee's tenure
as a director of the Company, or within twelve months after termination of the
director's tenure by death or disability, but in no event later than the
expiration of the option's ten year term. No option granted under the Director
Plan is transferable by the optionee other than by will or the laws of descent
and distribution, and each option is exercisable, during the lifetime of the
optionee, only by such optionee.
401(k) Plan. The Company maintains the MagiNet Corporation 401(k) Savings
Plan (the "401(k) Plan") which covers all of the Company's full-time U.S.
employees who have completed one month of service. Pursuant to the 401(k)
Plan, eligible employees may elect to defer their current compensation by up
the statutorily prescribed annual limit and have the amount of such reduction
contributed to the 401(k) Plan on their behalf as an elective deferral
contribution. The 401(k) Plan is intended to qualify under Section 401 of the
Internal Revenue Code of 1986, as amended, so that contributions to the 401(k)
Plan, and income earned on such contributions, are not taxable to employees
until withdrawn from the 401(k) Plan. The trustee under the 401(k) Plan, at
the direction of each participant, invests the assets of the 401(k) Plan in
any of a number of investment options.
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
The Company currently has employment agreements in effect with Kenneth B.
Hamlet, the Company's Chairman of the Board, President and Chief Executive
Officer, Robert R. Creager, the Company's Executive Vice President, Corporate
Development, and Gordon E. (Ned) Druehl, Jr., the Company's Executive Vice
President and Chief Operating Officer.
On September 22, 1995, the Company entered into an at-will employment
agreement with Mr. Creager pursuant to which the Company retained his services
as the Company's President and Chief Executive Officer until the appointment
of Mr. Hamlet to such posts and retained Mr. Creager's services as Chairman of
the Company's Board of Directors thereafter. The term of the agreement is
until September 22, 1996 and can be voluntarily continued by the Company.
Under the agreement, Mr. Creager's salary is set at $175,000 per year. In
addition to his salary, Mr. Creager is entitled to participate in the
Company's executive bonus program and employee benefit plans. In the event of
a change of control transaction, Mr. Creager, whether or not employed by the
Company and unless terminated by the Company for cause, shall be entitled to
participate in any Company arrangement designed to compensate or incentivize
executives in connection with a change of control transaction.
47
<PAGE>
On November 28, 1995, the Company entered into an at-will employment
agreement with Mr. Hamlet pursuant to which the Company retained his services
as President and Chief Executive Officer beginning January 15, 1996. The
agreement provides for an annual base salary of $250,000, subject to annual
review concerning increases. In addition, Mr. Hamlet is eligible to receive an
annual bonus based upon certain financial criteria to be agreed upon by
Mr. Hamlet and the Board of Directors, including revenue and profitability
targets and other organizational milestones. Such bonus shall be payable in
part in cash and in part in Common Stock of the Company. The number of shares
of Common Stock issuable in connection with Mr. Hamlet's bonus shall, upon the
closing of the Offerings, be determined by dividing the cash portion of the
bonus by a price per share to be determined by negotiation between the Company
and Mr. Hamlet. Such shares shall be fully vested at the time of issuance.
On June 20, 1996, the Company entered into an at-will employment letter
agreement with Mr. Druehl which provides for an annual base salary of $155,000
and an annual cash bonus based on the achievement of individual and Company
performance objectives.
Under the 1992 Plan, in the event of a merger or change-of-control of the
Company, the successor corporation may assume outstanding options or
substitute equivalent options. If such successor corporation does not assume
such options or substitute equivalent options, vesting of outstanding options
under the 1992 Plan will automatically accelerate. In addition, currently
outstanding options under the 1992 Plan for the Named Executive Officers
provide that if such option is assumed or an equivalent option is substituted,
vesting of such option will automatically accelerate if such officer's
employment with the successor corporation is terminated within twelve months
of the merger or change-of-control transaction.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
The Company has adopted provisions in its Certificate of Incorporation that
eliminate to the fullest extent permissible under Delaware law the liability
of its directors to the Company for monetary damages. Such limitation of
liability does not affect the availability of equitable remedies such as
injunctive relief or rescission. The Company's Bylaws provide that the Company
shall indemnify its directors and officers to the fullest extent permitted by
Delaware law, including in circumstances in which indemnification is otherwise
discretionary under Delaware law. The Company has entered into indemnification
agreements with its officers and directors containing provisions which may
require the Company, among other things, to indemnify the officers and
directors against certain liabilities that may arise by reason of their status
or service as directors or officers (other than liabilities arising from
willful misconduct of a culpable nature), and to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified.
There is no currently pending litigation or proceeding involving a director,
officer, employee or other agent of the Company in which indemnification would
be required or permitted. The Company is not aware of any threatened
litigation or proceeding which may result in a claim for such indemnification.
48
<PAGE>
CERTAIN TRANSACTIONS
Between October 1992 and May 1996, the Company sold and issued 10,908,878
shares of its Preferred Stock for an aggregate consideration of $56,402,000.
The Company sold the Preferred Stock in series as follows: (i) 150,000 shares
of Series A Preferred Stock in October 1992 at a price of $2.00 per share;
(ii) 440,068 shares of Series B Preferred Stock in October 1992 at a price of
$4.00 per share; (iii) 888,859 shares of Series B Preferred Stock in March
1993 at a price of $4.50 per share and warrants to acquire 174,993 shares of
Common Stock at an exercise price of $4.50 per share; (iv) 6,287,093 shares of
Series C Preferred Stock in September 1994 at a price of $4.50 per share and
warrants to acquire 1,111,111 shares of Series C Preferred Stock at an
exercise price of $4.50 per share; (v) an aggregate of 3,142,858 shares of
Series D Preferred Stock in December 1995 and May 1996 at a price of $7.00 per
share and warrants to acquire up to an aggregate 200,000 shares of Common
Stock (subject to adjustment) at an exercise price of $7.00 per share.
The following table summarizes purchases, valued in excess of $60,000, of
shares of Preferred Stock and Common Stock by directors, executive officers,
and 5% stockholders of the Company:
<TABLE>
<CAPTION>
SHARES
-----------------------------------------------------------------
COMMON SERIES C SERIES D
COMMON SERIES C WARRANTS(1) WARRANTS(2) SERIES D WARRANTS(3)
------ --------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
RRE Investors,
L.L.C.(4).............. -- 4,000,000 -- 1,111,111 -- --
Equity-Linked Investors
II..................... -- -- -- -- 1,500,000 95,455
Festival Company, Inc... -- -- -- -- 1,000,001 63,636
Pomona Capital,
L.P.(5)................ -- 669,150 66,667 -- -- --
Kenneth B. Hamlet(6).... 28,000(8) -- -- -- 28,000 1,782
James A. Barth(7)....... 12,000(8) -- -- -- 12,000 764
</TABLE>
- --------
(1) Represents the maximum number of shares issuable upon exercise of warrants
to acquire Common Stock at an exercise price of $0.50 per share issued in
connection with a bridge note financing in September 1994.
(2) Represents the maximum number of shares issuable upon exercise of warrants
to acquire Series C Preferred Stock (and, upon the effectiveness of the
registration statement covering the Offerings, to acquire Common Stock)
issued in connection with the Company's Series C Preferred Stock
Financing. If not exercised in connection with the Offerings, such
warrants will terminate.
(3) Represents the maximum number of shares issuable upon exercise of warrants
to acquire Common Stock issued in connection with the Company's Series D
Preferred Stock Financing. If not exercised in connection with the
Offerings, such warrants will terminate.
(4) Includes shares purchased by Sunset Partners, L.P., Sunset Partners II,
L.P., and Sunset Partners III, L.P. (collectively, the "Sunset
Partnerships"). RRE Investors, L.L.C. is the general partner of each of
the Sunset Partnerships.
(5) Includes shares purchased by Pomona Capital, L.P., SOF Venture Capital,
L.P., SP Offshore Venture Capital, L.P. and SP Venture Capital, L.P.
Michael D. Granoff, a member of the Company's Board of Directors, is the
sole shareholder of Pomona Partners, Inc., the general partner of SOF
Venture Capital, L.P., SP Offshore Venture Capital, L.P. and SP Venture
Capital, L.P. and the general partner of Pomona Associates, L.P. which
serves as the general partner of Pomona Capital, L.P.
(6) Mr. Hamlet is Chairman of the Board, President and Chief Executive Officer
of the Company.
(7) Mr. Barth is Executive Vice President and Chief Financial Officer of the
Company.
(8) Mr. Hamlet and Mr. Barth purchased the number of shares of Common Stock
indicated on May 30, 1996 at a purchase price per share of $2.00.
On September 29, 1994, the Company entered into a consulting agreement with
RRE Investors, L.L.C. ("RRE"), which terminates on September 28, 1997. RRE is
the general partner of each of Sunset Partners, L.P., Sunset Partners, L.P.
and Sunset Partners III, L.P., which collectively hold greater than 5% of the
outstanding Common Stock of the Company. The agreement provides that RRE will
provide consulting and advisory services to the Company regarding strategic
planning and business and financial matters for a fee of $150,000 for the
first year of the agreement and $200,000 for each of the following two years.
The agreement also provides that the Company will reimburse RRE for reasonable
business expenses incurred by RRE, its employees and its agents in providing
such services.
The Company has entered into employment agreements with certain officers of
the Company. See "--Employment Agreements and Change in Control Arrangements."
49
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of August 31, 1996 and as adjusted
to reflect the sale of the 5,000,000 shares of Common Stock offered hereby by
(i) each person or entity who is known by the Company to own beneficially 5%
or more of the Company's outstanding Common Stock; (ii) each director of the
Company; (iii) each of the Named Executive Officers and (iv) all directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF TOTAL SHARES(2)
SHARES BENEFICIALLY ------------------------------
NAME AND ADDRESS(1) OWNED(2) BEFORE OFFERING AFTER OFFERING
------------------- ------------------- --------------- --------------
<S> <C> <C> <C>
RRE Investors, L.L.C.(3).... 4,726,495 35.1% 25.6%
122 East 56th Street, 22nd
Floor
New York, NY 10022
Equity-Linked Investors II.. 1,522,028 11.3% 8.2%
c/o Desai Capital
Management, Inc.
540 Madison Avenue, 36th
Floor
New York, NY 10022
Festival Company, Inc. ..... 1,014,685 7.5% 5.5%
Wisma Barito Pacific, Tower
B
Lt. 11, J1 S. Paman Kav.
62-63 Jakarta 11410
Indonesia
Pomona Capital, L.P.(4)..... 733,251 5.4% 4.0%
780 Third Avenue
New York, NY 10017-7076
Kenneth B. Hamlet(5)........ 219,992 1.6% 1.2%
Robert R. Creager(6)........ 423,000 3.1% 2.3%
James A. Barth(7)........... 85,718 * *
Gordon E. (Ned) Druehl, Jr.
............................ -- -- --
Pang T. Ho, Ph.D.(8) ....... 51,459 * *
Stuart J. Ellman(9)......... 4,726,495 35.1% 25.6%
Michael D. Granoff(10)...... 733,251 5.4% 4.0%
Michael Ramsay(11).......... 7,292 * *
James D. Robinson IV(12).... 4,726,495 35.1% 25.6%
Jeffrey A. Bixler(13)....... -- -- --
Eric S. Hass(14)............ 132,826 1.0% *
All current executive
officers and directors as a
group
(9 persons)(15)............. 6,247,207 44.8% 33.0%
</TABLE>
- --------
*Less than 1%.
(1) Unless otherwise indicated, the address for each listed stockholder is
c/o MagiNet Corporation, 405 Tasman Drive, Sunnyvale, California 94089.
Except as otherwise indicated, and subject to applicable community
property laws, the persons named in the table have sole voting and
investment power with respect to all shares of Common Stock held by them.
(2) Applicable percentage ownership is based on 13,459,439 shares of Common
Stock outstanding as of August 31, 1996 and 18,459,439 shares immediately
following the completion of the Offerings (assuming no exercise of the
Underwriters' over-allotment option), together with applicable options
for such stockholder. Beneficial ownership is determined in accordance
with the rules of the Securities and Exchange Commission and generally
includes voting or investment power with respect to securities, subject
to community property laws, where applicable. Shares of Common Stock
subject to options that are presently exercisable or exercisable within
60 days of August 31, 1996 are deemed to be beneficially owned by the
person holding such options for the purpose of computing the percentage
of ownership of
50
<PAGE>
such person but are not treated as outstanding for the purpose of computing
the percentage of any other person. To the extent that any shares are
issued upon exercise of options or other rights to acquire the Company's
capital stock that are presently outstanding or granted in the future or
reserved for future issuance under the Company's stock plans, there will be
further dilution to new public investors.
(3) Includes 1,808,907 shares held by Sunset Partners, L.P. ("Sunset"),
1,591,412 shares held by Sunset Partners II, L.P. ("Sunset II") and
1,326,176 shares held by Sunset Partners III, L.P. ("Sunset III"). RRE
Investors, L.L.C. is the general partner of each of Sunset Partners,
L.P., Sunset Partners II, L.P. and Sunset Partners III, L.P.
(collectively, the "Sunset Partnerships").
(4) Includes 244,417 shares held by Pomona Capital, L.P. ("Pomona"), 195,534
shares held by SOF Venture Capital, L.P. ("SOF Venture"), 175,980 shares
held by SP Offshore Venture Capital, L.P. ("SP Offshore") and 117,320
shares held by SP Venture Capital, L.P. ("SP Venture"). Michael D.
Granoff, a director of the Company, is the sole shareholder of Pomona
Partners, Inc., which serves as the general partner of SOF Venture, SP
Offshore and SP Venture, and which also serves as the general partner of
Pomona Associates, L.P., the general partner of Pomona.
(5) Includes 163,581 shares of Common Stock issuable upon exercise of stock
options which are presently exercisable or will become exercisable within
60 days of August 31, 1996. Mr. Hamlet is the Company's President and
Chief Executive Officer and Chairman of its Board of Directors.
(6) Includes 233,000 shares of Common Stock issuable upon exercise of stock
options which are presently exercisable or will become exercisable within
60 days of August 31, 1996. Mr. Creager is the Company's founder and
Executive Vice President of Corporate Development.
(7) Includes (i) 63,542 shares of Common Stock issuable upon exercise of
stock options which are presently exercisable or will become exercisable
within 60 days of August 31, 1996, (ii) 5,000 shares of Common Stock held
by Mr. Barth's wife and (iii) 1,000 shares held by Mr. Barth's son. Mr.
Barth is the Company's Executive Vice President and Chief Financial
Officer.
(8) Includes 27,459 shares of Common Stock issuable upon exercise of stock
options which are presently exercisable or will become exercisable within
60 days of August 31, 1996 and 4,000 shares held byDr. Ho's children. Dr.
Ho is the Company's Vice President of Engineering.
(9) Includes 1,808,907 shares held by Sunset, 1,591,412 shares held by Sunset
II and 1,326,176 shares held by Sunset III. Mr. Ellman is a member of the
Company's Board of Directors and a member of RRE Investors, L.L.C., a
limited liability company that serves as general partner of each of the
Sunset Partnerships. Mr. Ellman disclaims beneficial ownership of such
shares except to the extent of his pecuniary interest therein.
(10) Includes 244,417 shares held by Pomona, 195,534 shares held by SOF
Venture, 175,980 shares held by SP Offshore and 117,320 shares held by SP
Venture. Mr. Granoff, a member of the Company's Board of Directors, is
the sole shareholder of Pomona Partners, Inc., the general partner of SOF
Venture, SP Offshore and SP Venture and the general partner of Pomona
Associates, L.P., which serves as the general partner of Pomona. Mr.
Granoff disclaims beneficial ownership of such shares except to the
extent of his pecuniary interest therein.
(11) Includes 7,292 shares of Common Stock issuable upon exercise of stock
options which are presently exercisable or will become exercisable within
60 days of August 31, 1996. Mr. Ramsay is a member of the Company's Board
of Directors.
(12) Includes 1,808,907 shares held by Sunset, 1,591,412 shares held by Sunset
II and 1,326,176 shares held by Sunset III. Mr. Robinson is a member of
the Company's Board of Directors and a member of RRE Investors, L.L.C., a
limited liability company that serves as general partner of each of the
Sunset Partnerships. Mr. Robinson disclaims beneficial ownership of such
shares except to the extent of his pecuniary interest therein.
(13) Mr. Bixler resigned from the Company effective in December 1995.
(14) Includes 46,140 shares held by Mr. Hass individually and 86,686 shares
held by Mr. Hass and his wife, as trustees of the Hass Community Property
Trust. Mr. Hass resigned from the Company effective in March 1996.
(15) Includes 494,874 shares of Common Stock issuable upon exercise of
outstanding stock options which are presently exercisable or will become
exercisable within 60 days of August 31, 1996. Excludes 132,826 shares
beneficially held by Eric S. Hass, who resigned as an officer of the
Company effective in March 1996.
51
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon the completion of the Offerings, the Company will be authorized to
issue 45,000,000 shares of Common Stock, $0.001 par value, and 5,000,000
shares of undesignated Preferred Stock, $0.001 par value. The following
description of the Company's capital stock does not purport to be complete and
is subject to and qualified in its entirety by the Company's Restated
Certificate of Incorporation and Bylaws, which are included as exhibits to the
Registration Statement of which this Prospectus forms a part, and by the
provisions of applicable Delaware law.
COMMON STOCK
Upon conversion of the Preferred Stock, there will be 13,459,439 shares of
Common Stock outstanding held of record by approximately 90 holders. Holders
of Common Stock are entitled to one vote per share on all matters to be voted
upon by the stockholders. Holders of Common Stock do not have cumulative
voting rights, and, therefore, holders of a majority of the shares voting for
the election of directors can elect all of the directors. In such event, the
holders of the remaining shares will not be able to elect any directors.
Holders of the Common Stock are entitled to receive such dividends as may be
declared from time to time by the Board of Directors out of funds legally
available therefor, subject to the terms of any existing or future agreements
between the Company and its debtholders. The Company has never declared or
paid cash dividends on its capital stock, expects to retain future earnings,
if any, for use in the operation and expansion of its business, and does not
anticipate paying any cash dividends in the foreseeable future. See "Dividend
Policy." In the event of the liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all
assets legally available for distribution after payment of all debts and other
liabilities and subject to the prior rights of any holders of Preferred Stock
then outstanding.
PREFERRED STOCK
Effective upon the closing of the Offerings, the Company will be authorized
to issue 5,000,000 shares of undesignated Preferred Stock. The Board of
Directors has the authority to issue the Preferred Stock in one or more series
and to fix the price, rights, preferences, privileges and restrictions
thereof, including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences and
the number of shares constituting a series or the designation of such series,
without any further vote or action by the Company's stockholders. The issuance
of Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
delaying, deferring or preventing a change in control of the Company without
further action by the stockholders and may adversely affect the market price
of, and the voting and other rights of, the holders of Common Stock. The
issuance of Preferred Stock with voting and conversion rights may adversely
affect the voting power of the holders of Common Stock, including the loss of
voting control to others. The Company has no current plans to issue any shares
of Preferred Stock.
ANTITAKEOVER EFFECTS OF PROVISIONS OF CERTIFICATE OF INCORPORATION AND BYLAWS
The Company's Certificate of Incorporation provides that all stockholder
actions must be effected at a duly called annual or special meeting and may
not be effected by written consent. The Company's Bylaws provide that, except
as otherwise required by law, special meetings of the stockholders can only be
called pursuant to a resolution adopted by a majority of the Board of
Directors, by the chief executive officer of the Company, or by stockholders
holding shares in the aggregate entitled to cast not less than 10% of the
votes at such meeting. In addition, the Company's Bylaws establish an advance
notice procedure for stockholder proposals to be brought before an annual
meeting of stockholders, including proposed nominations of persons for
election to the Board. Stockholders at an annual meeting may only consider
proposals or nominations specified in the notice of meeting or brought before
the meeting by or at the direction of the Board of Directors or by a
stockholder who was a
52
<PAGE>
stockholder of record on the record date for the meeting, who is entitled to
vote at the meeting and who has delivered timely written notice in proper form
to the Company's Secretary of the stockholder's intention to bring such
business before the meeting.
The foregoing provisions of the Company's Certificate of Incorporation and
Bylaws are intended to enhance the likelihood of continuity and stability in
the composition of the Board of Directors and in the policies formulated by
the Board of Directors and to discourage certain types of transactions which
may involve an actual or threatened change of control of the Company. Such
provisions are designed to reduce the vulnerability of the Company to an
unsolicited acquisition proposal and, accordingly, could discourage potential
acquisition proposals and could delay or prevent a change in control of the
Company. Such provisions are also intended to discourage certain tactics that
may be used in proxy fights but could, however, have the effect of
discouraging others from making tender offers for the Company's shares and,
consequently, may also inhibit fluctuations in the market price of the
Company's shares that could result from actual or rumored takeover attempts.
These provisions may also have the effect of preventing changes in the
management of the Company. See "Risk Factors--Effect of Certain Charter
Provisions; Antitakeover Effects of Certificate of Incorporation, Bylaws and
Delaware Law."
EFFECT OF DELAWARE ANTITAKEOVER STATUTE
The Company is subject to Section 203 of the Delaware General Corporation
Law (the "Antitakeover Law"), which regulates corporate acquisitions. The
Antitakeover Law prevents certain Delaware corporations, including those whose
securities are listed for trading on the Nasdaq National Market, from
engaging, under certain circumstances in a "business combination" with any
"interested stockholder" for three years following the date that such
stockholder became an interested stockholder. For purposes of the Antitakeover
Law, a "business combination" includes, among other things, a merger or
consolidation involving the Company and the interested shareholder and the
sale of more than ten percent (10%) of the Company's assets. In general, the
Antitakeover Law defines an "interested stockholder" as any entity or person
beneficially owning 15% or more the outstanding voting stock of the Company
and any entity or person affiliated with or controlling or controlled by such
entity or person. A Delaware corporation may "opt out" of the Antitakeover Law
with an express provision in its original certificate of incorporation or an
express provision in its certificate of incorporation or bylaws resulting from
amendments approved by the holders of at least a majority of the Company's
outstanding voting shares. The Company has not "opted out" of the provisions
of the Antitakeover Law. See "Risk Factors--Effect of Certain Charter
Provisions; Antitakeover Effects of Certificate of Incorporation, Bylaws and
Delaware Law."
REGISTRATION RIGHTS
After the Offerings, the holders of approximately 3,977,000 shares of Common
Stock will be entitled upon expiration of lock-up agreements with the
Underwriters to certain rights with respect to the registration of such shares
under the Securities Act. Under the terms of the agreement between the Company
and the holders of such registrable securities, if the Company proposes to
register any of its securities under the Securities Act, either for its own
account or for the account of other securities holders exercising registration
rights, such holders are entitled to notice of such registration and are
entitled to include shares of such Common Stock therein. Holders of
registration rights may also require the Company to file a registration
statement under the Securities Act at the Company's expense with respect to
their shares of Common Stock, and the Company is required to use its best
efforts to effect such registration. Further, holders may require the Company
to file registration statements on Form S-3 at the Company's expense when such
form becomes available for use to the Company. All such registration rights
are subject to certain conditions and limitations, including the right of the
underwriters of an offering to limit the number of shares to be included in
such registration.
TRANSFER AGENT
The Transfer Agent and Registrar for the Common Stock is The First National
Bank of Boston.
53
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offerings, there has been no market for the Common Stock and
there is no assurance that a significant public market for the Common Stock
will develop or be sustained after the Offerings. Sales of substantial amounts
of Common Stock in the public market could adversely affect the market price
of the Common Stock and could impair the Company's future ability to raise
capital through the sale of its equity securities.
Upon completion of the Offerings, the Company will have outstanding
18,459,439 shares of Common Stock based upon shares outstanding as of August
31, 1996. In addition to the 5,000,000 shares of Common Stock offered hereby
(assuming no exercise of the Underwriters' over-allotment option), as of the
effective date of the Registration Statement (the "Effective Date"), there
will be 13,459,439 shares of Common Stock outstanding, all of which are
"restricted" shares (the "Restricted Shares") under the Securities Act of
1933, as amended (the "Securities Act"). Approximately 5,000 Restricted Shares
will be eligible for sale immediately following the Effective Date in reliance
on Rule 144(k) of the Securities Act. Beginning 90 days after the Effective
Date approximately 31,000 Restricted Shares of Common Stock will become
eligible for sale in the public market pursuant to Rule 144 and Rule 701 of
the Securities Act. Beginning 180 days after the Effective Date, approximately
9,448,000 additional Restricted Shares of Common Stock subject to lock-up
agreements will become eligible for sale in the public market. Of the
approximately 9,448,000 Restricted Shares that will become available for sale
in the public market beginning 180 days after the Effective Date,
approximately 7,411,000 shares will be subject to certain volume and other
resale restrictions pursuant to Rule 144.
On August 31, 1996, options to purchase 1,655,484 shares were outstanding,
of which options to purchase approximately 489,483 shares were then
exercisable. See "Management--1992 Key Personnel Stock Option Plan." The
Company intends to file, a Form S-8 registration statement under the
Securities Act to register shares reserved for issuance under this stock
option plan and upon exercise of outstanding options. Shares of Common Stock
issued upon exercise of options after the effective date of the Form S-8 will
be available for sale in the public market, subject to Rule 144 volume
limitations applicable to affiliates and lock-up agreements. Beginning 180
days after the Effective Date, 798,679 shares issuable upon the exercise of
vested options will be eligible for sale.
In general, under Rule 144 as currently in effect, an affiliate of the
Company, or person (or persons whose shares are aggregated) who has
beneficially owned Restricted Shares for at least two years but less than
three years, will be entitled to sell in any three-month period a number of
shares that does not exceed the greater of (i) 1% of the then outstanding
shares of the Common Stock (approximately 185,000 shares immediately after the
Offerings) or (ii) the average weekly trading volume during the four calendar
weeks immediately preceding the date on which notice of the sale is filed with
the Securities and Exchange Commission (the "Commission"). Sales pursuant to
Rule 144 are subject to certain requirements relating to manner of sale,
notice and availability of current public information about the Company. A
person (or persons whose shares are aggregated) who is not deemed to have been
an affiliate of the Company at any time during the 90 days immediately
preceding the sale and who has beneficially owned his or her shares for at
least three years is entitled to sell such shares pursuant to Rule 144(k)
without regard to the limitations described above. Under Rule 701, shares
issued under certain compensatory stock-based plans, such as the Company's
option plan, may be resold under Rule 144 by non-affiliates subject only to
the manner of sale requirements, and by affiliates without regard to the two-
year holding period requirements, commencing 90 days after the date of the
Offerings.
54
<PAGE>
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK
The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of Common
Stock by a person that, for United States federal income tax purposes, is a
non-resident alien individual, a foreign corporation, a foreign partnership or
an estate or trust, in each case not subject to U.S. federal income tax on a
net income tax basis in respect of income or gain from Common Stock (a "non-
U.S. holder"). This discussion is based on the Internal Revenue Code of 1986,
as amended, Treasury regulations thereunder, and administrative and judicial
interpretations as of the date hereof, all of which may be changed. This
discussion does not address all the aspects of U.S. federal income and estate
taxation that may be relevant to non-U.S. holders in light of their particular
circumstances, or to certain types of holders subject to special treatment
under United States federal income tax laws (such as life insurance companies
and dealers in securities). Nor does it address tax consequences under the
laws of any state, municipality or other taxing jurisdiction or under the laws
of any country other than the United States.
Prospective holders should consult their own tax advisors about the
particular tax consequences to them of holding and disposing of Common Stock.
DIVIDENDS
Generally, dividends paid to a non-U.S. holder of Common Stock will be
subject to United States federal withholding tax at a 30% rate or such lower
rate as may be specified by an applicable income tax treaty, unless the
dividends are effectively connected with the conduct of a trade or business
within the United States (or alternatively are attributable to a United States
permanent establishment of such holder, if an applicable income tax treaty so
requires as a condition for the non-U.S. holder to be subject to United States
income tax on a net income basis in respect of such dividends). Such
"effectively connected" dividends, or dividends attributable to a permanent
establishment, are subject to tax at rates applicable to United States
citizens, resident aliens and domestic United States corporations, and are not
generally subject to withholding. Effectively connected dividends received by
a non-U.S. corporation may be subject to an additional "branch profits tax" at
a 30% rate (or a lower rate under an applicable income tax treaty) when such
dividends are deemed repatriated from the United States.
Under current U.S. Treasury regulations, dividends paid to an address
outside the United States in a foreign country are presumed to be paid to a
resident of such country for purposes of the withholding tax. Under current
interpretation of U.S. Treasury regulations, the same presumption applies to
determine the applicability of a reduced rate of withholding under a tax
treaty. Thus, non-U.S. holders receiving dividends at addresses outside the
United States are not currently required to file tax forms to obtain the
benefit of an applicable treaty rate. Under U.S. Treasury regulations that are
proposed to be effective for distributions after 1997 (the "Proposed
Regulations"), to claim the benefits of a tax treaty a non-U.S. holder of
Common Stock would be required to satisfy applicable certification
requirements. In addition, under the Proposed Regulations, in the case of
Common Stock held by a foreign partnership, (x) the certification requirement
would generally be applied to the partners of the partnership and (y) the
partnership would be required to provide certain information. The Proposed
Regulations also provide look-through rules for tiered partnerships. It is not
certain whether, or in what form, the Proposed Regulations will be adopted as
final regulations.
If there is excess withholding on a person eligible for a treaty benefit,
the person can file for a refund with the United States Internal Revenue
Service.
GAIN ON DISPOSITION OF COMMON STOCK
A non-U.S. holder generally will not be subject to United States federal
income tax in respect of gain recognized on a disposition of Common Stock
unless (i) the gain is effectively connected with a trade or business of the
non-U.S. holder in the United States, (ii) in the case of a non-U.S. holder
who is an individual and holds
55
<PAGE>
the Common Stock as a capital asset, such holder is present in the United
States for 183 or more days in the taxable year of the disposition and certain
other conditions are met, (iii) the non-U.S. holder is subject to tax pursuant
to the provisions of United States tax law applicable to certain United States
expatriates, or (iv) the Company is or has been a "U.S. real property holding
corporation" for federal income tax purposes and, if the Common Stock is
regularly traded on an established securities market, the non-U.S. holder
held, directly or indirectly, at any time during the 5-year period ending on
the date of disposition (or such shorter period that such shares were held)
more than 5% of the Common Stock. The Company has not been and does not
anticipate becoming a "U.S. real property holding corporation" for United
States federal income tax purposes.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
Generally, the Company must report to the U.S. Internal Revenue Service the
amount of dividends paid, the name and address of the recipient and the
amount, if any, of tax withheld. A similar report is sent to the holder.
Pursuant to tax treaties or other agreements, the U.S. Internal Revenue
Service may make its reports available to tax authorities in the recipient's
country of residence. Dividends not subject to withholding tax may be subject
to backup withholding if the non-U.S. holder is not an "exempt recipient" and
fails to provide a tax identification number and other information to the
Company. Under the Proposed Regulations, dividend payments generally will be
subject to information reporting and backup withholding unless applicable
certification requirements are satisfied.
If the proceeds of a disposition of Common Stock are paid over by or through
a United States office of a broker, the payment is subject to information
reporting and possible backup withholding at a 31% rate unless the disposing
holder certifies under penalties of perjury as to his name, address, and non-
U.S. holder status or otherwise establishes an exemption. Generally, United
States information reporting and backup withholding requirement will not apply
to a payment of disposition proceeds if the payment is made outside the United
States through a non-United States office of a broker. However, United States
information reporting requirements (but not backup withholding) will apply to
a payment of disposition proceeds outside the United States if (A) the payment
is made through an office outside the United States of a broker that either
(i) is a U.S. person, (ii) derives 50% or more of its gross income for certain
periods from the conduct of a trade or business in the United States or (iii)
is a "controlled foreign corporation" for United States federal income tax
purposes and (B) the broker fails to maintain documentary evidence that the
holder is a non-U.S. holder or that the holder otherwise is entitled to an
exemption.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained.
FEDERAL ESTATE TAXES
Common Stock held by a non-U.S. holder at the time of death will be included
in such holder's gross estate for United States federal estate tax purposes
unless an applicable estate tax treaty provides otherwise.
56
<PAGE>
UNDERWRITING
Under the terms of, and subject to the conditions contained in, the U.S.
Underwriting Agreement, the form of which is filed as an exhibit to the
Registration Statement (the "Registration Statement") of which this Prospectus
forms a part, each of the Underwriters named below (the "U.S. Underwriters"),
for whom Lehman Brothers Inc. and Hambrecht & Quist LLC are acting as
representatives (the "Representatives"), has severally agreed to purchase from
the Company, and the Company has agreed to sell to each U.S. Underwriter, the
number of shares of Common Stock set forth opposite the name of such U.S.
Underwriter below:
<TABLE>
<CAPTION>
NUMBER OF
U. S. UNDERWRITERS SHARES
------------------ ---------
<S> <C>
Lehman Brothers Inc. .............................................
Hambrecht & Quist LLC.............................................
---------
Total........................................................... 4,000,000
=========
Under the terms of, and subject to the conditions contained in, the
International Underwriting Agreement, the form of which is filed as an exhibit
to the Registration Statement of which this Prospectus forms a part, each of
the managers named below (the "International Managers"), for whom Lehman
Brothers International (Europe) and Hambrecht & Quist LLC are acting as lead
managers (the "Lead Managers"), has severally agreed to purchase from the
Company, and the Company has agreed to sell to each International Manager, the
number of shares of Common Stock set forth opposite the name of such
International Manager below:
<CAPTION>
NUMBER OF
INTERNATIONAL MANAGERS SHARES
---------------------- ---------
<S> <C>
Lehman Brothers International (Europe)............................
Hambrecht & Quist LLC.............................................
---------
Total........................................................... 1,000,000
=========
</TABLE>
The U.S. Underwriting Agreement and the International Underwriting Agreement
(collectively, the "Underwriting Agreements") provide that the obligations of
the U.S. Underwriters and the International Managers to purchase shares of
Common Stock are subject to certain conditions, and that, if any of the
foregoing shares of Common Stock are purchased by the U.S. Underwriters
pursuant to the U.S. Underwriting Agreement or by the International Managers
pursuant to the International Underwriting Agreement, all the shares of Common
Stock agreed to be purchased by either the U.S. Underwriters or the
International Managers, as the case may be, pursuant to their respective
Underwriting Agreement must be so purchased. The offering price and
underwriting discounts and commissions for the U.S. Offering and the
International Offering are identical. The closing of the U.S. Offering is a
condition to the closing of the International Offering, and the closing of the
International Offering is a condition to the closing of the U.S. Offering.
The Company has been advised that the U.S. Underwriters and the
International Managers propose to offer the shares of Common Stock directly to
the public initially at the public offering price set forth on the cover page
of this Prospectus, and to certain selected dealers (who may include the U.S.
Underwriters and the International Managers) at such public offering price
less a selling concession not in excess of $ per share. The selected
dealers may reallows a concession not in excess of $ per share to certain
brokers and dealers. After the initial public offering, the public offering
price, the concession to selected dealers and reallowance may be changed by
the Representative and the Lead Managers.
57
<PAGE>
Prior to the Offerings, there has been no public market for the Common
Stock. There can be no assurance that an active trading market will develop
for shares of the Common Stock or as to the price at which shares of the
Common Stock may trade in the public market from time to time subsequent to
the Offerings. The initial public offering price for the Common Stock will be
determined by negotiations among the Company, the Representatives and the Lead
Managers. Among the factors to be considered in determining the initial public
offering price of the Common Stock, in addition to prevailing market
conditions, will be the financial and operating history and condition of the
Company, the Company's business and financial prospects, the prospects for the
industry in which the Company operates, the recent market prices of securities
of companies in businesses similar to that of the Company and other relevant
factors.
The Company has granted to the U.S. Underwriters and the International
Managers options to purchase up to an aggregate of 600,000 and 150,000
additional shares of Common Stock, respectively, exercisable solely to cover
over-allotments, at the initial price to the public less the aggregate
underwriting discounts, shown on the cover page of this Prospectus. Either or
both options may be exercised at any time up to 30 days after the date of this
Prospectus. To the extent that the U.S. Underwriters or International Managers
exercise such options, each of the U.S. Underwriters or International
Managers, as the case may be, will be committed, subject to certain
conditions, to purchase a number of the additional shares of Common Stock
proportionate to such U.S. Underwriter's or International Manager's initial
commitment.
The U.S. Underwriters and the International Managers have entered into an
Agreement between U.S. Underwriters and International Managers pursuant to
which such U.S. Underwriter has agreed that as part of the distribution of the
shares (plus any of the shares to cover over-allotments) of Common Stock
offered in the U.S. Offering, (i) it is not purchasing any of such shares for
the account of anyone other than a U.S. Person (as defined below) and (ii) it
has not offered or sold, and will not offer, sell, resell or deliver, directly
or indirectly, any of such shares of distribute any Prospectus relating to the
U.S. Offering to anyone other than a U.S. Person. In addition, pursuant to the
same Agreement, each International Manager has agreed that, as part of the
distribution of the shares (plus any of the shares to cover over-allotments)
of Common Stock offered in the International Offering, (i) it is not
purchasing any of such shares for the account of a U.S. Person and (ii) it has
not offered or sold, and will not offer, sell, resell or deliver, directly or
indirectly, any of such shares or distribute any Prospectus relating to the
International Offering to any U.S. Person. Each International Manager has also
agreed that it will offer to sell shares only in compliance with all relevant
requirements of any applicable laws.
The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the Underwriting Agreements and the
Agreement Between U.S. Underwriters and International Managers, including (i)
certain purchases and sales between the U.S. Underwriters and International
Managers, (ii) certain offers, sales, resales, deliveries or distributions to
or through investment advisors or other persons exercising investing
discretion, (iii) purchases, offers or sales by a U.S. Underwriter who is also
acting as an International Manager or by an International Manager who is also
acting as a U.S. Underwriter and (iv) other transactions specifically approved
by the Representatives and the Lead Managers. As used herein, "U.S. Person"
means any resident or citizen of the United States or Canada and its
provinces, any corporation or other entity created or organized in or under
the laws of the United States or Canada and its provinces or any estate or
trust the income of which is subject to United States or Canadian federal
income taxation regardless of the source of its income. The term "United
States" means the United States of America (including the District of
Columbia) and its territories, its possessions and other areas subject to its
jurisdiction.
Pursuant to the Agreement Between U.S. Underwriters and International
Managers, sales may be made between the U.S. Underwriters and the
International Managers of such number of shares of Common Stock as may be
mutually agreed upon. The price of any shares so sold shall be the public
offering price as then in effect for Common Stock being sold by the U.S.
Underwriters and the International Managers, less an amount not greater than
the selling concession allocable to such Common Stock. To the extent there are
sales between the U.S. Underwriters and the International Managers pursuant to
the Agreement Between U.S. Underwriters and International Managers, the number
of shares initially available for sale by the U.S. Underwriters or by the
International Managers may be more or less than the amount appearing on the
cover page of this Prospectus.
58
<PAGE>
Each International Manager has represented and agreed that (i) it has not
offered or sold, and will not offer or sell, in the United Kingdom, by means
of any document, any shares of the Common Stock other than to persons whose
ordinary business it is to buy or sell shares or debentures, whether as
principal or agent (except under circumstances which do not constitute an
offer to the public within the meaning of the Companies Act 1985); (ii) it has
complied and will comply with all applicable provisions of the Financial
Services Act 1986 with respect to anything done by it in relation to the
Common Stock in, from or otherwise involving the United Kingdom; and (iii) it
has only issued or passed on, and will only issue and pass on to any person in
the United Kingdom, any document received by it in connection with the issue
of the Common Stock if that person is of a kind described in Article 9(3) of
the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order
1988 or is a person to whom the document may otherwise be lawfully issued or
passed on.
Purchasers of the shares offered pursuant to the Offerings may be required
to pay stamp taxes and other charges in accordance with the laws and practices
of the country to purchase in addition to the initial public offering price
set forth on the cover page hereof.
The Company has agreed to indemnify the U.S. Underwriters and the
International Managers against certain liabilities, including liabilities
under the Securities Act or to contribute to payments that U.S. Underwriters
and the International Managers may be required to make in respect thereof.
In connection with the Offerings, the officers and directors of the Company,
certain other securityholders and the Company have agreed, with certain
exceptions, not to sell or otherwise dispose of any shares of Common Stock for
a period of 180 days from the date of this Prospectus, in each case, without
first obtaining the written consent of Lehman Brothers.
The Representatives have informed the Company that the U.S. Underwriters do
not intend to confirm sales of Common Stock to any accounts over which they
exercise discretionary authority.
LEGAL MATTERS
Certain legal matters with respect to the legality of the issuance of the
shares of Common Stock offered hereby will be passed upon for the Company by
Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California, and for the Underwriters by Brobeck, Phleger & Harrison LLP, Palo
Alto, California. As of the date of this Prospectus, a member of Wilson
Sonsini Goodrich & Rosati, Professional Corporation, and investment
partnerships of which members of such firm are partners beneficially own
17,457 shares of the Company's Common Stock.
EXPERTS
The consolidated financial statements of MagiNet Corporation at December 31,
1994 and 1995 and June 30, 1996, and for each of the three years in the period
ended December 31, 1995 and for the six months ended June 30, 1996, appearing
in this Prospectus and Registration Statement have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein and in the Registration Statement, and are included
in reliance upon such report given upon the authority of such firm as experts
in accounting and auditing.
59
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act with respect to the securities offered
hereby. This Prospectus does not contain all of the information set forth in
the Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock, reference is
made to the Registration Statement and the exhibits and schedules filed as a
part thereof. Statements contained in this Prospectus as to the contents of
any contract or any other document referred to are not necessarily complete.
In each instance, reference is made to the copy of such contract or document
filed as an exhibit to the Registration Statement, and each such statement is
qualified in all respects by such reference. The Registration Statement,
including exhibits and schedules thereto, may be inspected without charge at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the regional offices of the
Commission located at Seven World Trade Center, 13th Floor, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such materials may be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission maintains a World Wide Web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The
address of the Commission's Web site is http://www.sec.gov.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by independent accountants and with
quarterly reports containing unaudited summary financial information for each
of the first three quarters of each fiscal year.
60
<PAGE>
MAGINET CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors.......................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Operations...................................... F-4
Consolidated Statement of Stockholders' Equity............................. F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
MagiNet Corporation
We have audited the accompanying consolidated balance sheets of MagiNet
Corporation as of December 31, 1994 and 1995 and June 30, 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1995 and
for the six months ended June 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of MagiNet
Corporation at December 31, 1994 and 1995 and June 30, 1996, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1995 and for the six months ended
June 30, 1996 in conformity with generally accepted accounting principles.
Ernst & Young LLP
Palo Alto, California
August 21, 1996
F-2
<PAGE>
MAGINET CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
UNAUDITED PRO
FORMA
STOCKHOLDERS'
EQUITY
JUNE 30, JUNE 30,
1994 1995 1996 1996
-------- -------- -------- -------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..... $ 10,532 $ 18,672 $ 14,772
Short-term investments........ 429 151 --
Accounts receivable........... 347 1,191 2,152
Other current assets.......... 351 624 1,930
-------- -------- --------
Total current assets........... 11,659 20,638 18,854
Video systems, net............. 10,704 20,961 27,854
Property and equipment, net.... 638 1,376 1,659
Prepaid royalties.............. 876 1,095 1,466
Other assets................... 122 2,470 2,352
-------- -------- --------
Total assets................... $ 23,999 $ 46,540 $ 52,185
======== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Short-term debt............... $ 374 $ 97 $ 180
Accounts payable.............. 2,327 1,738 1,544
Accrued compensation.......... 54 340 510
Accrued interest.............. 16 1,016 1,070
Other accrued liabilities..... 1,137 2,905 1,979
-------- -------- --------
Total current liabilities...... 3,908 6,096 5,283
Deferred tax liability......... -- 544 915
Long-term debt................. -- 24,900 25,403
Minority interests in
consolidated subsidiaries..... 167 389 421
Commitments....................
Stockholders' equity:
Preferred stock, no par value;
12,122 shares authorized,
issuable in series: 7,766
shares 9,005 shares and
10,909 shares issued and
outstanding at December 31,
1994 and 1995, and June 30,
1996, respectively, all of
which are convertible;
aggregate liquidation
preference of $56,572 at June
30, 1996 (pro forma; $.001
par value, 5,000 shares
authorized, none
outstanding)................. 32,593 40,231 53,241 $ --
Common stock, no par value;
20,000 shares authorized; 276
shares, 307 shares and 481
shares issued and outstanding
at December 31, 1994 and
1995, and June 30, 1996,
respectively (pro forma;
$.001 par value, 45,000
shares authorized, 11,390
shares issued and outstanding
at June 30, 1996)............ 9 23 255 11
Additional paid-in capital.... -- -- -- 53,485
Warrants to purchase common
stock........................ -- 101 101 101
Accumulated deficit........... (12,678) (25,474) (32,800) (32,800)
Cumulative translation
adjustment................... -- (270) (634) (634)
-------- -------- -------- --------
Total stockholders' equity.... 19,924 14,611 20,163 $ 20,163
-------- -------- -------- ========
Total liabilities and
stockholders' equity.......... $ 23,999 $ 46,540 $ 52,185
======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
MAGINET CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------- -------------------
1993 1994 1995 1995 1996
------- ------- -------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue....................... $ 395 $ 2,342 $ 8,689 $ 3,302 $ 7,923
Costs and expenses:
Direct costs................ 294 1,156 3,731 1,687 3,854
Depreciation and
amortization............... 171 957 3,682 1,510 3,149
Operations expenses......... 464 2,876 3,108 1,213 1,016
Selling, general and
administrative............. 1,497 4,294 8,420 3,563 4,652
Research and development.... 1,320 856 1,247 571 937
------- ------- -------- ------- -------
Total costs and expenses...... 3,746 10,139 20,188 8,544 13,608
------- ------- -------- ------- -------
Operating loss................ (3,351) (7,797) (11,499) (5,242) (5,685)
Interest expense.............. (49) (319) (1,297) (42) (1,855)
Interest income and other,
net.......................... 21 66 306 46 473
------- ------- -------- ------- -------
Loss before income taxes and
minority interest in net
losses of consolidated
subsidiaries................. (3,379) (8,050) (12,490) (5,238) (7,067)
Provision for income taxes.... -- -- (554) (300) (383)
Minority interest in net
losses of consolidated
subsidiaries................. -- 124 248 153 124
------- ------- -------- ------- -------
Net loss...................... $(3,379) $(7,926) $(12,796) $(5,385) $(7,326)
======= ======= ======== ======= =======
Pro forma net loss per share.. $ (1.03) $ (0.59)
Shares used in computation of
pro forma
net loss per share........... 12,392 12,407
</TABLE>
See accompanying notes.
F-4
<PAGE>
MAGINET CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK CUMULATIVE TOTAL
---------------- ------------- ACCUMULATED TRANSLATION STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT WARRANTS DEFICIT ADJUSTMENT EQUITY
------- -------- ------ ------ -------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31,
1992................... 590 $ 2,018 285 $ 3 $ -- $ (1,373) $ -- $ 648
Issuance of Series B
Convertible Preferred
Stock (net of issuance
costs of $61)......... 889 3,939 -- -- -- -- -- 3,939
Repurchase of Common
Stock................. -- -- (21) -- -- -- -- --
Net loss............... -- -- -- -- -- (3,379) -- (3,379)
------- -------- --- ---- ----- -------- ----- -------
BALANCES AT DECEMBER 31,
1993................... 1,479 5,957 264 3 -- (4,752) -- 1,208
Exercise of stock
options............... -- -- 12 6 -- -- -- 6
Issuance of Series C
Convertible Preferred
Stock (net of issuance
costs of $1,656)...... 6,287 26,636 -- -- -- -- -- 26,636
Net loss............... -- -- -- -- -- (7,926) -- (7,926)
------- -------- --- ---- ----- -------- ----- -------
BALANCES AT DECEMBER 31,
1994................... 7,766 32,593 276 9 -- (12,678) -- 19,924
Exercise of stock
options............... -- -- 31 14 -- -- -- 14
Warrants to purchase
Common Stock issued in
conjunction with
senior debt
financing............. -- -- -- -- 101 -- -- 101
Issuance of Series D
Convertible Preferred
Stock (net of issuance
costs of $1,038)...... 1,239 7,638 -- -- -- -- -- 7,638
Translation
adjustment............ -- -- -- -- -- -- (270) (270)
Net loss............... -- -- -- -- -- (12,796) -- (12,796)
------- -------- --- ---- ----- -------- ----- -------
BALANCES AT DECEMBER 31,
1995................... 9,005 40,231 307 23 101 (25,474) (270) 14,611
Exercise of stock
options............... -- -- 109 102 -- -- -- 102
Issuance of Common
Stock................. -- -- 65 130 -- -- -- 130
Issuance of Series D
Convertible Preferred
Stock (net of issuance
costs of $314)........ 1,904 13,010 -- -- -- -- -- 13,010
Translation
adjustment............ -- -- -- -- -- -- (364) (364)
Net loss............... -- -- -- -- -- (7,326) -- (7,326)
------- -------- --- ---- ----- -------- ----- -------
BALANCES AT JUNE 30,
1996................... 10,909 $ 53,241 481 $255 $ 101 $(32,800) $(634) $20,163
======= ======== === ==== ===== ======== ===== =======
</TABLE>
See accompanying notes.
F-5
<PAGE>
MAGINET CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- -------------------
1993 1994 1995 1995 1996
------- ------- --------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss..................... $(3,379) $(7,926) $ (12,796) $(5,385) $(7,326)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation................ 153 851 3,212 1,282 2,605
Amortization of prepaid
royalties.................. 18 106 479 228 544
Amortization of Senior
Secured Note financing
costs...................... -- -- 145 -- 238
Interest on convertible
subordinated debt.......... -- 192 -- -- --
Minority interests.......... -- (124) (248) (153) (124)
Changes in operating assets
and liabilities:
Accounts receivable......... (46) (301) (844) (507) (961)
Other current assets........ (90) (261) (273) (735) (1,306)
Other assets................ 43 (105) (303) (270) (120)
Accounts payable and other
accrued liabilities........ 1,548 1,431 3,009 1,136 (525)
------- ------- --------- ------- -------
Total adjustments........... 1,626 1,789 5,177 981 351
------- ------- --------- ------- -------
Net cash used in operating
activities................. (1,753) (6,137) (7,619) (4,404) (6,975)
------- ------- --------- ------- -------
INVESTING ACTIVITIES
Redemption (purchase) of
available-for-sale
securities.................. -- (429) 278 429 151
Investment in video systems.. (2,590) (8,670) (13,262) (8,353) (9,590)
Investment in property and
equipment................... (501) (262) (1,215) (246) (555)
Nonrefundable prepaid
royalty..................... -- -- (698) -- (915)
------- ------- --------- ------- -------
Net cash used in investing
activities.................. (3,091) (9,361) (14,897) (8,170) (10,909)
------- ------- --------- ------- -------
FINANCING ACTIVITIES
Proceeds from debt........... -- 374 6,000 5,000 586
Payment on debt.............. (257) -- (6,277) (256) --
Proceeds (payment) of note
payable to stockholders..... 1,400 (1,400) -- -- --
Proceeds from Senior Secured
Notes, net of issuance
costs....................... -- -- 22,811 -- --
Proceeds from Convertible
Subordinated Debt........... -- 9,000 -- -- --
Issuance of Preferred Stock,
net of issuance costs....... 3,939 17,444 7,638 -- 13,010
Issuance of Common Stock..... -- 6 14 7 232
Proceeds from minority
investors................... -- 291 470 470 156
------- ------- --------- ------- -------
Net cash provided by
financing activities........ 5,082 25,715 30,656 5,221 13,984
------- ------- --------- ------- -------
Net increase (decrease) in
cash and cash equivalents... 238 10,217 8,140 (7,353) (3,900)
Cash and cash equivalents at
beginning of period......... 77 315 10,532 10,532 18,672
------- ------- --------- ------- -------
Cash and cash equivalents at
end of period............... $ 315 $10,532 $ 18,672 $ 3,179 $14,772
======= ======= ========= ======= =======
SUPPLEMENTAL SCHEDULE OF
NONCASH INVESTING AND
FINANCING ACTIVITIES
Issuance of Series C
Preferred Stock for
cancellation of convertible
subordinated debt plus
accrued interest............ $ -- $ 9,192 $ -- $ -- $ --
======= ======= ========= ======= =======
Warrants issued in connection
with Senior Secured Notes... $ -- $ -- $ 101 $ -- $ --
======= ======= ========= ======= =======
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Interest paid................ $ 18 $ 319 $ 187 $ 45 $ 1,592
======= ======= ========= ======= =======
</TABLE>
See accompanying notes.
F-6
<PAGE>
MAGINET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF OPERATIONS
In August 1995, MagiNet Corporation (the Company) was created as a holding
company for all of its operating subsidiaries. The Company provides advanced
in-room interactive video entertainment and information systems to hotels in
the Pacific Rim, Middle East, Europe, and Africa.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of MagiNet
Corporation and its subsidiaries primarily located in the Pacific Rim. All
significant intercompany balances and transactions have been eliminated.
The accompanying financial statements have been prepared assuming that the
Company will remain in compliance with its senior note covenants by achieving
its operating plan for the remainder of 1996 and 1997. If the Company were not
able to achieve its operating plan, the Company may need to either raise
additional equity capital, reduce expenses or both in order to remain in
compliance with the senior note covenants. Management believes the Company
will be able to remain in compliance with the senior note covenants, obtain
waivers thereof or establish alternative debt financing through 1997.
INTERIM FINANCIAL DATA
The interim financial data for the six months ended June 30, 1995 is
unaudited; however, in the opinion of management, the interim data includes
all adjustments, consisting only of normal recurring adjustments, necessary
for a fair presentation of the results for the interim period ended June 30,
1995. Operating results for the six months ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 1996.
NET LOSS PER SHARE
Except as noted below, historical net loss per share is computed using the
weighted average number of common shares outstanding. Common equivalent shares
from stock options, convertible Preferred Stock and warrants are excluded from
the computation as their effect is antidilutive, except that, pursuant to the
Securities and Exchange Commission Staff Accounting Bulletins, common and
common share equivalent shares issued during the period beginning 12 months
prior to the proposed initial filing of the Company's Registration Statement
at prices below the assumed public offering price have been included in the
calculation as if they were outstanding for all periods presented (using the
treasury stock method and the assumed public offering price for stock options
and warrants and the if-converted method for convertible Preferred Stock).
F-7
<PAGE>
MAGINET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 IS UNAUDITED)
Historical net loss per share information is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- ------------------
1993 1994 1995 1995 1996
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Net loss per share.......... $(0.73) $(1.72) $(2.77) $(1.17) $(1.58)
Shares used in computing
historical net loss per
share (in thousands)....... 4,598 4,606 4,626 4,617 4,641
</TABLE>
Pro forma net loss per share has been computed as described above and also
gives effect to the conversion of convertible preferred shares not included
above that will automatically convert upon completion of the Company's initial
public offering (using the if-converted method). Such shares are included from
the original date of issuance.
REVENUE RECOGNITION AND CONCENTRATION OF CREDIT RISK
The Company installs and operates its video systems at no cost to the
hotels, and issues invoices to the hotels and recognizes revenue, less an
allowance for denials, each month based on reported viewings of hotel guests.
The Company also sells its video systems to hotels in markets where it does
not expect to maintain operations. The Company performs ongoing credit
evaluations of its installed hotels and does not generally require collateral.
Reserves are maintained for potential credit losses and such losses have been
within management's expectations.
FOREIGN CURRENCY TRANSLATION
The Company's foreign subsidiaries use as their functional currency the
local currencies of the countries in which they operate. Their assets and
liabilities are translated into U.S. dollars at the exchange rates in effect
at the balance sheet date. Revenues and expenses are translated at average
rates of exchange prevailing during the period. The resulting cumulative
translation adjustments are disclosed as a separate component of stockholders'
equity. Foreign currency transaction gains and losses were not material in any
of the comparison periods.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
The Company adopted in 1996, FASB Statement No.121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
(FAS 121), which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amount. FAS 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The adoption of FAS 121
did not have a material impact on the Company.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-8
<PAGE>
MAGINET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 IS UNAUDITED)
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company invests its surplus cash principally in money market funds and
certificates of deposit. Those investments maturing within 90 days after
purchase are classified as cash equivalents. Those maturing after 90 days are
classified as short-term investments. Short-term investments are stated at
cost which approximates market. All marketable securities held by the Company
are classified as available-for-sale. The Company has not realized any
material gains or losses on such investments during the six months ended June
30, 1995 and 1996, and during the years ended December 31, 1993, 1994 and
1995.
The Company's marketable investments consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- JUNE 30,
1994 1995 1996
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash................................................ $ 908 $ 2,623 $ 2,299
Money market........................................ 3,496 12,768 9,778
Certificates of deposit............................. 599 3,432 2,695
U.S. treasury obligation............................ 3,000 -- --
U.S. commercial paper............................... 2,958 -- --
------- ------- -------
Total............................................... $10,961 $18,823 $14,772
======= ======= =======
Disclosed as:
Cash and cash equivalents......................... $10,532 $18,672 $14,772
Short-term investments............................ 429 151 --
------- ------- -------
Total............................................. $10,961 $18,823 $14,772
======= ======= =======
</TABLE>
During the six months ended June 30, 1995 and 1996, there were no gross cash
flows from the purchases of available-for-sale securities. During the six
months ended June 30, 1995 and 1996 gross cash flows from the maturities of
available-for-sale securities were $429,000 and $151,000, respectively.
Gross cash flows from the purchases of available-for-sale securities were
none, $429,000 and $151,000 for the years ended December 31, 1993, 1994 and
1995. Gross cash flows from the maturities of available-for-sale securities
were none for the years ended December 31, 1993 and 1994, and $429,000 for the
year ended December 31, 1995.
At June 30, 1996, the Company held approximately $312,000 of restricted cash
as collateral against an equipment lease line of credit and $500,000 of
certificates of deposit restricted as collateral for letters of credit which
expire on August 31, 1996.
DEFERRED DEBT FINANCING COSTS
Debt financing costs are deferred and amortized over the term of the related
debt. The Company's deferred financing costs are included within other assets
and consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ --------
(IN THOUSANDS)
<S> <C> <C>
Deferred financing costs incurred in connection with
the August 1995 issuance of Senior Secured Notes, net
of amortization of $145 at December 31, 1995 and $383
at June 30, 1996..................................... $2,045 $1,807
====== ======
</TABLE>
F-9
<PAGE>
MAGINET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 IS UNAUDITED)
VIDEO SYSTEMS
Video systems are stated at cost, net of accumulated depreciation, and
consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 30,
1994 1995 1996
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Installed video systems......................... $ 7,592 $20,845 $25,932
Uninstalled video systems and installations-in-
progress....................................... 3,935 3,674 7,812
------- ------- -------
11,527 24,519 33,744
Less accumulated depreciation................... (823) (3,558) (5,890)
------- ------- -------
$10,704 $20,961 $27,854
======= ======= =======
</TABLE>
Installed video systems consist of equipment and installation costs at hotel
locations and are depreciated using the straight-line method over the lesser
of the life of the contract or five years. Uninstalled video systems and
installations-in-progress consist primarily of purchased components.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, less accumulated depreciation and
consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- JUNE 30,
1994 1995 1996
------ ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Computer and video testing equipment................ $ 703 $ 1,758 $2,347
Furniture and fixtures.............................. 117 277 310
----- ------- ------
820 2,035 2,657
Less accumulated depreciation....................... (182) (659) (998)
----- ------- ------
$ 638 $ 1,376 $1,659
===== ======= ======
</TABLE>
Property and equipment is depreciated using the straight-line method over an
estimated useful life of between two and seven years.
2. TECHNOLOGY AGREEMENTS
Pursuant to an agreement in 1992, the Company has the exclusive right to use
certain technology in the design and manufacture of its product, as defined in
the agreement, for use in specific countries principally in the Pacific Rim,
Middle East and Africa. The owner of the technology became a related party
pursuant to the purchase of Preferred Stock in 1993. Such owner held a seat on
the Company's Board of Directors until December 1995. As of June 30, 1996,
such owner's share of total outstanding voting securities had declined to 3%.
In addition, pursuant to a technology license agreement entered into in
December 1995, the Company acquired the exclusive right to use another
technology in the design and manufacture of its product for use outside of
North America.
The Company has paid cumulative nonrefundable royalties of $2,000,000 as of
June 30, 1996 in prepayments against future royalty obligations. Future
royalty obligation terms range from a certain percentage of net revenues less
hotel commissions (subject to reduction upon certain conditions) generated
from use of the
F-10
<PAGE>
MAGINET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 IS UNAUDITED)
technology to a flat fee per room per month where the technology is utilized.
Additional nonrefundable royalty prepayments in the amount of $3,000,000 will
be due in the second half of 1996, $1,000,000 in 1997 and $1,500,000 in 1998,
based on performance of the vendor in providing additional enhancements to the
technology.
3. DEBT
Short-term debt represents notes payable on borrowings by the Company's
majority-owned joint venture in Japan from the joint venture's minority
partner, and the current portion of liabilities for an equipment lease line of
credit in Korea. Interest on the Japanese note accrues at 9.5%. Both interest
and principal on the Japanese note are payable after the joint venture is
profitable for at least one quarter.
Long-term debt consists of Senior Secured Notes issued by the Company on
August 15, 1995, and an amount borrowed pursuant to a $2.8 million equipment
lease line of credit in South Korea which was established in May, 1996. The
equipment lease line of credit is partially denominated in Korean won and
partially in U.S. dollars. The balance due on the equipment lease line was
$592,000 at June 30, 1996 and is to be repaid over 5 years at LIBOR plus 1.42%
on the U.S. portion and at South Korean Basic Lending Rate on the South Korean
portion. The interest rate at June 30, 1996 was approximately 7% per annum.
The amount of restricted cash collateralized against the South Korean
equipment lease line was $312,000 at June 30, 1996.
The $24,900,000 Senior Secured Notes are payable in full on August 15, 2000
and bear interest at 11.5% per annum. Interest is payable semiannually on
February 15 and August 15. The Company has pledged, as collateral to the
holders of Senior Secured Notes, between 66% and 100% of its shares in each of
its wholly owned subsidiaries and majority-owned joint ventures. The Senior
Secured Notes covenants restrict payment of dividends.
The carrying value of the Senior Secured Notes approximates fair value at
June 30, 1996. The fair value of the Company's Senior Secured Notes was
estimated using discounted cash flow analysis, based on the incremental
borrowing rates currently available to the Company for borrowings with similar
terms and maturity.
4. COMMITMENTS
The Company leases its headquarters and foreign sales and support facilities
and certain equipment under noncancelable operating leases. At June 30, 1996,
minimum lease commitments are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
--------------
(IN THOUSANDS)
<S> <C>
Six months ending December 31, 1996........................ $295
Years ending December 31, 1997............................. 318
1998..................................................... 153
1999..................................................... 23
2000..................................................... 8
----
Total minimum payments required............................ $797
====
</TABLE>
Rent expense was approximately $143,000 and $291,000 for the six months
ended June 30, 1995 and 1996 and $59,000, $222,000 and $320,000 for the years
ended December 31, 1993, 1994 and 1995, respectively.
F-11
<PAGE>
MAGINET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 IS UNAUDITED)
5. STOCKHOLDERS' EQUITY
PREFERRED STOCK
Preferred Stock authorized and outstanding at June 30, 1996 is as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
---------------------- AGGREGATE
ISSUED AND LIQUIDATION
AUTHORIZED OUTSTANDING AMOUNT PREFERENCE
---------- ----------- ------- -----------
(IN THOUSANDS, EXCEPT SHARES)
<S> <C> <C> <C> <C>
Designated series (all convert-
ible):
A........................... 150,000 150,000 $ 277 $ 300
B........................... 1,328,930 1,328,927 5,680 5,980
C........................... 7,500,000 6,287,093 26,636 28,292
D........................... 3,142,858 3,142,858 20,648 22,000
---------- ---------- ------- -------
12,121,788 10,908,878 $53,241 $56,572
========== ========== ======= =======
</TABLE>
All series of Preferred Stock are convertible at the stockholder's option at
any time into Common Stock on a one-for-one basis (subject to adjustment for
certain dilutive events). All series have voting rights equal to the voting
rights of the Common shares they would have upon conversion. Conversion is
automatic upon the closing of an underwritten public offering with aggregate
offering proceeds exceeding $25,000,000. At June 30, 1996, the Company had
reserved 10,908,878 shares of Common Stock to be issued to stockholders upon
conversion of the outstanding Preferred Stock.
Holders of Preferred Stock are entitled to noncumulative dividends (per
share) as follows:
<TABLE>
<S> <C>
Series A............................................................ $0.16
Series B............................................................ $0.36
Series C............................................................ $0.36
Series D............................................................ $0.56
</TABLE>
Dividends, if declared, shall be set apart for payment and paid first to
holders of Series D Preferred Stock, second to holders of Series C Preferred
Stock, and third ratably to the holders of Series A and B Preferred Stock. No
dividends shall be declared on Common Stock until all holders of Preferred
Stock have been paid in full. As of June 30, 1996 no dividends have been
declared.
In the event of a liquidation or winding up of the Company, holders of
Preferred Stock are entitled to the following liquidation preferences (per
share):
<TABLE>
<S> <C>
Series A............................................................ $2.00
Series B............................................................ $4.50
Series C............................................................ $4.50
Series D............................................................ $7.00
</TABLE>
The liquidation preferences are to be paid in full, so long as proceeds are
available, first to the holders of Series D Preferred Stock, second to the
holders of Series C Preferred Stock, third to the holders of Series B
Preferred Stock, and fourth to the holders of Series A Preferred Stock. If any
assets of the Company remain after payment of the full liquidation preferences
of the holders of Preferred Stock, they will be distributed among the holders
of Series B, Series C, and Series D Preferred Stock and Common Stock in
proportion to the shares of
F-12
<PAGE>
MAGINET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 IS UNAUDITED)
Common Stock then held by them and the shares of Common Stock which they then
have the right to acquire upon the conversion of their Preferred Stock.
STOCK OPTION PLANS
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation" (FAS 123),
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of
the Company's employee stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
During 1992, the Company adopted two stock option plans, the Key Personnel
Stock Option Plan and the 1992 Stock Option Plan (together, the Plans). The
Plans provide that options for 2,000,000 shares of Common Stock may be granted
to employees, officers, directors, consultants and promotional representatives
of the Company. The Plans allow for both incentive and nonqualified stock
options to be granted to employees.
The Plans provide that the exercise price for incentive stock options will
be no less than the fair market value of the Company's Common Stock (no less
than 85% of fair market value for nonqualified stock options), as determined
by the board of directors at the date of grant. These options have five year
terms and become exercisable ratably over three to four years.
The effect of applying the FASB statement's minimum value method to the
Company's stock option awards did not result in pro forma net loss and loss
per share that are materially different from historical amounts reported.
Therefore, such pro forma information is not separately presented herein.
Future pro forma net income and earnings per share results may be materially
different from actual amounts reported.
F-13
<PAGE>
MAGINET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 IS UNAUDITED)
Aggregate option activity is as follows:
<TABLE>
<CAPTION>
OUTSTANDING STOCK OPTIONS
----------------------------
WEIGHTED
AVERAGE
NUMBER OF PRICE PER
SHARES SHARE
-------------- ------------
<S> <C> <C>
Balance at December 31, 1992................... 49,000 $ 0.45
Granted...................................... 58,300 $ 0.46
--------------
Balance at December 31, 1993................... 107,300 $ 0.46
Granted...................................... 149,750 $ 0.83
Exercised.................................... (12,469) $ 0.45
Canceled..................................... (34,331) $ 0.46
--------------
Balance at December 31, 1994................... 210,250 $ 0.72
Granted...................................... 951,450 $ 1.12
Exercised.................................... (30,913) $ 0.47
Canceled..................................... (118,337) $ 0.89
--------------
Balance at December 31, 1995................... 1,012,450 $ 1.09
Granted...................................... 718,524 $ 2.00
Exercised.................................... (108,696) $ 0.95
Canceled..................................... (134,884) $ 0.99
--------------
Balance at June 30, 1996....................... 1,487,394 $ 1.55
==============
</TABLE>
As of June 30, 1996, 360,528 shares of Common Stock reserved under the Plans
were available for granting of additional options. The price range at June 30,
1996 of options outstanding under the Plans is $0.45 to $2.00. The weighted
average contractual life of the outstanding options at June 30, 1996 is 47
months. At June 30, 1996, the Company has reserved 1,847,922 shares of
authorized Common Stock for issuance under the Plans.
The following table summarizes the number and weighted average price per
share of exercisable stock options under the Plans.
<TABLE>
<CAPTION>
EXERCISABLE STOCK OPTIONS
---------------------------
WEIGHTED
AVERAGE
NUMBER OF PRICE PER
SHARES SHARE
------------- ------------
<S> <C> <C>
December 31, 1993............................... 23,748 $ 0.47
December 31, 1994............................... 44,432 $ 0.50
December 31, 1995............................... 314,187 $ 0.96
June 30, 1996................................... 430,236 $ 1.21
</TABLE>
WARRANTS
As of June 30, 1996 warrants to purchase 2,520,396 shares of Common Stock
were outstanding at exercise prices of $0.50 to $7.00 per share. As of June
30, 1996, warrants to purchase 1,184,444 shares of Series C Preferred Stock
were outstanding at an exercise price of $4.50 per share. At June 30, 1996,
the Company has reserved 3,704,840 shares of authorized Common Stock pursuant
to these warrants. All warrants are exercisable at the option of the holders
on or before dates ranging from March 1, 1998 through September 29, 1999, or
earlier upon effectiveness of an initial public offering.
F-14
<PAGE>
MAGINET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 IS UNAUDITED)
6. INCOME TAXES
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
------------------------- ENDED
1993 1994 1995 JUNE 30, 1996
-------- -------- ------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
State
Current........................... $ -- $ -- $ 2 $ 2
Foreign
Current........................... -- -- 8 10
Deferred.......................... -- -- 544 371
-------- -------- ------- ----
$ -- $ -- $ 554 $383
======== ======== ======= ====
</TABLE>
The Company's effective provision for income taxes from continuing
operations differs from the amount computed by applying the federal statutory
rate of 34% due to the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
------------------------- ENDED
1993 1994 1995 JUNE 30, 1996
------- ------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Expected tax (benefit) at federal
statutory rate.................. $(1,149) $(2,695) $(4,315) $(2,445)
Net operating losses not benefit-
ted............................. 1,149 2,695 4,315 2,445
State taxes...................... -- -- 2 2
Foreign withholding taxes........ -- -- 544 371
Other, net....................... -- -- 8 10
------- ------- ------- -------
Provision for income taxes....... $ -- $ -- $ 554 $ 383
======= ======= ======= =======
</TABLE>
For the years ended December 31, 1993, 1994 and 1995 and the six months
ended June 30, 1996 the Company had pre-tax losses from foreign operations of
$408,000, $1,239,000, $3,990,000 and $2,430,000, respectively.
As of December 31, 1995, the Company had federal net operating loss
carryforwards and research and development tax credits of approximately
$16,200,000 and $130,000, respectively. The net operating loss and credit
carryforwards will expire at various dates beginning in 2007 through 2011. The
Company had state net operating loss carryforwards of approximately $9,500,000
as of December 31, 1995, which will expire at various dates beginning in 1997
through 2002. The Company also had foreign net operating loss carryforwards
from various taxing authorities of approximately $5,800,000 at December 31,
1995. The principal portion of the foreign net operating loss carryforwards
will expire at various dates beginning in 1999 through 2000.
Utilization of the federal and state net operating losses and credits may be
subject to a substantial annual limitation due to the "change in ownership"
provisions of the Internal Revenue Code of 1986 and similar state provisions.
The annual limitation may result in the expiration of net operating losses and
credits before utilization.
F-15
<PAGE>
MAGINET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 IS UNAUDITED)
Significant components of the Company's deferred tax assets for federal,
state and foreign income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
------------------------ ENDED
1994 1995 JUNE 30, 1996
----------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets:
Federal and state net operating
losses.......................... $ 3,450 $ 6,090 $ 7,620
Foreign net operating losses..... 540 1,890 2,670
Research credit carryforwards.... 150 200 210
Capitalized research & develop-
ment............................ 90 130 160
Video systems reserves........... 520 600 590
Other............................ 50 90 85
----------- ----------- --------
Total deferred tax assets........ 4,800 9,000 11,335
Valuation allowance for deferred
tax assets...................... (4,800) (9,000) (11,335)
----------- ----------- --------
Net deferred tax assets.......... -- -- --
----------- ----------- --------
Deferred tax liabilities:
Foreign withholding taxes........ -- (544) (915)
----------- ----------- --------
Net deferred tax liability....... $ -- $ (544) $ (915)
=========== =========== ========
</TABLE>
Due to the Company's lack of earnings history, the net deferred tax asset has
been fully offset by a valuation allowance. The valuation allowance increased
by $1,300,000 and $3,000,000 in 1993 and 1994, respectively.
F-16
<PAGE>
MAGINET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 IS UNAUDITED)
7. GEOGRAPHIC DATA
Geographic information for the years ended December 31, 1993, 1994 and 1995
and the six months ended June 30, 1996 is presented in the following table.
Identifiable assets are those that can be directly associated with a
particular geographic area.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
-------------------------- ENDED
1993 1994 1995 JUNE 30, 1996
------- ------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenue
United States.................... $ -- $ -- $ -- $ 146
Pacific Rim...................... 395 2,342 8,520 7,287
Other............................ -- -- 169 490
------- ------- -------- --------
$ 395 $ 2,342 $ 8,689 $ 7,923
======= ======= ======== ========
Operating loss
United States.................... $(3,111) $(6,763) $ (5,637) $ (2,056)
Pacific Rim...................... (240) (941) (3,763) (1,872)
Other............................ -- (10) (508) (581)
Intercompany elimination......... -- (83) (1,591) (1,176)
------- ------- -------- --------
$(3,351) $(7,797) $(11,499) $ (5,685)
======= ======= ======== ========
Identifiable assets
United States.................... $ 4,752 $23,925 $ 49,266 $ 56,543
Pacific Rim...................... 1,050 6,308 22,689 30,374
Other............................ -- 15 1,701 4,296
Intercompany elimination......... (1,091) (6,249) (27,116) (39,028)
------- ------- -------- --------
$ 4,711 $23,999 $ 46,540 $ 52,185
======= ======= ======== ========
</TABLE>
8. SUBSEQUENT EVENTS
On August 8, 1996, the Board of Directors authorized the Company to proceed
with an Initial Public Offering (IPO) of Common Stock and increased the
authorized number of shares of Common Stock to 45,000,000. Upon completion of
the IPO, all of the Company's 10,908,878 shares of convertible preferred stock
outstanding as of June 30, 1996 will be converted into 10,908,878 shares of
Common Stock. The pro forma effect of these conversions has been reflected on
the accompanying unaudited pro forma balance sheet assuming they had occurred
at June 30, 1996.
On August 8, 1996, the Board of Directors approved the reincorporation of
the Company in the State of Delaware, which is expected to be effective in
October 1996.
On August 8, 1996, the Board of Directors granted options under the 1992
Stock Option Plan and the Key Personnel Stock Option Plan to purchase 193,500
shares of common stock at an exercise price of $5.25 per share. These options
were granted to provide additional incentives to retain management, key
employees and consultants. The deemed fair value of common stock at this date
was $5.25 per share.
On August 8, 1996, the Board of Directors also approved, subject to
stockholder approval which is expected to be obtained in September 1996, an
amendment to the 1992 Stock Option Plan increasing the number of shares of
Common Stock reserved for issuance thereunder by 1,800,000 shares to 3,647,922
shares.
F-17
<PAGE>
MAGINET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 IS UNAUDITED)
On August 8, 1996, the Board of Directors approved the 1996 Director's Stock
Option Plan and reserved a total of 200,000 shares of the Company's authorized
but unissued Common Stock for issuance to non-employee directors upon the
exercise of options granted. Options must be granted with exercise prices at
least equal to the fair market value of the Common Stock on the date of grant
as determined by the Company's Board of Directors.
On August 8, 1996, the Board of Directors approved the 1996 Employee Stock
Purchase Plan and reserved a total of 200,000 shares of the Company's
authorized but unissued Common Stock for issuance thereunder.
F-18
<PAGE>
[GRAPHIC DEPICTING MAGINET LOGO WITH FILM REEL]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PRO-
SPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, OR ANY OF THE U.S.
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLIC-
ITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES
TO WHICH IT RELATES OR AN OFFER TO, OR A SOLICITATION OF, ANY PERSON IN ANY
JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AF-
FAIRS OF THE COMPANY OR THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 14
Dividend Policy.......................................................... 14
Capitalization........................................................... 15
Dilution................................................................. 16
Selected Consolidated Financial and Other Data........................... 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
Business................................................................. 28
Management............................................................... 39
Certain Transactions..................................................... 49
Principal Stockholders................................................... 50
Description of Capital Stock............................................. 52
Shares Eligible for Future Sale.......................................... 54
Underwriting............................................................. 57
Legal Matters............................................................ 59
Experts.................................................................. 59
Additional Information................................................... 60
Index to Consolidated Financial Statements............................... F-1
</TABLE>
------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICI-
PATING IN THE DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DE-
LIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOT-
MENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
5,000,000 SHARES
(LOGO)
COMMON STOCK
------------------
PROSPECTUS
, 1996
------------------
LEHMAN BROTHERS
HAMBRECHT & QUIST
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ [FRONT COVER; INTERNATIONAL PROSPECTUS] +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated September 17, 1996
PROSPECTUS
5,000,000 SHARES
(PASTE-UP LOGO OF MAGINET)
COMMON STOCK
-------------
Of the 5,000,000 shares of Common Stock, $.001 par value ("Common Stock"), of
MagiNet Corporation ("MagiNet" or the "Company") being offered hereby,
1,000,000 shares are being offered initially outside the United States and
Canada by the International Managers (the "International Offering") and
4,000,000 shares are being offered initially in the United States and Canada by
the U.S. Underwriters (the "U.S. Offering"). Such offerings are referred to
collectively as the "Offerings."
Prior to the Offerings, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering
price per share will be between $12.00 and $14.00 per share. See "Underwriting"
for a discussion of factors to be considered in determining the initial public
offering price. Application has been made to have the Common Stock approved for
quotation on the Nasdaq National Market under the symbol "MGNT."
-------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
-------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.................................. $ $ $
- --------------------------------------------------------------------------------
Total(3)................................... $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the International Managers and the U.S.
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of the Offerings estimated at
$1,050,000 payable by the Company.
(3) The Company has granted to the International Managers a 30-day option to
purchase up to 150,000 additional shares of Common Stock on the same terms
and conditions as set forth above solely to cover over-allotments, if any.
The U.S. Underwriters have been granted a similar option to purchase up to
600,000 additional shares solely to cover over-allotments, if any. If such
options are exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
-------------
The shares of Common Stock offered by this Prospectus are offered by the
International Managers, subject to prior sale, to withdrawal, cancellation or
modification of the offer without notice, to delivery to and acceptance by the
International Managers and to certain other conditions. It is expected that
delivery of such shares will be made at the offices of Lehman Brothers Inc.,
New York, New York, on or about , 1996.
-------------
________________________________________________
LEHMAN BROTHERS HAMBRECHT & QUIST
, 1996
<PAGE>
[BACK COVER; INTERNATIONAL PROSPECTUS]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PRO-
SPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE INTERNA-
TIONAL MANAGERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SO-
LICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURI-
TIES TO WHICH IT RELATES OR AN OFFER TO, OR A SOLICITATION OF, ANY PERSON IN
ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AF-
FAIRS OF THE COMPANY OR THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 14
Dividend Policy.......................................................... 14
Capitalization........................................................... 15
Dilution................................................................. 16
Selected Consolidated Financial and Other Data........................... 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
Business................................................................. 28
Management............................................................... 39
Certain Transactions..................................................... 49
Principal Stockholders................................................... 50
Description of Capital Stock............................................. 52
Shares Eligible for Future Sale.......................................... 54
Underwriting............................................................. 57
Legal Matters............................................................ 59
Experts.................................................................. 59
Additional Information................................................... 60
Index to Consolidated Financial Statements............................... F-1
</TABLE>
-----------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPAT-
ING IN THE DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5,000,000 SHARES
(LOGO)
COMMON STOCK
-----------------
PROSPECTUS
, 1996
-----------------
LEHMAN BROTHERS
HAMBRECHT & QUIST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts, commissions and certain accountable expenses, payable
by the Company in connection with the sale of Common Stock being registered.
All amounts are estimates except the SEC registration fee and the NASD filing
fee.
<TABLE>
<S> <C>
SEC Registration Fee........................................... $ 27,759
NASD Filing Fee................................................ 8,050
Nasdaq National Market Listing Fee............................. 50,000
Printing Fees and Expenses..................................... 150,000
Legal Fees and Expenses........................................ 500,000
Accounting Fees and Expenses................................... 250,000
Blue Sky Fees and Expenses..................................... 10,000
Transfer Agent and Registrar Fees.............................. 15,000
Miscellaneous.................................................. 39,191
----------
Total........................................................ $1,050,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits a corporation to
include in its charter documents, and in agreements between the corporation
and its directors and officers, provisions expanding the scope of
indemnification beyond that specifically provided by the current law.
Article VIII of the Registrant's Certificate of Incorporation provides for
the indemnification of directors to the fullest extent permissible under
Delaware law.
Article VI of the Registrant's Bylaws provides for the indemnification of
officers, directors and third parties acting on behalf of the corporation if
such person acted in good faith and in a manner reasonably believed to be in
and not opposed to the best interest of the corporation, and, with respect to
any criminal action or proceeding, the indemnified party had no reason to
believe his conduct was unlawful.
The Registrant has entered into indemnification agreements with its
directors and executive officers, in addition to indemnification provided for
in the Registrant's Bylaws, and intends to enter into indemnification
agreements with any new directors and executive officers in the future.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since inception the Registrant has issued and sold the following
unregistered securities:
1. From March 31, 1994 to July 31, 1996, the Registrant issued and sold
201,192 shares of Common Stock to employees and consultants at prices
ranging from $.45 to $2.00 upon exercise of stock options pursuant to the
Registrant's 1992 Key Personnel Stock Option Plan and its 1992 Stock Option
Plan.
2. On July 23, 1992, the Registrant issued and sold 150,000 shares of
Series A Preferred Stock to two investors at a sale price of $2.00 per
share.
3. On August 31, 1992, the Registrant issued and sold 440,068 shares of
Series B Preferred Stock to 11 investors at a sale price of $4.50 per
share.
4. On March 15, 1993, the Registrant issued and sold 888,859 shares of
Series B Preferred Stock to 19 investors at a sale price of $4.50 per
share. In connection with the issuance of such shares of Series B Preferred
Stock, the Company also issued the investors warrants to acquire up to an
aggregate of 182,993 shares of Common Stock.
II-1
<PAGE>
5. On September 23, 1993, the Registrant issued a Secured Promissory Note
in the principal amount of $4,500,000 due on June 30, 1995 to Comsat Video
Enterprises, Inc. ("Comsat"). In connection with such note, the Company
also issued to Comsat a warrant to acquire up to an aggregate of 157,500
shares of Common Stock at an exercise price per share of $5.00.
6. On March 11, 1994, the Registrant issued its Convertible Secured
Promissory Notes in the aggregate principal amount of $3,710,015 to 24
investors. Such notes were convertible into the series of Preferred Stock
issued in connection with the Registrant's next round of equity financing
and subsequently converted into Series C Preferred Stock on September 29,
1994. The Registrant also issued warrants to such investors to acquire up
to an aggregate of 152,381 shares of Common Stock at an exercise price of
$0.50 per share.
7. In connection with a debt financing transaction, on June 24, 1994, the
Registrant issued to Silicon Valley Bank and Hambrecht & Quist Guaranty
Finance warrants to acquire up to an aggregate of 18,553 shares of Common
Stock at an exercise price of $0.50 per share.
8. On September 12, 1994, the Registrant issued its Convertible Secured
Promissory Notes in the aggregate principal amount of $5,000,000 to 8
investors. Such notes were convertible into the series of Preferred Stock
issued in connection with the Registrant's next round of equity financing
and subsequently converted into Series C Preferred Stock on September
29,1994. The Registrant also issued warrants to such investors to acquire
up to an aggregate of 111,112 shares of Common Stock at an exercise price
of $0.50 per share.
9. On September 29, 1994, the Registrant issued and sold 6,264,871 shares
of Series C Preferred Stock to 37 investors at a sale price of $4.50 per
share. In addition, the Registrant also issued to certain purchasers of the
Series C Preferred Stock warrants to acquire up to an aggregate of
1,111,111 shares of Series C Preferred Stock at an exercise price of $4.50
per share. In connection with the issuance of Series C Preferred Stock, on
October 26, 1994, the Registrant also issued to 3 investors warrants to
acquire up to an aggregate of 73,333 shares of Series C Preferred Stock at
an exercise price of $4.50 per share.
10. On December 1, 1994, the Registrant issued and sold 22,222 shares of
Series C Preferred Stock at a sale price of $4.50 per share.
11. In connection with a debt financing transaction, on May 16, 1995, the
Registrant issued to Silicon Valley Bank a warrant acquire up to an
aggregate of 75,000 shares of Common Stock at an exercise price of $7.00
per share.
12. On August 15, 1995, the Registrant issued its Seniors Secured Notes
due 2000 in the aggregate principal amount of $24,900,000 to New York Life
Insurance Company, The Mutual Life Insurance Company of New York, Waslic
Company II and Namtor BVC LP (collectively, the "Senior Noteholders"). In
connection with such financing, the Registrant issued warrants to such
investors to purchase up to an aggregate of 1,422,857 shares of Common
Stock at an exercise price of $7.00 per share.
13. On December 29, 1995, the Registrant issued and sold 1,239,397 shares
of Series D Preferred Stock to 5 investors at a price of $7.00 per share.
On May 15, 1996, the Registrant issued and sold 1,562,202 shares of Series
D Preferred Stock to 4 investors at a purchase price of $7.00 per share. On
May 15, 1996, the Registrant also issued to the purchasers and prior
purchasers of its Series D Preferred Stock warrants to purchase up to an
aggregate of 178,284 shares of Common Stock at an exercise price of $7.00
per share, subject to adjustment of the number of shares and exercise
price. In addition, in connection with effecting certain amendments to the
Note Agreement dated August 15, 1996 among the Company and the Senior
Noteholders relating to the issuance of Series D Preferred Stock, the
Registrant amended the warrants issued August 15, 1996 to provide for the
issuance of up to an additional 200,000 shares of Common Stock at a sale
price of $7.00, subject to adjustment of the number of shares and exercise
price.
14. On May 30, 1996, the Registrant issued an aggregate of 341,259 shares
of Series D Preferred Stock to 7 investors, including the Company's
President and Chief Executive Officer and Chief Financial Officer, at a
sale price of $7.00 per share. In addition, the Registrant issued to such
purchasers warrants to acquire up to an aggregate of 21,716 shares of
Common Stock at an exercise price of $7.00 per share, subject to adjustment
of the exercise price and number of shares.
II-2
<PAGE>
The sales of the above securities were deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) of the Securities Act, or
Regulation D promulgated thereunder, or Rule 701 promulgated under Section
3(b) of the Securities Act as transactions by an issuer not involving a public
offering or transactions pursuant to compensatory benefit plans and contracts
relating to compensation as provided under such Rule 701. The recipients of
securities in each such transaction represented their intention to acquire the
securities for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends were affixed
to the share certificates and warrants issued in such transactions. All
recipients had adequate access, through their relationships with the Company,
to information about the Registrant.
EXHIBIT INDEX
<TABLE>
<C> <S>
1.1* Form of U.S. Underwriting Agreement.
1.2* Form of International Underwriting Agreement.
3.1 Form of Certificate of Incorporation to be filed prior to the
effective date of the Registration Statement under which the
Offerings are made.
3.2 Form of Restated Certificate of Incorporation to be filed after the
closing of the Offerings made under this Registration Statement.
3.3 Bylaws, as amended.
4.1* Specimen Common Stock Certificate.
4.2 Form of Lock-Up Agreement.
4.3 Amended and Restated Shareholders' Agreement, as amended, dated
December 29, 1995.
4.4 First Amendment of Amended and Restated Shareholders' Agreement,
dated May 15, 1996.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1 Form of Indemnification Agreement for directors and officers.
10.2 1992 Key Personnel Stock Option Plan, as amended, and form of
agreement thereunder.
10.3 1996 Employee Stock Purchase Plan, as amended, and form of
agreement thereto.
10.4 1996 Director Stock Option Plan, as amended, and form of agreement
thereto.
10.5** Technology License Agreement between Registrant and On Common Video
Corporation
10.6** Technology License Agreement between Registrant and Guestserve
Development Group
10.7 Exclusive License Agreement between Registrant and Comsat Video
Enterprises, Inc., dated March 15, 1993.
10.8 Exclusive Sublicense Agreement between Registrant and Comsat Video
Enterprises, Inc., dated March 15, 1993.
10.9** Agreement between Registrant and InterGame, Ltd., dated July 8,
1996.
10.10** Note Agreement among Registrant, New York Life Insurance Company,
The Mutual Life Insurance Company of New York, Waslic Company II
and Namtor BVC LP, dated August 15, 1995.
10.11 First Amendment Agreement to Note Agreement among Registrant and
New York Life Insurance Company, The Mutual Life Insurance Company
of New York, Waslic Company II and Namtor BVC LP, dated May 7,
1996.
10.12** Installation Agreement between Registrant and Shangri-la Hotel &
Resorts (undated).
10.13** Revised Installation Agreement between Registrant and Shangri-La
Hotel & Resorts, dated September 7, 1994.
10.14** Guest Video Services Agreement between Registrant and Southern
Pacific Hotel Corporation Limited, dated September 6, 1995.
10.15** Guest Video Services Agreement by and among Registrant and Hyatt
International-Asia Pacific Limited, Hyatt Chain Services Limited
and Guestserve Development Group, dated August 11, 1995.
10.16** Memorandum of Agreement between Registrant and Trinity Group, dated
May 22, 1996.
10.17** Agreement between Registrant and United International Pictures,
dated June 28, 1996.
10.18 Employment Agreement between Registrant and Kenneth B. Hamlet,
dated November 28, 1995.
10.19 Employment Agreement between Registrant and Robert R. Creager,
dated September 22, 1995.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.20 Offer of Employment Letter from Registrant to Gordon E. (Ned)
Druehl, Jr., dated June 18, 1996.
10.21 Lease for the Registrant's headquarters in Sunnyale, CA, dated
February 16, 1994.
10.22 Pledge of Shares Agreement among Registrant, New York Life
Insurance Company, The Mutual Life Insurance Company of New York,
Waslic Company II, Namtor BVC LP and The Chase Manhattan Bank,
N.A., dated December 29, 1995.
10.23 Pledge Agreement between Registrant and The Chase Manhattan Bank
N.A., dated December 28, 1995.
10.24 Shareholders Agreement between Registrant, Mr. Arun Churdboonchart
and AC Telecom Limited, dated June 6, 1995.
10.25** Letter of Intent between Registrant and Bloomberg, L.P., dated
September 6, 1996.
10.26 Shareholder Agreement between Registrant and Spectrum, Inc., dated
August 1, 1994.
11.1 Calculation of earnings per share.
21.1 List of Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditor.
23.2* Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
** Confidential treatment has been requested with respect to certain portions
of this exhibit pursuant to a request for confidential treatment filed with
the Securities and Exchange Commission on September 18, 1996.
Omitted portions have been filed separately with the Commission.
(b) Financial Statement Schedules
None.
Schedules not listed above have been omitted because the information
required to be set forth therein is not, applicable or is shown in the
financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT ON FORM S-1 TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF SUNNYVALE, STATE OF CALIFORNIA, ON THE 17TH DAY OF SEPTEMBER, 1996.
MAGINET CORPORATION
/s/ Kenneth B. Hamlet
By __________________________________
KENNETH B. HAMLET
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Kenneth B. Hamlet and James A. Barth and
each one of them, acting individually and without the other, as his or her
attorney-in-fact, each with full power of substitution, for him and her in any
and all capacities, to sign any and all amendments to this Registration
Statement (including post-effective amendments), and to sign any registration
statement for the same offering covered by this Registration Statement that is
to be effective upon filing pursuant to Rule 462(b) promulgated under the
Securities Act of 1933, and all post-effective amendments thereto, and to file
the same, with exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming
all that each of said attorneys-in-fact, or his substitute or substitutes may
do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Kenneth B. Hamlet Chairman of the September 17,
- ------------------------------------- Board, President 1996
(KENNETH B. HAMLET) and Chief Executive
Officer (Principal
Executive Officer)
/s/ James A. Barth Executive Vice September 17,
- ------------------------------------- President, Chief 1996
(JAMES A. BARTH) Financial Officer
and Secretary
(Principal
Financial and
Accounting Officer)
/s/ Robert R. Creager Director September 17,
- ------------------------------------- 1996
(ROBERT R. CREAGER)
/s/ Stuart J. Ellman Director September 17,
- ------------------------------------- 1996
(STUART J. ELLMAN)
/s/ Michael D. Granoff Director September 17,
- ------------------------------------- 1996
(MICHAEL D. GRANOFF)
/s/ Michael Ramsay Director September 17,
- ------------------------------------- 1996
(MICHAEL RAMSAY)
/s/ James D. Robinson IV Director September 17,
- ------------------------------------- 1996
(JAMES D. ROBINSON IV)
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
1.1* Form of U.S. Underwriting Agreement.
1.2* Form of International Underwriting Agreement.
3.1 Form of Certificate of Incorporation to be filed prior to the
effective date of the Registration Statement under which the
Offerings are made.
3.2 Form of Restated Certificate of Incorporation to be filed after the
closing of the Offerings made under this Registration Statement.
3.3 Bylaws, as amended.
4.1* Specimen Common Stock Certificate.
4.2 Form of Lock-Up Agreement.
4.3 Amended and Restated Shareholders' Agreement, as amended, dated
December 29, 1995.
4.4 First Amendment of Amended and Restated Shareholders' Agreement,
dated May 15, 1996.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1 Form of Indemnification Agreement for directors and officers.
10.2 1992 Key Personnel Stock Option Plan, as amended, and form of
agreement thereunder.
10.3 1996 Employee Stock Purchase Plan, as amended, and form of
agreement thereto.
10.4 1996 Director Stock Option Plan, as amended, and form of agreement
thereto.
10.5** Technology License Agreement between Registrant and On Common Video
Corporation
10.6** Technology License Agreement between Registrant and Guestserve
Development Group
10.7 Exclusive License Agreement between Registrant and Comsat Video
Enterprises, Inc., dated March 15, 1993.
10.8 Exclusive Sublicense Agreement between Registrant and Comsat Video
Enterprises, Inc., dated March 15, 1993.
10.9** Agreement between Registrant and InterGame, Ltd., dated July 8,
1996.
10.10** Note Agreement among Registrant, New York Life Insurance Company,
The Mutual Life Insurance Company of New York, Waslic Company II
and Namtor BVC LP, dated August 15, 1995.
10.11 First Amendment Agreement to Note Agreement among Registrant and
New York Life Insurance Company, The Mutual Life Insurance Company
of New York, Waslic Company II and Namtor BVC LP, dated May 7,
1996.
10.12** Installation Agreement between Registrant and Shangri-la Hotel &
Resorts (undated).
10.13** Revised Installation Agreement between Registrant and Shangri-La
Hotel & Resorts, dated September 7, 1994.
10.14** Guest Video Services Agreement between Registrant and Southern
Pacific Hotel Corporation Limited, dated September 6, 1995.
10.15** Guest Video Services Agreement by and among Registrant and Hyatt
International-Asia Pacific Limited, Hyatt Chain Services Limited
and Guestserve Development Group, dated August 11, 1995.
10.16** Memorandum of Agreement between Registrant and Trinity Group, dated
May 22, 1996.
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.17** Agreement between Registrant and United International Pictures,
dated June 28, 1996.
10.18 Employment Agreement between Registrant and Kenneth B. Hamlet,
dated November 28, 1995.
10.19 Employment Agreement between Registrant and Robert R. Creager,
dated September 22, 1995.
10.20 Offer of Employment Letter from Registrant to Gordon E. (Ned)
Druehl, Jr., dated June 18, 1996.
10.21 Lease for the Registrant's headquarters in Sunnyale, CA, dated
February 16, 1994.
10.22 Pledge of Shares Agreement among Registrant, New York Life
Insurance Company, The Mutual Life Insurance Company of New York,
Waslic Company II, Namtor BVC LP and The Chase Manhattan Bank,
N.A., dated December 29, 1995.
10.23 Pledge Agreement between Registrant and The Chase Manhattan Bank
N.A., dated December 28, 1995.
10.24 Shareholders Agreement between Registrant, Mr. Arun Churdboonchart
and AC Telecom Limited, dated June 6, 1995.
10.25** Letter of Intent between Registrant and Bloomberg, L.P., dated
September 6, 1996.
10.26 Shareholder Agreement between Registrant and Spectrum, Inc., dated
August 1, 1994.
11.1 Calculation of earnings per share.
21.1 List of Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditor.
23.2* Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
** Confidential treatment has been requested with respect to certain portions
of this exhibit pursuant to a request for confidential treatment filed with
the Securities and Exchange Commission on September 18, 1995. Omitted
portions have been filed separately with the Commission.
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
MAGINET CORPORATION
FIRST: The name of this corporation is MagiNet Corporation.
SECOND: The address of the corporation's registered office in the State of
Delaware is 1209 Orange Street, Wilmington, County of New Castle, Delaware
19801. The name of its registered agent at such address is The Corporation
Trust Company.
THIRD: The purpose of this Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: The Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares of Common Stock which the Corporation is authorized to issue is
Twenty Million (20,000,000) shares, $.001 par value. The total number of shares
of Preferred Stock which the Corporation is authorized to issue is Twelve
Million One Hundred Twenty-One Thousand Seven Hundred Eighty-Eight (12,121,788)
shares, $.001 par value. Of the authorized shares of Preferred Stock, One
Hundred Fifty Thousand (150,000) shares shall be designated "Series A Preferred
Stock" (sometimes referred to herein as "Series A Preferred"), One Million Three
Hundred Twenty-Eight Thousand Nine Hundred Thirty (1,328,930) shares shall be
designated "Series B Preferred Stock" (sometimes referred to herein as "Series B
Preferred"), Seven Million Five Hundred Thousand (7,500,000) shares shall be
designated "Series C Preferred Stock" (sometimes referred to herein as "Series C
Preferred"), and Three Million One Hundred Forty-Two Thousand Eight Hundred
Fifty-Eight (3,142,858) shares shall be designated "Series D Preferred Stock"
(sometimes referred to herein as "Series D Preferred").
The Preferred Stock may be issued from time to time in one or more series.
The Board of Directors is authorized to fix the number of shares of any series
of Preferred Stock and to determine the designation of any such series. Subject
to Section 5 herein, the Board of Directors is also authorized, except as to
matters fixed as to Preferred Stock in this Article Fourth, to determine and
alter the rights, preferences, privileges and restrictions granted to or imposed
upon any wholly unissued series of Preferred Stock and to increase or decrease
(but not below the number of shares of such series then outstanding) the number
of shares of any series subsequent to the issue of shares of that series.
Subject to Section 5 herein, in case the number of shares of any series shall be
so decreased, the shares constituting such decrease shall resume the status
which they had prior to the adoption of the resolution originally fixing the
number of shares of such series.
<PAGE>
The relative rights, preferences, privileges, and restrictions granted to
or imposed upon the Common Stock, the Series A Preferred, the Series B
Preferred, the Series C Preferred, and the Series D Preferred and the holders
thereof (collectively, the "Stockholders") are as follows:
1. DIVIDENDS.
---------
(a) The holders of Series D Preferred (the "Series D Holders") shall be
entitled to receive dividends at the rate of $0.56 per share of Series D
Preferred per annum (as adjusted for any stock dividends, combinations or splits
with respect to such shares), payable out of funds legally available therefor.
Such dividends shall be payable only when, as, and if declared by the Board of
Directors and shall be noncumulative. No dividend shall be declared and paid (or
set apart for payment) with respect to the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred, or Common Stock in any year unless the full
preferential dividends on the Series D Preferred Stock shall have first been
declared and paid (or set apart for payment).
(b) The holders of Series C Preferred (the "Series C Holders") shall be
entitled to receive dividends at the rate of $0.36 per share of Series C
Preferred per annum (as adjusted for any stock dividends, combinations or splits
with respect to such shares), payable out of funds legally available therefor.
Subject to Section 1(a) above, such dividends shall be payable only when, as,
and if declared by the Board of Directors and shall be noncumulative. Such
dividends on the Series C Preferred shall be paid ratably in proportion to the
respective preference amounts and in preference and prior to any dividends paid
in respect to the Series A Preferred, Series B Preferred, and Common Stock.
(c) The holders of Series A Preferred (the "Series A Holders"), and the
holders of Series B Preferred (the "Series B Holders") shall be entitled to
receive dividends at the rate of $0.16 per share of Series A Preferred and $0.36
per share of Series B Preferred per annum (as adjusted for any stock dividends,
combinations or splits with respect to such shares), payable out of funds
legally available therefor. Subject to Sections 1(a) and 1(b) above, such
dividends shall be payable only when, as, and if declared by the Board of
Directors and shall be noncumulative. Such dividends on the Series A and Series
B Preferred shall be paid ratably in proportion to the respective preference
amounts and in preference and prior to any dividends paid in respect to the
Common Stock.
(d) No dividend shall be declared and paid (or set apart for payment)
with respect to the Common Stock in any year unless all the full preferential
dividends on the Preferred Stock, as set forth above, shall have first been
declared and paid (or set apart for payment).
2. LIQUIDATION PREFERENCES.
-----------------------
(a) Subject to the provisions of subparagraph (b) below, in the event
of any liquidation, dissolution or winding up of the Corporation, either
voluntary or involuntary, the Series D Holders shall be entitled to receive,
prior and in preference to any distribution of any of the assets or
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<PAGE>
surplus funds of the Corporation legally available for distribution to the
shareholders (the "Assets") to the Series C Holders, Series B Holders, Series A
Holders or the holders of the Common Stock (the "Common Holders") by reason of
their ownership thereof, the amount of $7.00 per share for each share of Series
D Preferred Stock then held by them (as adjusted for any stock dividends,
combinations or splits with respect to such shares) plus all declared but unpaid
dividends on such shares of Series D Preferred Stock (the "Series D
Preference"). After payment of the full Series D Preference, the Series C
Holders shall be entitled to receive, prior and in preference to any
distribution of any of the Assets to the Series B Holders, Series A Holders or
Common Holders by reason of their ownership thereof, the amount of $4.50 per
share for each share of Series C Preferred Stock then held by them (as adjusted
for any stock dividends, combinations or splits with respect to such shares)
plus all declared but unpaid dividends on such shares of Series C Preferred
Stock (the "Series C Preference"). After payment of the full Series D Preference
and the full Series C Preference, Series B Holders shall be entitled to receive,
prior and in preference to any distribution of any of the Assets to the Series A
Holders or Common Holders by reason of their ownership thereof, the amount of
$4.50 per share for each share of Series B Preferred Stock then held by them (as
adjusted for any stock dividends, combinations or splits with respect to such
shares) plus all declared but unpaid dividends on such shares of Series B
Preferred Stock (the "Series B Preference"). After payment of the full Series D
Preference, the full Series C Preference, and the full Series B Preference, the
Series A Holders shall be entitled to receive out of any remaining Assets the
amount of $2.00 per share then held by them (as adjusted for any stock
dividends, combinations or splits with respect to such shares) plus all declared
but unpaid dividends on such shares of Series A Preferred (the "Series A
Preference"). After payment of the full Series D Preference, the full Series C
Preference, the full Series B Preference, and the full Series A Preference, the
entire remaining Assets, if any, shall be distributed among the Series D
Holders, Series C Holders, Series B Holders, and the Common Holders, in
proportion to the shares of Common Stock then held by them and the shares of
Common Stock which they then have the right to acquire upon the conversion of
their Preferred Stock.
(b) If the Assets are insufficient to permit the payment of the full
Series D Preference, then all of the Assets shall be distributed ratably among
the Series D Holders in proportion to the full Series D Preference such holders
would otherwise be entitled to receive. If the Assets are sufficient to permit
payment of the full Series D Preference but insufficient to permit payment of
the full Series C Preference, then the Assets remaining after payment of the
Series D Preference shall be distributed ratably among the Series C Holders in
proportion to the full Series C Preference such holders would otherwise be
entitled to receive. If the Assets are sufficient to permit payment of the full
Series D Preference and the full Series C Preference but insufficient to permit
payment of the full Series B Preference, then the Assets remaining after payment
of the Series D Preference and Series C Preference shall be distributed ratably
among the Series B Holders in proportion to the full Series B Preference such
holders would otherwise be entitled to receive. If the Assets are sufficient to
permit payment of the full Series D Preference, the full Series C Preference,
and the full Series B Preference but insufficient to permit payment of the full
Series A Preference, then the Assets remaining after payment of the Series D
Preference, Series C Preference, and Series B Preference shall be distributed
-3-
<PAGE>
ratably among the Series A Holders in proportion to the full Series A Preference
such holders would otherwise be entitled to receive.
(c) For the purposes of this Section 2, a "liquidation" shall include:
(i) any acquisition of this Corporation by means of a
consolidation or merger of the Corporation with or into any other corporation,
or any other entity or person, other than a wholly-owned subsidiary of the
Corporation, or the exchange of more than fifty percent (50%) of the outstanding
stock of the Corporation for shares of another entity or other property (except
for any such transaction occurring simultaneously with or immediately prior to,
and as a precursor to, the initial public offering of the Corporation's stock);
(ii) any corporate reorganization, recapitalization, or
reclassification in which more than fifty percent (50%) of the Corporation's
outstanding stock is acquired by any person, entity, or group acting in concert;
or
(iii) a sale of all or substantially all of the assets
of the Corporation,
such that the Series A, Series B, Series C, Series D, and Common Holders shall
be paid in cash or in securities received from the acquiring corporation, or in
a combination thereof, at the closing of any such transaction, an amount equal
to the amount per share which would be payable to the Series A, Series B, Series
C, Series D, and Common Holders pursuant to this Section 2 if all consideration
received by the Corporation and its shareholders in connection with such event
were being distributed in a liquidation of the Corporation.
(d) Any securities to be delivered to the Series A, Series B, Series C,
Series D, and Common Holders pursuant to Section 2(c) above shall be valued as
follows:
(i) Securities not subject to investment letter or other similar
restriction on free marketability:
(A) If traded on a securities exchange, including the
National Association of Securities Dealers National Market System, the value
shall be deemed to be the average of the security's closing prices on such
exchange over the thirty-(30)-day period ending three (3) days prior to the
closing;
(B) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid prices over the thirty- (30)-day
period ending three (3) days prior to the closing; and
(C) If there is no active public market, the value shall be
the fair market value thereof, as determined by the Board of Directors of the
Corporation in good faith;
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<PAGE>
provided, however, that if holders of a majority of the Preferred Stock or
holders of a majority of the Series D Preferred deliver a notice to the Company
signed by such holders requesting an independent appraisal of the value of the
securities, then the Company will select an independent investment banking
institution, to be approved by the holders of a majority of the Preferred Stock
or the Series D Preferred, as the case may be, to value the securities, which
valuation will be the value of the securities for purposes of this Section
2(d)(i)(C).
(ii) The method of valuation of securities subject to investment
letter or other restrictions on free marketability shall be to make an
appropriate discount from the market value determined as above in subsections
(i)(A), (i)(B) or (i)(C) to reflect the approximate fair market value thereof,
as determined by the Board of Directors of the Corporation in good faith.
(e) The Corporation shall give each holder of record of Series A,
Series B, Series C, or Series D Preferred written notice of such impending
transaction not later than twenty (20) days prior to the shareholders meeting
called to approve such transaction or twenty (20) days prior to the closing of
such transaction, whichever is earlier, and shall also notify such holders in
writing of the final approval of such transaction. The first of said notices
shall describe the material terms and conditions of the contemplated
transactions as well as the terms and conditions of this Section 2, and the
Corporation shall thereafter give such holders prompt notice of any material
changes. The transaction shall in no event take place sooner than twenty (20)
days after the mailing by the Corporation of the first notice provided for
herein or sooner than twenty (20) days after the mailing by the Corporation of
any notice of material changes provided for herein; provided, however, that such
periods may be shortened upon the written consent of the holders of not less
than fifty percent (50%) of the then outstanding Series A, Series B, Series C,
and Series D Preferred taken together as a class.
3. CONVERSION.
----------
The Series A, Series B, Series C, and Series D Holders shall have
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert.
----------------
(i) Series A Preferred Voluntary Conversion. Each share of Series A
---------------------------------------
Preferred Stock shall be convertible, at the option of the holder thereof, at
any time after the date of issuance of such share, at the office of the
Corporation or any transfer agent for such stock, into such number of fully paid
and nonassessable shares of Common Stock as is determined by dividing $2.00 by
the then applicable Conversion Price for the Series A Preferred Stock,
determined as hereinafter provided, in effect at the time of conversion. The
price at which shares of Common Stock shall be deliverable upon conversion of
the Series A Preferred Stock (the "Series A Conversion Price") shall initially
be $2.00 per share of Common Stock. Such initial Conversion Price shall be
subject to adjust ment as hereinafter provided.
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<PAGE>
(ii) Series B Preferred Voluntary Conversion. Each share of Series
---------------------------------------
B Preferred Stock shall be convertible, at the option of the holder thereof, at
any time after the date of issuance of such share, at the office of the
Corporation or any transfer agent for such stock, into such number of fully paid
and nonassessable shares of Common Stock as is determined by dividing $4.50 by
the then applicable Conversion Price for the Series B Preferred Stock,
determined as hereinafter provided, in effect at the time of conversion. The
price at which shares of Common Stock shall be deliverable upon conversion of
the Series B Preferred Stock (the "Series B Conversion Price") shall initially
be $4.50 per share of Common Stock. Such initial Conversion Price shall be
subject to adjustment as hereinafter provided.
(iii) Series C Preferred Voluntary Conversion. Each share of Series
---------------------------------------
C Preferred Stock shall be convertible, at the option of the holder thereof, at
any time after the date of issuance of such share, at the office of the
Corporation or any transfer agent for such stock, into such number of fully paid
and nonassessable shares of Common Stock as is determined by dividing $4.50 by
the then applicable Conversion Price for the Series C Preferred Stock,
determined as hereinafter provided, in effect at the time of conversion. The
price at which shares of Common Stock shall be deliverable upon conversion of
the Series C Preferred Stock (the "Series C Conversion Price") shall initially
be $4.50 per share of Common Stock. Such initial Conversion Price shall be
subject to adjustment as hereinafter provided.
(iv) Series D Preferred Voluntary Conversion. Each share of Series
---------------------------------------
D Preferred Stock shall be convertible, at the option of the holder thereof, at
any time after the date of issu ance of such share, at the office of the
Corporation or any transfer agent for such stock, into such number of fully paid
and nonassessable shares of Common Stock as is determined by dividing $7.00 by
the then applicable Conversion Price for the Series D Preferred Stock,
determined as hereinafter provided, in effect at the time of conversion. The
price at which shares of Common Stock shall be deliverable upon conversion of
the Series D Preferred Stock (the "Series D Conversion Price") shall initially
be $7.00 per share of Common Stock. Such initial Conversion Price shall be
subject to adjustment as hereinafter provided.
(v) Automatic Conversion. Each share of Series A, Series B,
--------------------
Series C, and Series D Preferred Stock shall automatically be converted into
shares of Common Stock at the then effective applicable Conversion Price
immediately prior to the closing of the sale of the Corporation's Common Stock
in an underwritten public offering registered under the United States Securities
Act of 1933, as amended (the "Securities Act"), or the equivalent statute in any
foreign jurisdiction in which such offering shall take place, if the aggregate
net proceeds to the Corporation of such offering will equal or exceed, for
purposes of the automatic conversion of the Series A, Series B, and Series C
Preferred Stock, $10,000,000 and for purposes of the automatic conversion of the
Series D Preferred Stock, $25,000,000 with the gross offering price per share
equal to or in excess of one hundred twenty percent (120%) of the Series D
Conversion Price then in effect; provided, however, that all outstanding shares
of Series A and Series B Preferred shall be converted into shares of Common
Stock at any such earlier time upon the election of the holders of more than
fifty percent (50%) of the then
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<PAGE>
outstanding Series A and Series B Preferred by written consent of such holders,
and further provided that all outstanding shares of Series C Preferred shall be
converted into shares of Common Stock at any such earlier time upon the election
of the holders of more than fifty percent (50%) of the then outstanding Series C
Preferred by written consent of such holders, and further provided that all
outstanding shares of Series D Preferred shall be converted into shares of
Common Stock at any such earlier time upon the election of the holders of more
than ninety percent (90%) of the then outstanding Series D Preferred by written
consent of such holders.
(b) Mechanics of Conversion. Before any holder of Series A, Series B,
-----------------------
Series C, or Series D Preferred Stock shall be entitled to convert the same into
shares of Common Stock, such holder shall surrender the certificate or
certificates thereof, duly endorsed, at the office of the Corporation or of any
transfer agent for such stock, and shall give written notice to the Corporation
at such office that he or she elects to convert the same and shall state therein
the name or names in which such holder wishes the certificate or certificates
for shares of Common Stock to be issued. The Corporation shall, as soon as
practicable thereafter, but in no event more than five (5) days thereafter,
issue and deliver at such office to such holder of Series A, Series B, Series C,
or Series D Preferred Stock, a certificate or certificates for the number of
shares of Common Stock to which he or she shall be entitled as aforesaid and a
check payable to the holder in the amount of any cash amounts payable as the
result of a conversion into fractional shares of Common Stock pursuant to
Section 3(l). Any declared but unpaid dividends on the converted shares of
Series A, Series B, Series C, or Series D Preferred Stock shall be canceled.
Except for a conversion in connection with an underwritten offer of securities
under the Securities Act, such conversion shall be deemed to have been made
immediately prior to the close of business on the date of surrender of the
shares of Series A, Series B, Series C, or Series D Preferred Stock to be
converted, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on such date. In the
case of a conversion in connection with an underwritten offer of securities
under the Securities Act, such conversion shall be deemed to occur immediately
prior to the closing of such sale of securities.
(c) Adjustment for Subdivisions, Combinations or Consolidations of
--------------------------------------------------------------
Common Stock and Stock Dividends. In the event the outstanding shares of Common
- --------------------------------
Stock shall be subdivided (by stock split or otherwise) into a greater number of
shares of Common Stock, or a dividend or distribution of Common Stock payable to
all holders of Common Stock shall be made (or a record date for such dividend
declared) the Conversion Price of each series of Preferred Stock then in effect
shall, concurrently with the effectiveness (or record date) of such subdivision
or dividend, be proportionately decreased. In the event the outstanding shares
of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Conversion Price
then in effect shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
(d) Adjustments for Other Distributions. In the event the Corporation
-----------------------------------
at any time or from time to time makes, or fixes a record date for the
determination of holders of Common Stock entitled to receive any distribution
payable in securities of the Corporation other than Common Stock,
-7-
<PAGE>
then in each such event provision shall be made so that the holders of Series A,
Series B, Series C, or Series D Preferred Stock shall receive upon conversion
thereof, in addition to the number of shares of Common Stock receivable
thereupon, the amount of securities of the Corporation which they would have
received had their Series A, Series B, Series C, or Series D Preferred Stock
been converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including the
date of conversion, retained such securities receivable by them as aforesaid
during such period, subject to all other adjustments called for during such
period under this Section 3 with respect to the rights of the holders of the
Series A, Series B, Series C, Series D Preferred Stock.
(e) Adjustments for Reorganization, Reclassification, Exchange and
--------------------------------------------------------------
Substitution. If the Common Stock issuable upon conversion of the Series A,
- ------------
Series B, Series C, and Series D Preferred Stock shall be changed into the same
or a different number of shares of any other class or classes of stock or other
securities or property, whether by reorganization, reclassification (unless such
reorganization or reclassification is deemed a liquidation under Section 2(c)
hereof) or otherwise (other than a subdivision or combination of shares provided
for above), the Conversion Price of each series of Preferred Stock then in
effect shall, concurrently with the effectiveness of such reorganization or
reclassification, be proportionately adjusted such that the Series A, Series B,
Series C, and Series D Preferred Stock shall be convertible into, in lieu of the
number of shares of Common Stock which the holders would otherwise have been
entitled to receive, a number of shares of such other class or classes of stock
or other securities or property equivalent to the number of shares of Common
Stock that would have been subject to receipt by the holders upon conversion of
the Series A, Series B, Series C, and Series D Preferred Stock immediately
before such event; and, in any such case, appropriate adjustment (as determined
by the Board) shall be made in the application of the provisions herein set
forth with respect to the rights and interest thereafter of the holders of the
Series A, Series B, Series C, and Series D Preferred Stock, to the end that the
provisions set forth herein (including provisions with respect to change in and
other adjustments of the Conversion Price of each series of Preferred Stock)
shall thereafter be applicable, as nearly as reasonably may be, in relation to
any shares of stock or other property thereafter deliverable upon the conversion
of the Series A, Series B, Series C, and Series D Preferred Stock.
(f) Conversion Price Adjustments with Respect to Certain Diluting
-------------------------------------------------------------
Issuances. The Conversion Price of Series A, Series B, Series C, and Series D
- ---------
Preferred Stock shall be subject to adjustment from time to time as follows:
(i) Conversion Price Adjustment.
(A) If the Corporation shall issue any Additional Stock (as
defined hereafter) without consideration or for a consideration per share less
than such Conversion Price in effect immediately prior to the issuance of such
Additional Stock, then such Conversion Price in effect immediately prior to each
such issuance shall (except as otherwise provided in this Subsection 3(i)) be
adjusted to:
-8-
<PAGE>
(1) with respect to Series A Preferred, the Conversion
Price determined by dividing (X) an amount equal to the sum of (a) the product
derived by multiplying the Conversion Price of such series in effect immediately
prior to such issue by the number of shares of Common Stock (including shares of
Common Stock issued or issuable upon conversion of the outstanding Preferred
Stock, upon exercise of outstanding stock options and warrants or otherwise
under Section 3(f)(i)(E)) outstanding immediately prior to such issue, plus (b)
the consideration, if any, received by or deemed to have been received by the
Corporation upon such issuance, by (Y) an amount equal to the sum of (c) the
number of shares of Common Stock (including shares of Common Stock issued or
issuable upon conversion of the outstanding Preferred Stock, upon exercise of
outstanding stock options and warrants or otherwise under Section 3(f)(i)(E))
outstanding immediately prior to such issuance, plus (d) the number of shares of
Common Stock issued or deemed to have been issued in such issuance; or
(2) with respect to Series B Preferred, the Conversion
Price determined by dividing (X) an amount equal to the sum of (a) the product
derived by multiplying the Conversion Price of such series in effect immediately
prior to such issue by the number of shares of Common Stock issued or issuable
upon conversion of the outstanding Preferred Stock, plus (b) the consideration,
if any, received by or deemed to have been received by the Corporation upon such
issuance, by (Y) an amount equal to the sum of (c) the number of shares of
Common Stock issued or issuable upon conversion of the outstanding Preferred
Stock, plus (d) the number of shares of Common Stock issued or deemed to have
been issued in such issuance.
(3) with respect to Series C Preferred or the Series D
Preferred, as the case may be, the Conversion Price determined by dividing (X)
an amount equal to the sum of (a) the product derived by multiplying the
Conversion Price of such series in effect immediately prior to such issue by the
number of shares of Common Stock (including shares of Common Stock issued or
issuable upon conversion of the outstanding Preferred Stock, upon exercise of
outstanding stock options and warrants or otherwise under Section 3(f)(i)(E))
outstanding immediately prior to such issue, plus (b) the consideration, if any,
received by or deemed to have been received by the Corporation upon such
issuance, by (Y) an amount equal to the sum of (c) the number of shares of
Common Stock (including shares of Common Stock issued or issuable upon
conversion of the outstanding Preferred Stock, upon exercise of outstanding
stock options and warrants or otherwise under Section 3(f)(i)(E)) outstanding
immediately prior to such issuance, plus (d) the number of shares of Common
Stock issued or deemed to have been issued in such issuance.
(B) No adjustment of the Conversion Price for any series of
Preferred Stock shall be made in an amount less than one cent per share,
provided that any adjustment that is not required to be made by reason of this
sentence shall be carried forward and taken into account in any subsequent
adjustment. Except to the limited extent provided for in Sections 3(f)(i)(E)(3)
and 3(f)(i)(E)(4), no adjustment of such Conversion Price shall have the effect
of increasing the Conversion Price above the Conversion Price in effect
immediately prior to such adjustment.
-9-
<PAGE>
(C) In the case of the issuance of Additional Stock for cash,
the consideration shall be deemed to be the amount of cash paid therefor before
deducting any reasonable discounts, commissions or other expenses allowed, paid
or incurred by the Corporation for any underwriting or otherwise in connection
with the issuance and sale thereof.
(D) In the case of the issuance of Additional Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as determined by the Board of
Directors; provided, however, that if holders of either (i) a majority of the
Preferred Stock or (ii) a majority of the Series D Preferred Stock deliver a
notice to the Corporation signed by such holders requesting an independent
appraisal of the value of the securities, then the Corporation will promptly
select an independent investment banking institution, to be approved by the
holders of a majority of the Preferred Stock or the Series D Preferred Stock, as
the case may be, to value the securities, which valuation will be, as and from
the date of issuance, the value of the securities for purposes of this Section
3(f)(i)(D), and the Conversion Price Adjustment shall be effective as of the
date of issuance. In the event the Corporation issues Additional Stock for a
consideration other than cash, the Corporation shall give each holder of Series
A Preferred, Series B Preferred, Series C Preferred, and Series D Preferred
written notice of such transaction not later than seven (7) days after the
closing of such transaction, which notice shall describe the material terms and
conditions of such transaction.
(E) In the case of the issuance of options to purchase or
rights to subscribe for Common Stock, securities by their terms convertible into
or exchangeable for Common Stock or options to purchase or rights to subscribe
for such convertible or exchangeable securities (where the shares of Common
Stock issuable upon exercise of such options or rights or upon conversion or
exchange of such securities are not excluded from the definition of Additional
Stock), the following provisions shall apply:
(1) the aggregate maximum number of shares of Common
Stock deliverable upon exercise of such options to purchase or rights to
subscribe for Common Stock shall be deemed to have been issued at the time such
options or rights were issued and for a consideration equal to the consideration
(determined in the manner provided in Sections 3(f)(i)(C) and 3(f)(i)(D)), if
any, received by the Corporation upon the issuance of such options or rights
plus the minimum purchase price provided in such options or rights for the
Common Stock covered thereby;
(2) the aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange for any such convertible or
exchangeable securities or upon the exercise of options to purchase or rights to
subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been issued at the time
such securities were issued or such options or rights were issued and for a
consideration equal to the consideration, if any, received by the Corporation
for any such securities and related options or rights (excluding any cash
received on account of accrued interest or accrued dividends), plus the
additional consideration, if any, to be received by the Corporation upon the
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<PAGE>
conversion or exchange of such securities or the exercise of any related options
or rights (the consideration in each case to be determined in the manner
provided in Sections 3(f)(i)(C) and 3(f)(i)(D));
(3) in the event of any change in the number of shares of
Common Stock deliverable upon exercise of such options or rights or upon
conversion of or in exchange for such convertible or exchangeable securities,
including, but not limited to, a change resulting from the anti-dilution
provisions thereof, the Conversion Price in effect at the time for each series
of Preferred Stock shall forthwith be readjusted to such Conversion Price as
would have obtained had the adjustment that was made upon the issuance of such
options, rights or securities not converted prior to such change or the options
or rights related to such securities not converted prior to such change been
made upon the basis of such change, but no further adjustment shall be made for
the actual issuance of Common Stock upon the exercise of any such options or
rights or the conversion or exchange of such securities; and
(4) upon the expiration of any such options or rights,
the termination of any such rights to convert or exchange or the expiration of
any options or rights related to such convertible or exchangeable securities,
the Conversion Price for each series of Preferred Stock shall forthwith be
readjusted to such Conversion Price as would have obtained had the adjustment
which was made upon the issuance of such options, rights or securities or
options or rights related to such securities been made upon the basis of the
issuance of only the number of shares of Common Stock actually issued upon the
exercise of such options or rights, upon the conversion or exchange of such
securities or upon the exercise of the options or rights related to such
securities.
(ii) "Effective Date" means December 29, 1995.
(iii) "Additional Stock" shall mean any shares of Common Stock
issued (or deemed to have been issued pursuant to Section 3(f)(i)(E)) by this
Corporation after the Effective Date other than:
(A) Common Stock issued pursuant to a transaction described
in Section 2(c).
(B) Common Stock issued or issuable to employees, officers,
or directors of, or consultants to the Corporation approved by the Board.
(C) Common Stock issued pursuant to the acquisition of
another corporation by merger, purchase of all or substantially all of the
assets, or other reorganization.
(D) Common Stock issued or issuable upon conversion of the
shares of Series A, Series B, Series C, and Series D Preferred Stock.
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<PAGE>
(E) Common Stock issued or issuable pursuant to the exercise
of warrants granted in connection with any lease, loan, or other financing
transaction, approved by the Board.
(iv) Series D Conversion Price Adjustment.
If there shall be a sale of the Corporation's Common Stock in an
underwritten public offering registered under the Securities Act, or the
equivalent statute in any foreign jurisdiction in which such offering shall take
place (a "Public Offering"), then the Series D Conversion Price shall be
adjusted to the lower Conversion Price determined by either subsection (A) or
(B) below:
(A) If the purchase price per share to the public in such
Public Offering (the "Per-Share Public Offering Price") is less than $7.00 (as
adjusted for any stock dividends, combinations, or splits), then, immediately
prior to the closing of such Public Offering and immediately prior to any
automatic conversion of the Series D Preferred Stock pursuant to Section 3(a)(v)
hereof, the Series D Conversion Price shall be adjusted to equal the amount
determined by multiplying the lower of (x) the Per-Share Public Offering Price
or (y) the Series D Conversion Price in effect immediately prior to the closing
of such Public Offering by the difference between (a) 0.95 and (b) 0.05 times
the number of full years which have elapsed since the Effective Date; provided,
however, that in no event shall the Series D Conversion Price be less than the
effective Series C Conversion Price. Notwithstanding anything to the contrary
herein, any amendment to this Section 3(f)(iv)(A) shall require the vote or
written consent of the holders of one hundred percent (100%) of the then
outstanding shares of Series D Preferred.
(B) (1) If the Public Offering occurs on or before September
15, 1997, then the Series D Conversion Price shall equal the Series D Conversion
Price then in effect, (2) if the Public Offering occurs on or after September
16, 1997, but no later than September 15, 1998, then the Series D Conversion
Price shall be adjusted to equal the product of 0.96 and the Series D Conversion
Price otherwise in effect, (3) if the Initial Public Offering occurs on or after
September 16, 1998, but no later than September 15, 1999, then the Series D
Conversion Price shall be adjusted to equal the product of 0.93 and the Series D
Conversion otherwise in effect, and (4) if the Initial Public Offering occurs on
or after September 16, 1999, then the Series D Conversion Price shall be
adjusted to equal the product of 0.89 and the Series D Conversion Price
otherwise in effect; provided, however, that in no event shall the Series D
Conversion Price be less than the effective Series C Conversion Price.
(g) No Impairment. The Corporation will not, by amendment of its
-------------
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 3 and in the
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<PAGE>
taking of all such action as may be necessary or appropriate in order to protect
the Conversion Rights of the holders of the Preferred Stock against impairment.
(h) Certificates as to Adjustments. Upon the occurrence of each
------------------------------
adjustment or readjustment of the Conversion Price of any series of Preferred
Stock pursuant to this Section 3, the Corporation at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
prepare and furnish to each holder of Series A, Series B, Series C, or Series D
Pre ferred Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any holder of
Series A, Series B, Series C, or Series D Preferred Stock, furnish or cause to
be furnished to such holder a like certificate setting forth (1) such applicable
adjustments and readjustments, (2) the applicable Conversion Price at the time
in effect, and (3) the number of shares of Common Stock and the amount, if any,
of other property which at the time would be received upon the conversion of
Series A, Series B or Series C Preferred Stock. Any certificate sent to the
holders of Series A, Series B, Series C, or Series D Preferred Stock pursuant to
this Section 3(h) shall be signed by an officer of the Corporation.
(i) Notices of Record Date. In the event of any taking by the
----------------------
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, any security or right convertible into or
entitling the holder thereof to receive Common Stock, or any right to subscribe
for, purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, the Corporation shall
mail to each holder of Series A, Series B, Series C, or Series D Preferred Stock
at least ten (10) days prior to the date specified therein, a notice specifying
the date on which any such record is to be taken for the purpose of such
dividend, distribution, security or right, and the amount and character of such
dividend, distribution, security or right.
(j) Issue Taxes. The Corporation shall pay any and all issue and other
-----------
taxes that may be payable in respect of any issue or delivery of shares of
Common Stock on conversion of shares of Series A, Series B, Series C, or Series
D Preferred Stock pursuant hereto; provided, however, that the Corporation shall
not be obligated to pay any transfer taxes resulting from any transfer requested
by any holder in connection with any such conversion.
(k) Reservation of Stock Issuable Upon Conversion. The Corporation
---------------------------------------------
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series A, Series B, Series C, and Series D Preferred Stock,
such number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of the Series A,
Series B, Series C, and Series D Preferred Stock; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the Series A, Series B,
Series C, and Series D Preferred Stock, the Corporation will take such corporate
action as
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<PAGE>
may, in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purpose.
(l) Fractional Shares. No fractional share shall be issued upon the
-----------------
conversion of any share or shares of Preferred Stock. If the conversion would
result in the issuance of a fraction of a share of Common Stock, the Corporation
shall, in lieu of issuing any fractional share, pay the holder otherwise
entitled to such fraction a sum in cash equal to the fair market value of such
fraction on the date of conversion (as determined in good faith by the Board of
Directors of the Corporation).
4. VOTING RIGHTS.
-------------
(a) General. Except as otherwise expressly provided herein or as
-------
required by law, the holder of each share of Series A, Series B, Series C, and
Series D Preferred shall be entitled to the number of votes equal to the number
of shares of Common Stock into which such share of Series A, Series B, Series C,
or Series D Preferred could be converted at that time and shall have voting
rights and powers corresponding to the voting rights and powers of Common Stock
(except as otherwise expressly provided herein or as required by law, voting
together with Common Stock as a single class) and shall be entitled to notice of
any shareholders meeting in accordance with the Bylaws of the Corporation.
Fractional votes shall not, however, be permitted and any fractional voting
rights resulting from the above formula (after aggregating all shares into which
shares of Series A, Series B, Series C, and Series D Preferred held by each
holder could be converted) shall be rounded to the nearest whole number (with
one-half being rounded upward).
(b) Protective Provisions. The Corporation shall not, (i) without the
---------------------
approval of the holders of more than seventy-five (75%) of the outstanding
shares of Common and Preferred Stock, voting together as a single class on an
as-converted basis and (ii) without the approval of the holders of more than
fifty percent (50%) of the outstanding shares of Series C Preferred Stock,
voting as a separate class on an as-converted basis:
(i) Amend or repeal any provision of, or add any provision to,
this Certificate of Incorporation.
(ii) Authorize or issue any additional capital stock having
rights, preferences or privileges superior to or on a parity with the Preferred
Stock.
(iii) Merge or consolidate with or into any other corporation;
provided, however, that the Corporation may, without obtaining the approval of
the holders of Common and Preferred Stock and without obtaining the approval of
the holders of Series C Preferred Stock set forth above in Section 4(b), merge
or consolidate the Corporation in connection with the formation of a parent
holding company and the merger or consolidation of the Corporation with or into
a subsidiary of the parent holding company where the Corporation or its
successor will be a wholly-owned subsidiary of the parent holding company after
such merger or consolidation and the prior
-14-
<PAGE>
shareholders of the Corporation are immediately thereafter the shareholders of
the parent holding company in the same denominations and proportions.
(iv) Sell or convey all or substantially all of the assets of
the Corporation.
(v) Pay dividends on or make any other distributions with
respect to the Common Stock.
(vi) Redeem or repurchase any of its equity securities except
(A) from employees, officers, directors or consultants of the Corporation
pursuant to restricted stock purchase agreements, or (B) from holders of the
Company's Common or Preferred Stock pursuant to the exercise of a right of first
refusal in favor of the Compan y.
5. NO REISSUANCE OF PREFERRED STOCK.
--------------------------------
No share or shares of Series A, Series B, Series C, or Series D Preferred
Stock acquired by the Corporation by reason of redemption, purchase, conversion
or otherwise shall be reissued, and all such shares shall be retired and
eliminated from the shares which the Corporation is authorized to issue.
FIFTH:
1. The management of the business and the conduct of the affairs of the
Corporation shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be as set forth in the
Corporation's Bylaws.
2. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter, amend,
or repeal the Bylaws of the Corporation.
3. The directors of the Corporation need not be elected by written ballot
unless a stockholder demands election by written ballot at the meeting and
before voting begins, or unless the Bylaws so provide.
4. Advance notice of stockholder nomination for the election of directors
and of business to be brought by stockholders before any meeting of the
stockholders of the Corporation shall be given in the manner provided in the
Bylaws of the Corporation.
5. Vacancies created by the resignation of one or more members of the
Board of Directors and newly created directorships, created in accordance with
the Bylaws of this Corporation, may be filled by the vote of a majority,
although less than a quorum, of the directors then in office, or by a sole
remaining director.
-15-
<PAGE>
SIXTH: Following the effectiveness of the registration of any class of
securities of the Corporation pursuant to the requirements of the Securities
Exchange Act of 1934, as amended, no action shall be taken by the stockholders
of the Corporation except at an annual or special meeting of the stockholders
called in accordance with the Bylaws and no action shall be taken by the
stockholders by written consent.
SEVENTH:
1. To the fullest extent permitted by the Delaware General Corporation Law
as the same exists or as may hereafter be amended, a director of the Corporation
shall not be personally liable to the Corporation or its stockholders for
monetary damages for breach fiduciary duty as a director.
2. The Corporation may indemnify to the fullest extent permitted by law any
person made or threatened to be made a party to an action or proceeding, whether
criminal, civil, administrative or investigative, by reason of the fact that he,
his testator or intestate is or was a director, officer or employee of the
Corporation or any predecessor of the Corporation or serves or served at any
other enterprise as a director, officer or employee at the request of the
Corporation or any predecessor to the Corporation.
3. Neither any amendment nor repeal of this Article SEVENTH, nor the
adoption of any provision of the Corporation's Certificate of Incorporation
inconsistent with this Article SEVENTH, shall eliminate or reduce the effect of
this Article SEVENTH, in respect of any matter occurring, or any action or
proceeding accruing or arising or that, but for this Article SEVENTH, would
accrue or arise, prior to such amendment, repeal, or adoption of an inconsistent
provision.
EIGHTH: Meetings of stockholders may be held within or without the State
of Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside of the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
NINTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon the
stockholders herein are granted subject to this right.
TENTH: The name and mailing address of the incorporator are:
Thomas C. DeFilipps, Esq.
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
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<PAGE>
The undersigned incorporator hereby acknowledges that the foregoing
Certificate of Incorporation is the act and deed of such incorporator and that
the facts stated therein are true.
-----------------------------------------
Thomas C. DeFilipps, Incorporator
-17-
<PAGE>
EXHIBIT 3.2
RESTATED
CERTIFICATE OF INCORPORATION
OF
MAGINET CORPORATION
MagiNet Corporation, a corporation organized and existing under laws of the
State of Delaware (the "Corporation"), hereby certifies as follows:
1. The name of the Corporation is MagiNet Corporation. MagiNet
Corporation was originally incorporated under the same name, and the original
Certificate of Incorporation of the Corporation was filed with the Secretary of
State of the state of Delaware on September __, 1996.
2. Pursuant to Sections 228, 242 and 245 of the General Corporation Laws
of the State of Delaware, this Restated Certificate of Incorporation restates
and integrates and further amends the provisions of the Certificate of
Incorporation of this corporation.
3. The text of the Certificate of Incorporation as heretofore amended or
supplemented is hereby amended and restated to read in its entirety as follows:
FIRST: The name of this corporation is MagiNet Corporation.
SECOND: The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, Wilmington, County of New Castle, Delaware
19801. The name of its registered agent at such address is The Corporation
Trust Company.
THIRD: The purpose of this Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the Corporation is authorized to issue is 50,000,000
shares. 45,000,000 shares shall be Common Stock, par value $.001 per share, and
5,000,000 shares shall be Preferred Stock, par value $.001 per share.
The Preferred Stock may be issued from time to time in one or more series.
The Board of Directors is authorized to fix the number of shares of any series
of Preferred Stock and to determine the designation of any such series. The
Board of Directors is also authorized to determine and alter the powers, rights,
preferences and privileges and the qualifications, limitations and restrictions
granted to or imposed upon any wholly unissued series of Preferred Stock and
within the limitations or restrictions stated in any resolution or resolutions
of the Board of Directors originally fixing the number of shares
<PAGE>
constituting any series, to increase or decrease (but not below the number of
shares of such series then outstanding) the number of shares of any series
subsequent to the issue of shares of that series, to determine the designation
of any series, and to fix the number of shares of any series. In case the
number of shares of any series shall be so decreased, the shares constituting
such decrease shall resume the status which they had prior to the adoption of
the resolution originally fixing the number of shares of such series.
FIFTH:
1. The management of the business and the conduct of the affairs of the
Corporation shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be as set forth in the
Corporation's Bylaws.
2. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter, amend,
or repeal the Bylaws of the Corporation.
3. The directors of the Corporation need not be elected by written ballot
unless a stockholder demands election by written ballot at the meeting and
before voting begins, or unless the Bylaws so provide.
4. Advance notice of stockholder nomination for the election of directors
and of business to be brought by stockholders before any meeting of the
stockholders of the Corporation shall be given in the manner provided in the
Bylaws of the Corporation.
5. Vacancies created by the resignation of one or more members of the
Board of Directors and newly created directorships, created in accordance with
the Bylaws of this corporation, may be filled by the vote of a majority,
although less than a quorum, of the directors then in office, or by a sole
remaining director.
SIXTH: Following the effectiveness of the registration of any class of
securities of the Corporation pursuant to the requirements of the Securities
Exchange Act of 1934, as amended, no action shall be taken by the stockholders
of the Corporation except at an annual or special meeting of the stockholders
called in accordance with the Bylaws and no action shall be taken by the
stockholders by written consent.
SEVENTH:
1. To the fullest extent permitted by the Delaware General Corporation Law
as the same exists or as may hereafter be amended, a director of the Corporation
shall not be personally liable to the Corporation or its stockholders for
monetary damages for breach fiduciary duty as a director.
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<PAGE>
2. The Corporation may indemnify to the fullest extent permitted by law
any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he, his testator or intestate is or was a director, officer or employee of
the Corporation or any predecessor of the Corporation or serves or served at any
other enterprise as a director, officer or employee at the request of the
Corporation or any predecessor to the Corporation.
3. Neither any amendment nor repeal of this Article SEVENTH, nor the
adoption of any provision of the Corporation's Certificate of Incorporation
inconsistent with this Article SEVENTH, shall eliminate or reduce the effect of
this Article SEVENTH, in respect of any matter occurring, or any action or
proceeding accruing or arising or that, but for this Article SEVENTH, would
accrue or arise, prior to such amendment, repeal, or adoption of an inconsistent
provision.
EIGHTH: Meetings of stockholders may be held within or without the State
of Delaware, as the Bylaws may provide. The books of the Corporation may be
kept (subject to any provision contained in the statutes) outside of the State
of Delaware at such place or places as may be designated from time to time by
the Board of Directors or in the Bylaws of the Corporation.
NINTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon the
stockholders herein are granted subject to this right.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been
signed this ___ day of September, 1996.
MAGINET CORPORATION
By: _____________________________________
Kenneth B. Hamlet
President and Chief Executive Officer
ATTEST:
___________________________________
James A. Barth, Secretary
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<PAGE>
-4-
<PAGE>
EXHIBIT 3.3
BYLAWS
OF
MAGINET CORPORATION
(a Delaware corporation)
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I - CORPORATE OFFICES ............................................... 1
1.1 REGISTERED OFFICE ............................................... 1
1.2 OTHER OFFICES ................................................... 1
ARTICLE II - MEETINGS OF STOCKHOLDERS ....................................... 1
2.1 PLACE OF MEETINGS ............................................... 1
2.2 ANNUAL MEETING .................................................. 1
2.3 SPECIAL MEETING ................................................. 3
2.4 NOTICE OF STOCKHOLDERS' MEETINGS ................................ 3
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE .................... 3
2.6 QUORUM .......................................................... 4
2.7 ADJOURNED MEETING; NOTICE ....................................... 4
2.8 VOTING .......................................................... 5
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE;
CONSENT ........................................................ 5
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT
WITHOUT A MEETING .............................................. 5
2.11 RECORD DATE FOR STOCKHOLDER NOTICE;
VOTING; GIVING CONSENTS ........................................ 6
2.12 PROXIES ......................................................... 6
2.13 INSPECTORS OF ELECTION .......................................... 7
ARTICLE III - DIRECTORS ..................................................... 7
3.1 POWERS .......................................................... 7
3.2 NUMBER .......................................................... 8
3.3 ELECTION, QUALIFICATION AND TERM OF
OFFICE OF DIRECTORS ............................................ 8
3.4 RESIGNATION AND VACANCIES ....................................... 8
3.5 REMOVAL ......................................................... 9
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE ........................ 9
3.7 FIRST MEETINGS ................................................. 10
3.8 REGULAR MEETINGS ............................................... 10
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
3.9 SPECIAL MEETINGS; NOTICE ....................................... 10
3.10 QUORUM ......................................................... 10
3.11 WAIVER OF NOTICE ............................................... 11
3.12 ADJOURNMENT .................................................... 11
3.13 NOTICE OF ADJOURNMENT .......................................... 11
3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING .............. 11
3.15 FEES AND COMPENSATION OF DIRECTORS ............................. 11
3.16 APPROVAL OF LOANS TO OFFICERS .................................. 11
ARTICLE IV - COMMITTEES .................................................... 12
4.1 COMMITTEES OF DIRECTORS ........................................ 12
4.2 MEETINGS AND ACTION OF COMMITTEES .............................. 12
ARTICLE V - OFFICERS ....................................................... 13
5.1 OFFICERS ....................................................... 13
5.2 ELECTION OF OFFICERS ........................................... 13
5.3 SUBORDINATE OFFICERS ........................................... 13
5.4 REMOVAL AND RESIGNATION OF OFFICERS ............................ 13
5.5 VACANCIES IN OFFICES ........................................... 13
5.6 CHAIRMAN OF THE BOARD .......................................... 14
5.7 CHIEF EXECUTIVE OFFICER ........................................ 14
5.8 VICE PRESIDENTS ................................................ 14
5.9 SECRETARY ...................................................... 14
5.10 CHIEF FINANCIAL OFFICER ........................................ 15
ARTICLE VI - INDEMNITY ..................................................... 15
6.1 THIRD-PARTY ACTIONS ............................................ 15
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION .................. 16
6.3 SUCCESSFUL DEFENSE ............................................. 16
6.4 DETERMINATION OF CONDUCT ....................................... 16
6.5 PAYMENT OF EXPENSES IN ADVANCE ................................. 16
6.6 INDEMNITY NOT EXCLUSIVE ........................................ 17
6.7 INSURANCE ...................................................... 17
6.8 THE CORPORATION ................................................ 17
6.9 EMPLOYEE BENEFIT PLANS ......................................... 17
6.10 CONTINUATION OF INDEMNIFICATION AND
ADVANCEMENT OF EXPENSES ....................................... 18
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<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
ARTICLE VII - RECORDS AND REPORTS .......................................... 18
7.1 MAINTENANCE AND INSPECTION OF RECORDS .......................... 18
7.2 INSPECTION BY DIRECTORS ........................................ 18
7.3 ANNUAL STATEMENT TO STOCKHOLDERS ............................... 19
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS ................. 19
ARTICLE VIII - GENERAL MATTERS ............................................. 19
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE
AND VOTING .................................................... 19
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS ...................... 19
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED .............. 20
8.4 STOCK CERTIFICATES; PARTLY PAID SHARES ......................... 20
8.5 SPECIAL DESIGNATION ON CERTIFICATES ............................ 20
8.6 LOST CERTIFICATES .............................................. 21
8.7 CONSTRUCTION; DEFINITIONS ...................................... 21
ARTICLE IX - AMENDMENTS .................................................... 21
ARTICLE X - DISSOLUTION .................................................... 21
ARTICLE XI - CUSTODIAN ..................................................... 22
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES .................... 22
11.2 DUTIES OF CUSTODIAN ............................................ 23
-iii-
<PAGE>
BYLAWS
OF
MAGINET CORPORATION
(a Delaware corporation)
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 REGISTERED OFFICE
The registered office of the corporation shall be fixed in the Certificate
of Incorporation of the corporation.
1.2 OTHER OFFICES
The board of directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place within or outside the
State of Delaware designated by the board of directors. In the absence of any
such designation, stockholders' meetings shall be held at the registered office
of the corporation.
2.2 ANNUAL MEETING
(a) The annual meeting of stockholders shall be held each year on a
date and at a time designated by the board of directors. At the meeting,
directors shall be elected, and any other proper business may be transacted.
(b) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be: (A) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the Board of Directors, (B) otherwise properly brought before the meeting by
or at the direction of the Board of Directors, or (C) otherwise properly brought
before the meeting by a stockholder. For business to be properly brought before
an annual meeting by a stockholder, the
<PAGE>
stockholder must have given timely notice thereof in writing to the Secretary of
the corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the corporation not
less than one hundred twenty (120) calendar days in advance of the date
specified in the corporation's proxy statement released to stockholders in
connection with the previous year's annual meeting of stockholders; provided,
however, that in the event that no annual meeting was held in the previous year
or the date of the annual meeting has been changed by more than thirty (30) days
from the date contemplated at the time of the previous year's proxy statement,
notice by the stockholder to be timely must be so received a reasonable time
before the solicitation is made. A stockholder's notice to the Secretary shall
set forth as to each matter the stockholder proposes to bring before the annual
meeting: (i) a brief description of the business desired to be brought before
the annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and address, as they appear on the corporation's books,
of the stockholder proposing such business, (iii) the class and number of shares
of the corporation which are beneficially owned by the stockholder, (iv) any
material interest of the stockholder in such business and (v) any other
information that is required to be provided by the stockholder pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the "1934
Act"), in his capacity as a proponent to a stockholder proposal. Notwithstanding
the foregoing, in order to include information with respect to a stockholder
proposal in the proxy statement and form of proxy for a stockholder's meeting,
stockholders must provide notice as required by the regulations promulgated
under the 1934 Act. Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted at any annual meeting except in accordance with the
procedures set forth in this paragraph (b). The chairman of the annual meeting
shall, if the facts warrant, determine and declare at the meeting that business
was not properly brought before the meeting and in accordance with the
provisions of this paragraph (b), and, if he should so determine, he shall so
declare at the meeting that any such business not properly brought before the
meeting shall not be transacted.
(c) Only persons who are nominated in accordance with the procedures
set forth in this paragraph (c) shall be eligible for election as Directors.
Nominations of persons for election to the Board of Directors of the corporation
may be made at a meeting of stockholders by or at the direction of the Board of
Directors or by any stockholder of the corporation entitled to vote in the
election of Directors at the meeting who complies with the notice procedures set
forth in this paragraph (c). Such nominations, other than those made by or at
the direction of the Board of Directors, shall be made pursuant to timely notice
in writing to the Secretary of the corporation in accordance with the provisions
of paragraph (b) of this Section 2.2. Such stockholder's notice shall set forth
(i) as to each person, if any, whom the stockholder proposes to nominate for
election or re-election as a Director: (A) the name, age, business address and
residence address of such person, (B) the principal occupation or employment of
such person, (C) the class and number of shares of the corporation which are
beneficially owned by such person, (D) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nominations are to
be made by the stockholder, and (E) any other information relating to such
person that is required to be disclosed in solicitations of proxies for
elections of Directors, or is otherwise required, in each case pursuant to
Regulation 14A under the 1934 Act (including without limitation such person's
written consent to being named in the proxy statement, if any, as a nominee and
to serving as a Director if elected); and (ii) as to such stockholder giving
notice, the information required to be provided pursuant to paragraph (b) of
this
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Section 2.2. At the request of the Board of Directors, any person nominated by a
stockholder for election as a Director shall furnish to the Secretary of the
corporation that information required to be set forth in the stockholder's
notice of nomination which pertains to the nominee. No person shall be eligible
for election as a Director of the corporation unless nominated in accordance
with the procedures set forth in this paragraph (c). The chairman of the meeting
shall, if the facts warrants, determine and declare at the meeting that a
nomination was not made in accordance with the procedures prescribed by these
Bylaws, and if he should so determine, he shall so declare at the meeting, and
the defective nomination shall be disregarded.
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by the
Board of Directors, or by the chairman of the board, or in the absence of the
chairman of the board by the chief executive officer, or by one or more
shareholders holding shares in the aggregate entitled to cast not less than ten
percent (10%) of the votes at that meeting, but such special meetings may not be
called by any other person or persons.
If a special meeting is called by any person or persons other than the
board of directors, the request shall be in writing, specifying the time of such
meeting and the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the chairman of the board, the president, chief
executive officer, or the secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice. The
officer receiving the request shall cause notice to be promptly given to the
stockholders entitled to vote, in accordance with the provisions of Sections 2.4
and 2.5, that a meeting will be held at the time requested by the person or
persons who called the meeting, not less than thirty-five (35) nor more than
sixty (60) days after the receipt of the request. If the notice is not given
within twenty (20) days after the receipt of the request, the person or persons
requesting the meeting may give the notice. Nothing contained in this paragraph
of this Section 2.3 shall be construed as limiting, fixing, or affecting the
time when a meeting of stockholders called by action of the board of directors
may be held.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
Except as set forth in Section 2.3, all notices of meetings of stockholders
shall be sent or otherwise given in accordance with Section 2.5 of these bylaws
not less than ten (10) nor more than sixty (60) days before the date of the
meeting. The notice shall specify the place, date, and hour of the meeting and
(i) in the case of a special meeting, the general nature of the business to be
transacted (no business other than that specified in the notice may be
transacted) or (ii) in the case of the annual meeting, those matters which the
board of directors, at the time of giving the notice, intends to present for
action by the stockholders (but any proper matter may be presented at the
meeting for such action). The notice of any meeting at which directors are to be
elected shall include the name of any nominee or nominees who, at the time of
the notice, the board intends to present for election.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
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Written notice of any meeting of stockholders shall be given either
personally or by first-class mail or by telegraphic or other written
communication. Notices not personally delivered shall be sent charges prepaid
and shall be addressed to the stockholder at the address of that stockholder
appearing on the books of the corporation or given by the shareholder to the
corporation for the purpose of notice. If no such address appears on the
corporation's books or is given, notice shall be deemed to have been given if
sent to that stockholder by mail or telegraphic or other written communication
to the corporation's principal executive office, or if published at least once
in a newspaper of general circulation in the county where that office is
located. Notice shall be deemed to have been given at the time when delivered
personally or deposited in the mail or sent by telegram or other means of
written communication.
If any notice addressed to a stockholder at the address of that stockholder
appearing on the books of the corporation is returned to the corporation by the
United States Postal Service marked to indicate that the United States Postal
Service is unable to deliver the notice to the stockholder at that address, then
all future notices or reports shall be deemed to have been duly given without
further mailing if the same shall be available to the stockholder on written
demand of the stockholder at the principal executive office of the corporation
for a period of one (1) year from the date of the giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.6 QUORUM
The presence in person or by proxy of the holders of a majority of the
shares entitled to vote thereat constitutes a quorum for the transaction of
business at all meetings of stockholders. The stockholders present at a duly
called or held meeting at which a quorum is present may continue to do business
until adjournment, notwithstanding the withdrawal of enough stockholders to
leave less than a quorum, if any action taken (other than adjournment) is
approved by at least a majority of the shares required to constitute a quorum.
2.7 ADJOURNED MEETING; NOTICE
Any stockholders' meeting, annual or special, whether or not a quorum is
present, may be adjourned from time to time by the vote of the majority of the
shares represented at that meeting, either in person or by proxy. In the absence
of a quorum, no other business may be transacted at that meeting except as
provided in Section 2.6 of these bylaws.
When any meeting of stockholders, either annual or special, is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place are announced at the meeting at which the adjournment is taken.
However, if a new record date for the adjourned meeting is fixed or if the
adjournment is for more than thirty (30) days from the date set for the original
meeting, then notice of the adjourned meeting shall be given. Notice of any such
adjourned meeting shall be given to each stockholder of record entitled to vote
at the adjourned meeting in accordance
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with the provisions of Sections 2.4 and 2.5 of these bylaws. At any adjourned
meeting the corporation may transact any business which might have been
transacted at the original meeting.
2.8 VOTING
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint
owners, and to voting trusts and other voting agreements).
Except as may be otherwise provided in the Certificate of Incorporation,
each outstanding share, regardless of class, shall be entitled to one vote on
each matter submitted to a vote of the stockholders. Any stockholder entitled to
vote on any matter may vote part of the shares in favor of the proposal and
refrain from voting the remaining shares or, except when the matter is the
election of directors, may vote them against the proposal; but, if the
stockholder fails to specify the number of shares which the stockholder is
voting affirmatively, it will be conclusively presumed that the stockholder's
approving vote is with respect to all shares which the stockholder is entitled
to vote.
If a quorum is present, the affirmative vote of the majority of the shares
represented and voting at a duly held meeting (which shares voting affirmatively
also constitute at least a majority of the required quorum) shall be the act of
the stockholders, unless the vote of a greater number or a vote by classes is
required by law or by the Certificate of Incorporation.
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT
The transactions of any meeting of stockholders, either annual or special,
however called and noticed, and wherever held, shall be as valid as though they
had been taken at a meeting duly held after regular call and notice, if a quorum
be present either in person or by proxy, and if, either before or after the
meeting, each person entitled to vote, who was not present in person or by
proxy, signs a written waiver of notice or a consent to the holding of the
meeting or an approval of the minutes thereof. The waiver of notice or consent
or approval need not specify either the business to be transacted or the purpose
of any annual or special meeting of stockholders. All such waivers, consents,
and approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of and presence at that meeting, except when the person objects at the
beginning of the meeting to the transaction of any business because the meeting
is not lawfully called or convened. Attendance at a meeting is not a waiver of
any right to object to the consideration of matters required by law to be
included in the notice of the meeting but not so included, if that objection is
expressly made at the meeting.
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise provided in the Certificate of Incorporation, any action
which may be taken at any annual or special meeting of stockholders may be taken
without a meeting and without prior
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notice, if a consent in writing, setting forth the action so taken, is signed by
the holders of outstanding shares having not less than the minimum number of
votes that would be necessary to authorize or take that action at a meeting at
which all shares entitled to vote on that action were present and voted.
Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. If the action which is consented to is such as
would have required the filing of a certificate under any section of the General
Corporation Law of Delaware if such action had been voted on by stockholders at
a meeting thereof, then the certificate filed under such section shall state, in
lieu of any statement required by such section concerning any vote of
stockholders, that written notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.
Notwithstanding the foregoing, effective upon the registration of any class
of securities of the Corporation pursuant to the requirements of the Securities
Exchange Act of 1934, as amended, the stockholders of the Corporation may not
take action by written consent without a meeting but must take any such actions
at a duly called annual or special meeting.
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
For purposes of determining the stockholders entitled to notice of any
meeting or to vote thereat or entitled to give consent to corporate action
without a meeting, the board of directors may fix, in advance, a record date,
which shall not be more than sixty (60) days nor less than ten (10) days before
the date of any such meeting nor more than sixty (60) days before any such
action without a meeting, and in such event only stockholders of record on the
date so fixed are entitled to notice and to vote or to give consents, as the
case may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date.
If the board of directors does not so fix a record date:
(a) the record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of business on
the business day next preceding the day on which notice is given, or, if notice
is waived, at the close of business on the business day next preceding the day
on which the meeting is held; and
(b) the record date for determining stockholders entitled to give
consent to corporate action in writing without a meeting, (i) when no prior
action by the board has been taken, shall be the day on which the first written
consent is given, or (ii) when prior action by the board has been taken, shall
be at the close of business on the day on which the board adopts the resolution
relating to that action.
The record date for any other purpose shall be as provided in Article VIII
of these bylaws.
2.12 PROXIES
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Every person entitled to vote for directors, or on any other matter, shall
have the right to do so either in person or by one or more agents authorized by
a written proxy signed by the person and filed with the secretary of the
corporation, but no such proxy shall be voted or acted upon after three (3)
years from its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy (whether
by manual signature, typewriting, telegraphic transmission or otherwise) by the
stockholder or the stockholder's attorney-in-fact. The revocability of a proxy
that states on its face that it is irrevocable shall be governed by the
provisions of Section 212(c) of the General Corporation Law of Delaware.
2.13 INSPECTORS OF ELECTION
Before any meeting of stockholders, the board of directors may appoint an
inspector or inspectors of election to act at the meeting or its adjournment. If
no inspector of election is so appointed, then the chairman of the meeting may,
and on the request of any stockholder or a stockholder's proxy shall, appoint an
inspector or inspectors of election to act at the meeting. The number of
inspectors shall be either one (1) or three (3). If inspectors are appointed at
a meeting pursuant to the request of one (1) or more stockholders or proxies,
then the holders of a majority of shares or their proxies present at the meeting
shall determine whether one (1) or three (3) inspectors are to be appointed. If
any person appointed as inspector fails to appear or fails or refuses to act,
then the chairman of the meeting may, and upon the request of any stockholder or
a stockholder's proxy shall, appoint a person to fill that vacancy.
Such inspectors shall:
(a) determine the number of shares outstanding and the voting power
of each, the number of shares represented at the meeting, the existence of a
quorum, and the authenticity, validity, and effect of proxies;
(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
(f) determine the result; and
(g) do any other acts that may be proper to conduct the election or
vote with fairness to all stockholders.
ARTICLE III
DIRECTORS
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3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware and to
any limitations in the Certificate of Incorporation or these bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
3.2 NUMBER
The authorized number of directors shall be seven (7). No reduction of the
authorized number of directors shall have the effect of removing any director
before that director's term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these Bylaws, at each annual meeting
of stockholders, directors of the Corporation shall be elected to hold office
until the expiration of the term for which they are elected, and until their
successors have been duly elected and qualified; except that if any such
election shall not be so held, such election shall take place at a stockholders'
meeting called and held in accordance with the Delaware General Corporation Law.
Directors need not be stockholders unless so required by the Certificate of
Incorporation or these Bylaws, wherein other qualifications for directors may be
prescribed.
Elections of directors need not be by written ballot.
Notwithstanding the foregoing provisions of this Article, each Director
shall serve until his successor is duly elected and qualified or until his
earlier death, resignation or removal.
3.4 RESIGNATION AND VACANCIES
Any director may resign effective on giving written notice to the chairman
of the board, the president, the secretary or the board of directors, unless the
notice specifies a later time for that resignation to become effective. If the
resignation of a director is effective at a future time, the board of directors
may elect a successor to take office when the resignation becomes effective.
Unless otherwise provided in the Certificate of Incorporation or these
bylaws, vacancies in the board of directors may be filled by a majority of the
remaining directors, even if less than a quorum, or by a sole remaining
director; however, a vacancy created by the removal of a director by the vote or
written consent of the stockholders or by court order may be filled only by the
affirmative vote of a majority of the shares represented and voting at a duly
held meeting at which a quorum is present (which shares voting affirmatively
also constitute a majority of the required quorum), or by the unanimous written
consent of all shares entitled to vote thereon. Each director so elected shall
hold office until the next annual meeting of the stockholders and until a
successor has been elected and qualified.
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Unless otherwise provided in the Certificate of Incorporation or these
bylaws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
certificate of incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
(as constituted immediately prior to any such increase), then the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten (10) percent of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office as aforesaid, which
election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 REMOVAL
Subject to any limitations imposed by law, and unless otherwise provided in
the Certificate of Incorporation, the Board of Directors, or any individual
Director, may be removed from office at any time by the affirmative vote of the
holders of at least a majority of the then outstanding shares of the capital
stock of the corporation entitled to vote at an election of Directors.
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
Regular meetings of the board of directors may be held at any place within
or outside the State of Delaware that has been designated from time to time by
resolution of the board. In the absence of such a designation, regular meetings
shall be held at the principal executive office of the corporation. Special
meetings of the board may be held at any place within or outside the State of
Delaware that has been designated in the notice of the meeting or, if not stated
in the notice or if there is no notice, at the principal executive office of the
corporation.
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Any meeting, regular or special, may be held by conference telephone or
similar communication equipment, so long as all directors participating in the
meeting can hear one another; and all such directors shall be deemed to be
present in person at the meeting.
3.7 FIRST MEETINGS
The first meeting of each newly elected board of directors shall be held at
such time and place as shall be fixed by the vote of the stockholders at the
annual meeting and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a quorum
shall be present. In the event of the failure of the stockholders to fix the
time or place of such first meeting of the newly elected board of directors, or
in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.
3.8 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice if
the times of such meetings are fixed by the board of directors.
3.9 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes may
be called at any time by the chairman of the board, or in the absence of the
chairman of the board by the chief executive officer or any three directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
3.10 QUORUM
A majority of the authorized number of directors shall constitute a quorum
for the transaction of business, except to adjourn as provided in Section 3.10
of these bylaws. Every act or decision done or made by a majority of the
directors present at a duly held meeting at which a quorum is present
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shall be regarded as the act of the board of directors, subject to the
provisions of the Certificate of Incorporation and applicable law.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for that meeting.
3.11 WAIVER OF NOTICE
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice or a consent to holding the meeting or an approval of the
minutes thereof, whether before or after the meeting, or (ii) who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to such directors. All such waivers, consents, and approvals shall be
filed with the corporate records or made part of the minutes of the meeting. A
waiver of notice need not specify the purpose of any regular or special meeting
of the board of directors.
3.12 ADJOURNMENT
A majority of the directors present, whether or not constituting a quorum,
may adjourn any meeting to another time and place.
3.13 NOTICE OF ADJOURNMENT
Notice of the time and place of holding an adjourned meeting need not be
given unless the meeting is adjourned for more than twenty-four (24) hours. If
the meeting is adjourned for more than twenty-four (24) hours, then notice of
the time and place of the adjourned meeting shall be given before the adjourned
meeting takes place, in the manner specified in Section 3.8 of these bylaws, to
the directors who were not present at the time of the adjournment.
3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action required or permitted to be taken by the board of directors may
be taken without a meeting, provided that all members of the board individually
or collectively consent in writing to that action. Such action by written
consent shall have the same force and effect as a unanimous vote of the board of
directors. Such written consent and any counterparts thereof shall be filed with
the minutes of the proceedings of the board.
3.15 FEES AND COMPENSATION OF DIRECTORS
Directors and members of committees may receive such compensation, if any,
for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the board of directors. This Section 3.15 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
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3.16 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing contained in this section shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
ARTICLE IV
COMMITTEES
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4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one (1) or more committees, each
consisting of two or more directors, to serve at the pleasure of the board. The
board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent member at any meeting of the committee.
The appointment of members or alternate members of a committee requires the vote
of a majority of the authorized number of directors. Any committee, to the
extent provided in the resolution of the board, shall have all the authority of
the board, but no such committee shall have the power or authority to (i) amend
the Certificate of Incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the board of directors as provided in Section 151(a) of the
General Corporation Law of Delaware, fix any of the preferences or rights of
such shares relating to dividends, redemption, dissolution, any distribution of
assets of the corporation or the conversion into, or the exchange of such shares
for, shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation), (ii) adopt an agreement of
merger or consolidation under Sections 251 or 252 of the General Corporation Law
of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, (iv)
recommend to the stockholders a dissolution of the corporation or a revocation
of a dissolution, or (v) amend the bylaws of the corporation; and, unless the
board resolution establishing the committee, the bylaws or the Certificate of
Incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
4.2 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these bylaws, Section 3.5
(place of meetings), Section 3.7 (regular meetings), Section 3.8 (special
meetings and notice), Section 3.9 (quorum), Section 3.10 (waiver of notice),
Section 3.11 (adjournment), Section 3.12 (notice of adjournment), and Section
3.13
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(action without meeting), with such changes in the context of those bylaws as
are necessary to substitute the committee and its members for the board of
directors and its members; provided, however, that the time of regular meetings
of committees may be determined either by resolution of the board of directors
or by resolution of the committee, that special meetings of committees may also
be called by resolution of the board of directors, and that notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The board of directors
may adopt rules for the government of any committee not inconsistent with the
provisions of these bylaws.
ARTICLE V
OFFICERS
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5.1 OFFICERS
The officers of the corporation shall be a chairman of the board, a chief
executive officer, a secretary and a chief financial officer. The corporation
may also have, at the discretion of the board of directors, a president, one or
more vice presidents, one or more assistant secretaries, one or more assistant
treasurers, and such other officers as may be appointed in accordance with the
provisions of Section 5.3 of these bylaws. Any number of offices may be held by
the same person.
5.2 ELECTION OF OFFICERS
The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Section 5.3 or Section 5.5 of these bylaws,
shall be chosen by the board, subject to the rights, if any, of an officer under
any contract of employment.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or may empower the president to
appoint, such other officers as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these bylaws or as the board of directors may
from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by the
board of directors at any regular or special meeting of the board or, except in
case of an officer chosen by the board of directors, by any officer upon whom
such power of removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
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necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these bylaws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall serve as
the corporation's general manager, and shall have general supervision, direction
and control of the corporation's business and its officers, and, if present,
preside at meetings of the stockholders and the board of directors and exercise
and perform such other powers and duties as may from time to time be assigned to
him by the board of directors or as may be prescribed by these bylaws. If there
is no chief executive officer, then the chairman of the board shall also be the
chief executive officer of the corporation and shall have the powers and duties
prescribed in Section 5.7 of these bylaws. The chairman of the board shall
report to the board of directors.
5.7 CHIEF EXECUTIVE OFFICER
Subject to such powers, if any, as may be given by the board of directors
to the chairman of the board, if there be such an officer, the chief executive
officer shall, subject to the control of the chairman of the board, or the board
of directors if there is no chairman of the board, have general supervision,
direction, and control of the business and the officers of the corporation. He
or she shall preside at all meetings of the stockholders and the board of
directors, in the absence or nonexistence of a chairman of the board. He or she
shall have the general powers and duties of management usually vested in the
office of president of a corporation, and shall have such other powers and
duties as may be prescribed by the board of directors or these bylaws.
5.8 VICE PRESIDENTS
In the absence or disability of the president, the vice presidents, if any,
in order of their rank as fixed by the board of directors or, if not ranked, a
vice president designated by the board of directors, shall perform all the
duties of the president and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the president. The vice presidents shall
have such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the board of directors, these bylaws, the
president or the chairman of the board.
5.9 SECRETARY
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors and stockholders. The minutes shall show the time and place of
each meeting, whether regular or special (and, if special, how authorized and
the notice given), the
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names of those present at directors' meetings or committee meetings, the number
of shares present or represented at stockholders' meetings, and the proceedings
thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the stockholders and of the board of directors required to be given by law or by
these bylaws. He or she shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the board of directors or by these bylaws.
5.10 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings and shares. The books of account shall at all reasonable times
be open to inspection by any director.
The chief financial officer shall deposit all money and other valuables in
the name and to the credit of the corporation with such depositaries as may be
designated by the board of directors. He or she shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his or
her transactions as chief financial officer and of the financial condition of
the corporation, and shall have such other powers and perform such other duties
as may be prescribed by the board of directors or these bylaws.
ARTICLE VI
INDEMNITY
---------
6.1 THIRD-PARTY ACTIONS
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably
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believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interest of the corporation, and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Delaware Court
of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Delaware Court of Chancery or
such other court shall deem proper.
6.3 SUCCESSFUL DEFENSE
To the extent that a director, officer, employee or agent of the
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 6.1 and 6.2, or in defense of
any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
6.4 DETERMINATION OF CONDUCT
Any indemnification under Sections 6.1 and 6.2 (unless ordered by a court)
shall be made by the corporation only as authorized in the specific case upon a
determination that the indemnification of the director, officer, employee or
agent is proper in the circumstances because he has met the applicable standard
of conduct set forth in Sections 6.1 and 6.2. Such determination shall be made
(1) by the board of Directors or the Executive Committee by a majority vote of a
quorum consisting of directors who were not parties to such action, suit or
proceeding, or (2) or if such quorum is not obtainable or, even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the stockholders.
6.5 PAYMENT OF EXPENSES IN ADVANCE
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Expenses incurred in defending a civil or criminal action, suit or
proceeding shall be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of the director, officer, employee or agent to repay such amount if it
shall ultimately be determined that he is not entitled to be indemnified by the
corporation as authorized in this Article VI.
6.6 INDEMNITY NOT EXCLUSIVE
The indemnification and advancement of expenses provided or granted
pursuant to the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another while holding such office.
6.7 INSURANCE
The corporation shall have the power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation, as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of this Article VI.
6.8 THE CORPORATION
For purposes of this Article VI, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
and subject to the provisions of this Article VI (including, without limitation
the provisions of Section 6.4) with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
6.9 EMPLOYEE BENEFIT PLANS
For purposes of this Article VI, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
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reasonably deemed to have acted in a manner "not opposed to the best interests
of the corporation" as referred to in this Article VI.
6.10 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
The indemnification and advanced of expenses provided by, or granted
pursuant to, this Article VI shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive office or at such
place or places as designated by the board of directors, keep a record of its
stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these bylaws as amended to date,
accounting books and other records.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
7.2 INSPECTION BY DIRECTORS
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Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders and its other books and records for a purpose
reasonably related to his or her position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a director
is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the president, any vice president, the chief
financial officer, the secretary or assistant secretary of this corporation, or
any other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority herein
granted may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
ARTICLE VIII
GENERAL MATTERS
---------------
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
For purposes of determining the stockholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any other lawful
action (other than action by stockholders by written consent without a meeting),
the board of directors may fix, in advance, a record date, which shall not be
more than sixty (60) days before any such action. In that case, only
stockholders of record at the close of business on the date so fixed are
entitled to receive the dividend, distribution or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date so fixed, except as
otherwise provided by law.
If the board of directors does not so fix a record date, then the record
date for determining stockholders for any such purpose shall be at the close of
business on the day on which the board adopts the applicable resolution or the
sixtieth (60th) day before the date of that action, whichever is later.
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8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
The board of directors, except as otherwise provided in these bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.4 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of a corporation shall be represented by certificates, provided
that the board of directors of the corporation may provide by resolution or
resolutions that some or all of any or all classes or series of its stock shall
be uncertificated shares. Any such resolution shall not apply to shares
represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by, the chairman or vice-chairman
of the board of directors, or the president or vice-president, and by the chief
financial officer, the secretary or an assistant secretary of such corporation
representing the number of shares registered in certificate form. Any or all of
the signatures on the certificate may be a facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate has ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the corporation
with the same effect as if he or she were such officer, transfer agent or
registrar at the date of issue.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.5 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating,
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optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights shall be set forth in full or summarized on the face or back of the
certificate that the corporation shall issue to represent such class or series
of stock; provided, however, that, except as otherwise provided in Section 202
of the General Corporation Law of Delaware, in lieu of the foregoing
requirements there may be set forth on the face or back of the certificate that
the corporation shall issue to represent such class or series of stock a
statement that the corporation will furnish without charge to each stockholder
who so requests the powers, the designations, the preferences, and the relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
8.6 LOST CERTIFICATES
Except as provided in this Section 8.6, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and canceled at the same time. The board of
directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
certificates on such terms and conditions as the board may require; the board
may require indemnification of the corporation secured by a bond or other
adequate security sufficient to protect the corporation against any claim that
may be made against it, including any expense or liability, on account of the
alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
8.7 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the General Corporation Law of Delaware shall
govern the construction of these bylaws. Without limiting the generality of this
provision, the singular number includes the plural, the plural number includes
the singular, and the term "person" includes both a corporation and a natural
person.
ARTICLE IX
AMENDMENTS
----------
The original or other bylaws of the corporation may be adopted, amended or
repealed by the stockholders entitled to vote; provided, however, that the
corporation may, in its Certificate of Incorporation, confer the power to adopt,
amend or repeal bylaws upon the directors. The fact that such power has been so
conferred upon the directors shall not divest the stockholders of the power, nor
limit their power to adopt, amend or repeal bylaws.
ARTICLE X
DISSOLUTION
-----------
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If it should be deemed advisable in the judgment of the board of directors
of the corporation that the corporation should be dissolved, the board, after
the adoption of a resolution to that effect by a majority of the whole board at
any meeting called for that purpose, shall cause notice to be mailed to each
stockholder entitled to vote thereon of the adoption of the resolution and of a
meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the corporation entitled
to vote thereon votes for the proposed dissolution, then a certificate stating
that the dissolution has been authorized in accordance with the provisions of
Section 275 of the General Corporation Law of Delaware and setting forth the
names and residences of the directors and officers shall be executed,
acknowledged, and filed and shall become effective in accordance with Section
103 of the General Corporation Law of Delaware. Upon such certificate's becoming
effective in accordance with Section 103 of the General Corporation Law of
Delaware, the corporation shall be dissolved.
Whenever all the stockholders entitled to vote on a dissolution consent in
writing, either in person or by duly authorized attorney, to a dissolution, no
meeting of directors or stockholders shall be necessary. The consent shall be
filed and shall become effective in accordance with Section 103 of the General
Corporation Law of Delaware. Upon such consent's becoming effective in
accordance with Section 103 of the General Corporation Law of Delaware, the
corporation shall be dissolved. If the consent is signed by an attorney, then
the original power of attorney or a photocopy thereof shall be attached to and
filed with the consent. The consent filed with the Secretary of State shall
have attached to it the affidavit of the secretary or some other officer of the
corporation stating that the consent has been signed by or on behalf of all the
stockholders entitled to vote on a dissolution; in addition, there shall be
attached to the consent a certification by the secretary or some other officer
of the corporation setting forth the names and residences of the directors and
officers of the corporation.
ARTICLE XI
CUSTODIAN
---------
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
The Court of Chancery, upon application of any stockholder, may appoint one
or more persons to be custodians and, if the corporation is insolvent, to be
receivers, of and for the corporation when:
(i) at any meeting held for the election of directors the
stockholders are so divided that they have failed to elect successors to
directors whose terms have expired or would have expired upon qualification of
their successors; or
(ii) the business of the corporation is suffering or is threatened
with irreparable injury because the directors are so divided respecting the
management of the affairs of the corporation
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that the required vote for action by the board of directors cannot be obtained
and the stockholders are unable to terminate this division; or
(iii) the corporation has abandoned its business and has failed
within a reasonable time to take steps to dissolve, liquidate or distribute its
assets.
11.2 DUTIES OF CUSTODIAN
The custodian shall have all the powers and title of a receiver appointed
under Section 291 of the General Corporation Law of Delaware, but the authority
of the custodian shall be to continue the business of the corporation and not to
liquidate its affairs and distribute its assets, except when the Court of
Chancery otherwise orders and except in cases arising under Sections 226(a)(3)
or 352(a)(2) of the General Corporation Law of Delaware.
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CERTIFICATE OF ADOPTION OF BYLAWS
OF
MAGINET CORPORATION
ADOPTION BY INCORPORATOR
------------------------
The undersigned person appointed in the Certificate of Incorporation to act
as the Incorporator of MagiNet Corporation hereby adopts the foregoing bylaws,
comprising twenty-three (23) pages, as the Bylaws of the corporation.
Executed this ____ day of September 1996.
_________________________________
Thomas C. DeFilipps
Incorporator
Certificate by Secretary of Adoption by Incorporator
----------------------------------------------------
The undersigned hereby certifies that he is the duly elected, qualified,
and acting Secretary of MagiNet Corporation and that the foregoing Bylaws,
comprising twenty-three (23) pages, were adopted as the Bylaws of the
corporation on September __, 1996, by the person appointed in the Certificate of
Incorporation to act as the Incorporator of the corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and affixed
the corporate seal this ____ day of September 1996.
_________________________________
Secretary
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EXHIBIT 4.2
MARKET STAND-OFF AGREEMENT
Effective July 31, 1996
MagiNet Corporation
Lehman Brothers Inc.
Hambrecht & Quist
Salomon Brothers Inc.
Ladies and Gentlemen:
The undersigned understands that Lehman Brothers, Inc., Hambrecht & Quist
and Salomon Brothers, Inc. as the representatives (the "Representatives") of the
several underwriters (the "Underwriters"), propose to enter into an underwriting
agreement (the "Underwriting Agreement") with MagiNet Corporation (the
"Company") providing for the public offering (the "Public Offering") by the
Underwriters of Common Stock of the Company (the "Common Stock") pursuant to the
Company's Registration Statement to be filed with the Securities and Exchange
Commission on or about August 25, 1996 (the "Registration Statement").
In consideration of the Underwriters' agreement to purchase and undertake
the Public Offering of the Company's Common Stock, and for other good and
valuable consideration, receipt of which is hereby acknowledged, the undersigned
agrees that, without the prior written consent of Lehman Brothers, Inc., the
undersigned will not offer to sell, contract to sell, or otherwise sell, dispose
of, loan, pledge or grant any rights (collectively, a "Disposition") with
respect to any share of Common Stock or any securities convertible into or
exchangeable for Common Stock of the Company (including, without limitation,
Common Stock of the Company that may be deemed to be beneficially owned by the
undersigned in accordance with the rules and regulations of the Securities and
Exchange Commission and Common Stock that may be issued upon exercise of a stock
option or warrant) (collectively, the "Securities") now beneficially owned or
hereafter beneficially acquired by the undersigned or with respect to which the
undersigned has or hereafter acquires the power of disposition, for a period of
180 days after the date of the final Prospectus (the "Lock-Up Period").
The foregoing restriction is expressly agreed to preclude the holder of the
Securities from engaging in any hedging or other transaction which is designed
to or reasonably expected to lead to or result in a Disposition of the
Securities during the Lock-Up Period even if such Securities would be disposed
of by someone other than the undersigned. Such prohibited hedging or other
transactions would include without limitation any short sale or any purchase,
sale or grant of any right (including without limitation any put or call option)
with respect to any of the Securities or with respect to any security that
includes, relates to or derives any significant part of its value from the
Securities.
<PAGE>
MagiNet Corporation, Lehman Brothers Inc., Hambrecht & Quist,
Salomon Brothers Inc.
July 31, 1996
Page 2
Furthermore, the undersigned hereby agrees and consents to the entry of
stop transfer instructions with the Company's transfer agent against the
transfer of the Securities held by the undersigned except in compliance with
this Market Stand-Off Agreement.
Notwithstanding this Market Stand-Off Agreement, if the undersigned is an
individual, he or she may transfer any or all of his or her Securities either
during his or her lifetime or on death by gift, will or intestacy, to his or her
immediate family or to a trust the beneficiaries of which are exclusively the
undersigned and/or a member or members of his or her immediate family; provided,
--------
however, that in any such case it shall be a condition to the transfer that the
- -------
transferee execute an agreement stating that the transferee is receiving and
holding the Securities subject to the provisions of this Agreement, and there
shall be no further transfer of such Securities except in accordance with this
Agreement.
The undersigned understands that the Company and the Underwriters will
proceed with the Public Offering in reliance on this Market Stand-Off Agreement
and further agrees that its obligations hereunder shall be assignable by the
Underwriters to any subsequent underwriter selected by the Company in connection
with a firmly underwritten inital public offering of the Company's Common Stock.
Very truly yours,
-------------------------------------------
(Signature)
-------------------------------------------
(Print Name)
-------------------------------------------
(Title)
Address:
-----------------------------------
-----------------------------------
-----------------------------------
<PAGE>
MagiNet Corporation, Lehman Brothers Inc., Hambrecht & Quist,
Salomon Brothers Inc.
July 31, 1996
Page 3
[MagiNet Corporation Market Stand-Off Agreement]
<PAGE>
EXHIBIT 4.3
MAGINET CORPORATION
AMENDED AND RESTATED
SHAREHOLDERS' AGREEMENT
This Amended and Restated Shareholders' Agreement (the "Restated
Shareholders' Agreement") is made as of December 29, 1995 and amends and
restates the Shareholders' Agreement dated September 29, 1994, and First and
Second Amendments thereto, (the "Shareholders Agreement") by and among MAGINET
CORPORATION, a California corporation (the "Company") (as successor, in the
August 1995 reorganization, to the business of Pacific Pay Video Limited, a
California corporation), and the persons and entities listed on Exhibit A
---------
attached hereto.
Pursuant to Section 10.8 of the Shareholders' Agreement, which permits
amendment of the Shareholders' Agreement with consent of the Company and a
majority in interest of the Holders, the parties have agreed to amend and
restate in its entirety the Shareholders' Agreement, including any previous
amendments thereto, as follows:
"R E C I T A L S
A. On July 23, 1992, the Company and certain securityholders of the
Company entered into a Series A Preferred Stock Purchase Agreement (the "Series
A Agreement"), which, among other things, conferred upon certain securityholders
of the Company rights regarding the registration of shares of the Company's
Common Stock, certain covenant rights, and rights of first refusal upon the sale
of securities by any Purchasers (as those terms are defined in the Series A
Agreement).
B. On August 31, 1992, the Company and certain securityholders of the
Company entered into a Series B Preferred Stock Purchase Agreement (the "Series
B Agreement"), which, among other things, conferred upon certain securityholders
of the Company certain covenant rights and rights regarding the registration of
shares of the Company's Common Stock which superseded the registration rights
granted in the Series A Agreement.
C. On March 17, 1993, the Company and certain securityholders of the
Company entered into a Series B Preferred Stock and Warrant Purchase Agreement
(the "Second Series B Agreement"), which, among other things, conferred upon
certain securityholders of the Company certain covenant rights, rights of first
refusal, and rights regarding the registration of shares of the Company's Common
Stock which superseded the registration rights granted in the Series B
Agreement.
D. On September 29, 1993, the Company granted to COMSAT Video
Enterprises a warrant to purchase up to 1,575,000 shares of the Company's Common
Stock (the "COMSAT Warrant") and in connection therewith, the Company and
certain other parties to the Second Series B Agreement entered into an Amendment
No. 1 to the Second Series B Agreement (the "Series B Amendment"), which
provided that the shares of Common Stock issuable upon exercise of the
<PAGE>
COSMAT Warrant would be deemed "Registrable Securities" under Section 8 of the
Series B Agreement.
E. On March 10, 1994, in connection with the Note and Warrant Purchase
Agreement, the Company issued Warrants to purchase Common Stock (the "First
Bridge Warrants"); and the Company and certain parties to the Second Series B
Agreement, as amended, entered into a new agreement (the "Registration Rights
Agreement"), which superseded Section 8 of the Second Series B Agreement, as
amended by the Series B Amendment, in its entirety, contained provisions
substantially similar to those of Section 8 of the Second Series B Agreement, as
amended by the Series B Amendment, and granted such rights to the holders of
First Bridge Warrants.
F. On June 20, 1994, the Company granted to Silicon Valley Bank ("SVB")
and Hambrecht & Quist Guaranty Finance ("H&Q") warrants to purchase Common Stock
of the Company (the "SVB/H&Q Warrants"), and in connection therewith, the
Company and certain other parties to the Registration Rights Agreement entered
into the First Amendment to Registration Rights Agreement (the "First
Amendment"), which provided that the shares of Common Stock issuable upon
exercise of the SVB/H&Q Warrants would be deemed "Registrable Securities" under
the Registration Rights Agreement.
G. On September 12, 1994, in connection with the Second Note and
Warrant Purchase Agreement, the Company agreed to issue certain warrants to
purchase Common Stock (the "Second Bridge Warrants"); and the Company and
certain parties to the Registration Rights Agreement, as amended, entered into
the Second Amendment to Registration Rights Agreement (the "Second Amendment"),
which provided that the shares of Common Stock issuable upon exercise of the
Second Bridge Warrants would be deemed "Registrable Securities" under the
Registration Rights Agreement, as amended.
H. In connection with the issuance of Series C Preferred Stock (the
"Series C Preferred") and warrants to purchase Series C Preferred Stock (the
"Series C Warrants") pursuant to the Series C Preferred Stock Purchase Agreement
dated September 29, 1994 (the "Series C Agreement"), certain shareholders
constituting the holders of a majority of the Registrable Securities (as that
term is defined in the Registration Rights Agreement, as amended) entered into
the Shareholders' Agreement which restated and superseded the Registration
Rights Agreement, in its entirety, and which granted such registration rights to
the holders of the Series C Preferred and Series C Warrants.
I. On May 16, 1995, the Company granted Silicon Valley Bank warrants to
purchase Common Stock of the Company (the "SVB Warrants"), and in connection
therewith, the Company and certain parties to the Shareholders' Agreement
entered into the First Amendment to Shareholders' Agreement (the "First
Amendment") which provided that the shares of Common Stock issuable upon
exercise of the SVB Warrants would be deemed registerable securities under the
Shareholders' Agreement.
-2-
<PAGE>
J. On August 15, 1995, in connection with its Senior Secured Note
financing, the Company granted to Mutual Life Insurance Company of New York,
Namtor BVC, L.P., New York Life Insurance Company, and Waslic Company II,
warrants to purchase Common Stock of the Company (the "Common Warrants"), and in
connection therewith, the Company and certain other parties to the Shareholders'
Agreement entered into the Second Amendment to Shareholders' Agreement (the
"Second Amendment") which provided that the shares of Common Stock issuable upon
exercise of the Common Warrants would be deemed registerable securities under
the Shareholders' Agreement.
K. In connection with the issuance of Series D Preferred Stock (the
"Series D Preferred Stock") pursuant to the Series D Preferred Stock Purchase
Agreement dated December ___, 1995 (the "Series D Agreement"), the purchasers of
the Series D Preferred Stock (the "Series D Holders") desire to enter into an
agreement which will restate and supersede the Shareholders' Agreement, in its
entirety, and which will grant certain rights to the Series D Holders.
SECTION 1
REGISTRATION RIGHTS
-------------------
1.1 Certain Definitions. As used in this Restated Shareholders'
-------------------
Agreement, the following definitions shall apply:
"Commission" means the Securities and Exchange Commission or any
----------
other federal agency at the time administering the Securities Act.
"Common Warrants" means those warrants to purchase shares of Common
---------------
stock of the Company granted to certain investors in connection with the
purchase and sale of the Company's Senior Secured Notes due 2000 in the
aggregate principal amount of up to $30,000,000 pursuant to the Note Agreement
dated August 15, 1995.
"Holder" means any holder of outstanding Registrable Securities;
------
provided, however, that for all purposes under this Section, a holder of Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, the
Series D Preferred Stock, the COMSAT Warrant, the Original Warrants (as defined
below), the First Bridge Warrants, the SVB\H&Q Warrants, the Second Bridge
Warrants, Series C Warrants, the SVB Warrants, or the Common Warrants shall be
deemed to be a Holder of the Registrable Securities into which such shares are
then convertible or for which such warrants are then exercisable.
"Initiating Holders" means Holders of not less than forty percent
------------------
(40%) of the Registrable Securities.
-3-
<PAGE>
"Registrable Securities" means (i) the shares of Common Stock
----------------------
issuable upon conversion of the Company's Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock (the
"Conversion Stock"), (ii) the shares of Common Stock issuable upon exercise of
the warrants issued pursuant to the Second Series B Agreement (the "Original
Warrants"), the COMSAT Warrant, the First Bridge Warrants, the SVB\H&Q Warrants,
the Second Bridge Warrants, the SVB Warrants, the Common Warrants, or the Common
Stock issuable upon conversion of the Series C Preferred Stock issuable upon
exercise of the Series C Warrants (collectively, the "Warrant Shares"), (iii)
the shares of Common Stock currently outstanding and not issued pursuant to the
exercise of options or warrants (the "Founders' Stock"), and (iv) any shares of
Common Stock of the Company issued or issuable, directly or indirectly, in
respect of the stock described in (i), (ii) and (iii) upon any stock split,
stock dividend, recapitalization, or similar event, or any shares of Common
Stock otherwise issued or issuable with respect to such stock; provided,
however, that Registrable Securities shall not include shares of Common Stock
that have been sold to or through a broker or dealer or underwriter in a public
distribution or a public securities transaction, sold in a transaction exempt
from the registration and prospectus delivery requirements of the Securities Act
under Section 4(1) thereof so that all transfer restrictions, and restrictive
legends with respect thereto, if any, are removed upon the consummation of such
sale, or Registrable Securities sold by a person in a transaction in which
rights under this Section 1 are not assigned.
"Registration Expenses" means all expenses incurred by the Company
---------------------
in complying with Sections 1.2, 1.3, and 1.4, including, without limitation, all
registration, qualification and filing fees, printing expenses, escrow fees,
fees and disbursements of counsel for the Company, blue sky fees and expenses,
and the expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the Company
which shall be paid in any event by the Company). Registration Expenses shall
not include expenses of the holders of Registrable Securities to the extent
limited or precluded in applicable blue sky laws. Registration Expenses shall
include the fees or expenses of one legal counsel to the Holders and one
separate legal counsel to the holders of the Common Warrants. Registration
Expenses shall not include selling commissions, discounts or other compensation
paid to underwriters or other agents or brokers to effect the sale, or the fees
or expenses of any additional legal counsel retained by any Holder or Holders.
"Restricted Securities" means the Company's currently outstanding
---------------------
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock,
the Conversion Stock, the Founders' Stock, the Original Warrants, the COMSAT
Warrant, the First Bridge Warrants, the SVB\H&Q Warrants, the Second Bridge
Warrants, the Series C Warrants, the SVB Warrants, the Common Warrants and the
Warrant Shares, and any other securities issued in respect thereof upon any
stock split, stock dividend, recapitalization, merger, consolidation or similar
event.
"Securities Act" means the United States Securities Act of 1933, as
--------------
amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, as shall be in effect at the time.
-4-
<PAGE>
The terms "register", "registered" and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the Securities Act (and any post-effective amendments filed or
required to be filed), and the declaration or ordering of the effectiveness of
such registration statement; provided, however, that the foregoing terms shall
also include a registration in a foreign jurisdiction to the extent set forth in
Section 1.18.
"Shareholder" means certain persons and entities listed as such on
-----------
Exhibit A attached hereto, who were parties to the Shareholder's Agreement dated
- ---------
September 29, 1994 and the holders of Series D Preferred Stock.
"SVB Warrants" means those warrants to purchase shares of Common
------------
stock of the Company granted to Silicon Valley Bank in connection with the loan
of up to $5,000,000 by Silicon Valley Bank pursuant to the Loan and Security
Agreement dated May 16, 1995.
1.2 Requested Registration.
----------------------
(a) Request for Registration. In case the Company shall receive
------------------------
from Initiating Holders a written request six (6) months after the effective
date of the initial registration of the Company's securities, that the Company
effect any underwritten registration, qualification, or compliance with respect
to Registrable Securities held by such Initiating Holders, then the Company
shall:
(i) promptly give written notice of the proposed
registration, qualification, or compliance to all other Holders; and
(ii) as soon as practicable, use its most diligent efforts
to effect all such registration, qualification, or compliance (including,
without limitation, the execution of an undertaking to file post-effective
amendments, appropriate qualification under applicable blue sky or other state
securities laws, and appropriate compliance with applicable regulations issued
under the Securities Act and any other governmental requirements or regulations)
as may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any Holders joining in such request as are specified in a written
request received by the Company within twenty (20) days after the date the
Company mails such written notice;
Provided, however, that the Company shall not be obligated to
take any action to effect any such registration, qualification, or compliance
pursuant to this Section 1.2:
(A) In any jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting such
registration, qualification, or compli ance unless the Company is already
subject to service in such jurisdiction and except as may be required by the
Securities Act;
-5-
<PAGE>
(B) During the period starting with the date sixty
(60) days prior to the Company's estimated date of filing of, and ending on the
date six months immediately following the effective date of any registration
statement pertaining to securities of the Company (other than a registration of
securities in a Rule 145 transaction or with respect to an employee benefit plan
or initiated by security holders);
(C) Unless the registration will be requested for at
least ten percent (10%) of the Registrable Securities; or
(D) At any time during which the Company is qualified
to use Form S-3 for registration of the Registrable Securities held by the
Holders.
Subject to the foregoing clauses (A) through (D), the Company
shall file a registration statement covering the Registrable Securities so
requested to be registered as soon as prac ticable, and in any event within 90
days, after receipt of the request or requests of the Initiating Holders;
provided, however, that if the Company shall furnish to Holders requesting a
registration statement under this Section 1.2, a certificate signed by the
President of the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company and
its shareholders for such registration statement to be filed and it is therefore
essential to defer the filing of such registration statement, the Company shall
have the right to defer such filing for a period of not more than ninety (90)
days after receipt of the request of the Initiating Holders; provided further,
that the Company may not utilize this right more than once in any twelve- (12-)
month period.
(b) Underwriting. The right of any Holder to registration pursuant
------------
to this Section 1.2 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting to the extent requested (unless otherwise mutually agreed by a
majority in interest of the Initiating Holders and such Holder) and to the
extent provided herein.
The Company shall (together with all Holders and holders of
other securities proposing to distribute their securities through such
underwriting) enter into an underwriting agreement in customary form with the
managing underwriter selected for such underwriting by a majority in interest of
the Initiating Holders. Notwithstanding any other provision of this Section 1.2,
if the managing underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the securities of the Company entitled to be included in such
registration which are not Registrable Securities shall be excluded from such
registration to the extent required by such limitation. If a limitation of the
number of shares is still required, then the Company shall so advise all
Holders, and the number of shares of Registrable Securities that may be included
in the registration and underwriting shall first be allocated among Holders
thereof in proportion, as nearly as practicable, to the respective amounts of
Registrable Securities, other than Founders Shares, entitled to inclusion
(determined without regard to any require-
-6-
<PAGE>
ment of a request to be included in such registration) in such registration held
by all such Holders at the time of filing the registration statement and,
second, should the underwriter's limitation permit inclusion of any additional
securities, among all Holders in proportion, as nearly as practicable, to the
respective amounts of Founders Shares entitled to inclusion (determined without
regard to any requirement of a request to be included in such registration) in
such registration held by all such Holders at the time of filing the
registration statement. No Registrable Securities or other securities excluded
from the underwriting by reason of the underwriter's marketing limitation shall
be included in such registration. To facilitate the allocation of shares in
accordance with the above provisions, the Company or the underwriters may round
the number of shares allocated to any Holder to the nearest 100 shares.
If any Holder of Registrable Securities disapproves of the
terms of the underwriting, such person may elect to withdraw therefrom by
written notice to the Company, the managing underwriter and the Initiating
Holders. The Registrable Securities and/or other securities so withdrawn shall
also be withdrawn from registration, and such Registrable Securities shall not
be trans ferred in a public distribution prior to ninety (90) days after the
effective date of such registration, or such other shorter period of time as the
underwriters may require. If by the withdrawal of such Registrable Securities a
greater number of Registrable Securities held by other Holders may be included
in such regis tration (up to the maximum of any limitation imposed by the
underwriters), then the Company shall offer to all Holders who have included
Registrable Securities in the registration the right to include additional
Registrable Securities in the same proportion and manner used in determining the
underwriter limitation in this Section 1.2(b).
If the managing underwriter has not limited the number of
Registrable Securities to be underwritten, the Company may include securities
for its own account or for the account of others in such registration if the
underwriter so agrees and if the number of Registrable Securities which would
otherwise have been included in such registration and underwriting will not
thereby be limited.
1.3 Company Registration.
--------------------
(a) Notice of Registration. If at any time or from time to time,
----------------------
the Company shall determine to register any of its securities, either for its
own account or the account of a security holder or holders exercising their
respective demand registration rights, other than (i) a registration relating
solely to employee benefit plans, or (ii) a registration relating solely to a
Rule 145 transaction, the Company shall:
(i) promptly give to each Holder written notice thereof; and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities
-7-
<PAGE>
specified in a written request by each Holder received by the Company within
fifteen (15) days after the Company mails such written notice, subject to the
provisions below.
(b) Underwriting. The right of any Holder to registration pursuant
------------
to Section 1.3 shall be conditioned upon the participation by such Holder in
such underwriting, if any, and the inclusion of the Registrable Securities of
such Holder in the underwriting to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company and the other holders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the managing underwriter selected for such underwriting by the
Company. Notwithstanding any other provision of this Section 1.3, if the
managing underwriter deter mines that marketing factors require a limitation of
the number of shares to be underwritten, the managing underwriter may limit the
Registrable Securities held by Holders. If a limitation of the number of shares
to be included in such registration is required, then the Company shall so
advise all Holders, and the number of shares of Registrable Securities and other
securities that may be included in the registration and underwriting shall be
allocated among all Holders and other holders of securities thereof: first,
among all Holders of the Common Warrants in proportion as nearly as practicable,
to the respective amounts of securities entitled to inclusion (determined
without regard to any requirement of a request to be included in such
registration) in such registration held by all such Holders at the time of
filing the registration statement; second, should the underwriter's limitation
permit inclusion of any additional securities, among all remaining Holders and
other holders in proportion, as nearly as practicable, to the respective amounts
of securities, other than Founders Shares, entitled to inclusion (determined
without regard to any requirement of a request to be included in such
registration) in such registration held by all such remaining Holders and other
holders at the time of filing the registration statement; and third, should the
underwriter's limitation permit inclusion of any additional securities, among
all Holders in proportion, as nearly as practicable, to the respective amounts
of Founders Shares entitled to inclusion (determined without regard to any
requirement of a request to be included in such registration) in such
registration held by all such Holders at the time of filing the registration
statement; provided, however, that the number of Registrable Securities entitled
to inclusion in any such registration, except for the registration of the
initial public offering of the Company's securities, shall be no less than
twenty percent (20%) of the total number of shares covered by such registration.
To facilitate the allocation of shares in accor dance with the above provisions,
the Company may round the number of shares allocated to any Holder to the
nearest 100 shares. If any Holder or other holder disapproves of the terms of
any such under writing, he may elect to withdraw therefrom by written notice to
the Company and the managing underwriter. Any securities excluded or withdrawn
from such underwriting shall be withdrawn from such registration.
(c) Right to Terminate Registration. The Company shall have the
-------------------------------
right to terminate or withdraw any registration initiated by it under this
Section 1.3 prior to the effectiveness of such registration whether or not any
Holder has elected to include securities in such registration.
-8-
<PAGE>
1.4 Form S-3 Registration. In case the Company shall receive from a
---------------------
Holder or Holders a written request that the Company effect a registration on
Form S-3 and any related qualification or compliance with respect to an amount
of the Registrable Securities owned by such Holder or Holders for which the
anticipated aggregate offering price would be at least $500,000, the Company
shall:
(a) promptly give written notice of the proposed registration, and
any related qualification or compliance to all other Holders; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given within
twenty (20) days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification, or compliance pursuant to this Section 1.4: (1) if
Form S-3 is not available for such offering by the Holders; (2) if the Company
shall furnish to the Holders a certificate signed by the president of the
Company stating that in the good faith judgment of the board of directors of the
Company, it would be seriously detrimental to the Company and its shareholders
for such Form S-3 Registration to be effected at such time, in which event the
Company shall have the right to defer the filing of the Form S-3 registration
statement for a period of not more than ninety (90) days after receipt of the
initiating request of the Holder or Holders under this Section 1.4; provided,
however, that the Company shall not utilize this right more than twice in any
twelve- (12-) month period; (3) if the Company has, within the twelve- (12-)
month period preceding the date of such request, already effected one (1)
registration on Form S-3 for the Holders pursuant to this Section 1.4; or (4) in
any jurisdiction in which the Company would be required to execute a general
consent to service of process in effecting such registration, qualification or
compliance unless the Company is already subject to service in such jurisdiction
and except as may be required by the Securities Act.
Subject to the foregoing, the Company shall effect such
registration, qualification, or compliance (including, without limitation, the
execution of an undertaking to file post-effective amendments, appropriate
qualification under applicable blue sky or other state securities laws and
appropriate compliance with applicable regulations issued under the Securities
Act and any other governmental requirements or regulations) covering the
Registrable Securities and other securities so requested to be registered as
soon as practicable after receipt of the request or requests of the Holders.
Registrations effected pursuant to this Section 1.4 shall not be counted as
demands for registration or registrations effected pursuant to Sections 1.2 or
1.3.
If the registration to be effected pursuant to this Section 1.4
is to be an underwritten public offering, it shall be managed by an underwriter
or underwriters acceptable to the Company selected by a majority in interest of
the Holders requesting registration. In such event, the right of any Holder to
registration pursuant to Section 1.4 shall be conditioned upon the participation
-9-
<PAGE>
by such Holder in such underwriting and the inclusion of the Registrable
Securities of such Holder in the underwriting to the extent provided herein. If
the managing underwriter so selected determines that marketing factors require a
limitation of the number of shares to be underwritten, the managing underwriter
may limit the Registrable Securities held by such Holders to be included in such
registration. The Company shall so advise such Holders, and the number of shares
of Registrable Securities that may be included in the registration shall be
allocated among such Holders in proportion to the respective amounts of
Registrable Securities which would be held by each of such Holders at the time
of filing of the registration statement. Any Registrable Securities that are so
excluded from the underwriting shall be excluded from the registration. As used
throughout this Section the term "Form S-3" shall be deemed to include any
equivalent successor form for registration pursuant to the Act.
1.5 Expenses of Registration.
------------------------
All Registration Expenses incurred in connection with the
registration, qualification or compliance pursuant to Sections 1.2, 1.3, and 1.4
shall be borne by the Company; provided, however, that the Company shall not be
required to pay for expenses of (i) any registrations requested pursuant to
Section 1.2 after the Company has effected three (3) such registrations pursuant
to Section 1.2 or 1.4 and such registrations have been declared or ordered
effective, and (ii) any registration proceeding begun pursuant to Section 1.2,
the request of which has been subsequently withdrawn by the Initiating Holders,
in which case such expenses shall be borne by the Holders of securities
(including Registrable Securities) pro rata in accordance with the number of
shares initially sought to be registered requesting or causing such withdrawal,
unless the Holders shall agree that such withdrawn registration shall be counted
as a registration for purposes of Section 1.2(a)(ii)(D). Notwithstanding the
foregoing, if such withdrawal is occasioned by the disclosure to the Initiating
Holders of a material adverse fact regarding the Company not known by the
Initiating Holders at the time of their request for registration then the
Company will bear such Registration Expenses and the Holders will retain their
rights under Section 1.2 hereof.
1.6 Registration Procedures. If and whenever the Company is required by
-----------------------
the provisions of this Section to use its most diligent efforts to effect
promptly the registration of Registrable Securities, the Company shall:
(a) Prepare and file with the Commission a registration statement
with respect to such Registrable Securities and use its most diligent efforts to
cause such registration statement to become and remain effective as provided
herein.
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
current and to comply with the provisions of the Securities Act with respect to
the sale or other disposition of all Registrable Securities covered by such
registration statement, including such amendments and supplements as may be
necessary to reflect the
-10-
<PAGE>
intended method of disposition of the prospective seller or sellers of such
Registrable Securities, but for no longer than one hundred twenty (120) days
subsequent to the effective date of such registration in the case of a
registration statement on Form S-1 (or any similar form of registration
statement required to set forth substantially identical information) and for no
longer than 90 days in the case of a registration statement on Form S-3.
(c) Furnish to each prospective seller of Registrable Securities
such number of copies of a prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other
documents, as such seller may reasonably request in order to facilitate the
public sale or other disposition of the Registrable Securities of such seller.
1.7 Indemnification. In the event any of the Registrable Securities are
---------------
included in a registration statement under this Section:
(a) The Company will indemnify each Holder, each of its officers
and directors and partners and such Holder's separate legal counsel and
independent accountants, and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, and each underwriter, if any, and
each person who controls any underwriter within the meaning of Section 15 of the
Securities Act, against all expenses, claims, losses, damages or liabilities (or
actions in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened, arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, prospectus, offering circular or other
document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading, or any violation by the Company of any rule or
regulation promulgated under the Securities Act applicable to the Company in
connection with any such registration, qualification or compliance, and the
Company will reimburse each such Holder, each of its officers and directors and
partners and such Holders' separate legal counsel and independent accountants
and each person controlling such Holder, each such underwriter and each person
who controls any such underwriter, for any legal and any other expenses
reasonably incurred in connection with investigating, preparing or defending any
such claim, loss, damage, liability or action, provided that the Company will
not be liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission or alleged untrue statement or omission, made in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder or underwriter and stated to be specifically for
use therein.
(b) Each Holder will, if Registrable Securities held by such Holder
are included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers and its legal counsel and independent accountants, each underwriter, if
any, of the Company's securities covered by such a registration statement, each
person who controls the Company or such underwriter within the meaning of
Section 15 of the Securities Act,
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<PAGE>
and each other such Holder, each of its officers and directors and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company, such Holders, such directors, officers, persons, underwriters or
control persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
(which information shall be limited to a brief description of the Holder, its
holdings of the Registrable Securities to be sold, and its plan of distribution
therefor) furnished to the Company by an instrument duly executed by such Holder
and stated to be specifically for use therein; provided, however, that the
obligations of each Holder hereunder shall be limited to an amount equal to the
net proceeds to each such Holder of Registrable Securities sold pursuant to such
registration statement.
(c) Each party entitled to indemnification under this Section (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
(d) If the indemnification provided for in this Section is held by
a court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any loss, liability, claim, damage or expense referred to herein,
then the Indemnifying Party, in lieu of indemnifying the Indemnified Party,
shall contribute to the amount paid or payable by such Indemnified Party with
respect to such loss, liability, claim, damage or expense in the proportion that
is appropriate to reflect the relative fault of the Indemnifying Party and the
Indemnified Party in connection with the statements or omissions that resulted
in such loss, liability, claim, damage or expense, as well as any other relevant
equitable considerations. The relative fault of the Indemnifying Party and the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of material fact or the omission
to state a material fact relates to information supplied by the Indemnifying
Party or by the Indemnified Party, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission; provided, however,
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that the obligations of each Holder to make contributions shall be limited to an
amount equal to the net proceeds received by each such Holder of Registerable
Securities sold pursuant to such registration statement.
(e) The indemnity and contribution provided by each Holder of
Registrable Securities under this Section 1.7 shall be provided severally and
not either jointly or jointly and severally with any other Holder.
1.8 Information by Holder. The Holder or Holders of Registrable
---------------------
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders and the distribution proposed by
such Holder or Holders as the Company may request in writing and as shall be
required in connection with any registration, qualification or compliance
referred to in this Section.
1.9 Rule 144 Reporting. With a view to making available the benefits
------------------
of certain rules and regulations of the Commission which may at any time permit
the sale of the Restricted Securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company and
until five years from the date hereof, the Company shall use its best efforts
to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, beginning ninety
(90) days after (i) the effective date of the first registration statement filed
by the Company for an offering of its securities to the general public, (ii) the
Company registers a class of securities under Section 12 of the Securities
Exchange Act of 1934, as amended, or (iii) the Company issues an offering
circular meeting the requirements of Regulation A under the Securities Ac t;
(b) File with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Securities Exchange Act of 1934, as amended (at any time after it has become
subject to such reporting requirements);
(c) Furnish to any Holder promptly upon request a written statement
as to its compliance with the reporting requirements of Rule 144 (at any time
after ninety (90) days after the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the Securities Exchange Act of 1934 (at
any time after it has become subject to such reporting requirements), a copy of
the most recent annual or quarterly report of the Company, and such other
reports and documents of the Company and other information in the possession of
or reasonably obtainable by the Company as a Holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing a Holder to
sell any such securities without registration.
1.10 Assignment of Registration Rights. The rights to cause the
---------------------------------
Company to register securities granted under this Section may be assigned to a
transferee or assignee in connection with
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<PAGE>
the transfer or assignment of Registrable Securities only if such shares
represent at least 1% of the outstanding shares of the Company's capital stock
(assuming conversion of all Preferred Stock to Common Stock, exercise of all
warrants for Common Stock and the conversion of all Series C Preferred Stock
issuable upon the exercise of the Series C Warrants) on the date of such
assignment.
1.11 Limitations on Subsequent Registration Rights. From and after
---------------------------------------------
the date of this Restated Shareholders' Agreement, the Company shall not,
without the prior written consent of the Holders of a majority of the
outstanding Registrable Securities, enter into any agreement with any holder or
prospective holder of any securities of the Company which would allow such
holder or prospective holder (a) to include such securities in any registration
filed under Section 1.2 hereof, unless under the terms of such agreement, such
holder or prospective holder may include such securities in any such
registration only to the extent that the inclusion of his securities will not
reduce the amount of the Registrable Securities of the Holders which is
included, or (b) to make a demand registration which could result in such
registration statement being declared effective prior to the earlier of either
of the dates set forth in subsection 1.2(a) or within one hundred twenty (120)
days of the effective date of any registration effected pursuant to Section 1.2.
1.12 Amendment of Registration Rights. The registration rights
--------------------------------
provided in this Section may be amended or waived with the written consent of
the Company and the holders of a majority of the Registrable Securities except
(i) the rights of Holders of the Registrable Securities issuable upon exercise
of the Common Warrants may only be amended or waived with the written consent of
the Company and Holders of Common Warrants exercisable into shares of common
stock which in the aggregate amount to at least seventy percent (70%) of the
aggregate number of shares of common stock into which all the Common Warrants
are exercisable, to the extent such rights are adversely affected by such
amendment or waiver in a manner different from other Holders, and (ii) the
rights provided in Section 1.3 may not be amended or waived, so as to adversely
affect the holders of Founders Shares in a manner different from other Holders,
without the written consent of the holders of a majority of the Founders Shares.
1.13 Termination of Registration Rights. No Holder shall be entitled
----------------------------------
to exercise any right provided for in this Section 1 after five years following
the consummation of the sale of securities pursuant to a registration statement
filed by the Company under the Securities Act in connection with the initial
firm commitment underwritten offering of its securities to the general public or
at such time as all Registrable Securities held by such Holder may immediately
be sold under Rule 144 during any ninety-(90-) day period.
1.14 Lock-Up Provision. If requested by the Company and an
-----------------
underwriter of securities of the Company, no Holder shall sell or otherwise
transfer or dispose of any Restricted Securities (other than those securities
included in the registration) during the up to one hundred eighty- (180-) day
period following the effective date of a registration statement filed in
connection with the public offering of the Company's securities, provided that
all officers and directors enter into similar agreements. The obligations
described in this Section 1.14 shall not apply to a registration relating
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<PAGE>
solely to employee benefit plans on Form S-1 or Form S-8 or similar form that
may be promulgated in the future. The Company may impose stop-transfer
instructions with respect to the securities subject to the foregoing restriction
until the end of the one hundred eighty (180) day period.
1.15 Option to Conduct Foreign Registration. To the extent the
--------------------------------------
Company is obligated to register securities pursuant to this Section 1, such
obligation may be satisfied, at the Company's option, by effecting a
registration in a jurisdiction other than the United States, pursuant to the
applicable securities laws of such jurisdiction. In the event the Company
effects a registration in a foreign jurisdiction, provided that in the good
faith judgment of the board of directors of the Company registration in such
jurisdiction is in the best interests of the Company and its shareholders, and
the Holders will not be materially adversely affected by such choice of
jurisdiction, (i) the rights of holders of Registrable Securities pursuant to
Section 1.3 hereof shall apply to such registration, and (ii) references in this
Section 1 to laws, rules, and customary practices applicable to a registration
under United States securities laws shall be interpreted so as to reflect as
nearly as possible the relevant laws, rules, and custo mary practices related to
a securities registration in the jurisdiction in which such registration is
made.
1.16 Coordination of Prior Rights. Certain of the Shareholders,
----------------------------
constituting a majority in interest of the Holders (as defined in the
Registration Rights Agreement, as amended) hereby agree that the execution and
delivery of this Restated Shareholders' Agreement is an amendment of the
Registration Rights Agreement, as amended, and that the registration rights
contained therein shall be null and void as of the execution hereof and shall be
superseded in their entirety by the terms of this Restated Shareholders'
Agreement.
SECTION 2
VOTING
------
2.1 Voting of Shares. The Shareholders each agree to hold all shares of
----------------
voting capital stock of the Company registered in their respective names or
beneficially owned by them or any of their respective affiliates as of the date
hereof (and any and all other securities of the Company legally or beneficially
acquired by each such Shareholder after the date hereof) (hereinafter
collectively referred to as the "Shares") subject to, and to vote the Shares in
accordance with, the provisions of this Section 2.
2.2 Election of Directors. Each time the Shareholders shall meet, or
---------------------
act by written consent in lieu of acting at a meeting, for the purpose of
electing one or more directors of the Company, each Shareholder agrees to vote
its Shares for the election of (i) three (3) representatives of Sunset Partners
(hereinafter defined as Sunset Partners, L.P., Sunset Partners II, L.P., and
Sunset Partners III, L.P. collectively), and (ii) one (1) representative of
Pomona Capital and its affiliated partnerships; provided, however, that each
Shareholder also agrees to vote its shares for the election of two (2)
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<PAGE>
representatives of the holders of Series C Preferred Stock as two additional
directors (resulting in a board of nine (9) directors) if the Company fails to
meet any one or more of the following three criteria for the period (the
"Relevant Period") commencing on the date hereof and ending December 31, 1996:
(a) average gross revenues per room of not less than $30 per month
for the Relevant Period,
(b) at least 100,000 rooms installed by the end of the Relevant
Period, and
(c) a capital cost per room (including the cost of interactive
shopping, but excluding the cost of televisions) of not more than $600 based on
rooms added during the Relevant Period.
The obligation assumed by each Shareholder hereunder to vote its Shares as set
forth above shall be deemed to be a right coupled with an interest in favor of
each other Shareholder, and each other Shareholder may, by acting through a
person designated by Shareholders holding a majority of the Shares subject to
this provision, vote such Shareholder's Shares by proxy. The parties to this
Restated Shareholders' Agreement shall vote their Shares to maintain a board of
seven (7) directors, unless one or more of the foregoing three criteria are not
met during the Relevant Period. In which case, the parties hereto shall vote
their Shares to increase the board to nine (9) directors with the additional two
(2) directors nominated and elected as set forth above.
2.3 Successors; Directors. In the event that any of the individuals or
---------------------
entities identified in Section 2.2 is unable or unwilling to serve on the Board
of Directors of the Company, his successor shall be chosen by the person or
entity (or persons or entities) whom that director is representing. With
respect to the representatives of holders of the Series C Preferred Stock, the
representatives shall be selected by a majority of the Series C Preferred Stock.
2.4 Effectiveness; Termination. This Section 2 shall become effective
--------------------------
on the date hereof. This Section 2 shall terminate upon the closing of the
Company's first offering of voting equity securities to the public pursuant to a
registration statement filed with the Securities and Exchange Commission. If
Sunset Partners holds less than fifty percent (50%) of the shares of Series C
Preferred Stock it holds on the effective date of this Restated Shareholders'
Agreement, then each Shareholder agrees to vote its shares for the election of
two (2) representatives of Sunset Partners. If Sunset Partners holds less than
twenty-five (25%) of the shares of Series C Preferred Stock it holds on the
effective date of this Restated Shareholders' Agreement, then each Shareholder
agrees to vote its shares for the election of one (1) representative of Sunset
Partners. With respect to Sunset Partners, the provisions of this Section 2
shall terminate when Sunset Partners holds less than ten percent (10%) of the
shares of Series C Preferred Stock it holds on the effective date of this
Restated Shareholders' Agreement. With respect to Pomona Capital, the provisions
of this Section 2 shall terminate when Pomona Capital and its affiliated
partnerships hold less than fifty percent (50%) of the shares of Series C
Preferred Stock such entities hold on the effective date of this Restated
Shareholders' Agreement.
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<PAGE>
2.5 Representations. Each Shareholder represents and warrants to the
---------------
other Shareholders that (a) it now owns (or, upon the distribution thereof, will
own) the Shares, free and clear of liens or encum brances, and has not, prior
to the date of this Restated Shareholders' Agreement, executed or delivered any
proxy or entered into any other voting agreement or similar arrangement with
respect to the Shares other than one which has expired or terminated prior to
the date hereof, and (b) such Shareholder has full power and capacity to
execute, deliver and perform this Restated Shareholders' Agreement, which has
been duly executed and delivered by, and evidences the valid and binding
obligation of, such Shareholder enforceable in accordance with its terms.
SECTION 3
RIGHT OF FIRST REFUSAL
----------------------
3.1 The Right. The Company hereby grants to (a) each holder of Series C
---------
Preferred Stock and each holder of Series D Preferred Stock of the Company and
(b) holders of more than five percent (5%) of the voting capital of the Company
prior to the issuance of the Series C Preferred Stock (collectively the Right
Holders and each a "Right Holder"), the right to purchase such Right Holder's
Pro Rata Share (as defined below) of any New Securities (as defined below) which
the Company may, from time to time, proposed to sell and issue, on the same
terms and conditions and for the same price as set forth in the notice described
in Subsection 3.2 hereof. Each Right Holder's "Pro Rata Share" for purposes of
this right of first refusal is the ratio of (i) the total number of shares of
Common Stock held by Shareholder as of the date of the notice, assuming the
conversion of all Preferred Stock, to (ii) the total aggregate shares of Common
Stock outstanding assuming the conversion of all Preferred Stock.
3.2 Notice. The Company shall give to such Right Holder written notice
------
of the proposed offer to sell and issue any of the new Securities, which written
notice shall contain the terms of such proposed sale in reasonable detail and
shall be delivered to such Right Holder not less than twenty (20) days prior to
the date such securities are proposed to be sold and issued. Such Right Holder
shall have the right to exercise the option granted pursuant to Subsection 3.1
above by giving written notice thereof to the Company prior to the expiration of
such twenty (20) day period, specifying the amount of securities which such
Right Holder desires to purchase. In the event such Right Holder does not give
such notice, then the Company shall be free to sell and issue such New
Securities to other parties, but only on the same terms as set forth in said
written notice. If the Company does not sell and issue such New Securities on
such terms within one hundred eighty (180) days of the expiration of the Right
Holder's right of first refusal hereunder, then such New Securities shall once
again be subject to the right of first refusal set forth in this Section 3.
3.3 New Securities. The term "New Securities" as used in this Section 3
--------------
shall mean any shares of the Company's Common Stock or Preferred Stock, rights,
options or warrants to purchase such shares of Common Stock or Preferred Stock,
Convertible Securities, and securities of any type
-17-
<PAGE>
whatsoever that are, or may become, convertible into such shares of Common Stock
or Preferred Stock; provided that "New Securities" does not include:
(a) Common Stock issuable upon conversion of Preferred Stock or
exercise of common stock warrants (to the extent such common stock warrants are
outstanding as of the closing of the transactions contemplated by the Series D
Agreement) or upon conversion of the Series C Preferred Stock issuable upon
exercise of the Series C Warrants.
(b) securities issued in an underwritten public offering, pursuant
to an effective registration statement under the Securities Act of 1933, as
amended;
(c) securities issued pursuant to the acquisition of another
corporation by merger, purchase of all or substantially all of the assets, or
other reorganization;
(d) securities issued to employees, officers, or directors of, or
consultants to, the corporation, pursuant to stock option, purchase or bonus
plans or agreements on terms approved by the Board of Directors;
(e) securities issued to dealers, trade vendors, sales
representatives, equipment lessors, commercial lenders (or their guarantors) or
joint venturers of the Company on terms approved by the Board of Directors; and
(f) securities issued to effect any stock split or stock dividend
by the Company.
3.4 Termination. The rights granted by this Section 3 shall terminate
-----------
immediately prior to the closing of a public offering of the Company's equity
securities pursuant to registration statement filed under the Securities Act of
1933, as amended.
SECTION 4
TRANSFER RESTRICTIONS; RIGHTS OF FIRST OFFER
--------------------------------------------
4.1 Restrictions on Transfer. The Shareholders agree not to sell,
------------------------
assign, pledge, or in any other manner transfer any of the Company's securities
held by them, or any right or interest therein, whether voluntarily or by
operation of law, or otherwise, except (a) sales made in a registered public
offering or in an open market transaction, or (b) private sales for cash
consideration made subject to the rights of first offer specified in this
Section 4. The foregoing notwithstanding, no sale, assignment, pledge, or
transfer, of any of the Company's securities, or any right or interest therein,
whether voluntarily or by operation of law, or otherwise, may be made by any
Shareholder (i) to an Adverse Person, as defined below, or (ii) that would
result in such transferee holding in excess of ten
-18-
<PAGE>
percent (10%) of voting capital stock of the Company registered in their
respective names or beneficially owned by them or any of their respective
affiliates as of the date thereof.
4.2 Adverse Person. The term "Adverse Person" as used in this Section 4
--------------
shall mean any corporation or entity which at such time is a competitor of the
Company or any affiliate of such corporation or entity.
4.3 Right of First Offer. Pursuant to the restrictions set forth in
--------------------
Section 4.1 above:
(a) Prior to any transfer of the Company's securities, the
Transferring Shareholder (the "Transferring Shareholder") shall promptly notify
the Company and all holders of Series C and Series D Preferred Stock (not
including the Transferring Shareholder) (the "Remaining Holders") of the terms
and conditions of such purchase offer (the "Purchase Offer"). Such notice shall
set forth (a) the Transferring Shareholder's bona fide intention to transfer
such securities; (b) the securities to be transferred; and (c) the cash price
or, in reasonable detail, other consideration, per share for which the
Transferring Shareholder proposes to transfer such securities.
(b) For twenty (20) days following receipt of such notice, the
Company shall have the option to purchase all or any portion of the securities
specified in the notice upon the terms specified in the Purchase Offer. If the
Company elects to purchase any of the securities specified in the notice, the
Company will deliver written notice to the Transferring Shareholder. Settlement
for the purchase of the securities shall be made as provided below.
(c) In the event the Company does not elect to acquire all of the
securities specified in the Purchase Offer, the Company shall so notify the
Remaining Holders who at such time shall have the option to purchase such
securities on a pro rata basis determined by applying (i) the ratio of the
number of shares of Common Stock held by each Remaining Holder as of the date of
the notice to the number of shares of Common Stock held by the Remaining Holders
in aggregate, assuming the conversion of all Preferred Stock in both cases, to
(ii) the number of securities available through the Purchase Offer, provided
that the securities allocated to any Remaining Holder that does not elect to
acquire the securities shall be allocated pro rata to those that do elect. If
any Remaining Holder elects to purchase any of the remaining securities
specified in the notice, such Remaining Holder shall deliver written notice to
the Transferring Shareholder and the Company. Settlement for the purchase of the
securities shall be made as provided below.
(d) In the event the Remaining Holders elect not to purchase all of
the remaining securities specified in the Transferring Shareholder's notice, the
Transferring Shareholder may sell to any transferee (subject to Sections 4.1 and
4.2 above) on the terms of the Purchase Offer the remainder of the securities
specified in the notice provided that such sale closes within sixty (60) days of
the expiration of the Remaining Holders' twenty (20) day notice period and that
the sale is on terms substantially similar to those specified in the
Transferring Shareholder's notice.
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<PAGE>
(e) Settlement for any or all of the securities elected to purchase
under this Section 4 shall be made in cash within five (5) business days after
the Transferring Shareholder receives the notice from the Company or the
Remaining Holders that it is electing to purchase some or all of the securities;
provided, however, that if the terms of the Purchase Offer called for payment
other than in cash, the Company or the Remaining Holders shall pay for such
securities on the same terms and conditions set forth in the Transferring
Shareholders' notice.
(f) Any sale or transfer, or purported sale or transfer, of the
Company's securities shall be null and void unless the terms, conditions and
provisions of this Section 4 are strictly observed and followed. The Company
will not be required (i) to transfer on its books any shares that have been
sold, gifted or otherwise transferred in violation of this Restated
Shareholders' Agreement, or (ii) to treat as owner of such shares, or to accord
the right to vote or pay dividends to any purchaser, donee or other transferee
to whom such shares may have been so transferred.
(g) Each certificate representing securities now or hereafter owned
by the Shareholders or issued to any permitted transferee shall be endorsed with
the following legend or its substantial equivalent:
"THE SALE OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN RIGHT OF FIRST OFFER
COPIES OF WHICH MAY BE OBTAINED WITHOUT CHARGE UPON WRITTEN REQUEST TO THE
SECRETARY OF THE CORPORATION."
(h) The legend shall be removed and the right of first offer shall
terminate immediately prior to the closing of the sale of the Company's Common
Stock in a bonafide underwritten public offering registered under the Act.
4.4 Permitted Transfers. The transfer restrictions and rights of first
-------------------
offer of the Company and of the Series C and Series D Preferred Stock shall not
pertain or apply to (i) any transfer to the spouse or to a trust for the benefit
of the Transferring Shareholder or his or her spouse, brother(s), sister(s),
ancestors, descendants, in any combination, (ii) any sale of securities pursuant
to any exercise of regis tration rights as set forth in Section 1 of this
Restated Shareholders' Agreement, (iii) any affiliates of the Transferring
Shareholder, or (iv) any distribution to the partners of a Transferring
Shareholder which is a limited partnership, which distribution is consistent
with the terms of such limited partnership agreement; provided that (A) the
Transferring Shareholder shall inform the Company and Remaining Holders of such
transfer prior to effecting it and (B) except for Section 4.4(ii), the
transferee (the "Permitted Transferee") shall furnish the Company with a written
agreement to be bound by and comply with all provisions of this Restated
Shareholders' Agreement applicable to the shareholder.
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<PAGE>
SECTION 5
COORDINATION OF PRIOR RIGHTS OF FIRST REFUSAL
---------------------------------------------
5.1 Second Series B Agreement Rights of First Refusal. Pursuant to
-------------------------------------------------
Section 10.4 ("Entire Agreement; Amendment and Waiver") of the Second Series B
Agreement, as amended, certain of the undersigned Shareholders, constituting a
majority in interest of the persons entitled to the right of first refusal set
forth in Section 9 ("Right of First Refusal") therein, hereby agree that the
execution and delivery of this Restated Shareholders' Agreement is an amendment
of the Second Series B Agreement, as amended, and that the rights of first
refusal contained therein shall be null and void as of the execution hereof and
shall be superseded in their entirety by the terms of this Restated
Shareholders' Agreement.
5.2 Series A Agreement Rights of First Refusal. Pursuant to Section 10.4
------------------------------------------
("Entire Agreement; Amendment and Waiver") of the Series A Agreement, certain of
the undersigned Shareholders, constituting a majority in interest of the holders
of Securities (as defined therein) and the Company hereby agree that the
execution and delivery of this Restated Shareholders' Agreement is an amendment
of the Series A Agreement and that the rights of first refusal contained in
Section 9 ("Right of First Refusal of Company and Purchasers") therein shall be
null and void as of the execution hereof and shall be superseded in their
entirety by the terms of this Restated Shareholders' Agreement.
SECTION 6
COORDINATION OF PRIOR COVENANTS RIGHTS
--------------------------------------
6.1 Series B Agreement Covenants. Pursuant to Section 9.4 ("Entire
----------------------------
Agreement; Amendment and Waiver") of the Series B Agreement certain of the
undersigned Shareholders, constituting a majority in interest of the holders of
Securities (as defined therein) and the Company hereby agree that the execution
and delivery of this Restated Shareholders' Agreement is an amendment of the
Series B Agreement, and that the covenant rights set forth in Section 7
("Covenants of the Company and the Purchaser") of the Series B Agreement shall
be null and void as of the execution hereof and shall be superseded in their
entirety by the terms of this Restated Shareholders' Agreement.
6.2 Series A Agreement Covenants. Pursuant to Section 10.4 ("Entire
----------------------------
Agreement; Amendment and Waiver") of the Series A Agreement, certain of the
undersigned Shareholders, constituting a majority in interest of the holders of
Securities (as defined in the Series A Agreement) and the Company hereby agree
that the execution and delivery of this Restated Shareholders' Agreement is an
amendment of the Series A Agreement and that the covenant rights set forth in
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<PAGE>
Section 7 ("Covenants of the Company and the Purchaser") shall be null and void
as of the execution hereof and shall be superseded in their entirety by the
terms of this Restated Shareholders' Agreement.
6.3 Second Series B Agreement Covenants. Pursuant to Section 10.4
-----------------------------------
("Entire Agreement; Amendment and Waiver") of the Second Series B Agreement, as
amended, certain of the undersigned Shareholders constituting a majority in
interest of the holders of Securities (as defined therein) and the Company
hereby agree that the execution and delivery of this Restated Shareholders'
Agreement is an amendment of the Second Series B Agreement, as amended, and that
the covenant rights set forth in Section 7 ("Covenants of the Company and
Purchaser") shall be null and void as of the execution hereof and shall be
superseded in their entirety by the terms of this Restated Shareholders'
Agreement.
SECTION 7
COORDINATION OF PRIOR CO-SALE AGREEMENT
---------------------------------------
Pursuant to Section 5.5 of the Amended and Restated Co-Sale Agreement dated
March 17, 1993, by and between Robert R. Creager, the Company, and certain
Securityholders of the Company (the "Restated Co-Sale Agreement'), certain of
the undersigned Shareholders, constituting the Major Shareholder and the
Preferred Shareholders holding a majority of the Preferred Shares (as those
terms are defined therein) and the Company hereby agree that the Restated Co-
Sale Agreement is null and void as of the execution hereof and that this
Restated Shareholders' Agreement supersedes any and all rights contained
therein.
SECTION 8
COORDINATION OF PRIOR VOTING AGREEMENT
--------------------------------------
Pursuant to Section 3.3 of the Voting Agreement (the "Voting Agreement")
dated as of October 15, 1992, by and among the Company and certain
Securityholders of the Company as amended by the Amendment and Agreement to be
Bound dated March 17, 1993, the undersigned Shareholder, constituting holders of
more than fifty percent (50%) of the Shares (as defined therein) subject to the
Voting Agreement, hereby agree that the execution and delivery of this Restated
Shareholders' Agreement is an amendment of the Voting Agreement, and that the
Voting Agreement, as amended, is null and void as of the execution hereof and
that this Restated Shareholders' Agreement supersedes any and all rights
contained therein.
SECTION 9
COORDINATION OF PRIOR RIGHT OF FIRST OFFER AGREEMENT
----------------------------------------------------
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<PAGE>
The Company and COMSAT Video Enterprises, Inc. hereby agree to renegotiate
the Right of First Offer Agreement dated as of March 15, 1993 in good faith
subsequent to the execution of this Restated Shareholders' Agreement.
SECTION 10
GENERAL PROVISIONS
------------------
10.1 Necessary Actions. If and whenever the Shares are sold by a
-----------------
Shareholder or its representative, the Shareholder or its representative shall
do all things and execute and deliver all documents and make all transfers, and
cause any transferee of the Shares to do all things and execute and deliver all
documents, as may be necessary to consummate such sale consistent with this
Restated Shareholders' Agreement.
10.2 Equitable Relief. The parties hereto declare that it is impossible
----------------
to measure in money the damages which will accrue to a party hereto or to their
heirs, personal representatives, or assigns by reason of a failure to perform
any of the obligations under this Restated Shareholders' Agreement and agree
that the terms of this Restated Shareholders' Agreement shall be specifically
enforceable. If any party hereto or his heirs, personal representatives, or
assigns institutes any action or proceeding to specifi cally enforce the
provisions hereof, any person against whom such action or proceeding is brought
hereby waives the claim or defense therein that such party or such personal
representative has an adequate remedy at law, and such person shall not offer in
any such action or proceeding the claim or defense that such remedy at law
exists.
10.3 Reclassifications, etc. In the event that subsequent to the date of
----------------------
this Restated Shareholders' Agreement any shares or other securities are issued
on, or in exchange for, any of the Shares held by the Shareholders by reason of
any stock dividend, stock split, consolidation of shares, reclassification,
merger or consolidation involving the Company, such shares or securities shall
be deemed to be Shares for purposes of this Restated Shareholders' Agreement.
10.4 Further Assurances. Each Shareholder agrees to execute and deliver
------------------
such additional documents and take such additional actions as may be necessary
or reasonably desirable to carry out the intent of this Restated Shareholders'
Agreement.
10.5 Governing Law. This Restated Shareholders' Agreement shall be
-------------
governed by and construed according to the laws of the State of California.
10.6 Survival. The representations, warranties, and covenants of the
--------
parties made herein shall survive the Closing.
-23-
<PAGE>
10.7 Successors and Assigns. Except as otherwise expressly limited
----------------------
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto.
10.8 Entire Agreement; Amendment and Waiver. This Restated
--------------------------------------
Shareholders' Agreement and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subject matters hereof and thereof. Except as provided in
Section 1.12, any term of this Restated Shareholders' Agreement may be amended
and the observance of any term hereof may be waived (either prospectively or
retroactively and either generally or in a parti cular instance) only with the
written consent of more than 75% of the Holders and the written consent of the
Company. Any amendment or waiver effected in accordance with this Section 10.8
shall be binding upon each Holder and the Company. In addition, the Company may
waive performance of any obligation owing to it, as to some or all of the
Holders, or agree to accept alternatives to such performance, without obtaining
the consent of any Holder.
10.9 Rights of Holders. Each Holder shall have the absolute right to
-----------------
exercise or refrain from exercising any right or rights that such Holder may
have by reason of this Restated Shareholders' Agreement, including without
limitation the right to consent to the waiver of any obligation of the Company
under this Restated Shareholders' Agreement and to enter into an agreement with
the Company for the purpose of modifying this Restated Shareholders' Agreement
or any agreement affecting any such modification, and such Holder shall not
incur any liability to any other Holder or Holders with respect to exercising or
refraining from exercising any such right or rights.
10.10 Notices, etc. All notices and other communications required or
-------------
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand or by messenger,
addressed (i) if to a Holder, at the address such Holder shall have furnished to
the Company in writing, or (ii) if to the Company, one copy to its principal
executive offices addressed to the attention of the Corporate Secretary, or at
such other address as the Company shall have furnished to the Holders, and
another copy to the Company's legal counsel, Wilson, Sonsini, Goodrich & Rosati,
650 Page Mill Road, Palo Alto, California 94304-1050, to the attention of Thomas
C. DeFilipps, Esq.
10.11 Delays or Omissions. No delay or omission to exercise any right,
-------------------
power, or remedy accruing to any party upon any breach or default under this
Restated Shareholders' Agreement, shall be deemed a waiver of any other breach
or default theretofore or thereafter occurring. Any waiver, permit, consent, or
approval of any kind or character on the part of any party of any breach or
default under this Restated Shareholders' Agreement, or any waiver on the part
of any party of any provisions or conditions of this Restated Shareholders'
Agreement, must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this Restated
Shareholders' Agreement or by law or otherwise afforded to any of the parties,
shall be cumulative and not alternative.
-24-
<PAGE>
10.12 References. Unless context otherwise requires, any reference to
----------
a "Section" refers to a section of this Restated Shareholders' Agreement. Any
reference to "this Section" refers to the whole numbered section in which such
reference is contained.
10.13 Severability. If any provision of this Restated Shareholders'
------------
Agreement is held to be unenforceable under applicable law, then such provision
shall be excluded from this Restated Shareholders' Agreement and the balance of
this Restated Shareholders Agreement shall be interpreted as if such provision
were so excluded and shall be enforceable in accordance with its terms. The
court in its discretion may substitute for the excluded provision an enforceable
provision which in economic substance reasonably approximates the excluded
provision.
10.14 Counterparts. This Restated Shareholders' Agreement may be
------------
executed in any number of counterparts, each of which shall be deemed an
original and enforceable against the parties actually executing such
counterpart, and all of which together shall constitute one instrument.
-25-
<PAGE>
[Signature Page to Amended and Restated Shareholders' Agreement]
IN WITNESS WHEREOF, the parties have caused this Restated Shareholders'
Agreement to be duly executed by their duly authorized officers, all as of the
date first above written.
COMPANY:
MAGINET CORPORATION
By:/s/ James A. Barth
--------------------------------
Name: James A. Barth
------------------------------
Title: Exec. Vice President & CFO
-----------------------------
-26-
<PAGE>
[Signature Page to Amended and Restated Shareholders' Agreement]
EXISTING RIGHTS HOLDERS:
/s/ Robert R. Creager
-----------------------------------
ROBERT R. CREAGER
SUNSET PARTNERS, L.P.
By: /s/ Stuart J. Ellman
--------------------------------
Name: Stuart J. Ellman
------------------------------
Title: Member of GP
-----------------------------
SUNSET PARTNERS II, L.P.
By: /s/ Stuart J. Ellman
-------------------------------
Name: Stuart J. Ellman
-----------------------------
Title: Member of GP
----------------------------
SUNSET PARTNERS III, L.P.
By: /s/ Stuart J. Ellman
-------------------------------
Name: Stuart J. Ellman
-----------------------------
Title: Member of GP
----------------------------
-27-
<PAGE>
[Signature Page to Amended and Restated Shareholders' Agreement]
SERIES D HOLDER:
FESTIVAL COMPANY, INC.
By:/s/ Jansen Wiraatmaja
--------------------------------
Name: Jansen Siraatmaja
-----------------------------
Title: Director
----------------------------
AIA CAPITAL INVESTMENT CO., LTD.
By: /s/ Jaime C. Gonzalez
--------------------------------
Name: Jaime C. Gonzalez
-----------------------------
Title: Director
--------
/s/ Koya Aoi
-----------------------------------
KOYA AOI
/s/ Peter Huang
-----------------------------------
PETER HUANG
SKANDIA ASIA LIMITED
By: /s/ Torbjorn Segerstedt
--------------------------------
Name: Torbjorn Segerstedt
-----------------------------
Title: Managing Director
----------------------------
-28-
<PAGE>
EXHIBIT A
---------
SHAREHOLDERS
- ------------
AIA Capital Investment Co., Ltd.
Koya Aoi
Allan Ashmead
Asia Pacific Growth Fund, L.P.
Bancorp Hawaii Small Business Investment Company, Inc.
Cornelius Bond
Clarion Capital Corporation
Comsat Video Enterprises, Inc.
Robert Creager
CSK Venture Capital Co., Ltd. As Investment Manager For CSK-1(a) Investment Fund
CSK Venture Capital Co., Ltd. As Investment Manager for CSK-1(b) Investment Fund
Dunwoodie Family Trust
Revocable Trust of Jarold A. Evans U/T/D April 19, 1994
Festival Company, Inc.
Freidenrich Family Trust
Hakman Capital Corporation
Peter Huang
H & Q PPV Investors, L.P.
Eric Hass
Joseph S. Hrouda
J.F. Shea Co., Inc.
Willard L. Kauffman
The Walter Loewenstern, Jr. Separate Property Trust U/D/T dated 2/12/90
W. Patrick McDowell
Nikko Capital Co., Ltd
N.C. No. 2, Investment Partnership
O'Rourke Investment Corporation
OSCCO III, L.P.
Partech International
Pomona Capital, L.P.
Rogers Family Trust
R & W Ventures II
Skandia Asia Limited
SOF Venture Capital, L.P.
SP Venture Capital
SP Offshore Venture Capital, L.P.
Sunset Partners, L.P.
Sunset Partners II, L.P.
Sunset Partners III, L.P.
Unterberg Harris Interactive Media Limited Partnership C.V.
Gunnar Wetlesen
Michael W. Wilsey
WS Investments 94A
ADDITIONAL RIGHTS HOLDERS
- -------------------------
The Mutual Life Insurance Company of New York
Namtor BVC L.P.
New York Life Insurance Company
Silicon Valley Bank
Waslic Company II
Hambrecht & Quist Guaranty Finance, L.P.
<PAGE>
EXHIBIT 4.4
MAGINET CORPORATION
FIRST AMENDMENT OF AMENDED AND RESTATED SHAREHOLDERS'
AGREEMENT DATED AS OF DECEMBER 29, 1995
This First Amendment (the "First Amendment") is made and entered into as of
May 15, 1996 pursuant to Section 10.8 of the Amended and Restated Shareholders'
Agreement dated December 29, 1995 (the "Shareholders' Agreement") by and among
MagiNet Corporation, a California corporation (the "Company"), the holders of
outstanding securities of the Company listed on Exhibit A to the Shareholders'
---------
Agreement, and any purchasers of the Company's Series D Preferred Stock
subsequent to the date hereof referred to in Section 12 of this First Amendment.
Capitalized terms used in this First Amendment that are not otherwise defined
herein shall have the respective meanings assigned to them in the Shareholders'
Agreement.
R E C I T A L S
A. Pursuant to Section 1 of the Shareholders' Agreement, the Company
granted certain registration rights to the Holders;
B. Pursuant to Section 2 of the Shareholders' Agreement, the Shareholders
entered agreements relating to the election of directors;
C. Pursuant to Section 3 of the Shareholders' Agreement, the Company
granted to the Right Holders a right of first refusal to acquire New Securities;
D. Pursuant to Section 4 of the Shareholders' Agreement, the Shareholders
agreed to certain restrictions on transfer of the Company's securities held by
the Shareholders and granted the Company and the Remaining Holders a right of
first offer on transfers by such Shareholder;
E. The Shareholders' Agreement grants certain other rights to and imposes
certain additional obligations on the Company and the other parties to the
Shareholders' Agreement;
F. On December 29, 1995, the Company closed the first sale and issuance of
its Series D Preferred Stock (the "Series D Preferred") to certain Shareholders,
each of whom became a party to the Shareholders' Agreement as a condition to
purchasing such Series D Preferred;
G. The individuals and entities listed on Schedule A attached hereto (the
----------
"New Series D Purchasers") are purchasing shares of the Series D Preferred at
the second closing of the Company's sale and issuance of the Series D Preferred;
H. The New Series D Purchasers wish to be parties to the Shareholders'
Agreement on the same terms and subject to the same conditions as the prior
purchasers of the Series D Preferred; and
<PAGE>
I. As an inducement to the New Series D Purchasers to purchase the Series
D Preferred, the Company and the rights holders under the Shareholders'
Agreement have agreed to enter this First Amendment in order to make the New
Series D Purchasers parties to the Shareholders Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, and the mutual promises
and covenants contained herein, the parties hereto agree as follows:
1. Exhibit A of the Shareholders Agreement is hereby restated as set forth
on Schedule B hereto to include the New Series D Purchasers.
----------
2. The New Series D Purchasers shall be deemed "Shareholders" or "Holders"
for all purposes under the Shareholders' Agreement.
3. The definition of "Common Warrants" set forth in Section 1.1 of the
Shareholders Agreement is hereby amended and restated in its entirety to read as
follows:
" `Common Warrants' means (i) those warrants, dated August 15, 1995
---------------
and amended May 15, 1996, to purchase shares of Common Stock of the Company
granted to certain investors in connection with the purchase and sale of
the Company's Senior Secured Notes due 2000 in the aggregate principal
amount of up to $30,000,000 pursuant to the Note Agreement dated August 15,
1995, as amended pursuant to the First Amendment Agreement dated as of May
15, 1996 and (ii) those warrants dated May 15, 1996 to purchase shares of
Common Stock of the Company granted to the purchasers of the Company's
Series D Preferred Stock."
4. Section 1.5 of the Shareholders Agreement is hereby amended to delete
the phrase ", unless the Holders shall agree that such withdrawn registration
shall be counted as a registration for purposes of Section 1.2(a)(ii)(D)."
5. Section 1.14 of the Shareholders Agreement is hereby restated to read
in its entirety as follows:
"1.14 Lock-Up Provision. If requested by the Company and an
-----------------
underwriter of equity securities of the Company, no Holder shall sell or
otherwise transfer or dispose of any Restricted Securities (without the
written consent of such underwriters and other than those securities
included in the registration) during the up to one hundred eighty- (180-)
day period following the effective date of a registration statement filed
in connection with the public offering of the Company's securities,
provided that all officers and directors enter into similar agreements. The
obligations described in this
-2-
<PAGE>
Section 1.14 shall not apply to a registration relating solely to employee
benefit plans on Form S-1 or Form S-8 or similar form that may be
promulgated in the future. The Company may impose stop-transfer
instructions with respect to the securities subject to the foregoing
restriction until the end of the one hundred eighty- (180-) day period."
6. Section 2.2 of the Shareholders Agreement is hereby restated to read
in its entirety as follows:
"2.2 Election of Directors. Each time the Shareholders shall meet,
---------------------
or act by written consent in lieu of acting at a meeting, for the purpose
of electing one or more directors of the Company, each Shareholder agrees
to vote its Shares (i) for the election of three (3) representatives of
Sunset Partners (hereinafter defined as Sunset Partners, L.P., Sunset
Partners II, L.P., and Sunset Partners III, L.P. collectively), (ii) for
the election of one (1) representative of Pomona Capital and its affiliated
partnerships, and (iii) in the event that Equity-Linked Investors II ("ELI-
II") shall become entitled to elect a representative to the Board of
Directors pursuant to Section 3.2 of the Series D Preferred Stock Investors
Rights Agreement (the "Series D Rights Agreement") of even date herewith,
for the election of one (1) representative of ELI II; provided, however,
that each Shareholder also agrees to vote its shares for the election of
two (2) representatives of the holders of Series C Preferred Stock as two
additional directors (resulting in a board of nine (9) directors) if the
Company fails to meet any one or more of the following three criteria for
the period (the "Relevant Period") commencing on the date hereof and ending
December 31, 1996:
(a) average gross revenues per room of not less than $30 per month for
the Relevant Period,
(b) at least 100,000 rooms installed by the end of the Relevant
Period, and
(c) a capital cost per room (including the cost of interactive
shopping, but excluding the cost of televisions) of not more than $600
based on rooms added during the Relevant Period.
The obligation assumed by each Shareholder hereunder to vote its Shares as
set forth above shall be deemed to be a right coupled with an interest in
favor of each other Shareholder, and each other Shareholder may, by acting
through a person designated by Shareholders holding a majority of the
Shares subject to this provision, vote such Shareholder's Shares by proxy.
The parties to this Restated Shareholders' Agreement shall vote their
Shares to maintain a board of seven (7) directors, unless either (i) one or
more of the foregoing three criteria are not met during the Relevant Period
or (ii) ELI-II shall become entitled to elect a representative to the Board
of Directors pursuant to the Series D Rights Agreement. In the case of (i)
above, the parties hereto
-3-
<PAGE>
shall vote their Shares to increase the board to nine (9) directors with
the additional two (2) directors nominated and elected as set forth above.
In the case of (ii) above, the parties hereto shall vote their shares to
increase the board by one director and to elect the representative of ELI-
II to fill such position as set forth above and in the Series D Rights
Agreement."
7. Section 2.4 of the Shareholders Agreement is hereby restated to read
in its entirety as follows:
"2.4 Effectiveness; Termination. This Section 2 shall become
--------------------------
effective on the date hereof. This Section 2 shall terminate upon the
closing of the Company's first offering of voting equity securities to the
public pursuant to a registration statement filed with the Securities and
Exchange Commission or the equivalent securities authority or agency in any
foreign jurisdiction. If Sunset Partners holds less than fifty percent
(50%) of the shares of Series C Preferred Stock it holds on the effective
date of this Restated Shareholders' Agreement, then each Shareholder agrees
to vote its shares for the election of two (2) representatives of Sunset
Partners. If Sunset Partners holds less than twenty-five (25%) of the
shares of Series C Preferred Stock it holds on the effective date of this
Restated Shareholders' Agreement, then each Shareholder agrees to vote its
shares for the election of one (1) representative of Sunset Partners. With
respect to Sunset Partners, the provisions of this Section 2 shall
terminate when Sunset Partners holds less than ten percent (10%) of the
shares of Series C Preferred Stock it holds on the effective date of this
Restated Shareholders' Agreement. With respect to Pomona Capital, the
provisions of this Section 2 shall terminate when Pomona Capital and its
affiliated partnerships hold less than fifty percent (50%) of the shares of
Series C Preferred Stock such entities hold on the effective date of this
Restated Shareholders' Agreement. With respect to ELI-II, the provisions
of this Section 2 shall terminate upon the termination of ELI-II's right to
elect a member of the Company's Board of Directors pursuant to the Series D
Rights Agreement."
8. The New Series D Purchasers shall be deemed "Rights Holders" for
purposes of Section 3 of the Shareholders' Agreement.
9. Section 3.3(e) and 3.3(f) are hereby deleted, and Section 3.3 is
hereby amended to include the following subsections to Section 3.3:
"(e) securities issued to dealers, trade vendors, sales
representatives, equipment lessors, commercial lenders (or their
guarantors) or joint venturers of the Company on terms approved by the
Board of Directors;
(f) securities issued to holders of the Company's Senior
Secured Notes due 2000 in consideration of such holder's amendment or
waiver at the Company's request of provisions of the Note Agreement dated
August 15, 1995; and
-4-
<PAGE>
(g) securities issued to effect any stock split or stock dividend
by the Company."
10. The New Series D Purchasers shall be deemed "Remaining Holders" for
purposes of Section 4 of the Shareholders' Agreement.
11. Section 10.8 of the Shareholders Agreement is hereby restated to read
in its entirety as follows:
"10.8 Entire Agreement; Amendment and Waiver. This Restated
--------------------------------------
Shareholders' Agreement and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the
parties with regard to the subject matters hereof and thereof. Except as
provided in Section 1.12, any term of this Restated Shareholders' Agreement
may be amended and the observance of any term hereof may be waived (either
prospectively or retroactively and either generally or in a particular
instance) only with the written consent of more than seventy-five percent
(75%) in interest of the Holders and the written consent of the Company.
Any amendment or waiver effected in accordance with this Section 10.8 shall
be binding upon each Holder and the Company. In addition, the Company may
waive performance of any obligation owing to it, as to some or all of the
Holders, or agree to accept alternatives to such performance, without
obtaining the consent of any Holder."
12. Each of the parties hereto acknowledges that the Company may sell and
issue additional shares of the Series D Preferred subsequent to the date hereof
and prior to May 31, 1996. Each of the parties hereto agrees that each such
purchaser shall become a party to this First Amendment and the Shareholders'
Agreement without further amendment hereof or thereof, and each such purchaser
shall be deemed a New Series D Purchaser for all purposes hereunder upon
execution of a counterpart signature page to this First Amendment. The Company
shall amend Schedule A attached hereto to reflect the addition of such
----------
subsequent New Series D Purchasers and shall deliver a copy of such revised
Schedule A to each party hereto. In no event shall the number of outstanding
- ----------
shares of Series D Preferred exceed 3,142,858 without amendment of the Company's
Amended and Restated Articles of Incorporation authorizing such additional
shares of Series D Preferred.
13. Except as expressly set forth in this First Amendment, the
Shareholders' Agreement shall continue in full force and effect in accordance
with its terms.
14. This First Amendment may be executed in one or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument. This Amendment shall be governed by and construed
and enforced in accordance with the laws of the State of California as applied
to agreements between California residents entered into and to be performed
entirely within California.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
of Amended and Restated Shareholders Agreement on the date first above written.
"COMPANY" MAGINET CORPORATION
By: /s/ James A. Barth
----------------------------------
Name: James A. Barth
--------------------------------
Title: Executive Vice President & CFO
-------------------------------
"NEW SERIES D PURCHASERS" EQUITY-LINKED INVESTORS - II
By: /s/ Frank J. Pados, Jr.
-------------------------------
Name: Frank J. Pados, Jr.
-----------------------------
Title: Executive Vice President
----------------------------
U.S. GROWTH FUND PARTNERS C.V.
By: /s/ Roland A Van der Meer
-------------------------------
Name: Roland A Van der Meer
-----------------------------
Title: General Partner
----------------------------
J.E. CAPITAL PARTNERS,
a California Limited Partnership
By: /s/ Jarold A. Evans
-------------------------------
Jarold A. Evans, General Partner
/s/ W. Patrick McDowell
----------------------------------
W. Patrick McDowell
"SHAREHOLDER/HOLDER" ----------------------------------
[SIGNATURE PAGE TO FIRST AMENDMENT TO SHAREHOLDERS AGREEMENT]
-6-
<PAGE>
"NEW SERIES D PURCHASERS" ROTHSCHILD, INC.
By: /s/ Peter A. Fried
-------------------------------
Name: Peter A. Fried
-----------------------------
Title: Secretary
----------------------------
/s/ Kenneth B Hamlet
----------------------------------
Kenneth B. Hamlet
/s/ James A. Barth
----------------------------------
James A. Barth
WS INVESTMENT COMPANY '96A
By: /s/ Thomas C. DeFillips
-------------------------------
Name: Thomas C. DeFillips
-----------------------------
Title: General Partner
----------------------------
/s/ Thomas C. DeFiliips
----------------------------------
Thomas C. DeFilipps
[SUPPLEMENTAL SIGNATURE PAGE TO SERIES D INVESTORS RIGHTS AGREEMENT]
[Third Closing]
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment of
Amended and Restated Shareholders Agreement on the date first above written.
"COMPANY" MAGINET CORPORATION
By:_________________________________
Name:_______________________________
Title:______________________________
"NEW SERIES D PURCHASERS" EQUITY-LINKED INVESTORS - II
By:_________________________________
Name:_______________________________
Title:______________________________
U.S. GROWTH FUND PARTNERS C.V.
By:_________________________________
Name:_______________________________
Title:______________________________
REVOCABLE TRUST OF JAROLD A. EVANS
By:_________________________________
Name:_______________________________
Title:______________________________
____________________________________
W. Patrick McDowell
"SHAREHOLDER/RIGHTS HOLDER" AIA CAPITAL INVESTMENT CO,. LTD.
By: /s/ Thomas Tang
--------------------------------
Name: /s/ Thomas Tang
------------------------------
Title: Director
-----------------------------
[SIGNATURE PAGE TO FIRST AMENDMENT TO SHAREHOLDERS AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment of
Amended and Restated Shareholders Agreement on the date first above written.
"COMPANY" MAGINET CORPORATION
By:_________________________________
Name:_______________________________
Title:______________________________
"NEW SERIES D PURCHASERS" EQUITY-LINKED INVESTORS - II
By:_________________________________
Name:_______________________________
Title:______________________________
U.S. GROWTH FUND PARTNERS C.V.
By:_________________________________
Name:_______________________________
Title:______________________________
REVOCABLE TRUST OF JAROLD A. EVANS
By:_________________________________
Name:_______________________________
Title:______________________________
____________________________________
W. Patrick McDowell
"SHAREHOLDER/RIGHTS HOLDER" /s/ Koya Aoi
-----------------------------------
KOYA AOI
[SIGNATURE PAGE TO FIRST AMENDMENT TO SHAREHOLDERS AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment of
Amended and Restated Shareholders Agreement on the date first above written.
"COMPANY" MAGINET CORPORATION
By:_________________________________
Name:_______________________________
Title:______________________________
"NEW SERIES D PURCHASERS" EQUITY-LINKED INVESTORS - II
By:_________________________________
Name:_______________________________
Title:______________________________
U.S. GROWTH FUND PARTNERS C.V.
By:_________________________________
Name:_______________________________
Title:______________________________
REVOCABLE TRUST OF JAROLD A. EVANS
By:_________________________________
Name:_______________________________
Title:______________________________
____________________________________
W. Patrick McDowell
"SHAREHOLDER/RIGHTS HOLDER" ____________________________________
ALLAN ASHMEAD
[SIGNATURE PAGE TO FIRST AMENDMENT TO SHAREHOLDERS AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment of
Amended and Restated Shareholders Agreement on the date first above written.
"COMPANY" MAGINET CORPORATION
By:_________________________________
Name:_______________________________
Title:______________________________
"NEW SERIES D PURCHASERS" EQUITY-LINKED INVESTORS - II
By:_________________________________
Name:_______________________________
Title:______________________________
U.S. GROWTH FUND PARTNERS C.V.
By:_________________________________
Name:_______________________________
Title:______________________________
REVOCABLE TRUST OF JAROLD A. EVANS
By:_________________________________
Name:_______________________________
Title:______________________________
____________________________________
W. Patrick McDowell
"SHAREHOLDER/RIGHTS HOLDER" ASIA PACIFIC GROWTH FUND, L.P.
By: ASIA PACIFIC GROWTH FUND, L.P.
By: H & Q PACIFIC, G.P.
GENERAL PARTNERS OF ASIA
PACIFIC GROWTH FUND, L.P.
By: H & Q PACIFIC, LTD.
GENERAL PARTNERS OF
H & Q ASIA PACIFIC, G.P.
By: /s/ Ta-Lin Hsu
------------------------------
TA-LIN HSU
CHAIRMAN
H & Q ASIA PACIFIC, LTD.
[SIGNATURE PAGE TO FIRST AMENDMENT TO SHAREHOLDERS AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment of
Amended and Restated Shareholders Agreement on the date first above written.
"COMPANY" MAGINET CORPORATION
By:_________________________________
Name:_______________________________
Title:______________________________
"NEW SERIES D PURCHASERS" EQUITY-LINKED INVESTORS - II
By:_________________________________
Name:_______________________________
Title:______________________________
U.S. GROWTH FUND PARTNERS C.V.
By:_________________________________
Name:_______________________________
Title:______________________________
REVOCABLE TRUST OF JAROLD A. EVANS
By:_________________________________
Name:_______________________________
Title:______________________________
____________________________________
W. Patrick McDowell
"SHAREHOLDER/RIGHTS HOLDER" BANCORP HAWAII SMALL BUSINESS
INVESTMENT COMPANY, INC.
By: /s/ Robert W. Paris
---------------------------------
Title: President
-----------------------------
[SIGNATURE PAGE TO FIRST AMENDMENT TO SHAREHOLDERS AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment of
Amended and Restated Shareholders Agreement on the date first above written.
"COMPANY" MAGINET CORPORATION
By:_________________________________
Name:_______________________________
Title:______________________________
"NEW SERIES D PURCHASERS" EQUITY-LINKED INVESTORS - II
By:_________________________________
Name:_______________________________
Title:______________________________
U.S. GROWTH FUND PARTNERS C.V.
By:_________________________________
Name:_______________________________
Title:______________________________
REVOCABLE TRUST OF JAROLD A. EVANS
By:_________________________________
Name:_______________________________
Title:______________________________
____________________________________
W. Patrick McDowell
"SHAREHOLDER/RIGHTS HOLDER" ____________________________________
CORNELIUS BOND
[SIGNATURE PAGE TO FIRST AMENDMENT TO SHAREHOLDERS AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment of
Amended and Restated Shareholders Agreement on the date first above written.
"COMPANY" MAGINET CORPORATION
By:_________________________________
Name:_______________________________
Title:______________________________
"NEW SERIES D PURCHASERS" EQUITY-LINKED INVESTORS - II
By:_________________________________
Name:_______________________________
Title:______________________________
U.S. GROWTH FUND PARTNERS C.V.
By:_________________________________
Name:_______________________________
Title:______________________________
REVOCABLE TRUST OF JAROLD A. EVANS
By:_________________________________
Name:_______________________________
Title:______________________________
____________________________________
W. Patrick McDowell
"SHAREHOLDER/RIGHTS HOLDER" CLARION CAPITAL CORPORATION
By: /s/ M/M
---------------------------------
Title: Vice President
-----------------------------
[SIGNATURE PAGE TO FIRST AMENDMENT TO SHAREHOLDERS AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment of
Amended and Restated Shareholders Agreement on the date first above written.
"COMPANY" MAGINET CORPORATION
By:_________________________________
Name:_______________________________
Title:______________________________
"NEW SERIES D PURCHASERS" EQUITY-LINKED INVESTORS - II
By:_________________________________
Name:_______________________________
Title:______________________________
U.S. GROWTH FUND PARTNERS C.V.
By:_________________________________
Name:_______________________________
Title:______________________________
REVOCABLE TRUST OF JAROLD A. EVANS
By:_________________________________
Name:_______________________________
Title:______________________________
_____________________________________
W. Patrick McDowell
"SHAREHOLDER/RIGHTS HOLDER" COMSAT VIDEO ENTERPRISES, INC.
By:__________________________________
Title:_______________________________
[SIGNATURE PAGE TO FIRST AMENDMENT TO SHAREHOLDERS AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment of
Amended and Restated Shareholders Agreement on the date first above written.
"COMPANY" MAGINET CORPORATION
By:_________________________________
Name:_______________________________
Title:______________________________
"NEW SERIES D PURCHASERS" EQUITY-LINKED INVESTORS - II
By:_________________________________
Name:_______________________________
Title:______________________________
U.S. GROWTH FUND PARTNERS C.V.
By:_________________________________
Name:_______________________________
Title:______________________________
REVOCABLE TRUST OF JAROLD A. EVANS
By:_________________________________
Name:_______________________________
Title:______________________________
____________________________________
W. Patrick McDowell
"SHAREHOLDER/RIGHTS HOLDER" /s/ Robert Creager
------------------------------------
ROBERT CREAGER
[SIGNATURE PAGE TO FIRST AMENDMENT TO SHAREHOLDERS AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment of
Amended and Restated Shareholders Agreement on the date first above written.
"COMPANY" MAGINET CORPORATION
By:_________________________________
Name:_______________________________
Title:______________________________
"NEW SERIES D PURCHASERS" EQUITY-LINKED INVESTORS - II
By:_________________________________
Name:_______________________________
Title:______________________________
U.S. GROWTH FUND PARTNERS C.V.
By:_________________________________
Name:_______________________________
Title:______________________________
REVOCABLE TRUST OF JAROLD A. EVANS
By:_________________________________
Name:_______________________________
Title:______________________________
____________________________________
W. Patrick McDowell
"SHAREHOLDER/RIGHTS HOLDER" CSK VENTURE CAPITAL CO., LTD. AS
INVESTMENT MANAGER FOR CSK-1(A)
INVESTMENT FUND
By: /s/ Chikayasu Ito
---------------------------------
Title: Senior Managing Director
-----------------------------
[SIGNATURE PAGE TO FIRST AMENDMENT TO SHAREHOLDERS AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment of
Amended and Restated Shareholders Agreement on the date first above written.
"COMPANY" MAGINET CORPORATION
By:_________________________________
Name:_______________________________
Title:______________________________
"NEW SERIES D PURCHASERS" EQUITY-LINKED INVESTORS - II
By:_________________________________
Name:_______________________________
Title:______________________________
U.S. GROWTH FUND PARTNERS C.V.
By:_________________________________
Name:_______________________________
Title:______________________________
REVOCABLE TRUST OF JAROLD A. EVANS
By:_________________________________
Name:_______________________________
Title:______________________________
____________________________________
W. Patrick McDowell
"SHAREHOLDER/RIGHTS HOLDER" CSK VENTURE CAPITAL CO., LTD. AS
INVESTMENT MANAGER FOR CSK-1(B)
INVESTMENT FUND
By: /s/ Chikayasu Ito
---------------------------------
Name: Chikayasu Ito
-----------------------------
Title: Senior Managing Director
-----------------------------
[SIGNATURE PAGE TO FIRST AMENDMENT TO SHAREHOLDERS AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment of
Amended and Restated Shareholders Agreement on the date first above written.
"COMPANY" MAGINET CORPORATION
By:_________________________________
Name:_______________________________
Title:______________________________
"NEW SERIES D PURCHASERS" EQUITY-LINKED INVESTORS - II
By:_________________________________
Name:_______________________________
Title:______________________________
U.S. GROWTH FUND PARTNERS C.V.
By:_________________________________
Name:_______________________________
Title:______________________________
REVOCABLE TRUST OF JAROLD A. EVANS
By:_________________________________
Name:_______________________________
Title:______________________________
____________________________________
W. Patrick McDowell
"SHAREHOLDER/RIGHTS HOLDER" DUNWOODIE FAMILY TRUST
By: /s/ Duane Dunwoodie
---------------------------------
Title: Trustee
----------------------------
[SIGNATURE PAGE TO FIRST AMENDMENT TO SHAREHOLDERS AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment of
Amended and Restated Shareholders Agreement on the date first above written.
"COMPANY" MAGINET CORPORATION
By:_________________________________
Name:_______________________________
Title:______________________________
"NEW SERIES D PURCHASERS" EQUITY-LINKED INVESTORS - II
By:_________________________________
Name:_______________________________
Title:______________________________
U.S. GROWTH FUND PARTNERS C.V.
By:_________________________________
Name:_______________________________
Title:______________________________
REVOCABLE TRUST OF JAROLD A. EVANS
By:_________________________________
Name:_______________________________
Title:______________________________
____________________________________
W. Patrick McDowell
"SHAREHOLDER/RIGHTS HOLDER" FESTIVAL COMPANY, INC.
By: /s/ Jansen Wiraatmaja
---------------------------------
Title: Director
-----------------------------
[SIGNATURE PAGE TO FIRST AMENDMENT TO SHAREHOLDERS AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment of
Amended and Restated Shareholders Agreement on the date first above written.
"COMPANY" MAGINET CORPORATION
By:_________________________________
Name:_______________________________
Title:______________________________
"NEW SERIES D PURCHASERS" EQUITY-LINKED INVESTORS - II
By:_________________________________
Name:_______________________________
Title:______________________________
U.S. GROWTH FUND PARTNERS C.V.
By:_________________________________
Name:_______________________________
Title:______________________________
REVOCABLE TRUST OF JAROLD A. EVANS
By:_________________________________
Name:_______________________________
Title:______________________________
____________________________________
W. Patrick McDowell
"SHAREHOLDER/RIGHTS HOLDER" FREIDENRICH FAMILY TRUST
By: /s/ John Freidenrich
---------------------------------
Title: Trustee
-----------------------------
[SIGNATURE PAGE TO FIRST AMENDMENT TO SHAREHOLDERS AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment of
Amended and Restated Shareholders Agreement on the date first above written.
"COMPANY" MAGINET CORPORATION
By:_________________________________
Name:_______________________________
Title:______________________________
"NEW SERIES D PURCHASERS" EQUITY-LINKED INVESTORS - II
By:_________________________________
Name:_______________________________
Title:______________________________
U.S. GROWTH FUND PARTNERS C.V.
By:_________________________________
Name:_______________________________
Title:______________________________
REVOCABLE TRUST OF JAROLD A. EVANS
By:_________________________________
Name:_______________________________
Title:______________________________
____________________________________
W. Patrick McDowell
"SHAREHOLDER/RIGHTS HOLDER" HAKMAN CAPITAL CORPORATION
By: /s/ Paul Hakman
---------------------------------
Title: President
-----------------------------
[SIGNATURE PAGE TO FIRST AMENDMENT TO SHAREHOLDERS AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment of
Amended and Restated Shareholders Agreement on the date first above written.
"COMPANY" MAGINET CORPORATION
By:_________________________________
Name:_______________________________
Title:______________________________
"NEW SERIES D PURCHASERS" EQUITY-LINKED INVESTORS - II
By:_________________________________
Name:_______________________________
Title:______________________________
U.S. GROWTH FUND PARTNERS C.V.
By:_________________________________
Name:_______________________________
Title:______________________________
REVOCABLE TRUST OF JAROLD A. EVANS
By:_________________________________
Name:_______________________________
Title:______________________________
____________________________________
W. Patrick McDowell
"SHAREHOLDER/RIGHTS HOLDER" /s/ Peter Huang
------------------------------------
PETER HUANG
[SIGNATURE PAGE TO FIRST AMENDMENT TO SHAREHOLDERS AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment of
Amended and Restated Shareholders Agreement on the date first above written.
"COMPANY" MAGINET CORPORATION
By:_________________________________
Name:_______________________________
Title:______________________________
"NEW SERIES D PURCHASERS" EQUITY-LINKED INVESTORS - II
By:_________________________________
Name:_______________________________
Title:______________________________
U.S. GROWTH FUND PARTNERS C.V.
By:_________________________________
Name:_______________________________
Title:______________________________
REVOCABLE TRUST OF JAROLD A. EVANS
By:_________________________________
Name:_______________________________
Title:______________________________
____________________________________
W. Patrick McDowell
"SHAREHOLDER/RIGHTS HOLDER" H & Q PPV INVESTORS, L.P.
By: /s/ Jackie Berterretcne
---------------------------------
Title: Attorney-in-fact
----------------------------
[SIGNATURE PAGE TO FIRST AMENDMENT TO SHAREHOLDERS AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment of
Amended and Restated Shareholders Agreement on the date first above written.
"COMPANY" MAGINET CORPORATION
By:_________________________________
Name:_______________________________
Title:______________________________
"NEW SERIES D PURCHASERS" EQUITY-LINKED INVESTORS - II
By:_________________________________
Name:_______________________________
Title:______________________________
U.S. GROWTH FUND PARTNERS C.V.
By:_________________________________
Name:_______________________________
Title:______________________________
REVOCABLE TRUST OF JAROLD A. EVANS
By:_________________________________
Name:_______________________________
Title:______________________________
____________________________________
W. Patrick McDowell
"SHAREHOLDER/RIGHTS HOLDER" ____________________________________
ERIC HASS
[SIGNATURE PAGE TO FIRST AMENDMENT TO SHAREHOLDERS AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment of
Amended and Restated Shareholders Agreement on the date first above written.
"COMPANY" MAGINET CORPORATION
By:_________________________________
Name:_______________________________
Title:______________________________
"NEW SERIES D PURCHASERS" EQUITY-LINKED INVESTORS - II
By:_________________________________
Name:_______________________________
Title:______________________________
U.S. GROWTH FUND PARTNERS C.V.
By:_________________________________
Name:_______________________________
Title:______________________________
REVOCABLE TRUST OF JAROLD A. EVANS
By:_________________________________
Name:_______________________________
Title:______________________________
____________________________________
W. Patrick McDowell
"SHAREHOLDER/RIGHTS HOLDER" /s/ Joseph Hrouda
------------------------------------
JOSEPH S. HROUDA
[SIGNATURE PAGE TO FIRST AMENDMENT TO SHAREHOLDERS AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment of
Amended and Restated Shareholders Agreement on the date first above written.
"COMPANY" MAGINET CORPORATION
By:_________________________________
Name:_______________________________
Title:______________________________
"NEW SERIES D PURCHASERS" EQUITY-LINKED INVESTORS - II
By:_________________________________
Name:_______________________________
Title:______________________________
U.S. GROWTH FUND PARTNERS C.V.
By:_________________________________
Name:_______________________________
Title:______________________________
REVOCABLE TRUST OF JAROLD A. EVANS
By:_________________________________
Name:_______________________________
Title:______________________________
____________________________________
W. Patrick McDowell
"SHAREHOLDER/RIGHTS HOLDER" J.F. SHEA CO., INC.
By: /s/ Edmund Shea
---------------------------------
Title: Vice President
-----------------------------
[SIGNATURE PAGE TO FIRST AMENDMENT TO SHAREHOLDERS AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment of
Amended and Restated Shareholders Agreement on the date first above written.
"COMPANY" MAGINET CORPORATION
By:_________________________________
Name:_______________________________
Title:______________________________
"NEW SERIES D PURCHASERS" EQUITY-LINKED INVESTORS - II
By:_________________________________
Name:_______________________________
Title:______________________________
U.S. GROWTH FUND PARTNERS C.V.
By:_________________________________
Name:_______________________________
Title:______________________________
REVOCABLE TRUST OF JAROLD A. EVANS
By:_________________________________
Name:_______________________________
Title:______________________________
____________________________________
W. Patrick McDowell
"SHAREHOLDER/RIGHTS HOLDER" /s/ Willard L. Kauffman
------------------------------------
WILLARD L. KAUFFMAN
[SIGNATURE PAGE TO FIRST AMENDMENT TO SHAREHOLDERS AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment of
Amended and Restated Shareholders Agreement on the date first above written.
"COMPANY" MAGINET CORPORATION
By:_________________________________
Name:_______________________________
Title:______________________________
"NEW SERIES D PURCHASERS" EQUITY-LINKED INVESTORS - II
By:_________________________________
Name:_______________________________
Title:______________________________
U.S. GROWTH FUND PARTNERS C.V.
By:_________________________________
Name:_______________________________
Title:______________________________
REVOCABLE TRUST OF JAROLD A. EVANS
By:_________________________________
Name:_______________________________
Title:______________________________
____________________________________
W. Patrick McDowell
"SHAREHOLDER/RIGHTS HOLDER" THE WALTER LOEWENSTERN, JR.
SEPARATE PROPERTY TRUST U/D/T
DATED 2/2/90
By: /s/ Walter Loewenstern, Jr.
---------------------------------
Title: Trustee
-----------------------------
[SIGNATURE PAGE TO FIRST AMENDMENT TO SHAREHOLDERS AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment of
Amended and Restated Shareholders Agreement on the date first above written.
"COMPANY" MAGINET CORPORATION
By:_________________________________
Name:_______________________________
Title:______________________________
"NEW SERIES D PURCHASERS" EQUITY-LINKED INVESTORS - II
By:_________________________________
Name:_______________________________
Title:______________________________
U.S. GROWTH FUND PARTNERS C.V.
By:_________________________________
Name:_______________________________
Title:______________________________
REVOCABLE TRUST OF JAROLD A. EVANS
By:_________________________________
Name:_______________________________
Title:______________________________
____________________________________
W. Patrick McDowell
"SHAREHOLDER/RIGHTS HOLDER" NIKKO CAPITAL CO., LTD
By: /s/ Masanobu Okabe
---------------------------------
Title: General Manager
-----------------------------
[SIGNATURE PAGE TO FIRST AMENDMENT TO SHAREHOLDERS AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment of
Amended and Restated Shareholders Agreement on the date first above written.
"COMPANY" MAGINET CORPORATION
By:_________________________________
Name:_______________________________
Title:______________________________
"NEW SERIES D PURCHASERS" EQUITY-LINKED INVESTORS - II
By:_________________________________
Name:_______________________________
Title:______________________________
U.S. GROWTH FUND PARTNERS C.V.
By:_________________________________
Name:_______________________________
Title:______________________________
REVOCABLE TRUST OF JAROLD A. EVANS
By:_________________________________
Name:_______________________________
Title:______________________________
____________________________________
W. Patrick McDowell
"SHAREHOLDER/RIGHTS HOLDER" N.C. NO. 2, INVESTMENT PARTNERSHIP
By: /s/ Masanobu Okabe
---------------------------------
Title: General Manager
-----------------------------
[SIGNATURE PAGE TO FIRST AMENDMENT TO SHAREHOLDERS AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment of
Amended and Restated Shareholders Agreement on the date first above written.
"COMPANY" MAGINET CORPORATION
By:_________________________________
Name:_______________________________
Title:______________________________
"NEW SERIES D PURCHASERS" EQUITY-LINKED INVESTORS - II
By:_________________________________
Name:_______________________________
Title:______________________________
U.S. GROWTH FUND PARTNERS C.V.
By:_________________________________
Name:_______________________________
Title:______________________________
REVOCABLE TRUST OF JAROLD A. EVANS
By:_________________________________
Name:_______________________________
Title:______________________________
____________________________________
W. Patrick McDowell
"SHAREHOLDER/RIGHTS HOLDER" O'ROURKE INVESTMENT COMPANY
By:_________________________________
Title:______________________________
[SIGNATURE PAGE TO FIRST AMENDMENT TO SHAREHOLDERS AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment of
Amended and Restated Shareholders Agreement on the date first above written.
"COMPANY" MAGINET CORPORATION
By:_________________________________
Name:_______________________________
Title:______________________________
"NEW SERIES D PURCHASERS" EQUITY-LINKED INVESTORS - II
By:_________________________________
Name:_______________________________
Title:______________________________
U.S. GROWTH FUND PARTNERS C.V.
By:_________________________________
Name:_______________________________
Title:______________________________
REVOCABLE TRUST OF JAROLD A. EVANS
By:_________________________________
Name:_______________________________
Title:______________________________
____________________________________
W. Patrick McDowell
"SHAREHOLDER/RIGHTS HOLDER" OSCCO III, L.P.
By: /s/ Steven Halprin
----------------------------------
Title: General Partner
-----------------------------
[SIGNATURE PAGE TO FIRST AMENDMENT TO SHAREHOLDERS AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment of
Amended and Restated Shareholders Agreement on the date first above written.
"COMPANY" MAGINET CORPORATION
By:_________________________________
Name:_______________________________
Title:______________________________
"NEW SERIES D PURCHASERS" EQUITY-LINKED INVESTORS - II
By:_________________________________
Name:_______________________________
Title:______________________________
U.S. GROWTH FUND PARTNERS C.V.
By:_________________________________
Name:_______________________________
Title:______________________________
REVOCABLE TRUST OF JAROLD A. EVANS
By:_________________________________
Name:_______________________________
Title:______________________________
____________________________________
W. Patrick McDowell
"SHAREHOLDER/RIGHTS HOLDER" POMONA CAPITAL, L.P.
By: /s/ Michael D. Granoff
---------------------------------
Title: Partner
----------------------------
[SIGNATURE PAGE TO FIRST AMENDMENT TO SHAREHOLDERS AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment of
Amended and Restated Shareholders Agreement on the date first above written.
"COMPANY" MAGINET CORPORATION
By:_________________________________
Name:_______________________________
Title:______________________________
"NEW SERIES D PURCHASERS" EQUITY-LINKED INVESTORS - II
By:_________________________________
Name:_______________________________
Title:______________________________
U.S. GROWTH FUND PARTNERS C.V.
By:_________________________________
Name:_______________________________
Title:______________________________
REVOCABLE TRUST OF JAROLD A. EVANS
By:_________________________________
Name:_______________________________
Title:______________________________
____________________________________
W. Patrick McDowell
"SHAREHOLDER/RIGHTS HOLDER" ROGERS FAMILY TRUST
By: /s/ Roy L. Rogers
---------------------------------
Title: Trustee
-----------------------------
[SIGNATURE PAGE TO FIRST AMENDMENT TO SHAREHOLDERS AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment of
Amended and Restated Shareholders Agreement on the date first above written.
"COMPANY" MAGINET CORPORATION
By:_________________________________
Name:_______________________________
Title:______________________________
"NEW SERIES D PURCHASERS" EQUITY-LINKED INVESTORS - II
By:_________________________________
Name:_______________________________
Title:______________________________
U.S. GROWTH FUND PARTNERS C.V.
By:_________________________________
Name:_______________________________
Title:______________________________
REVOCABLE TRUST OF JAROLD A. EVANS
By:_________________________________
Name:_______________________________
Title:______________________________
____________________________________
W. Patrick McDowell
"SHAREHOLDER/RIGHTS HOLDER" R & W VENTURES II
By: /s/ Roy L. Rogers
---------------------------------
Title: General Partner
-----------------------------
[SIGNATURE PAGE TO FIRST AMENDMENT TO SHAREHOLDERS AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment of
Amended and Restated Shareholders Agreement on the date first above written.
"COMPANY" MAGINET CORPORATION
By:_________________________________
Name:_______________________________
Title:______________________________
"NEW SERIES D PURCHASERS" EQUITY-LINKED INVESTORS - II
By:_________________________________
Name:_______________________________
Title:______________________________
U.S. GROWTH FUND PARTNERS C.V.
By:_________________________________
Name:_______________________________
Title:______________________________
REVOCABLE TRUST OF JAROLD A. EVANS
By:_________________________________
Name:_______________________________
Title:______________________________
____________________________________
W. Patrick McDowell
"SHAREHOLDER/RIGHTS HOLDER" SKANDIA LIFE INSURANCE
COMPANY, LTD. (PUBL.)
By: authorized signature
---------------------------------
Title: Head of Equities
------------------------------
[SIGNATURE PAGE TO FIRST AMENDMENT TO SHAREHOLDERS AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment of
Amended and Restated Shareholders Agreement on the date first above written.
"COMPANY" MAGINET CORPORATION
By:_________________________________
Name:_______________________________
Title:______________________________
"NEW SERIES D PURCHASERS" EQUITY-LINKED INVESTORS - II
By:_________________________________
Name:_______________________________
Title:______________________________
U.S. GROWTH FUND PARTNERS C.V.
By:_________________________________
Name:_______________________________
Title:______________________________
REVOCABLE TRUST OF JAROLD A. EVANS
By:_________________________________
Name:_______________________________
Title:______________________________
____________________________________
W. Patrick McDowell
"SHAREHOLDER/RIGHTS HOLDER" SOF VENTURE CAPITAL, L.P.
By: /s/ Michael D. Granoff
---------------------------------
Title: _____________________________
[SIGNATURE PAGE TO FIRST AMENDMENT TO SHAREHOLDERS AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment of
Amended and Restated Shareholders Agreement on the date first above written.
"COMPANY" MAGINET CORPORATION
By:_________________________________
Name:_______________________________
Title:______________________________
"NEW SERIES D PURCHASERS" EQUITY-LINKED INVESTORS - II
By:_________________________________
Name:_______________________________
Title:______________________________
U.S. GROWTH FUND PARTNERS C.V.
By:_________________________________
Name:_______________________________
Title:______________________________
REVOCABLE TRUST OF JAROLD A. EVANS
By:_________________________________
Name:_______________________________
Title:______________________________
____________________________________
W. Patrick McDowell
"SHAREHOLDER/RIGHTS HOLDER" SP VENTURE CAPITAL
By: /s/ Michael D. Granoff
---------------------------------
Title: _____________________________
[SIGNATURE PAGE TO FIRST AMENDMENT TO SHAREHOLDERS AGREEMENT]
<PAGE>
Schedule A
----------
NEW SERIES D PURCHASERS
-----------------------
EQUITY-LINKED INVESTORS - II
U.S. GROWTH FUND PARTNERS C.V.
J.E. CAPTITAL PARTNERS,
a California Limited Partnership
W. Patrick McDowell
FESTIVAL COMPANY, INC.
ROTHSCHILD, INC.
Kenneth B. Hamlet
Peter Huang
James A. Barth
WS INVESTMENT COMPANY '96A
Thomas C. DeFilipps
<PAGE>
Schedule B
----------
RESTATED EXHIBIT A
SHAREHOLDERS
------------
AIA Capital Investment Co., Ltd.
Koya Aoi
Allan Ashmead
Asia Pacific Growth Fund, L.P.
Bancorp Hawaii Small Business
Investment Company, Inc.
James A. Barth
Cornelius Bond
Clarion Capital Corporation
Comsat Video Enterprises, Inc.
Robert Creager
CSK Venture Capital Co., Ltd. As Investment
Manager for CSK-1(a) Investment Fund
CSK Venture Capital Co., Ltd. As Investment
Manager for CSK-1(b) Investment Fund
Thomas C. DeFilipps
Dunwoodie Family Trust
Equity-Linked Investors II
Festival Company, Inc.
Freidenrich Family Trust
Hakman Capital Corporation
H & Q PPV Investors, L.P.
Kenneth B. Hamlet
Eric Hass
Joseph S. Hrouda
Peter Huang
J.E. Capital Partners, a California Limited Partnership
J.F. Shea Co., Inc.
Willard L. Kauffman
The Walter Loewenstern, Jr. Separate Property Trust
U/D/T dated 2/12/90
W. Patrick McDowell
Nikko Capital Co., Ltd
N.C. No. 2, Investment Partnership
O'Rourke Investment Company
OSCCO III, L.P.
Pomona Capital, L.P.
Rogers Family Trust
R & W Ventures II
Rothschild, Inc.
SKANDIA Life Insurance Company, Ltd. (Publ.)
SOF Venture Capital, L.P.
SP Venture Capital
SP Offshore Venture Capital, L.P.
Sunset Partners, L.P.
Sunset Partners II, L.P.
SHAREHOLDERS
------------
Sunset Partners III, L.P.
Unterberg Harris Interactive Media Limited
Partnership C.V.
U.S. Growth Partners C.V.
Gunnar Wetlesen
Michael W. Wilsey
WS Investments 94A
WS Investment Company '96A
ADDITIONAL RIGHTS HOLDERS
-------------------------
The Mutual Life Insurance Company of New York
Namtor BVC L.P.
New York Life Insurance Company
Silicon Valley Bank
Waslic Company II
Hambrecht & Quist Guaranty Finance L.P.
<PAGE>
EXHIBIT 10.1
MAGINET CORPORATION
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (the "Agreement") is effective as of FIELD
(1), by and between MagiNet Corporation, a Delaware corporation (the "Company"),
and FIELD(2) (the "Indemnitee").
WHEREAS, the Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve the Company and its related
entities;
WHEREAS, in order to induce Indemnitee to continue to provide services to
the Company, the Company wishes to provide for the indemnification of, and
advancement of expenses to, Indemnitee to the maximum extent permitted by law;
WHEREAS, Indemnitee does not regard the current protection available as
adequate under the present circumstances, and the Indemnitee and other
directors, officers, employees, agents and fiduciaries of the Company may not be
willing to continue to serve in such capacities without additional protection;
WHEREAS, the Company and Indemnitee recognize the continued difficulty in
obtaining liability insurance for the Company's directors, officers, employees,
agents and fiduciaries, the significant increases in the cost of such insurance
and the general reductions in the coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same time
as the availability and coverage of liability insurance has been severely
limited; and
WHEREAS, in view of the considerations set forth above, the Company desires
that Indemnitee shall be indemnified by the Company as set forth herein;
NOW, THEREFORE, the Company and Indemnitee hereby agree as set forth below.
1. Certain Definitions.
-------------------
(a) "Change in Control" shall mean, and shall be deemed to have
occurred if, on or after the date of this Agreement, (i) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended), other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company acting in such capacity or a corporation
owned directly or indirectly by the stockholders of the Company in substantially
the same proportions
<PAGE>
as their ownership of stock of the Company, becomes the "beneficial owner" (as
defined in Rule 13d-3 under said Act), directly or indirectly, of securities of
the Company representing more than 50% of the total voting power represented by
the Company's then outstanding Voting Securities, (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company's stockholders was
approved by a vote of at least two thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof, or (iii) the stockholders of the
Company approve a merger or consolidation of the Company with any other
corporation other than a merger or consolidation which would result in the
Voting Securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into Voting Securities of the surviving entity) at least 80% of the total voting
power represented by the Voting Securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation, or the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of (in one
transaction or a series of related transactions) all or substantially all of the
Company's assets.
(b) "Claim" shall mean any threatened, pending or completed action,
suit, proceeding or alternative dispute resolution mechanism, or any hearing,
inquiry or investigation that Indemnitee in good faith believes might lead to
the institution of any such action, suit, proceeding or alternative dispute
resolution mechanism, whether civil, criminal, administrative, investigative or
other.
(c) References to the "Company" shall include, in addition to MagiNet
Corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger to which MagiNet Corporation
(or any of its wholly owned subsidiaries) is a party which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees, agents or fiduciaries, so that if Indemnitee is
or was a director, officer, employee, agent or fiduciary of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee, agent or fiduciary of another corporation,
partnership, joint venture, employee benefit plan, trust or other enterprise,
Indemnitee shall stand in the same position under the provisions of this
Agreement with respect to the resulting or surviving corporation as Indem nitee
would have with respect to such constituent corporation if its separate
existence had continued.
(d) "Expenses" shall mean any and all expenses (including attorneys'
fees and all other costs, expenses and obligations incurred in connection with
investigating, defending, being a witness in or participating in (including on
appeal), or preparing to defend, to be a witness in or to participate in, any
action, suit, proceeding, alternative dispute resolution mechanism, hearing,
inquiry or investigation), judgments, fines, penalties and amounts paid in
settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) of any Claim regarding any
Indemnifiable Event and any federal, state, local or foreign taxes imposed on
the Indemnitee as a result of the actual or deemed receipt of any payments under
this Agreement.
-2-
<PAGE>
(e) "Expense Advance" shall mean an advance payment of Expenses to
Indemnitee pursuant to Section 3(a).
(f) "Indemnifiable Event" shall mean any event or occurrence related
to the fact that Indemnitee is or was a director, officer, employee, agent or
fiduciary of the Company, or any subsidiary of the Company, or is or was serving
at the request of the Company as a director, officer, employee, agent or
fiduciary of another corporation, partnership, joint venture, trust or other
enterprise, or by reason of any action or inaction on the part of Indemnitee
while serving in such capacity.
(g) "Independent Legal Counsel" shall mean an attorney or firm of
attorneys, selected in accordance with the provisions of Section 2(c) hereof,
who shall not have otherwise performed services for the Company or Indemnitee
within the last three years (other than with respect to matters concerning the
rights of Indemnitee under this Agreement, or of other indemnitees under similar
indemnity agreements).
(h) References to "other enterprises" shall include employee benefit
plans; references to "fines" shall include any excise taxes assessed on
Indemnitee with respect to an employee benefit plan; and references to "serving
at the request of the Company" shall include any service as a director, officer,
employee, agent or fiduciary of the Company which imposes duties on, or involves
services by, such director, officer, employee, agent or fiduciary with respect
to an employee benefit plan, its participants or its beneficiaries; and if
Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to
be in the interest of the participants and beneficiaries of an employee benefit
plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the
best interests of the Company" as referred to in this Agreement.
(i) "Reviewing Party" shall mean any appropriate person or body
consisting of a member or members of the Company's Board of Directors or any
other person or body appointed by the Board of Directors who is not a party to
the particular Claim for which Indemnitee is seeking indemnification, or
Independent Legal Counsel.
(j) "Voting Securities" shall mean any securities of the Company that
vote generally in the election of directors.
2. Indemnification.
---------------
(a) Indemnification of Expenses. The Company shall indemnify
---------------------------
Indemnitee to the fullest extent permitted by law if Indemnitee was or is or
becomes a party to or witness or other participant in, or is threatened to be
made a party to or witness or other participant in, any Claim by reason of (or
arising in part out of) any Indemnifiable Event against Expenses, including all
interest, assessments and other charges paid or payable in connection with or in
respect of such Expenses. Such payment of Expenses shall be made by the Company
as soon as practicable but in any event no later than five (5) business days
after written demand by Indemnitee therefor is presented to the Company.
-3-
<PAGE>
(b) Reviewing Party. Notwithstanding the foregoing, (i) the
---------------
obligations of the Company under Section 2(a) shall be subject to the condition
that the Reviewing Party shall not have determined (in a written opinion, in any
case in which the Independent Legal Counsel referred to in Section 2(c) hereof
is involved) that Indemnitee would not be permitted to be indemnified under
applicable law, and (ii) the obligation of the Company to make an Expense
Advance shall be subject to the condition that, if, when and to the extent that
the Reviewing Party determines that Indemnitee would not be permitted to be so
indemnified under applicable law, the Company shall be entitled to be reimbursed
by Indemnitee (who hereby agrees to reimburse the Company) for all such amounts
theretofore paid; provided, however, that if Indemnitee has commenced or
-------- -------
thereafter commences legal proceedings in a court of competent jurisdiction to
secure a determination that Indemnitee should be indemnified under applicable
law, any determination made by the Reviewing Party that Indemnitee would not be
permitted to be indemnified under applicable law shall not be binding and
Indemnitee shall not be required to reimburse the Company for any Expense
Advance until a final judicial determination is made with respect thereto (as to
which all rights of appeal therefrom have been exhausted or lapsed).
Indemnitee's obligation to reimburse the Company for any Expense Advance shall
be unsecured and no interest shall be charged thereon. If there has not been a
Change in Control, the Reviewing Party shall be selected by the Board of
Directors, and if there has been such a Change in Control (other than a Change
in Control which has been approved by a majority of the Company's Board of
Directors who were directors immediately prior to such Change in Control), the
Reviewing Party shall be the Independent Legal Counsel. If there has been no
determination by the Reviewing Party or if the Reviewing Party determines that
Indemnitee substantively would not be permitted to be indemnified in whole or in
part under applicable law, Indemnitee shall have the right to commence
litigation seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, including the legal
or factual bases therefor, and the Company hereby consents to service of process
and to appear in any such proceeding. Absent such litigation, any determination
by the Reviewing Party shall be conclusive and binding on the Company and
Indemnitee.
(c) Change in Control. The Company agrees that if there is a Change
-----------------
in Control of the Company (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control), then with respect to all matters
thereafter arising concerning the rights of Indemnitee to payments of Expenses
and Expense Advances under this Agreement or any other agreement or under the
Company's Certificate of Incorporation or Bylaws as now or hereafter in effect,
Independent Legal Counsel, if desired by Indemnitee, shall be selected by
Indemnitee and approved by the Company (which approval shall not be unreasonably
withheld). Such counsel, among other things, shall render its written opinion
to the Company and Indemnitee as to whether and to what extent Indemnitee would
be permitted to be indemnified under applicable law and the Company agrees to
abide by such opinion. The Company agrees to pay the reasonable fees of the
Independent Legal Counsel referred to above and to indemnify fully such counsel
against any and all expenses (including attorneys' fees), claims, liabilities
and damages arising out of or relating to this Agreement or its engagement
pursuant hereto. Notwithstanding any other provision of this Agreement, the
Company shall not be required to pay Expenses of more than one Independent Legal
Counsel in connection with all matters concerning a single Indemnitee, and such
Independent Legal Counsel shall be the Independent Legal Counsel for any or all
other Indemnitees
-4-
<PAGE>
unless (i) the Company otherwise determines or (ii) any Indemnitee shall provide
a written statement setting forth in detail a reasonable objection to such
Independent Legal Counsel representing other Indemnitees.
(d) Mandatory Payment of Expenses. Notwithstanding any other
-----------------------------
provision of this Agreement other than Section 10 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
Claim regarding any Indemnifiable Event, Indemnitee shall be indemnified against
all Expenses incurred by Indemnitee in connection therewith.
3. Expenses; Indemnification Procedure.
-----------------------------------
(a) Advancement of Expenses. The Company shall advance all Expenses
-----------------------
incurred by Indemnitee. The advances to be made hereunder shall be paid by the
Company to Indemnitee as soon as practicable but in any event no later than five
(5) business days after written demand by Indemnitee therefor to the Company.
Expenses incurred in defending any proceeding may be advanced by the Company
prior to the final disposition of the proceeding upon receipt of an undertaking
by or on behalf of Indemnitee to repay the Expenses incurred, if it shall be
determined ultimately that Indemnitee is not entitled to be indemnified.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
--------------------------------
condition precedent to Indemnitee's right to be indemnified under this
Agreement, give the Company notice in writing as soon as practicable of any
Claim made against Indemnitee for which indemnification will or could be sought
under this Agreement. Notice to the Company shall be directed to the Chief
Executive Officer of the Company at the address shown on the signature page of
this Agreement (or such other address as the Company shall designate in writing
to Indemnitee). In addition, Indemnitee shall give the Company such information
and cooperation as it may reasonably require and as shall be within Indemnitee's
power.
(c) No Presumptions; Burden of Proof. For purposes of this
--------------------------------
Agreement, the termination of any Claim by judgment, order, settlement (whether
with or without court approval) or con viction, or upon a plea of nolo
----
contendere, or its equivalent, shall not create a presumption that Indemnitee
- ----------
did not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted by applicable
law. In addition, neither the failure of the Reviewing Party to have made a
determination as to whether Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by the
Reviewing Party that Indemnitee has not met such standard of conduct or did not
have such belief, prior to the commencement of legal proceedings by Indemnitee
to secure a judicial determination that Indemnitee should be indemnified under
applicable law, shall be a defense to Indemnitee's claim or create a presumption
that Indemnitee has not met any particular standard of conduct or did not have
any particular belief.
(d) Notice to Insurers. If, at the time of the receipt by the
------------------
Company of a notice of a Claim pursuant to Section 3(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers
-5-
<PAGE>
in accordance with the procedures set forth in the respective policies. The
Company shall thereafter take all necessary or desirable action to cause such
insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of
such Claim in accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be
--------------------
obligated hereunder to pay the Expenses of any Claim the Company, if
appropriate, shall be entitled to assume the defense of such Claim with counsel
approved by Indemnitee (not to be unreasonably withheld) upon the delivery to
Indemnitee of written notice of the Company's election so to do. After delivery
of such notice, approval of such counsel by Indemnitee and the retention of such
counsel by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees of counsel subsequently incurred by Indemnitee with
respect to the same Claim; provided that, (i) Indemnitee shall have the right to
employ Indemnitee's separate counsel in any such Claim at Indemnitee's expense
and (ii) if (A) the employment of separate counsel by Indemnitee has been
previously authorized by the Company, (B) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Company and
Indemnitee in the conduct of any such defense, or (C) the Company shall not
continue to retain such counsel to defend such Claim, then the fees and expenses
of Indemnitee's separate counsel shall be at the expense of the Company.
4. Additional Indemnification Rights; Nonexclusivity.
-------------------------------------------------
(a) Scope. The Company hereby agrees to indemnify the Indemnitee to
-----
the fullest extent permitted by law, notwithstanding that such indemnification
is not specifically authorized by the other provisions of this Agreement, the
Company's Certificate of Incorporation, the Company's Bylaws or by statute. In
the event of any change after the date of this Agreement in any applicable law,
statute or rule which expands the right of a Delaware corporation to indemnify a
member of its board of directors or an officer, employee, agent or fiduciary, it
is the intent of the parties hereto that Indemnitee shall enjoy by this
Agreement the greater benefits afforded by such change. In the event of any
change in any applicable law, statute or rule which narrows the right of a
Delaware corporation to indemnify a member of its board of directors or an
officer, employee, agent or fiduciary, such change, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement, shall
have no effect on this Agreement or the parties' rights and obligations
hereunder except as set forth in Section 9(a) hereof.
(b) Nonexclusivity. The indemnification provided by this Agreement
--------------
shall be in addition to any rights to which Indemnitee may be entitled under the
Company's Certificate of Incorpo ration, its Bylaws, any other agreement, any
vote of stockholders or disinterested directors, the General Corporation Law of
the State of Delaware, or otherwise. The indemnification provided under this
Agreement shall continue as to Indemnitee for any action taken or not taken
while serving in an indemnified capacity even though Indemnitee may have ceased
to serve in such capacity.
5. No Duplication of Payments. The Company shall not be liable under
--------------------------
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, provision of the Company's Certificate of
Incorporation, bylaw or otherwise) of the amounts otherwise indemnifiable
hereunder.
-6-
<PAGE>
6. Partial Indemnification. If Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses incurred in connection with any Claim, but not, however, for
all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses to which Indemnitee is entitled.
7. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge
---------------------
that in certain instances, federal law or applicable public policy may prohibit
the Company from indemnifying its direc tors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
8. Liability Insurance. To the extent the Company maintains liability
-------------------
insurance applicable to directors, officers, employees, agents or fiduciaries,
Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are provided to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee
is not an officer or director but is a key employee, agent or fiduciary.
9. Exceptions. Notwithstanding any other provision of this Agreement,
----------
the Company shall not be obligated pursuant to the terms of this Agreement:
(a) Excluded Action or Omissions. To indemnify Indemnitee for acts,
----------------------------
omissions or transactions from which Indemnitee may not be relieved of liability
under applicable law.
(b) Claims Initiated by Indemnitee. To indemnify or advance expenses
------------------------------
to Indemnitee with respect to Claims initiated or brought voluntarily by
Indemnitee and not by way of defense, except (i) with respect to actions or
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other agreement or insurance policy or under the Company's
Certificate of Incorporation or Bylaws now or hereafter in effect relating to
Claims for Indemnifiable Events, (ii) in specific cases if the Board of
Directors has approved the initiation or bringing of such Claim, or (iii) as
otherwise required under Section 145 of the Delaware General Corporation Law,
regardless of whether Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the case may
be.
(c) Lack of Good Faith. To indemnify Indemnitee for any expenses
------------------
incurred by the Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous.
-7-
<PAGE>
(d) Claims Under Section 16(b). To indemnify Indemnitee for expenses
--------------------------
and the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
10. Period of Limitations. No legal action shall be brought and no cause
---------------------
of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two-year period; provided, however, that if any shorter
-------- -------
period of limitations is otherwise applicable to any such cause of action, such
shorter period shall govern.
11. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be
--------------------------------------
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns (including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company), spouses, heirs and
personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect, and whether by purchase, merger,
consolidation or otherwise) to all, substantially all, or a substantial part, of
the business or assets of the Company, by written agreement in form and
substance satisfactory to Indemnitee, expressly to assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform if no such succession had taken place. This Agreement
shall continue in effect regardless of whether Indemnitee continues to serve as
a director, officer, employee, agent or fiduciary (as applicable) of the Company
or of any other enterprise at the Company's request.
13. Attorneys' Fees. In the event that any action is instituted by
---------------
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee with respect to such action, regardless of whether Indemnitee is
ultimately successful in such action, and shall be entitled to the advancement
of Expenses with respect to such action, unless as a part of such action a court
of competent jurisdiction over such action determines that each of the material
assertions made by Indemnitee as a basis for such action were not made in good
faith or were frivolous. In the event of an action instituted by or in the name
of the Company under this Agreement to enforce or interpret any of the terms of
this Agreement, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee in defense of such action (including costs and expenses incurred with
respect to Indemnitee's counterclaims and cross-claims made in such action), and
shall be entitled to the advancement of Expenses with respect to such action,
unless as a part of such action a court having jurisdiction over such action
determines that each of Indemnitee's material defenses to such action were made
in bad faith or were frivolous.
-8-
<PAGE>
14. Notice. All notices, requests, demands and other communications under
------
this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and signed for by the party addressed, on the date of such
delivery, or (ii) if mailed by domestic certified or registered mail with
postage prepaid, on the third business day after the date postmarked. Addresses
for notice to either party are as shown on the signature page of this Agreement,
or as subsequently modified by written notice.
15. Consent to Jurisdiction. The Company and Indemnitee each hereby
-----------------------
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
16. Severability. The provisions of this Agreement shall be severable in
------------
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including, without limitations, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
17. Choice of Law. This Agreement shall be governed by and its provisions
-------------
construed and enforced in accordance with the laws of the State of Delaware as
applied to contracts between Delaware residents entered into and to be performed
entirely within the State of Delaware.
18. Subrogation. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
19. Amendment and Termination. No amendment, modification, termination or
-------------------------
cancellation of this Agreement shall be effective unless it is in writing signed
by both the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed to be or shall constitute a waiver of any other
provisions hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver.
20. Integration and Entire Agreement. This Agreement sets forth the
--------------------------------
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
-9-
<PAGE>
21. No Construction as Employment Agreement. Nothing contained in this
---------------------------------------
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries or affiliated entities.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Indemnification
Agreement as of the date first above written.
MAGINET CORPORATION
"COMPANY"
By:_____________________________________
Name:___________________________________
Title:__________________________________
Address: 405 Tasman Drive
Sunnyvale, CA 94089
(408) 752-1000
"INDEMNITEE" ________________________________________
FIELD (2)
Address: _________________________
_________________________
_________________________
[SIGNATURE PAGE TO MAGINET CORPORATION INDEMNIFICATION AGREEMENT]
-11-
<PAGE>
EXHIBIT 10.2
MAGINET CORPORATION
1992 KEY PERSONNEL STOCK OPTION PLAN
(AS AMENDED AND RESTATED SEPTEMBER 9, 1996)
1. Purposes of the Plan. The purposes of this Plan are:
--------------------
. to attract and retain the best available personnel for positions
of substantial responsibility,
. to provide additional incentive to Employees, Directors and
Consultants, and
. to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees as shall
------------
be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
---------------
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options are, or will be, granted under
the Plan.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Committee" means a committee of Directors appointed by the Board
---------
in accordance with Section 4 of the Plan.
(f) "Common Stock" means the Common Stock of the Company.
------------
(g) "Company" means MagiNet Corporation, a Delaware corporation.
-------
(h) "Consultant" means any person, including an advisor, engaged by
----------
the Company or a Parent or Subsidiary to render services to such entity.
(i) "Director" means a member of the Board.
--------
<PAGE>
(j) "Disability" means total and permanent disability as defined in
----------
Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(m) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the
Code and the regulations promulgated thereunder.
(o) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(p) "Notice of Grant" means a written or electronic notice evidencing
---------------
certain terms and conditions of an individual Option grant. The Notice of Grant
is part of the Option Agreement.
-2-
<PAGE>
(q) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
------
(s) "Option Agreement" means an agreement between the Company and an
----------------
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.
(t) "Option Exchange Program" means a program whereby outstanding
-----------------------
options are surrendered in exchange for options with a lower exercise price.
(u) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(v) "Optionee" means the holder of an outstanding Option granted
--------
under the Plan.
(w) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(x) "Plan" means this 1992 Key Personnel Stock Option Plan.
----
(y) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
----------
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(z) "Section 16(b)" means Section 16(b) of the Exchange Act.
-------------
(aa) "Service Provider" means an Employee, Director or Consultant.
----------------
(bb) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 13 of the Plan.
(cc) "Subsidiary" means a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 3,800,000 Shares, less that number of Shares subject to
outstanding options under or actually issued under (and not returned to) the
Company's 1992 Stock Option Plan. The Shares may be authorized, but unissued, or
reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option Exchange Program, the
unpurchased Shares which were subject
-3-
<PAGE>
thereto shall become available for future grant or sale under the Plan (unless
the Plan has terminated); provided, however, that Shares that have actually been
issued under the Plan, whether upon exercise of an Option or Right, shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
(i) Multiple Administrative Bodies. The Plan may be
administered by different Committees with respect to different groups of Service
Providers.
(ii) Section 162(m). To the extent that the Administrator
--------------
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
----------
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) Other Administration. Other than as provided above, the
Plan shall be administered by (A) the Board or (B) a Committee, which Committee
shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options may be
granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price, the time or
times when Options may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Option or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
-4-
<PAGE>
(vi) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option (subject to Section 15(c)
of the Plan), including the discretionary authority to extend the post-
termination exercisability period of Options longer than is otherwise provided
for in the Plan;
(xi) to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option that number of Shares having a Fair Market Value equal to
the amount required to be withheld. The Fair Market Value of the Shares to be
withheld shall be determined on the date that the amount of tax to be withheld
is to be determined. All elections by an Optionee to have Shares withheld for
this purpose shall be made in such form and under such conditions as the
Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option previously
granted by the Administrator;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
----------------------------------
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options.
5. Eligibility. Nonstatutory Stock Options may be granted to Service
-----------
Providers. Incentive Stock Options may be granted only to Employees.
6. Limitations.
-----------
(a) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company
-5-
<PAGE>
and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as
Nonstatutory Stock Options. For purposes of this Section 6(a), Incentive Stock
Options shall be taken into account in the order in which they were granted.
The Fair Market Value of the Shares shall be determined as of the time the
Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option shall confer upon an Optionee any
right with respect to continuing the Optionee's relationship as a Service
Provider with the Company, nor shall they interfere in any way with the
Optionee's right or the Company's right to terminate such relationship at any
time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year
of the Company, Options to purchase more than 500,000 Shares.
(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 1,000,000 Shares
which shall not count against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 13.
(iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 13), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall become
------------
effective upon its adoption by the Board. It shall continue in effect
for a term of ten (10) years unless terminated earlier under Section
15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Option
--------------
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Incentive
Stock Option shall be five (5) years from the date of grant or such shorter term
as may be provided in the Option Agreement.
9. Option Exercise Price and Consideration.
---------------------------------------
(a) Exercise Price. The per share exercise price for the Shares to be
--------------
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
-6-
<PAGE>
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive Stock
Option is granted, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the per Share exercise price shall be no less than 110% of the Fair Market Value
per Share on the date of grant.
(B) granted to any Employee other than an Employee described in
paragraph (A) immediately above, the per Share exercise price shall be no less
than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price of less than 100% of the Fair Market Value per Share
on the date of grant pursuant to a merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
---------------------------------
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised.
(c) Form of Consideration. The Administrator shall determine the
---------------------
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
-7-
<PAGE>
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an Optionee
-------------------------------------------------
ceases to be a Service Provider, other than upon the Optionee's death or
Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
-8-
<PAGE>
(c) Disability of Optionee. If an Optionee ceases to be a Service
----------------------
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider,
-----------------
the Option may be exercised within such period of time as is specified in the
Option Agreement (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the Optionee's estate or by a
person who acquires the right to exercise the Option by bequest or inheritance,
but only to the extent that the Option is vested on the date of death. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. If, at
the time of death, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert to the Plan. The Option may be exercised by the executor or administrator
of the Optionee's estate or, if none, by the person(s) entitled to exercise the
Option under the Optionee's will or the laws of descent or distribution. If the
Option is not so exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares, an Option previously granted based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
11. Non-Transferability of Options. Unless determined otherwise by the
------------------------------
Administrator, an Option may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee. If the Administrator makes an Option
transferable, such Option shall contain such additional terms and conditions as
the Administrator deems appropriate.
12. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
------------------------------------------------------------------
Asset Sale.
- ----------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
-9-
<PAGE>
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option shall lapse as to all such Shares,
provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated. To the extent it has not been previously exercised, an
Option will terminate immediately prior to the consummation of such proposed
action.
(c) Merger or Asset Sale. In the event of a merger of the Company
--------------------
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option shall be assumed or an equivalent option
or right substituted by the successor corporation or a Parent or Subsidiary of
the successor corporation. In the event that the successor corporation refuses
to assume or substitute for the Option, the Optionee shall fully vest in and
have the right to exercise the Option as to all of the Optioned Stock, including
Shares as to which it would not otherwise be vested or exercisable. If an Option
becomes fully vested and exercisable in lieu of assumption or substitution in
the event of a merger or sale of assets, the Administrator shall notify the
Optionee in writing or electronically that the Option shall be fully vested and
exercisable for a period of fifteen (15) days from the date of such notice, and
the Option shall terminate upon the expiration of such period. For the purposes
of this paragraph, the Option shall be considered assumed if, following the
merger or sale of assets, the option or right confers the right to purchase or
receive, for each Share of Optioned Stock subject to the Option immediately
prior to the merger or sale of assets, the consideration (whether stock, cash,
or other securities or property) received in the merger or sale of assets by
holders of Common Stock for each Share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or sale of
assets is not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation, provide
for the consideration to be received upon the exercise of the Option, for each
Share of Optioned Stock subject to the Option, to be solely common stock of the
successor corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
13. Date of Grant. The date of grant of an Option shall be, for all
-------------
purposes, the date on which the Administrator makes the determination granting
such Option, or such other later date as is determined by the Administrator.
Notice of the determination shall be provided to each Optionee within a
reasonable time after the date of such grant.
-10-
<PAGE>
14. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to options granted under the
Plan prior to the date of such termination.
15. Conditions Upon Issuance of Shares.
----------------------------------
(a) Legal Compliance. Shares shall not be issued pursuant to the
----------------
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with Applicable Laws and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
(b) Investment Representations. As a condition to the exercise of an
--------------------------
Option, the Company may require the person exercising such Option to represent
and warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a representation is
required.
16. Inability to Obtain Authority. The inability of the Company to obtain
-----------------------------
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
17. Reservation of Shares. The Company, during the term of this Plan, will
---------------------
at all times reserve and keep available such number of Shares as shall
be sufficient to satisfy the requirements of the Plan.
18. Shareholder Approval. The Plan shall be subject to approval by
--------------------
the shareholders of the Company within twelve (12) months after the date the
Plan is adopted. Such shareholder approval shall be obtained in the manner and
to the degree required under Applicable Laws.
-11-
<PAGE>
KEY EMPLOYEE STOCK OPTION PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
----------------------------
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Grant Number _________________________
Date of Grant _________________________
Vesting Commencement Date _________________________
Exercise Price per Share $________________________
Total Number of Shares Granted ________________________
Total Exercise Price $_________________________
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: _________________________
Vesting Schedule:
----------------
This Option may be exercised, in whole or in part, in accordance with the
following schedule:
25% of the Shares subject to the Option shall vest 12 months after the
Vesting Commencement Date, and 1/48 of the Shares subject to the Option shall
vest each month thereafter, subject to the Optionee continuing to be a Service
Provider on such dates.
<PAGE>
Termination Period:
------------------
This Option may be exercised for 30 days after Optionee ceases to be a
Service Provider. Upon the death or Disability of the Optionee, this Option may
be exercised for such longer period as provided in the Plan. In no event shall
this Option be exercised later than the Term/Expiration Date as provided above.
II. AGREEMENT
---------
1. Grant of Option. The Plan Administrator of the Company hereby grants
---------------
to the Optionee named in the Notice of Grant attached as Part I of this
Agreement (the "Optionee") an option (the "Option") to purchase the number of
Shares, as set forth in the Notice of Grant, at the exercise price per share set
forth in the Notice of Grant (the "Exercise Price"), subject to the terms and
conditions of the Plan, which is incorporated herein by reference. Subject to
Section 15(c) of the Plan, in the event of a conflict between the terms and
conditions of the Plan and the terms and conditions of this Option Agreement,
the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option under
Section 422 of the Code. However, if this Option is intended to be an Incentive
Stock Option, to the extent that it exceeds the $100,000 rule of Code Section
422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
2. Exercise of Option.
------------------
(a) Right to Exercise. This Option is exercisable during its term in
-----------------
accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of an
------------------
exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be completed
by the Optionee and delivered to the Chief Financial Officer of the Company.
The Exercise Notice shall be accompanied by payment of the aggregate Exercise
Price as to all Exercised Shares. This Option shall be deemed to be exercised
upon receipt by the Company of such fully executed Exercise Notice accompanied
by such aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option unless
such issuance and exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Exercised Shares shall be considered
transferred to the Optionee on the date the Option is exercised with respect to
such Exercised Shares.
-2-
<PAGE>
3. Method of Payment. Payment of the aggregate Exercise Price shall be by
-----------------
any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash; or
(b) check; or
(c) consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan; or
(d) surrender of other Shares which (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares.
4. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by the Optionee. The terms
of the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
5. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option Agreement.
6. Tax Consequences. Some of the federal tax consequences relating to
----------------
this Option, as of the date of this Option, are set forth below. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR
DISPOSING OF THE SHARES.
(a) Exercising the Option.
---------------------
(i) Nonstatutory Stock Option. The Optionee may incur regular federal
-------------------------
income tax liability upon exercise of a NSO. The Optionee will be treated as
having received compensation income (taxable at ordinary income tax rates) equal
to the excess, if any, of the Fair Market Value of the Exercised Shares on the
date of exercise over their aggregate Exercise Price. If the Optionee is an
Employee or a former Employee, the Company will be required to withhold from his
or her compensation or collect from Optionee and pay to the applicable taxing
authorities an amount in cash equal to a percentage of this compensation income
at the time of exercise, and may refuse to honor the exercise and refuse to
deliver Shares if such withholding amounts are not delivered at the time of
exercise.
-3-
<PAGE>
(ii) Incentive Stock Option. If this Option qualifies as an
----------------------
ISO, the Optionee will have no regular federal income tax liability upon its
exercise, although the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price will be
treated as an adjustment to alternative minimum taxable income for federal tax
purposes and may subject the Optionee to alternative minimum tax in the year of
exercise. In the event that the Optionee ceases to be an Employee but remains a
Service Provider, any Incentive Stock Option of the Optionee that remains
unexercised shall cease to qualify as an Incentive Stock Option and will be
treated for tax purposes as a Nonstatutory Stock Option on the date three (3)
months and one (1) day following such change of status.
(b) Disposition of Shares.
---------------------
(i) NSO. If the Optionee holds NSO Shares for at least one
---
year, any gain realized on disposition of the Shares will be treated as long-
term capital gain for federal income tax purposes.
(ii) ISO. If the Optionee holds ISO Shares for at least one
---
year after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one year
after exercise or two years after the grant date, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the lesser of (A) the difference
between the Fair Market Value of the Shares acquired on the date of exercise and
the aggregate Exercise Price, or (B) the difference between the sale price of
such Shares and the aggregate Exercise Price. Any additional gain will be taxed
as capital gain, short-term or long-term depending on the period that the ISO
Shares were held.
(c) Notice of Disqualifying Disposition of ISO Shares. If the
-------------------------------------------------
Optionee sells or otherwise disposes of any of the Shares acquired pursuant to
an ISO on or before the later of (i) two years after the grant date, or (ii) one
year after the exercise date, the Optionee shall immediately notify the Company
in writing of such disposition. The Optionee agrees that he or she may be
subject to income tax withholding by the Company on the compensation income
recognized from such early disposition of ISO Shares by payment in cash or out
of the current earnings paid to the Optionee.
7. Entire Agreement; Governing Law. The Plan is incorporated herein by
-------------------------------
reference. The Plan and this Option Agreement constitute the entire agreement
of the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by the internal substantive laws, but not
the choice of law rules, of California.
8. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES
---------------------------------
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED
-4-
<PAGE>
HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS
OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING
PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT
OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE
PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.
By your signature and the signature of the Company's representative below,
you and the Company agree that this Option is granted under and governed by the
terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.
OPTIONEE: MAGINET CORPORATION
___________________________ ___________________________
Signature By
___________________________ ___________________________
Print Name Title
___________________________
Residence Address
___________________________
CONSENT OF SPOUSE
-----------------
The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Option Agreement. In consideration of the
Company's granting his or her spouse the right to purchase Shares as set forth
in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
_____________________________________________
Spouse of Optionee
-5-
<PAGE>
EXHIBIT A
---------
KEY EMPLOYEE STOCK OPTION PLAN
EXERCISE NOTICE
MagiNet Corporation
405 Tasman Drive
Sunnyvale, California 94089
Attention: Chief Financial Officer
1. Exercise of Option. Effective as of today, ________________, 199__,
the undersigned ("Purchaser") hereby elects to purchase ______________ shares
(the "Shares") of the Common Stock of MagiNet Corporation (the "Company") under
and pursuant to the Key Employee Stock Option Plan (the "Plan") and the Stock
Option Agreement dated _____________, 19___ (the "Option Agreement"). The
purchase price for the Shares shall be $_____________, as required by the Option
Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company the
-------------------
full purchase price for the Shares.
3. Representations of Purchaser. Purchaser acknowledges that Purchaser
----------------------------
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance (as evidenced by the
---------------------
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to the Optionee as soon as practicable after exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date of issuance, except as provided in Section 13 of the
Plan.
5. Tax Consultation. Purchaser understands that Purchaser may suffer
----------------
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
<PAGE>
6. Entire Agreement; Governing Law. The Plan and Option Agreement are
-------------------------------
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
hereof, and may not be modified adversely to the Purchaser's interest except by
means of a writing signed by the Company and Purchaser. This agreement is
governed by the internal substantive laws, but not the choice of law rules, of
California.
Submitted by: Accepted by:
PURCHASER: MAGINET CORPORATION
___________________________ ___________________________
Signature By
___________________________ ___________________________
Print Name Its
Address: Address:
- ------- -------
405 Tasman Drive
__________________________ ----------------
Sunnyvale, California 94089
__________________________
_____________________________
Date Received
-2-
<PAGE>
Exhibit 10.3
MAGINET CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1996 Employee Stock Purchase
Plan of MagiNet Corporation, a Delaware corporation.
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the Company.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the Common Stock of the Company.
------------
(d) "Company" shall mean MagiNet Corporation, a Delaware corporation,
-------
and any Designated Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross earnings,
------------
and shall be exclusive of payments for commissions, overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiaries" shall mean the Subsidiaries which have
-----------------------
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the
--------
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing in tact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds ninety (90)
days and the individual's right to reemployment is not guaranteed either by
statute or by contract, the employment relationship shall be deemed to have
terminated on the ninety-first (91st) day of such leave.
(h) "Enrollment Date" shall mean the first day of each Offering
---------------
Period.
(i) "Exercise Date" shall mean the last day of each Purchase Period.
-------------
The Exercise Date of the first Purchase Period shall be the last Trading Day on
or before April 30, 1997.
(j) "Fair Market Value" shall mean, as of any date, the value of
-----------------
Common Stock determined as follows:
<PAGE>
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the National
Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing
sales price for the Common Stock (or the mean of the closing bid and asked
prices, if no sales were reported) as quoted on such exchange (or the exchange
with the greatest volume of trading in Common Stock) or system on the date of
such determination, as reported in The Wall Street Journal or such other source
as the Board deems reliable; or
(2) If the Common Stock is quoted on The Nasdaq Stock Market
(but not on the National Market thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of such determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable; or
(3) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board; or
(4) For purposes of the Enrollment Date under the first Offering
Period under the Plan, the Fair Market Value shall be the inital price to the
public as set forth in the final Prospectus included within the Registration
Statement on Form S-1 (the "Registration Statement") filed with the Securities
and Exchange Commission (the "Commission") for the inital public offering of the
Company's Common Stock.
(k) "Offering Periods" shall mean the periods of approximately
----------------
twenty-four (24) months during which an option granted pursuant to the Plan may
be exercised, commencing on the first Trading Day on or after May 1 and November
1 of each year and terminating on the last Trading Day in the periods ending
twenty-four (24) months later. The first Offering Period shall being on the date
the Registration Statement covering the Company's initial public offering of its
Common Stock is declared effective by the Commission and shall end on the last
Trading Day on or before October 31, 1998. The duration and timing of Offering
Periods may be changed pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this 1996 Employee Stock Purchase Plan.
----
(m) "Purchase Period" shall mean the approximately six month period
---------------
commencing after one Exercise Date and ending with the next Exercise Date,
except that the first Purchase Period of any Offering Period shall commence on
the Enrollment Date and end with the next Exercise Date.
(n) "Purchase Price" shall mean an amount equal to eighty-five
--------------
percent (85%) of the Fair Market Value of a share of Common Stock on the
Enrollment Date or on the Exercise Date, whichever is lower.
(o) "Reserves" shall mean the number of shares of Common Stock
--------
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(p) "Subsidiary" shall mean a corporation, domestic or foreign, of
----------
which not less than fifty percent (50%) of the voting shares are held by the
Company or a Subsidiary, whether or not such corporation now exists or is
hereafter organized or acquired by the Company or a Subsidiary.
-2-
<PAGE>
(q) "Trading Day" shall mean a day on which national stock exchanges
-----------
and the Nasdaq Stock Market are open for trading.
3. Eligibility.
-----------
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) if, immediately after the
grant, such Employee (or any other person whose stock would be attributed to
such Employee pursuant to Section 424(d) of the Code) would own capital stock of
the Company and/or hold outstanding options to purchase such stock possessing
five percent (5%) or more of the total combined voting power or value of all
classes of the capital stock of the Company or of any Subsidiary, or (ii) which
permits his or her rights to purchase stock under all employee stock purchase
plans of the Company and its subsidiaries to accrue at a rate which exceeds
Twenty-Five Thousand Dollars ($25,000) worth of stock (determined at the fair
market value of the shares at the time such option is granted) for each calendar
year in which such option is outstanding at any time.
4. Offering Periods. The Plan shall be implemented by consecutive,
----------------
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after May 1 and November 1 each year, or on such other date as
the Board shall determine, and continuing thereafter until terminated in
accordance with Section 19 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or after
October 31, 1998. The Board shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings without stockholder approval if such change is announced at
least five (5) days prior to the scheduled beginning of the first Offering
Period to be affected thereafter.
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
---------
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence with the
first payroll following the Enrollment Date and shall end with the last payroll
in the Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
------------------
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding fifteen percent (15%) of
the Compensation which he or she receives on each pay day during the Offering
Period, and the aggregate of such payroll deductions during the Offering Period
shall not exceed fifteen percent (15%) of the participant's Compensation during
said Offering Period.
-3-
<PAGE>
(b) All payroll deductions made for a participant shall be credited
to his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or filing
with the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during an
Offering Period. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of the first Purchase
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
---------------
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than
20,000 shares of Common Stock, and provided further that such purchase shall be
subject to the limitations set forth in Sec tions 3(b) and 12 hereof. Exercise
of the option shall occur as provided in Section 8 hereof, unless the
participant has withdrawn pursuant to Section 10 hereof. The option shall expire
on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan as
------------------
provided in Section 10 hereof, his or her option for the purchase of shares
shall be exercised automatically on the Exercise Date, and the maximum number of
full shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10
-4-
<PAGE>
hereof. Any other monies left over in a participant's account after the Exercise
Date shall be returned to the participant. During a participant's life time, a
participant's option to purchase shares hereunder is exercisable only by him or
her.
9. Delivery. As promptly as practicable after each Exercise Date on
--------
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. Withdrawal; Termination of Employment.
-------------------------------------
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll deductions
---------
credited to his or her account shall be paid to such participant promptly after
receipt of notice of withdrawal and such participant's option for the Offering
Period shall be automatically terminated, and no further payroll deductions for
the purchase of shares shall be made for such Offering Period. If a participant
withdraws from an Offering Period, payroll deductions shall not resume at the
beginning of the succeeding Offering Period unless the participant delivers to
the Company a new subscription agreement.
(b) Upon a participant's ceasing to be an Employee for any reason, he
or she shall be deemed to have elected to withdraw from the Plan and the payroll
deductions credited to such participant's account during the Offering Period but
not yet used to exercise the option shall be returned to such participant or, in
the case of his or her death, to the person or persons entitled thereto under
Section 14 hereof, and such participant's option shall be automatically
terminated. The preceding sentence notwithstanding, a participant who receives
payment in lieu of notice of termination of employment shall be treated as
continuing to be an Employee for the participant's customary number of hours per
week of employment during the period in which the participant is subject to such
payment in lieu of notice.
(c) A participant's withdrawal from an Offering Period shall not have
any effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the termination of the Offering Period from which the participant
withdraws.
11. Interest. No interest shall accrue on the payroll deductions of a
--------
participant in the Plan.
12. Stock.
-----
(a) The maximum number of shares of the Company's Common Stock which
shall be made available for sale under the Plan shall be 200,000 shares, subject
to adjustment upon changes in capitalization of the Company as provided in
Section 18 hereof. If, on a given Exercise Date, the number of shares with
respect to which options are to be exercised exceeds the number of shares then
available under the Plan, the Company shall make a pro rata allocation of the
shares remaining available for purchase in as uniform a manner as shall be
practicable and as it shall determine to be equitable.
(b) The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.
-5-
<PAGE>
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
13. Administration. The Plan shall be administered by the Board or a
--------------
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
14. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to an Exercise Date
on which the option is exercised but prior to delivery to such participant of
such shares and cash. In addition, a participant may file a written designation
of a beneficiary who is to receive any cash from the participant's account under
the Plan in the event of such participant's death prior to exercise of the
option. If a participant is married and the designated beneficiary is not the
spouse, spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
15. Transferability. Neither payroll deductions credited to a
---------------
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 14 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
16. Use of Funds. All payroll deductions received or held by the Company
------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
17. Reports. Individual accounts shall be maintained for each participant
-------
in the Plan. Statements of account shall be given to participating Employees at
least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
18. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
---------------------------------------------------------------------
Merger or Asset Sale.
--------------------
-6-
<PAGE>
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
stockholders of the Company, the Reserves, as well as the price per share and
the number of shares of Common Stock covered by each option under the Plan which
has not yet been exercised, shall be proportionately adjusted for any increase
or decrease in the number of issued shares of Common Stock resulting from a
stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of shares of Common Stock effected without receipt of consideration by
the Company; provided, however, that conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration". Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Offering Periods shall terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Board.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
--------------------
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, any Purchase Periods then in progress shall be
shortened by setting a new Exercise Date (the "New Exercise Date") and any
Offering Periods then in progress shall end on the New Exercise Date. The New
Exercise Date shall be before the date of the Company's proposed sale or merger.
The Board shall notify each participant in writing, at least ten (10) business
days prior to the New Exercise Date, that the Exercise Date for the
participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
19. Amendment or Termination.
------------------------
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 18 hereof, no
such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Plan is in the best
interests of the Company and its stockholders. Except as provided in Section 18
hereof, no amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. To the extent necessary to
comply with Section 423 of the Code (or any successor rule or provision or any
other applicable law or regulation), the Company shall obtain stockholder
approval in such a manner and to such a degree as required.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
-7-
<PAGE>
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
20. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
21. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
22. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 19 hereof.
23. Automatic Transfer to Low Price Offering Period. To the extent
-----------------------------------------------
permitted by Rule 16b-3 of the Exchange Act, if the Fair Market Value of the
Common Stock on any Exercise Date in an Offering Period is lower than the Fair
Market Value of the Common Stock on the Enrollment Date of such Offering Period,
then all participants in such Offering Period shall be automatically withdrawn
from such Offering Period im mediately after the exercise of their option on
such Exercise Date and automatically re-enrolled in the im mediately following
Offering Period as of the first day thereof.
-8-
<PAGE>
EXHIBIT A
---------
MAGINET CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. ________________________________ hereby elects to participate in the
MagiNet Corporation 1996 Employee Stock Purchase Plan (the "Employee Stock
Purchase Plan") and subscribes to purchase shares of the Company's Common
Stock in accordance with this Subscription Agreement and the Employee Stock
Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (from 1 to [_____]%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete "MagiNet Corporation 1996 Employee
Stock Purchase Plan." I understand that my participation in the Employee
Stock Purchase Plan is in all respects subject to the terms of the Plan. I
understand that my ability to exercise the option under this Subscription
Agreement is subject to stockholder approval of the Employee Stock Purchase
Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only): __________
__________________________________________________________________________.
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after the
Exercise Date, I will be treated for federal income tax purposes as having
received ordinary income at the time of such disposition in an amount equal
to the excess of the fair market value of the shares at the time such
shares were purchased by me over the price which I paid for the shares. I
-
HEREBY AGREE TO NOTIFY THE COMPANY IN WRITING WITHIN 30 DAYS AFTER THE DATE
---------------------------------------------------------------------------
OF ANY DISPOSITION OF MY SHARES AND I WILL MAKE ADEQUATE PROVISION FOR
----------------------------------------------------------------------
FEDERAL, STATE OR OTHER TAX WITHHOLDING OBLIGATIONS, IF ANY, WHICH ARISE
------------------------------------------------------------------------
UPON THE DISPOSITION OF THE COMMON STOCK. The Company may, but will not be
----------------------------------------
obligated to, withhold from my compensation the
<PAGE>
amount necessary to meet any applicable withholding obligation including
any withholding necessary to make available to the Company any tax
deductions or benefits attributable to sale or early disposition of Common
Stock by me. If I dispose of such shares at any time after the expiration
of the 2-year and 1-year holding periods, I understand that I will be
treated for federal income tax purposes as having received income only at
the time of such disposition, and that such income will be taxed as
ordinary income only to the extent of an amount equal to the lesser of (1)
the excess of the fair market value of the shares at the time of such
disposition over the purchase price which I paid for the shares, or (2)
fifteen percent (15%) of the fair market value of the shares on the first
day of the Offering Period. The remainder of the gain, if any, recognized
on such disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon my
eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)___________________________________________________________
(First) (Middle) (Last)
_______________________________ ___________________________________
Relationship
___________________________________
___________________________________
(Address)
Employee's Social
Security Number: ___________________________________
Employee's Address: ___________________________________
___________________________________
___________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:_________________________ ________________________________________
Signature of Employee
-2-
<PAGE>
________________________________________
Spouse's Signature (If beneficiary other
than spouse)
-3-
<PAGE>
EXHIBIT B
---------
MAGINET CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the MagiNet
Corporation 1996 Employee Stock Purchase Plan which began on __________, 19__
(the "Enrollment Date") hereby notifies the Company that he or she hereby
withdraws from the Offering Period. He or she hereby directs the Company to pay
to the undersigned as promptly as practicable all the payroll deductions
credited to his or her account with respect to such Offering Period. The
undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address of Participant:
________________________________
________________________________
________________________________
Signature:
________________________________
Date:___________________________
-4-
<PAGE>
Exhibit 10.4
MAGINET CORPORATION
1996 DIRECTOR STOCK OPTION PLAN
(as amended September 9, 1996)
1. Purposes of the Plan. The purposes of this MagiNet Corporation 1996
--------------------
Director Option Plan are to attract and retain the best available personnel to
serve as Outside Directors (as defined herein) of the Company, to provide
additional incentive to the Outside Directors of the Company to serve as
Directors, and to encourage their continued service on the Board.
All options granted hereunder shall be nonstatutory stock options.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Board" shall mean the Board of Directors of the Company.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as
----
amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
------------
(d) "Company" shall mean MagiNet Corporation, a Delaware
-------
corporation.
(e) "Director" shall mean a member of the Board.
--------
(f) "Employee" shall mean any person, including officers and
--------
Directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a Director's fee by the Company shall not be sufficient in and of
itself to constitute "employment" by the Company.
(g) "Exchange Act" shall mean the Securities Exchange Act of 1934,
------------
as amended.
(h) "Fair Market Value" shall mean, as of any date, the value of
-----------------
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including, without limitation, the
National Market of The Nasdaq Stock Market, the Fair Market Value of a Share of
Common Stock shall be the closing sales price for such stock (or the mean of the
closing bid and asked prices, if no sales were reported) as quoted on such
exchange (or the exchange with the greatest volume of trading in Common Stock)
or system on the date of determination, as reported in The Wall Street Journal
or such other source as the Board deems reliable; or
<PAGE>
(ii) If the Common Stock is quoted on The Nasdaq Stock Market
(but not on the National Market thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of determination, as reported in The Wall Street Journal or such other
source as the Board deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board;
provided, however, for purposes of the First Option (as defined in Section 4)
- -------- -------
granted in connection with the initial public offering of the Company's Common
Stock pursuant to a registration statement filed with and declared effective by
the Securities and Exchange Commission, the Fair Market Value of the Common
Stock shall mean the price at which the Common Stock is offered to the public in
such initial public offering.
(i) "Inside Director" shall mean a Director who is an Employee.
---------------
(j) "Option" shall mean a stock option granted pursuant to the Plan.
------
(k) "Optioned Stock" shall mean the Common Stock subject to an
--------------
Option.
(l) "Optionee" shall mean a Director who holds an Option.
--------
(m) "Outside Director" shall mean a Director who is not an Employee.
----------------
(n) "Parent" shall mean a "parent corporation," whether now or
------
hereafter existing, as defined in Section 424(e) of the Code.
(o) "Plan" shall mean this 1996 Director Stock Option Plan.
----
(p) "Share" shall mean a share of Common Stock, as adjusted in
-----
accordance with Section 10 of the Plan.
(q) "Subsidiary" shall mean a "subsidiary corporation," whether now
----------
or hereafter existing, as defined in Section 424(f) of the Internal Revenue Code
of 1986.
3. Stock Subject to the Plan. Subject to the provisions of Section 10 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 200,000 Shares of Common Stock (the "Pool"). The Shares may
be authorized, but unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.
-2-
<PAGE>
4. Administration and Grants of Options under the Plan.
---------------------------------------------------
(a) Procedure for Grants. All grants of Options to Outside Directors
--------------------
under this Plan shall be made in accordance with the following provisions:
(i) Each Outside Director shall be granted an Option (the
"First Option") on the date on which the later of the following events occurs:
(A) the effective date of this Plan, as determined in accordance with Section 6
hereof, or (B) the date on which such person first becomes an Outside Director,
whether through election by the shareholders of the Company or appointment by
the Board to fill a vacancy. Unless the Board provides otherwise, each First
Option shall be to purchase 25,000 Shares. However, the Board may, in its
absolute discretion, grant a First Option covering a different number of Shares.
Notwithstanding anything to the contrary in this subsection: (i) an Inside
Director who ceases to be an Inside Director but who remains a Director shall
not receive a First Option; and (ii) no Outside Director shall receive a First
Option if (A) he or she is directly or indirectly the beneficial owner of three
percent (3%) or more of the Company's outstanding Common Stock, or (B) he or she
is an affiliate of any person or group of persons or entity or group of entities
who individually or in the aggregate are directly or indirectly the beneficial
owner(s) of three percent (3%) or more of the Company's outstanding Common
Stock.
(ii) Each Outside Director shall be granted an Option to
purchase 5,000 Shares (a "Subsequent Option") at each meeting of the Board of
Directors following the Annual Meeting of Shareholders in each year commencing
with the 1997 Annual Meeting of Shareholders, provided that he or she is then an
Outside Director and if, as of such date, he or she shall have served on the
Board for at least the preceding six (6) months.
(iii) Notwithstanding the provisions of subsections (ii) and
(iii) hereof, any exercise of an Option made before the Company has obtained
stockholder approval of the Plan in accordance with Section 16 hereof shall be
conditioned upon the Company's obtaining such stockholder approval of the Plan
in accordance with Section 16 hereof.
(iv) The terms of a First Option granted hereunder shall be as
follows:
(A) the term of the First Option shall be ten (10)
years.
(B) the First Option shall be exercisable only while
the Outside Director remains a Director of the Company, except as set forth in
Sections 8 and 10 hereof.
(C) the exercise price per Share shall be one hundred
percent (100%) of the Fair Market Value per Share on the date of grant of the
First Option. In the event that the date of grant of the First Option is not a
trading day, the exercise price per Share shall be one hundred percent (100%) of
the Fair Market Value on the next trading day immediately following the date of
grant of the First Option; provided, however, that in connection with the grant
-------- -------
of a First Option upon effectiveness of the Plan as a result of the initial
public offering of the Company's Common Stock, the exercise price per Share for
such First Option shall equal the initial public offering price.
-3-
<PAGE>
(D) subject to Section 10 hereof, the First Option shall
become exercisable as to twenty-five percent (25%) of the Shares subject to the
First Option one year after its date of grant and as to 1/48 of the Shares
subject to the First Option each month thereafter (provided that the Optionee
continues to serve as a Director on such dates).
(v) The terms of a Subsequent Option granted hereunder shall
be as follows:
(A) the term of the Subsequent Option shall be ten (10)
years.
(B) the Subsequent Option shall be exercisable only while
the Outside Director remains a Director of the Company, except as set forth in
Sections 8 and 10 hereof.
(C) the exercise price per Share shall be one hundred
percent (100%) of the Fair Market Value per Share on the date of grant of the
Subsequent Option. In the event that the date of grant of the Subsequent Option
is not a trading day, the exercise price per Share shall be one hundred percent
(100%) of the Fair Market Value on the next trading day immediately following
the date of grant of the Subsequent Option.
(D) subject to Section 10 hereof, the Subsequent Option
shall become exercisable as to 1/48 of the Shares subject to the Subsequent
Option on each monthly anniversary of its date of grant (provided that the
Optionee continues to serve as a Director on such dates), so that the Subsequent
Option shall be fully exercisable four (4) years after the date of grant.
(vi) In the event that any Option granted under the Plan would
cause the number of Shares subject to outstanding Options plus the number of
Shares previously purchased under Options to exceed the Pool, then the remaining
Shares available for Option grant shall be granted under Options to the Outside
Directors on a pro rata basis. No further grants shall be made until such time,
if any, as additional Shares become available for grant under the Plan through
action of the Board or the stockholders to increase the number of Shares which
may be issued under the Plan or through cancellation or expiration of Options
previously granted hereunder.
5. Eligibility. Options may be granted only to Outside Directors. All
-----------
Options shall be granted in accordance with the terms set forth in Section 4
hereof.
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate the Director's relationship with the Company at any time.
6. Term of Plan. The Plan shall become effective upon the later to
------------
occur of its approval by the stockholders of the Company as described in Section
16 of the Plan or the effective date of the Company's initial public offering of
Common Stock that is registered with the Securities and Exchange Commission. It
shall continue in effect for a term of ten (10) years unless sooner terminated
under Section 11 of the Plan.
-4-
<PAGE>
7. Form of Consideration. The consideration to be paid for the Shares to
---------------------
be issued upon exercise of an Option, including the method of payment, shall
consist of (i) cash, (ii) check, (iii) other shares which (x) in the case of
Shares acquired upon exercise of an Option, have been owned by the Optionee for
more than six (6) months on the date of surrender, and (y) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised, (iv) consideration received
by the Company under a cashless exercise program implemented by the Company in
connection with the Plan, or (v) any combination of the foregoing methods of
payment.
8. Exercise of Option.
------------------
(a) Procedure for Exercise: Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times as are set forth in Section
4 hereof; provided, however, that no Options shall be exercisable until
-------- -------
stockholder approval of the Plan in accordance with Section 16 hereof has been
obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 7 of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date the stock certificate is issued, except as provided in Section 10 of
the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Continuous Status as a Director. Subject to
----------------------------------------------
Section 10 hereof, in the event an Optionee's status as a Director terminates
(other than upon the Optionee's death or total and permanent disability (as
defined in Section 22(e)(3) of the Code)), the Optionee may exercise his or her
Option, but only within three (3) months following the date of such termination,
and only to the extent that the Optionee was entitled to exercise it on the date
of such termination (but in no event later than the expiration of its ten (10)
year term). To the extent that the Optionee was not entitled to exercise an
Option on the date of such termination, and to the extent that the Optionee does
not exercise such Option (to the extent otherwise so entitled) within the time
specified herein, the Option shall terminate.
-5-
<PAGE>
(c) Disability of Optionee. In the event Optionee's status as a
----------------------
Director terminates as a result of total and permanent disability (as defined in
Section 22(e)(3) of the Code), the Optionee may exercise his or her Option, but
only within twelve (12) months following the date of such termination, and only
to the extent that the Optionee was entitled to exercise it on the date of such
termination (but in no event later than the expiration of its ten (10) year
term). To the extent that the Optionee was not entitled to exercise an Option on
the date of termination, or if he or she does not exercise such Option (to the
extent otherwise so entitled) within the time specified herein, the Option shall
terminate.
(d) Death of Optionee. In the event of an Optionee's death, the
-----------------
Optionee's estate or a person who acquired the right to exercise the Option by
bequest or inheritance may exercise the Option, but only within twelve (12)
months following the date of death, and only to the extent that the Optionee was
entitled to exercise it on the date of death (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not
entitled to exercise an Option on the date of death, and to the extent that the
Optionee's estate or a person who acquired the right to exercise such Option
does not exercise such Option (to the extent otherwise so entitled) within the
time specified herein, the Option shall terminate.
9. Non-Transferability of Options. The Option may not be sold, pledged,
------------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
10. Adjustments Upon Changes in Capitalization, Dissolution, Merger, Asset
----------------------------------------------------------------------
Sale or Change of Control.
-------------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
stockholders of the Company, the number of Shares covered by each outstanding
Option, the number of Shares which have been authorized for issuance under the
Plan but as to which no Options have yet been granted or which have been
returned to the Plan upon cancellation or expiration of an Option, as well as
the price per Share covered by each such outstanding Option, and the number of
Shares issuable pursuant to the provisions of Section 4 hereof shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued Shares effected without receipt of
consideration by the Company; provided, however, that conversion of any
-------- -------
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of Shares
subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it shall terminate immediately prior to the
consummation of such proposed action.
-6-
<PAGE>
(c) Merger or Asset Sale. In the event of a merger of the Company
--------------------
with or into another corporation, or the sale of all or substantially all of the
assets of the Company, each outstanding Option may be assumed or an equivalent
option may be substituted by the successor corporation or a Parent or Subsidiary
thereof (the "Successor Corporation"). If the Successor Corporation assumes or
substitutes an equivalent option for the Option, the Option or equivalent option
shall continue to become exercisable as provided in Section 4 hereof for so long
as Optionee remains a Director or the Optionee serves as a director of the
Successor Corporation. Following such assumption or substitution, if the
Optionee's status as a Director or director of the Successor Corporation, as
applicable, is terminated other than upon a voluntary resignation by the
Optionee, the Option or option shall become fully exercisable, including as to
Shares for which it would not otherwise be exercisable. Thereafter, the Option
or option shall remain exercisable in accordance with Sections 8(c) through (e)
above.
In the event that the Successor Corporation does not agree to assume the
Option or to substitute an equivalent option, each outstanding Option shall
become fully vested and exercisable, including as to Shares as to which it would
not otherwise be exercisable. In such event, the Board shall notify the Optionee
that the Option shall be fully exercisable for a period of thirty (30) days from
the date of such notice, and the Option shall terminate upon the expiration of
such period. For the purposes of this Section 10(c), the Option shall be
considered assumed if, following the merger or sale of assets, the Option
confers the right to purchase, for each Share of Optioned Stock subject to the
Option immediately prior to the merger or sale of assets, the consideration
(whether stock, cash, or other securities or property) received in the merger or
sale of assets by holders of Common Stock for each Share held on the effective
date of the transaction (and if holders were offered a choice of consideration,
the type of consideration chosen by the holders of a majority of the outstanding
Shares).
11. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend, or discontinue the Plan, but no amendment, alteration,
suspension, or discontinuation shall be made which would impair the rights of
any Optionee under any grant theretofore made, without his or her consent. To
the extent necessary and desirable to comply with any applicable law or
regulation, the Company shall obtain stockholder approval of any Plan amendment
in such a manner and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
12. Time of Granting Options. The date of grant of an Option shall, for
------------------------
all purposes, be the date determined in accordance with Section 4 hereof.
13. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations
-7-
<PAGE>
promulgated thereunder, state securities laws, and the requirements of any stock
exchange upon which the Shares may then be listed, and shall be further subject
to the approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
14. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
15. Option Agreement. Options shall be evidenced by written option
----------------
agreements in such form as the Board shall approve.
16. Stockholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the stockholders of the Company at or prior to the first annual
meeting of stockholders held subsequent to the granting of an Option hereunder.
Such stockholder approval shall be obtained in the degree and manner required
under applicable state and federal law.
-8-
<PAGE>
MAGINET CORPORATION
DIRECTOR OPTION AGREEMENT
MagiNet Corporation, a Delaware corporation (the "Company"), has granted to
_________________________________________ (the "Optionee"), an option to
purchase a total of [__________________ (_________)] shares of the Company's
Common Stock (the "Optioned Stock"), at the price determined as provided herein,
and in all respects subject to the terms, definitions and provisions of the
Company's 1996 Director Option Plan (the "Plan") adopted by the Company which is
incorporated herein by reference. The terms defined in the Plan shall have the
same defined meanings herein.
1. Nature of the Option. This Option is a nonstatutory option and is not
--------------------
intended to qualify for any special tax benefits to the Optionee.
2. Exercise Price. The exercise price is $_______ for each share of
--------------
Common Stock.
3. Exercise of Option. This Option shall be exercisable during its term
------------------
in accordance with the provisions of Section 8 of the Plan as follows:
(i) Right to Exercise.
-----------------
(a) This Option shall become exercisable in installments
cumulatively with respect to [25% OF THE OPTIONED STOCK ONE YEAR AFTER THE DATE
OF GRANT, AND AS TO AN ADDITIONAL] 1/48 of the Optioned Stock each month
[THEREAFTER] [AFTER THE DATE OF GRANT], so that one hundred percent (100%) of
the Optioned Stock shall be exercisable four (4) years after the date of grant;
provided, however, that in no event shall any Option be exercisable prior to the
- -------- -------
date the stockholders of the Company approve the Plan.
(b) This Option may not be exercised for a fraction of a
share.
(c) In the event of Optionee's death, disability or other
termination of service as a Director, the exercisability of the Option is
governed by Section 8 of the Plan.
(ii) Method of Exercise. This Option shall be exercisable by written
------------------
notice which shall state the election to exercise the Option and the number of
Shares in respect of which the Option is being exercised. Such written notice,
in the form attached hereto as Exhibit A, shall be signed by the Optionee and
shall be delivered in person or by certified mail to the Secretary of the
Company. The written notice shall be accompanied by payment of the exercise
price.
<PAGE>
4. Method of Payment. Payment of the exercise price shall be by any of
-----------------
the following, or a combination thereof, at the election of the Optionee:
(i) ash;
(ii) check; or
(iii) surrender of other shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (y) have a Fair Market Value
on the date of surrender equal to the aggregate exercise price of the Shares as
to which said Option shall be exercised; or
(iv) consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan.
5. Restrictions on Exercise. This Option may not be exercised if the
------------------------
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulations, or if such issuance
would not comply with the requirements of any stock exchange upon which the
Shares may then be listed. As a condition to the exercise of this Option, the
Company may require Optionee to make any representation and warranty to the
Company as may be required by any applicable law or regulation.
6. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by the Optionee. The terms
of this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
7. Term of Option. This Option may not be exercised more than ten (10)
--------------
years from the date of grant of this Option, and may be exercised during such
period only in accordance with the Plan and the terms of this Option.
8. Taxation Upon Exercise of Option. Optionee understands that, upon
--------------------------------
exercise of this Option, he or she will recognize income for tax purposes in an
amount equal to the excess of the then Fair Market Value of the Shares purchased
over the exercise price paid for such Shares. Since the Optionee is subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended, under certain
limited circumstances the measurement and timing of such income (and the
commencement of any capital gain holding period) may be deferred, and the
Optionee is advised to contact a tax
-2-
<PAGE>
advisor concerning the application of Section 83 in general and the availability
a Section 83(b) election in particular in connection with the exercise of the
Option. Upon a resale of such Shares by the Optionee, any difference between the
sale price and the Fair Market Value of the Shares on the date of exercise of
the Option, to the extent not included in income as described above, will be
treated as capital gain or loss.
DATE OF GRANT:_____________________
MAGINET CORPORATION,
a Delaware corporation
By:___________________________
Optionee acknowledges receipt of a copy of the Plan, a copy of which is
attached hereto, and represents that he or she is familiar with the terms and
provisions thereof, and hereby accepts this Option subject to all of the terms
and provisions thereof. Optionee hereby agrees to accept as binding, conclusive
and final all decisions or interpretations of the Board upon any questions
arising under the Plan.
Dated:_____________________________
________________________________
Optionee
[Signature page to MagiNet Corporativon Director Option Agreement]
-3-
<PAGE>
EXHIBIT A
DIRECTOR OPTION EXERCISE NOTICE
MagiNet Corporation
405 Tasman Drive
Sunnyvale, California 94089
Attention: Corporate Secretary
1. Exercise of Option. The undersigned ("Optionee") hereby elects to
------------------
exercise Optionee's option to purchase ______ shares of the Common Stock (the
"Shares") of MagiNet Corporation (the "Company") under and pursuant to the
Company's 1996 Director Option Plan and the Director Option Agreement dated
_______________ (the "Agreement").
2. Representations of Optionee. Optionee acknowledges that Optionee has
---------------------------
received, read and understood the Agreement.
3. Federal Restrictions on Transfer. Optionee understands that the
--------------------------------
Shares must be held indefinitely unless they are registered under the Securities
Act of 1933, as amended (the "1933 Act"), or unless an exemption from such
registration is available, and that the certificate(s) representing the Shares
may bear a legend to that effect. Optionee understands that the Company is under
no obligation to register the Shares and that an exemption may not be available
or may not permit Optionee to transfer Shares in the amounts or at the times
proposed by Optionee.
4. Tax Consequences. Optionee understands that Optionee may suffer
----------------
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultant(s) Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
5. Delivery of Payment. Optionee herewith delivers to the Company the
-------------------
aggregate purchase price for the Shares that Optionee has elected to purchase
and has made provision for the payment of any federal or state withholding taxes
required to be paid or withheld by the Company.
6. Entire Agreement. The Agreement is incorporated herein by reference.
----------------
This Exercise Notice and the Agreement constitute the entire agreement of the
parties and supersede in their entirety all prior undertakings and agreements of
the Company and Optionee with respect to the subject matter hereof.
<PAGE>
This Exercise Notice and the Agreement are governed by California law except for
that body of law pertaining to conflict of laws.
Submitted by: Accepted by:
OPTIONEE: MAGINET CORPORATION
________________________ By:____________________________
Its:___________________________
Address:
Dated:__________________ Dated:_________________________
-2-
<PAGE>
EXHIBIT 10.5
TECHNOLOGY LICENSE AGREEMENT
between
PACIFIC PAY VIDEO LIMITED
("PPV")
and
ON COMMAND VIDEO CORPORATION
("Licensor")
1
[***] Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
<PAGE>
TECHNOLOGY LICENSE AGREEMENT
----------------------------
This technology license agreement ("Agreement") is entered into by and
between Pacific Pay Video Limited ("PPV"), a British Virgin Island corporation
having a place of business at 430 Cowper Street, Palo Alto, California 94301,
and On Command Video Corporation ("Licensor"), having a place of business at
1135 Kern Avenue, Sunnyvale, California 94086. The effective date of this
Agreement shall be the date of receipt by Licensor of the advance against
royalties described in Exhibit A ("License Fee and Royalties") ("Effective
Date").
RECITALS:
--------
A. Licensor or its suppliers are the owners of technology and certain
intellectual property rights including but not limited to the patents, patent
applications, and copyright registrations related to such technology which are
listed in Exhibit B ("Intellectual Property") and trade secrets, know-how and
other proprietary rights related to Licensor's technology ("the Technology").
B. PPV desires (i) to obtain an exclusive license to make, manufacture,
reproduce, use, modify, demonstrate, market, distribute, lease, license and sell
products incorporating the Technology in the Asia/Pacific region and (ii) to be
licensed under Licensor's patents, patent applications, copyrights, trade
secrets, know-how and other proprietary rights related to the Technology.
AGREEMENT
---------
NOW THEREFORE, In consideration of the mutual promises and covenants set
forth below, the parties agree as follows:
1. Definitions. For purposes of this Agreement, the following terms
-----------
shall have the respective meanings indicated below:
1.1 Documentation. "Documentation" is defined as any and all of the
-------------
following documents relating to the Technology if and as prepared by Licensor:
(a) All Printed Wiring Assembly Packages, including:
(i) Duplicate artwork masters
(ii) Fabrication drawings
(iii) Parts lists
2
<PAGE>
(iv) Schematic drawings
(v) Assembly drawings
(vi) External reference specifications
(vii) Theory of operation documentation
(viii) Assembly procedures
(ix) Fixture specifications, designs and assembly
documents
(x) Test programs and procedures
(xi) Functional test program and procedures
(b) All components and suppliers
(c) All mechanical parts, including fabrication drawings for
plastic and metal tooling
(d) All cables and cable assemblies
(e) Burn-in fixtures
(f) Functional test fixtures
(g) Engineering drawings and diagrams
(h) Manufacturing and fabrication drawings and assembly
instructions
(i) Maintenance, service and installation manuals and procedures
(j) System and module test specifications, test software,
procedures and results
(k) Quality control specifications and procedures
(1) Component, material and process specifications and
procedures
(m) Wiring diagrams
(n) Patents, patent applications and copyright registrations
(o) Artwork and printed circuit board layouts to latest design
levels (including printed circuit board artwork
photomasters)
(p) Procurement specifications, acceptance testing criteria, and
acceptance testing software
3
<PAGE>
(q) Software and firmware programs
(i) Requirements and design specifications
(ii) Source code listings well annotated and commented
(iii) Source code on appropriate transfer media
(iv) Object code on appropriate transfer media
(v) Flow and state diagrams
(vi) Symbol and name diagrams
(vii) File names and definitions
(r) Packaging specifications and drawings
(s) Vendor lists foreign and domestic
(t) Installation site evaluation procedures and documentation
(u) System design and configuration guidelines and procedures
(v) Software quality assurance procedure, protocols and results
(w) System test process and procedures
(x) Customer complaint files, resultant problem list
compilations and actions OF taken or planned to be taken to
correct complaints
(y) Marketing materials, brochures, contract forms and other
materials used in marketing activities.
1.2 Gross Income. "Gross Income" is defined as income from operating
------------
or selling products or Technology which incorporate (i) the patents described in
Exhibit B ("Intellectual Property") and (ii) any patents related to the
Technology which are issued during the term of the Agreement, net of hotel
commissions, received directly by PPV as a separate entity or by a company in
which PPV holds an equity interest. Notwithstanding the foregoing, Licensor
agrees that income from transfers of products or Technology between PPV and
companies in which it has an equity interest or income received by PPV from such
companies is not Gross Income.
4
<PAGE>
1.3 Licensed Rights. "Licensed Rights" is defined as (i) those U.S.
---------------
and foreign patents, patent applications, and copyright registrations listed in
Exhibit B ("Intellectual Property"), which Licensor represents to constitute all
patents, patent applications, and copyright registrations related to the
Technology presently possessed by Licensor at the time this Agreement is
executed, (ii) all trade secrets, know-how, unregistered copyrights and other
proprietary rights related to the Technology presently possessed by Licensor at
the time this Agreement is executed and (iii) all patents, patent applications
filed, copyright registrations, trade secrets, know-how, unregistered copyrights
and other proprietary rights developed or obtained by Licensor during the term
of this Agreement.
1.4 Territory. "Territory" is defined as the Asia- Pacific region,
---------
which consists of all countries located within or bordering upon the Pacific and
Indian Oceans and adjacent seas (except the United States, Canada and Mexico)
and Central and South America.
1.5 United States. "United States" is defined, for purposes of this
-------------
Agreement, as the fifty (50) states only and does not include any U.S. territory
or commonwealth, whether or not such territory or commonwealth shall become a
state after the date of this Agreement.
1.6 Upgrades. "Upgrade" shall mean any (i) enhancement, (ii)
--------
extensions, (iii) modification, (iv) upgrade or (v) future products, that are
(a) functionally similar to the Technology or (b) wholly or partially based upon
the Technology and associated Documentation.
2. License.
-------
2.1 License Grants. Licensor hereby grants to PPV an exclusive
--------------
transferable license under the Licensed Rights, in the Territory, to (i) use the
Technology and Documentation, (ii) disclose the Technology and Documentation to
manufacturers as necessary for the manufacturing rights described in "(iii)" of
this paragraph; (iii) make, modify, manufacture and reproduce the Technology and
have the Technology made, modified, manufactured and reproduced; (iv)
demonstrate, market, distribute, lease, license and sell products incorporating
the Technology directly and indirectly through PPV's usual channels of
distribution, (v) reproduce, modify and translate the Documentation and have the
Documentation reproduced, modified and translated and (vi) sublicense the rights
described in this Paragraph 2. 1 to joint ventures in which PPV has an equity
interest or to other third parties involved in PPV's usual channels of
distribution. Licensor shall deliver the existing Documentation as soon as
reasonably possible following the Effective Date. Thereafter, Licensor shall
promptly deliver Documentation relating to Upgrades to PPV, but no less often
than once each calendar quarter.
2.2 Transfer of Agreement. If PPV assigns this Agreement to a third
---------------------
party, PPV agrees to contractually bind any such third party to pay royalty
payments to Licensor in
5
<PAGE>
accordance with the terms of this Agreement. PPV agrees not to assign this
Agreement to any third party which materially competes with Licensor in the
United States. Licensor shall not directly or indirectly sell, transfer, assign,
convey, pledge, encumber or otherwise dispose of this Agreement without the
prior written consent of PPV.
2.3 Exclusivity. The exclusivity of the, license granted in
-----------
Paragraph 2.1 ("License Grants") is subject to PPV meeting 50% of the following
Gross Income objectives in the twelve month periods following the Effective Date
of this Agreement:
<TABLE>
<S> <C> <C>
Period 3 [***] [***]
Period 4 [***] [***]
Period 5 [***] [***]
</TABLE>
Should PPV fail to meet fifty percent (50%) of such Gross Income objectives, the
exclusive license shall revert to a nonexclusive license, as of the end of the
twelve month period in which such objectives were not met unless PPV pays
Licensor a royalty fee equal to the difference between the royalty PPV would
have owed to Licensor on 50% of the (Gross Income objectives described above and
the royalties actually paid to Licensor for the subject twelve month period.
Such royalty fee is due within thirty (30) days of the end of the subject twelve
month period in which fifty percent (50%) of the Gross Income objectives were
not met.
2.4 Systems. licensor agrees to
-------
provide to PPV, at Licensor's cost, six (6) systems. Such systems may, at PPV's
option, be either "Jr.", "Sr". or "Mini" systems. After the end of such twelve
month period, and during the term of this Agreement, PPV may purchase from
Licensor complete systems, components or subassemblies at Licensor's cost
including materials, labor, and overhead plus [***]. In the event that PPV
commences manufacturing of systems, components or subassemblies PPV agrees to
sell systems, components or subassemblies manufactured by it to Licensor for
cost including materials, labor, and overhead plus [***]. All sales shall be FOB
factory.
3. Vendors.
-------
3.1 Vendor List. Licensor represents and warrants to PPV that:
-----------
(A) It has no contracts, agreements, understandings or
arrangements of any kind with any of its vendors which prevent or will prevent
PPV from buying directly from any such vendor any item related to the Technology
which Licensor buys from any such vendor. Licensor hereby agrees that it will
notify all of its vendors that PPV is authorized to directly purchase any item
related to the Technology which Licensor buys from any such vendor under any
volume discounts or quantity pricing and terms applicable to Licensor,
[***] Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
6
<PAGE>
(B) In vendor list, which Licensor hereby agrees to
provide PPV within ten (10) days following the Effective Date is a complete and
accurate list of all of the vendors who supply any parts to Licensor for
Licensor's manufacture of the Technology, and accurately indicates which of such
vendors are sole source vendors to Licensor, all as of the date of this
Agreement. As used herein, a "sole source vendor" shall mean a vendor who is the
only manufacturer known to Licensor of a part for any Technology and "sole
source part" shall mean a part which to Licensor's knowledge is manufactured by
only one manufacturer.
3.2 Update of Vendor List. Licensor agrees to provide to PPV at times
---------------------
reasonably requested by PPV, on a continuing basis, a complete and accurate list
of vendors for the Technology as of the request date, which list indicates which
of such vendors are or are expected to be sole source vendors to Licensor.
3.3 Second Source. Licensor and PPV agree to notify each other of
-------------
the identity of a second manufacturer of a sole source part for of the
Technology within thirty (30) days after learning the identity of any such
manufacturer.
4. Upgrades, Continuing Support, Customer Support and Training
-----------------------------------------------------------
4.1 Upgrade. If, during the term of this Agreement, either party
-------
creates an Upgrade, then the creating party shall make such Upgrades available
to the other party within thirty (30) days following release of such Upgrade, at
no charge other than for reproduction of documentation. The receiving party may
distribute, lease, license or sell such Upgrades as part of the Technology
subject to the terms and conditions and royalties of this Agreement.
4.2 Support to PPV. Licensor will provide support to PPV in the form
--------------
of (i) instruction in use of the Documentation and (ii) technical support to
answer questions related to the manufacturing and operation on of the
Technology. The first 300 manhours, of such assistance shall be at no charge to
PPV. Thereafter, any assistance requested by PPV shall be provided at Licensor's
related salary and overhead costs per hour of time. In addition to such general
assistance, Licensor agrees to assign at least one qualified individual to PPV
for one week to assist and train PPV during the performance of PPV's first off-
shore installation. PPV agrees to pay all necessary travel and living expenses
for such individual(s).
4.3 Customer Support by PPV. PPV shall be responsible for all
------------------------
warranty coverage and continuing support of its customers.
4.4 Training. As part of the support described in Paragraph 4.2
--------
above, Licensor will supply, at its expense, training services for PPV's
employees engaged in technical and marketing activities associated with the
Technology. Such training will include training for direct application as well
as "train-the trainer" training. All such services shall be provided at mutually
acceptable locations and on mutually acceptable reasonable schedules.
7
<PAGE>
Licensor agrees to pay all necessary travel and living expenses for Licensor's
employee conducting the training.
5. License Fee and, Royalties. PPV agrees to pay Licensor the license
--------------------------
fee(s), royalties, option payments and advances against royalties described in
Exhibit A ("License Fee and Royalties") in accordance with the payment terms
therein.
6. Protection of Propriety Rights.
-----------------------------
6.1 Non-Disclosure.
--------------
6.1.1 Obligations. During the term of this Agreement, each party may
-----------
be, exposed to certain information concerning technology and upgrades designed
and owned by the other party and designated as Confidential Information in
accordance with the terms of Paragraph 6.1.2 ("Designation of Confidential
Information"). The receiving party hereby agrees that it will not use or
disclose to any third party any Confidential Information of the other party
without the prior written consent of the disclosing party except as permitted
herein. Each party hereby consents to the disclosure of its Confidential
Information to employees and independent contractors of the other party (or to a
company in which it has an equity interest) with a need to know, including (i)
manufacturers and (ii) entities involved in the distribution or support of
products covered by this Agreement. Such Confidential Information may only be
disclosed under appropriate nondisclosure agreements, This Subparagraph 6.1.1
("Obligations") shall not apply to Confidential Information if such information
is made public by the disclosing party's shipment of products incorporating such
Confidential Information.
6.1.2 Designation of Confidential Information.
---------------------------------------
Confidential information shall, if in written form, be marked "Confidential
Information" or similarly legended by the disclosing party before being
furnished to the other party. All oral disclosures of Confidential Information
shall be identified as such prior to disclosure and summarized, in writing, by
the disclosing party and said summary shall be given to the receiving party
within thirty (30) days of the oral disclosure.
6.1.3 Exception. Any party permitted to receive Confidential
---------
Information ("Receiving Parties") in accordance with Paragraph 6.1 ("Non-
Disclosure") shall not be liable for disclosure or use of any data or
information which (i) was in the public domain at the time it was disclosed to
the Receiving Parties or falls within the public domain during the term of this
Agreement, except through the fault of any Receiving Party; (ii) was known to a
Receiving Party at the time of disclosure; (iii) was disclosed by a Receiving
Party after written approval of the disclosing party; (iv) becomes known to a
Receiving Party from a source other than the disclosing party without breach of
this Agreement by a Receiving Party; or (v) was independently developed by a
Receiving Party without the benefit of confidential information received from
the disclosing party.
8
<PAGE>
7. Warranty. Licensor warrants to PPV that the Licensed Rights and
--------
Documentation which Licensor will provide to PPV will be reasonably sufficient,
as of the date hereof and on a continuing basis, to allow PPV (assuming PPV has
manufacturing skill and know-how typical of manufacturers of technology similar
to the Technology) to manufacture products incorporating the Technology
conforming in all material respects to the descriptions thereof contained in the
Documentation. Licensor's obligation under the warranty in this Paragraph 7
("Warranty") with respect to any products implementing the Technology shall be
to provide supplemental or corrected information or Documentation promptly
after. the receipt by Licensor of a detailed notice of deficiencies, but in no
case in more than thirty (30) days after receipt of such notice. THE FOREGOING
WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, AND EXCEPT FOR THE EXPRESS
WARRANTIES STATED IN THIS AGREEMENT, LICENSOR MAKES NO ADDITIONAL WARRANTIES,
EXPRESS OR IMPLIED IN FACT OR BY OPERATION OF LAW, STATUTORY OR OTHERWISE AS TO
ANY MATTER WHATSOEVER. IN PARTICULAR, ANY AND ALL WARRANTIES OF MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE ARE EXPRESSLY EXCLUDED.
8. LIABILITY. NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY OR
---------
ANY THIRD PARTY FOR ANY INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, LOSS OF
PROFITS OR REVENUE, OR INTERRUPTION OF BUSINESS IN ANY WAY ARISING OUT OF OR
RELATED TO THIS AGREEMENT, REGARDLESS OF THE FORM OF ACTION WHETHER CONTRACT,
TORT (INCLUDING NEGLIGENCE), STRICT PRODUCT LIABILITY OR OTHERWISE, EVEN IF ANY
REPRESENTATIVE OF THE PARTY HAS BEEN ADVISED OF THE POSSIBILITY SUCH DAMAGES.
9. Title. Licensor represents and warrants that it
-----
has sufficient right, title and interest in the Technology (including Upgrades)
and Licensed Rights to enter into this Agreement and to grant the licenses
granted herein. Licensor further represents and warrants that it has no
knowledge of any facts which might lead to a claim of infringement of any
patent, copyright, trade secret or other proprietary or contractual rights of
any third party related to the Technology.
10. Term and Termination.
--------------------
10.1 Term. The initial term of this Agreement is for ten (10)
----
years from the Effective Date, unless earlier terminated in accordance with its
terms. Thereafter, this Agreement shall automatically be renewed on its
anniversary dates for successive five (5) year terms.
10.2 Termination. PPV may terminate this Agreement without
-----------
cause upon thirty (30) days written notice to Licensor. In the event of any
breach of any term or provision under this Agreement by either party hereto, the
non-breaching party may send a written
9
<PAGE>
notice explaining the nature of the breach to the breaching party, which notice
shall be delivered in accordance with the terms of this Agreement. If any breach
is not cured within sixty (60) days after the giving of the notice of breach,
the non- breaching party may terminate this Agreement upon written notice.
10.3 Obligations Upon Termination or Expiration.
------------------------------------------
Upon the effective date of termination of this Agreement, (i) the licenses
granted hereunder shall terminate and PPV shall immediately discontinue any new
distribution, leasing, licensing or sale of the Technology to new customers,
(ii) PPV shall deliver to Licensor or destroy all Documentation and related
materials in its possession furnished hereunder by Licensor, together with all
copies thereof, (iii) PPV shall warrant in writing within sixty (60) days of the
effective date of termination that the Documentation and related materials and
all copies thereof have been returned to Licensor or erased or destroyed.
Notwithstanding the foregoing, PPV, PPV's joint ventures and PPV's manufacturers
may retain copies of the Documentation to be used solely for customer continuing
support purposes. Upon termination or expiration of continuing support
obligations to its customers, PPV, PPV's joint ventures and each of the
manufacturers shall return all Documentation in accordance with (ii) and (iii)
above, After termination of this Agreement, existing installations of the
Technology will be permitted to continue to operate and PPV will continue to pay
royalties on Gross Income received from existing installations in accordance
with the terms of Exhibit A ("License Fees and Royalties").
11. Miscellaneous.
-------------
11.1 Notices. Any notice or report required or permitted to be
-------
given under this Agreement shall be given in writing and shall be delivered by
personal delivery, telegram, telex, telecopier, facsimile transmission or by
certified or registered mail, postage prepaid, return receipt requested, and
shall be deemed given upon personal delivery, five (5) days after deposit in the
mail or upon acknowledgment of receipt of electronic transmission. Notices shall
be sent to the signatory of this Agreement at the address set forth at the
beginning of this Agreement or such other address as either party may specify in
writing.
11.2 Export Regulations. Neither Licensor nor PPV shall
------------------
export, directly or indirectly, any information acquired under this Agreement or
any products utilizing any such information to any country for which the U.S.
Government or any agency thereof at the time of export requires an export
license or other government approval without first obtaining such license or
approval.
11.3 Tax Treaties. PPV shall comply with any tax treaty
------------
obligations applicable to this Agreement and, upon request, shall provide
Licensor with any reasonably necessary information to document Licensor's
compliance with applicable tax treaties.
11.4 Choice of Language. The original of this Agreement has
------------------
been written in English and shall be the only authentic version.
10
<PAGE>
11.5 Waiver or Delay. Any waiver of any kind or character by
---------------
either party of a breach of this Agreement must be in writing, shall be
effective only to the extent set forth in such writing, and shall not operate or
be construed as a waiver of any subsequent breach by the other party. No failure
of either party to insist upon strict compliance by the other with any
obligation or provision hereunder, and no custom or practice of the parties at
variance with the terms hereof, shall constitute a waiver of either party's
right to demand exact compliance with the terms of this Agreement. Nor shall
either party's delay or omission in exercising any right, power or remedy upon a
breach or default by the other party impair any such right, power or remedy. The
exercise of any right or remedy provided in this Agreement shall be without
prejudice to the right to exercise any other right or remedy provided by law or
equity.
11.6 Force Majeure. If by reason of labor disputes, strikes,
-------------
lockouts, riots, war, inability to obtain labor or materials, earthquake, fire
or other action of the elements, accidents, governmental restrictions,
appropriation or other causes beyond the control of a party hereto, either party
is unable to perform in whole or in part its obligations as set forth in this
Agreement, then such party shall be relieved of those obligations to the extent
it is so unable to perform and such inability to perform shall not make such
party liable to the other party. Neither party shall be liable for any loss,
injury, delay or damages suffered or incurred by the other party due to the
above causes.
11.7 Severability. The provisions of this Agreement are
------------
severable and if any one or more such provisions shall be determined to be
invalid, illegal or unenforceable, in whole or in part, the validity, legality
and enforceability of any of the remaining provisions or portions thereof shall
not in any way be affected or impaired thereby and shall nevertheless be binding
between the parties hereto.
11.8 Headings. The paragraph headings and captions of this
--------
Agreement are included merely for convenience of reference. They are not to be
considered part of, or to be used in interpreting this Agreement and in no way
limit or affect any of the contents of this Agreement or its provisions
11.9 Governing Law. This Agreement shall be construed in
-------------
accordance with and all disputes hereunder shall be governed by the laws of the
State of California as applied to transactions taking place wholly within
California between California residents. The parties exclude in its entirety the
application to this Agreement of the United Nations Convention on Contracts for
the International Sale of Goods.
11.10 Attorneys' Fees. In any action to interpret or enforce
----------------
this Agreement, the prevailing party shall be awarded all court costs and
reasonable attorneys' fees incurred.
11
<PAGE>
11.11 Relationship of the Parties. Nothing contained in this
---------------------------
Agreement shall be construed as creating any agency, partnership, or other form
of joint enterprise between the parties. The relationship between the parties
shall at all times be that of independent contractors. Neither party shall have
authority to contract for or bind the other in any manner whatsoever. This
Agreement confers no rights upon either party except those expressly granted
herein.
11.12 Survival. Section 9 ("Tide and Indemnification") and
--------
Paragraphs 6.1 ("Non-Disclosure"), 10. 3 Obligations upon Termination or
Expiration") and 11.9 ("Governing Laws") shall survive any termination of this
Agreement.
11.13 Counterparts. This Agreement may be executed in two or
------------
more counter parts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument
11.14 Entire Agreement. This Agreement is the complete, entire,
----------------
final and exclusive statement of the terms and conditions of the agreement
between the parties. This Agreement supersedes, and the terms of this Agreement
govern, any prior or collateral agreements or letters of intent between the
parties with respect to the subject matter hereof. This Agreement may not be
modified except in a writing executed by duly authorized representatives of tile
parties.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives on the date(s) shown below.
LICENSOR: PPV:
ON COMMAND VIDEO CORPORATION PACIFIC PAY VIDEO
LIMITED
By: /s/ Robert Snyder By: /s/ R.R. Creager
Printed: President Robert Snyder Printed: R.R. Creager
Title: President Title: President
Date: April 15, 1992 Date: April 15, 1992
12
<PAGE>
Exhibit A
---------
License Fee and Royalties
1. Royalty Payments. PPV will pay to Licensor royalties amounting to
----------------
[***] of PPV's Gross Income received (a) directly by PPV as a
separate entity or (b) directly by a joint venture in which PPV holds an equity
interest, from operating or selling products or Technology incorporating (i) the
patents described in Exhibit B ("Intellectual Property") and (ii) any patents
related to the Technology, which are issued during the term of the Agreement, so
long as PPV is given thirty (30) days written notice of each such new issued
patent. Such royalties shall be accrued upon PPV's receipt of Gross Income from
customers and shall be paid to Licensor within thirty (30) days after the end of
the calendar quarter in which such royalties accrued. All royalties due on Gross
Income paid to a PPV joint venture will be accrued upon PPV's receipt of the
royalty payment from the PPV joint venture and shall be paid to Licensor within
thirty (30) days after the end of the calendar quarter in which such royalties
accrued. No royalties will be due until the advance against royalties in
Subparagraph 2 ("Advance Against Royalties") below is exhausted. Licensor agrees
that no royalty is due on intercompany transfer of products incorporating the
Technology or on income received by PPV from a PPV joint venture.
2. Advance Against Royalties. PPV shall pay to licensor one million
-------------------------
dollars ($1,000,000) upon execution of this Agreement as a
non-refundable advance against royalties for the Territory. Such advance against
royalties shall be credited against royalties due in accordance with
Subparagraph 1 ("Royalty Payments").
3. Basis for Royalty Payments. The royalty described in Subparagraph 1
--------------------------
("Royalty Payments") above is in consideration for the license to operate
products incorporating the Technology incorporating (i) the patents described in
Exhibit B ("Intellectual Property") and (ii) any patents related to the
- ---------
Technology, which are issued during the term of the Agreement, so long as PPV is
given thirty (30) days written notice of each such new issued patent, Licensor
agrees to notify PPV in writing on a quarterly basis regarding the details of
any new patents issued, invalidated or expired during the given quarter. PPV's
obligation to pay royalties to Licensor will terminate upon expiration or
invalidation of the last of the patents described in (i) and (ii) above. If,
during the term of this Agreement, PPV, PPV's joint ventures or any third party
sublicensee of PPV faces competition from an entity in the Territory and such
entity would have been infringing one or more of the patents described in (i) or
(ii) above if such patents had been obtained in the jurisdiction of the
Territory in which the competition occurs, the royalty described in Subparagraph
1 above will be reduced to [***] of PPV's Gross Income, starting with the next
full quarter after PPV notifies Licensor in writing of such determination of the
existence of such competition by PPV.
13
*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
<PAGE>
EXHIBIT B
----------
Intellectual Property
Patents:
- -------
Patent Number 4,947,244 August 7, 1990
Patent Number 5,072,333 December 10, 1991
Patent Applications:
- -------------------
(none as of the date of this Agreement)
Copyright Registrations:
- -----------------------
(to be supplied if and when available)
14
<PAGE>
EXHIBIT 10.6
TECHNOLOGY LICENSE AGREEMENT
----------------------------
12-20-95
This Technology License agreement (the "Agreement") is entered into by and
between MagiNet International, Inc. ("MagiNet"), a California corporation having
a place of business at 405 Tasman Drive, Sunnyvale, California 94089, and
Guestserve Development Group, a California corporation ("GDG"), having a place
of business at 3020 Bridgeway, Sausalito, California 94965. The effective date
of this Agreement shall be the date last signed below ("Effective Date").
RECITALS:
---------
A. WHEREAS, MagiNet is in the business of providing consistent, high
quality guest in-room video and audio content, and related hardware, software
and services that permit transmission to rooms and remote selection of content
for customers in the hospitality industry worldwide;
B. WHEREAS, GDG is the owner of or has licensed the interactive guest
video services technology described in Exhibit A ("Technology Description") and
---------
certain intellectual property rights related to GDG's technology;
C. WHEREAS, MagiNet desires to obtain and GDG is willing to grant an
exclusive license with respect to GDG's current and next generation interactive
guest video services technology, within a specified geographic territory and
market;
D. WHEREAS, MagiNet may desire to obtain certain development services for
specified projects for MagiNet's hospitality industry customers.
AGREEMENT
---------
NOW THEREFORE, In consideration of the mutual promises and covenants set forth
below, the parties agree as follows:
1. Definitions. For purposes of this Agreement, the following terms shall
have the respective meanings indicated below:
1.1 Acceptance Criteria. "Acceptance Criteria" shall mean the
-------------------
criteria, tests, and standards including but not limited to the Documentation,
which is described in detail in the applicable Project Appendix or Exhibits and
which is used by MagiNet to determine whether or not to accept a deliverable
from GDG.
1.2 Activities. "Activities" shall mean updating, installation,
----------
operation, maintenance, current and future design activities, development
activities and ongoing maintenance
*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the securities and exchange commission. Omitted
portions have been filed separately with the Commission.
<PAGE>
of the MATV, Hardware, and Delivery Software (but not, except to the extent
expressly permitted herein, updating or development activities with respect to
the Development Software).
1.3 Application Software. "Application Software" shall mean guest
--------------------
video service software applications whether Current. Technology or Next
Generation Technology and all Upgrades thereto. The Application Software
displays Guest Services to the Guest through an Interface via an Output Device.
The term Application Software shall refer to the object code and source code
form of the Application Software and Upgrades unless otherwise specifically
stated in context.
1.4 Controlled Companies. "Controlled Companies" shall mean
--------------------
corporate entities as to which Johnathan Edwards and/or David Lampton: ( i) own
or control, directly or indirectly, at least fifty percent (50%) by nominal
value or number of units of outstanding stock or of the outstanding stock
conferring the right to vote at a general meeting, or ( ii ) has the right to
elect a majority of the Board of Directors or its equivalent or ( iii ) has the
right, directly or indirectly, to appoint or remove the management,
1.5 Converter. "Converter" shall mean the device in all its
---------
versions for both Current and Next Generation Technology as specified in Exhibit
B Attachments, and all Upgrades thereto, that links the television in the room
and the Network Control System Computer and that enables the Guest to access
Guest Services.
1.6 Delivery Software. "Delivery Software" shall mean the
-----------------
Application Software, Screen Managers, System Monitoring Tools and Upgrades
thereto, including operating system software, environments or applications
(other than Application Software) necessary for delivery of Guest Services,
except any Third Party Software. AU third party software (including without
limitation Windows NT, DOS, TCP/IP and Norton) used in conjunction with the
Software is publicly available and will be identified by MG to MagiNet and will
be licensed by MagiNet directly from third parties (and not from GDG) under
separate agreements to the extent necessary for the proper operation of the
System or Development Software. The term Delivery Software shall refer to the
object code and source code form of the Delivery Software unless otherwise
specifically stated in context.
1.7 Development Software. "Development Software" shall mean the
--------------------
Toolkit, the Language, and any Upgrades thereto, used in GDG's development
process for the Delivery Software, excluding any Third Party Software. All Third
Party Software used in conjunction with the Software is publicly available and
will be identified by GDG to MagiNet and will be licensed by MagiNet directly
from third parties (and not from GDG) under separate agreements to the extent
necessary for the proper operation of the System or Development Software. The
term Development Software shall refer to the object code form of the Development
Software unless otherwise specifically stated in context in this Agreement.
1.8 Documentation. "Documentation" shall mean any and all of the
-------------
documents and specifications described in Exhibit ("Documentation"), or as
otherwise described in an
<PAGE>
applicable Project Appendix or Exhibits, relating to the Technology. Such
Documentation shall be sufficient to enable MagiNet to operate, develop, upgrade
and maintain the Technology to which it pertains and Documentation shall be
provided for all Technology; except that the foregoing shall not include
Documentation for the Language; and except that the Toolkit Manual and any other
Documentation for the Toolkit is end-user documentation and shall not enable
MagiNet to develop, upgrade and maintain the Toolkit itself.
1.9 Error. "Error" shall mean a nonconformity that causes the
-----
Software not to perform in accordance with the applicable Documentation and or
Acceptance Criteria, as applicable.
1.10 File Server Interface. "File Server Interface" shall mean the
---------------------
interface between the NCS Computer and the Television Control Module or
Converter, and all Upgrades thereto.
1.11 GDG Trademarks. "GDG Trademarks" shall mean the trademarks,
--------------
trade names, stylistic marks, logos and other product and corporate identifiers
used by GDG from time to time, whether registered or unregistered.
1.12 Guest. "Guest" shall mean the user of the Guest Services in a
-----
Hospitality Industry Provider facility or Service Apartment as defined herein.
1.13 Guest Services. "Guest Services" shall mean Hotel Services,
--------------
Interactive Services, Movies, Third Party Content Delivery Services and any
other services described in a mutually agreed upon and executed Project Appendix
(as defined in Section 3.2) or as contained in an Exhibit hereto, which are
integrated by a party hereto into the System.
1.14 Hardware. "Hardware" shall mean the Television Control Module,
--------
the Headend Board, the Watchdog Board, the File Server Interface and the NTSC
Converter Control Module, Converters in all versions and all Upgrades thereto,
including but not limited to the digital file server interface and a PAL
converter control module in development. The term "Hardware" shall refer to the
actual device as well as the Documentation therefor, including but not limited
to all designs, specifications and drawings, as specifically stated in context
in this Agreement.
1.15 Headend Board, Network Control System Computer, Master Computer.
---------------------------------------------------------------
The "Headend Board" is a device, and all Upgrades thereto, used with other
components within the "Network Control System Computer" that controls the
delivery of Guest Services and which interfaces with the Television Control
Module or Converter in the room.
1.16 Hospitality Industry; Hospitality Industry Provider.
----------------------------------------------------
"Hospitality Industry" or "Hospitality Industry Provider" shall mean hotels,
motels and inns in the Territory and service apartments affiliated with or
directly serviced or managed by hotel, motel, or inn operators in the Territory
contracted to MagiNet.
<PAGE>
1.17 Hotel Services. "Hotel Services" shall mean development,
--------------
storage and transmission of Guest information and other similar services
including but not limited to ( i ) Guest billing status, ( ii) minibar
consumption and other charges, ( iii) hotel, transportation and restaurant
information display, ( iv) Guest oriented marketing information including but
not limited to display of infomercials, programs about the hotel and the
facilities or its related corporate entities and affiliates, advertising and
merchandising of products and services of the hotel or its related corporate
entities and affiliates, ( v) Guest messaging systems and services; (vi) and
other similar hotel oriented services.
1.18 Hyatt Software. "Hyatt Software" shall mean the Hyatt
--------------
Development Software and the Hyatt Delivery Software specified under the terms
of that certain Master Guest Video Services Agreement made on September 15, 1995
by the parties hereto and Hyatt International-Asia Pacific Limited and Hyatt
Chain Services Limited (the "Master Guest Video Services Agreement"), which
Software is further described in Exhibit A ("Technical Requirements") thereto
and any other Software needed to perform the obligations under the Master Guest
Video Services Agreement,, excluding Third Party Software.
1.19 Hyatt Development Software. "Hyatt Development Software" shall
---------------------------
mean the Toolkit specified under the terms of the Master Guest Video Services
Agreement and further described in Exhibit A ("Technical Requirements") thereto.
1.20 Hyatt Delivery Software. "Hyatt Delivery Software" shall mean
------------------------
the Delivery Software specified under the terms of the Master Guest Video
Services Agreement.
1.21 Hyatt Hardware. "Hyatt Hardware" shall mean the hardware
--------------
specified under the terms of the Hyatt Master Guest Video Services Agreement and
further described in Exhibit A ("Technical Requirements") thereto and any other
Hardware needed to perform the obligations under the Master Guest Video Services
Agreement.
1.22 Hyatt Technology. "Hyatt Technology" shall mean the Hyatt
----------------
Software and Hyatt Hardware.
1.23 Input Device. "Input Device" shall mean the various hardware
------------
devices which can be used by the Guest to invoke Guest Services, including but
not limited to television remote control devices, keyboards, joysticks, mice and
other pointing devices.
1.24 Interactive Services. "Interactive Services" shall mean
--------------------
interactive activities such as games and other educational, informational or
entertainment activities which utilize an interactive session directed through
use of an Input Device that elicits audio and or video content to be displayed
in the Guest's room, and Upgrades thereto.
1.25 Interface. "Interface" shall mean the software display,
---------
including the structure,, sequence, organization, look and feel of the display,
and all Upgrades thereto, through which the Guest selects Guest Services and
interacts with the Guest Services.
<PAGE>
1.26 Language. "Language" shall mean GDG's next generation object
--------
oriented programming language and all Upgrades thereto for the creation of Guest
Services Delivery Software for the Hospitality Industry. The term "Language"
shall refer to the object code form of such software only, unless otherwise
specifically stated in context herein.
1.27 Licensed Rights. "Licensed Rights" shall mean (i) those U.S.
---------------
and foreign patents, patent applications, trademark registrations and copyright
registrations listed in Exhibit C ("Intellectual Property"), which GDG
represents to constitute all patents, patent applications, trademark
registrations and copyright registrations related to the Technology presently
owned or licensed by GDG as of the Effective Date, (ii) all trade secrets,
inventions, know-how, unregistered copyrights (including related moral rights),
trademarks, and other proprietary rights related to the Technology presently
owned or licensed by GDG as of the Effective Date and (iii) all patents, patent
applications, copyright registrations, trademark registrations, trade secrets,
inventions, know-how, unregistered copyrights including related moral rights,
unregistered trademarks and other proprietary rights developed or obtained by
GDG (to the extent GDG is permitted to sublicense the same to MagiNet) during
the term of this Agreement related to the Technology and Upgrades, all of which
are licensed to MagiNet hereunder.
1.28 MagiNet Improvements. "MagiNet Improvements" shall mean
--------------------
software and or hardware invented by or authored by MagiNet as permitted by and
within the scope of this Agreement, which is a derivative of the GDG Technology.
1.29 MATV. "MATV" shall mean the then-current video and audio
----
transmission and receiving systems, including antenna systems and all Guest room
wiring.
1.30 Movies. "Movies shall mean movies licensed for display under
------
contract with the movie studios or their distributors.
1.31 Network Control System Computer. "Network Control System
-------------------------------
Computer" shall mean the, control processing unit that controls the delivery of
Guest Services.
1.32 North America. "North America" is defined, for purposes of this
-------------
Agreement, as the United States (meaning the fifty (50) states) and Canada.
1.33 NTSC Converter Control Module. "NTSC Converter Control Module"
-----------------------------
shall mean the Current Technology converter control module, as designed to
function in accordance with North American standards, all Upgrades thereto.
1.34 Output Device. "Output Device" shall mean the various hardware
-------------
devices which display the Guest Services, including but not limited to
televisions, monitors or headsets.
1.35 Related Technology. "Related Technology" shall mean (i) new
-------------------
software or hardware developed by GDG and or the Controlled Companies that is a
derivative work or improvement created from or based on the Technology or any
Upgrades to the Technology and
<PAGE>
(ii) which was not in existence as of the Effective Date and `iii) which is
developed for use in the residential market and which is applicable to the
Hospitality Industry Provider market or may be made applicable to such market
through minor improvement.
1.36 Screen Managers. "Screen Managers" shall mean the software,
---------------
including drivers, used to manage screen displays and all Upgrades thereto. The
term "Screen Managers" shall refer to the object code and source code form of
such software unless otherwise specifically stated in context.
1.37 Software. "Software" shall mean all Delivery Software and
--------
Development Software including both Current Technology and Next Generation
Technology. Software excludes all Third Party Software used in the operation of
the System, Delivery Software and Development Software.
1.38 System. "System" shall mean the Hardware and Delivery Software
------
and all Upgrades thereto, used to transmit Guest Services, by means of an MATV
or other similar device, to Hospitality Industry Provider rooms and designed to
permit remote Guest selection of such Guest Services.
1.39 System Monitoring Tools. "System Monitoring tools' shall mean
------------------------
software tools and all Upgrades thereto, designed to provide information and
feedback about Systems and their use. The term "System Monitoring Tools" shall
refer to the object code and source code form of such software unless otherwise
specifically stated in context.
1.40 Television Control Module. "Television Control Module" or "TCM"
--------------------------
shall mean a device which interfaces between the television and the Network
Control System Computer and all Upgrades thereto.
1.41 Territory. "Territory" shall mean the Hospitality Industry
---------
Providers market in the geographical territory of the world, excluding North
America.
1.42 Technology. "Technology" shall mean GDG"s guest video services
----------
technology whether owned, licensed or developed by GDG or the Controlled
Companies, including but not limited to all Hardware and Software, as described
in Exhibit A ('Technology Description') and all Upgrades thereto. The term
----------
"Current Technology" shall mean the Technology in use in hotels in North America
as of the Effective Date. The term "Next Generation Technology" shall mean
Technology developed using principally the C++ programming language and
including the Language and Toolkit, which operates under a Windows NT operating
system, and which is intended to replace and extend the utility of the Current
Technology.
1.43 Third Party Content Delivery Services. "Third Party Content
--------------------------------------
Delivery Services" shall mean software used to display third party
informercials, third party informational, educational and/or entertainment
programs, including programs on other hotels,
<PAGE>
resorts or Hospitality Industry Provider facilities, third party advertising and
merchandising (including ordering) of products and services (including but not
limited to hotel, resort or other Hospitality Industry Provider Products and
services) and/or display of other third party content (including but not limited
to off-air broadcast satellite and cable television and transmissions and
televised events). using pricipally the C++ programming language and including
the Language and Toolkit
1.44 Third Party Software. "Third Party Software" shall mean
--------------------
software developed and or licensed by third parties, not including Controlled
Companies.
1.45 Toolkit. "Toolkit" shall mean GDG's Next Generation Technology
-------
proprietary software application development toolkit and all Upgrades thereto,
that enable the programmer to create and update content for display as part of
Guest Services. The term "Toolkit" shall refer to the object code form of such
software only, unless otherwise specifically stated in context herein.
1.46 Toolkit Manual. "Toolkit Manual" shall mean the manual and all
--------------
Upgrades thereto, that describes the functions and features of the Toolkit in
sufficient detail to permit a programmer to use the toolkit to create and update
content for display on a guest video services system.
1.47 Upgrades. An "Upgrade" shall mean any (i) enhancement, (ii)
--------
extension, (iii) modification, (iv) upgrade or (v) future applications of the
Technology, which are done for use in Hospitality Industry, and which are not
Related Technology, that are wholly or partially based upon the Technology,
along with associated Documentation, all to the extent developed by or for GDG
or Controlled Companies on or before December 31, 2002.
1.48 Watchdog Board. "Watchdog Board" shall mean the device that
---------------
monitors the functions of the Network Control System Computer and all Upgrades
thereto.
2. Project Work. From time to time MagiNet will negotiate agreements
------------
with Hospitality Industry Providers for Guest Services which will require
MagiNet to perform related Activities. If MagiNet wishes to subcontract some of
the related Activities to GDG, MagiNet will prepare, a Project Appendix in the
form described in Exhibit E ("Sample Project Appendix") which will describe in
detail, at a minimum, as applicable: (i) any special terms and conditions for
the project, (ii) the scope of the Activities to be performed by GDG, (iii) the
specifications (including user interface and low level design specifications, if
applicable), (iv) the milestone schedule and acceptance testing criteria for the
particular project and (v) the payment structure for the particular project. The
parties will negotiate the terms of each Project Appendix in good faith and upon
mutual agreement on the terms therein, such Project Appendix will be signed by
both parties and the results of such Activities by GDG will be deemed licensed
to MagiNet as set forth herein.
<PAGE>
3. License Grants.
--------------
3.1 License to the Technology. GDG hereby grants to MagiNet a
-------------------------
perpetual, irrevocable (subject to subsection (f)), transferable (subject to
subsections (g), (i), (j) and Section 8.3) license as stipulated below (the
"License") under the Licensed Rights, in the Territory to use the Technology,
Upgrades and Documentation to provide Guest Services and:
(a) An exclusive right to use, make, create, modify, translate, reproduce,
(and to have made, modified, translated and reproduced), demonstrate, market,
distribute, lease, license, sell, sublicense, assign, maintain and support
products and services incorporating the Software and related Documentation,
directly or indirectly through MagiNet's usual channels of distribution in the
Hospitality Industry (except Service Apartments, as set forth in subsection (b)
in the Territory;and
(b) A non-exclusive right to use make, create, modify, translate,
reproduce, (and to have made, modified, translated and reproduced) demonstrate,
market, distribute, lease, license, sell, sublicense, assign, maintain and
support products and services incorporating the Software and related
Documentation, to service apartments directly serviced or managed by Hospitality
Industry Providers under contract to MagiNet ("Service Apartments") in the
Territory; and
(c) An exclusive right to use, make, modify, manufacture and repair or
have used, made, modified, manufactured and repaired the Hardware and to
demonstrate, market, distribute, sell, lease, maintain and support the Hardware
and related Documentation for use in the Hospitality Industry, in the Territory.
The foregoing is subject to the provision that MagiNet may only disclose that
Technology which is necessary for the manufacture of Hardware to a third party
manufacturer if each such third -party manufacturer has agreed in a signed
writing prior to receiving the Technology (i) to manufacture Hardware only for
the account of MagiNet or MagiNet's majority owned subsidiaries or third party
distributors, (ii) to keep the Technology confidential pursuant to terms and
conditions no less restrictive than those set forth in Section 8 hereof, and
(iii) that GDG is an intended third party beneficiary of such agreement and is
entitled to enforce the terms directly related to the confidential treatment of
the Technology directly against such third party manufacturer.
(d) A non-exclusive right to use, make, modify, manufacture and repair or
have used, made, modified, manufactured and repaired the Hardware and to
demonstrate, market, distribute, sell, lease, maintain and support the Hardware
and related Documentation for use in Service Apartments in the Territory. The
foregoing is subject to the provision that MagiNet may only disclose that
Technology which is necessary for the manufacture of Hardware to a third party
manufacturer if each such third party manufacturer has agreed in a signed
writing prior to receiving the Technology (i) to manufacture Hardware only for
the account of MagiNet or MagiNet's majority owned subsidiaries or third party
distributors, (ii) to keep the Technology confidential pursuant to terms and
conditions no less restrictive than those set forth in Section 8 hereof, and
(iii) that GDG is an intended third party beneficiary of such agreement and is
entitled to enforce the terms directly related to the confidential treatment of
the Technology directly against such third party manufacturer.
(e) MagiNet shall cease distributing Software to new Hospitality Industry
Providers' locations in the event and at the time that MagiNet provides GDG with
written notice of its intention to cease distribution as described in Exhibit B.
----------
(f) The licenses set forth in this Section 3. 1 are irrevocable, except
that the License shall terminate in accordance with Section 12 hereof in the
event of (i) MagiNet's failure to pay installment payment fees when due (except
for installment payment fees which MagiNet has reasonably contested in writing
in good faith after notice and an opportunity to cure), or (ii) MagiNet's gross
negligence or willful misconduct which results in a breach of its obligations
under Section 8 hereof or the impermissible disclosure or distribution of the
Technology or a breach of its obligations under Section 3. 1, after notice and
an opportunity to cure.
(g) Subject to the terms and conditions of this subsection 3. 1(g),
MagiNet may assign or grant sublicenses of the source code rights granted to it
(exclusive of access privledges and escrow agreement terms in Section 8 below)
under Section 3.1 to third parties for the Hospitality Industry pursuant to
signed, written assignment or sublicense
<PAGE>
agreements in which such assignees or sublicensees agree to the terms and
conditions binding on MagiNet in this Agreement and which acknowledge GDG's
right to enforce the assignment or sublicense directly against the assignee or
sublicensee. MagiNet shall use all reasonable efforts to enforce such
agreements.
(h) GDG retains all other rights in and to the Licensed Technology. No
rights are granted to MagiNet, except as expressly provided in this Agreement.
(i) MagiNet shall reproduce and apply GDG's copyright and patent and may
reproduce and apply GDG's trademark and other proprietary rights notices of GDG
on all copies of the Software, Hardware and Documentation in the same manner as
GDG incorporates or applies the same in or on the Software, Hardware and
Documentation or in any manner reasonably requested by GDG.
(j) In the event that MagiNet assigns its rights and obligations under
this Agreement to a majority owned subsidiary of MagiNet, MagiNet shall
guarantee all of its obligations herein. MagiNet may transfer its rights and
obligations under this Agreement to a majority owned subsidiary or to a third
party who agrees in a signed writing to be bound by all terms and conditions
hereof, and provided that any attempted transfer to an entity which competes
with GDG or a Controlled Company in the Hospitality Industry in North America or
the residential market worldwide shall be null and void. Upon written request by
MagiNet, GDG will verify whether or not a proposed third party meets the
foregoing criteria and will provide written substantiation of the competition.
3.2 License Grant to GDG. Subject to the parties agreement on
--------------------
royalty and/or license fees, MagiNet hereby grants to GDG an exclusive,
perpetual, irrevocable (subject to subsection (d), transferable (subject to
subsections (e), (h) and Section 8.3) license as stipulated
<PAGE>
below, (the "MagiNet License") under MagiNet's intellectual property rights in
all MagiNet Improvements, to provide guest video services in the Hospitality
Industry in North America, (which MagiNet must offer, on a periodic basis, to
license to GDG)
(a) An exclusive right to use, make, create, modify, translate, reproduce,
(and to have made, modified, translated and reproduced) demonstrate, market,
distribute, lease, license, sell, sublicense, assign, maintain and support
products and services incorporating the MagiNet Improvements and related
Documentation, directly or indirectly through GDG's usual channels of
distribution in the Hospitality Industry (except Service Apartments, as set
forth in subsection (b)) in North America; and
(b) A non-exclusive right to use make, create, modify, translate,
reproduce, (and to have made, modified, translated and reproduced) demonstrate,
market, distribute, lease, license, sell, sublicense, assign, maintain and
support products and services incorporating the MagiNet Improvements and related
Documentation, directly and indirectly through GDG's usual channels of
distribution to service apartments serviced or managed by GDG's sublicensees
("Service Apartments") worldwide; provided such right will not apply to any
actual or potential MagiNet Service Apartment as defined herein.
(c) A non-exclusive right to use, make, modify, manufacture and repair or
have used, made, modified, manufactured and repaired the MagiNet Improvements in
hardware and to demonstrate, market, distribute, sell,, lease, maintain and
support such hardware and related Documentation to Hospitality Industry
Providers in North America, and including Service Apartments worldwide
(excluding those managed by Hospitality Industry Providers under contract to
MagiNet). The foregoing is subject to the provision that GDG may only provide
the portions of the MagiNet Improvements which is necessary for the manufacture
of such hardware to a third party manufacturer and only if each such third party
manufacturer has agreed in a signed writing prior to receiving the Maginet
Improvements (i) to manufacture such hardware only for GDG's account, (ii) to
keep the MagiNet hardware Improvements confidential pursuant to terms and
conditions no less restrictive than those set forth in Section 8 hereof, and
(iii) that MagiNet is an intended third party beneficiary of such agreement and
is entitled to enforce the terms directly related to the confidential treatment
of the Improvements directly against such third party manufacturer.
(d) The MagiNet Licenses set forth in this Section 3.2 are irrevocable,
except that the MagiNet License shall terminate in accordance with Section 12
hereof in the event of (i) GDG's failure to pay royalty fees when due (except
for royalty fees which GDG has reasonably contested in writing in good faith),
or (ii) GDG's gross negligence or willful misconduct which results in a breach
of its obligations under Section 8 hereof or the impermissible disclosure or
distribution obligations under Section 3.2 after notice and an opportunity to
cure.
(e) Subject to the terms and conditions contained herein, GDG may assign
or grant sublicenses of the source code rights granted to it under Section 3.2
to third parties in North America for the Hospitality Industry and Service
Apartments worldwide (except those actual or
<PAGE>
potential MagiNet Service Apartments as defined herein) pursuant to signed,
written sublicense agreements in which such sublicensees agree to the terms and
conditions binding on GDG in this Agreement and which acknowledge MagiNet's
right to enforce the assignment or sublicense directly against the assignee or
sublicensee. GDG shall use all reasonable efforts to enforce such agreements.
(f) MagiNet retains all other rights in and to the MagiNet
Improvements. No rights are granted to GDG, except as expressly provided in
this Agreement.
(g) GDG shall reproduce and apply MagiNet's copyright, trademarks,
patent and other proprietary rights or notices of MagiNet on all copies of the
MagiNet Improvements and related documentation in the same manner as MagiNet
incorporates or applies the same in or on the MagiNet Improvements and related
documentation or in any manner reasonably requested by MagiNet.
(h) In the event that GDG assigns its rights and obligations under
this Agreement to a majority owned subsidiary of GDG or a Controlled Company,
GDG shall guarantee all of such subsidiary's or Controlled Company's obligations
herein. GDG may transfer its rights and obligations under this Agreement to a
majority owned subsidiary of GDG or to a Controlled Company who agrees in a
signed writing to be bound by all terms and conditions hereof but only so long
as such subsidiary or a Controlled Company also has obtained the ownership or
licenses necessary to grant the license granted herein and to perform the
services described herein.
3.3 Technology Transfer
-------------------
(a) GDG shall deliver to MagiNet, at the times set forth in
Exhibit B, one copy of
- ----------
(i) each Hardware or Software specification or
design,
(ii) the source and object code versions of all
Delivery software,
(iii) the object code versions of all Development
Software,
(iv) all Documentation,
(v) all Hardware parts lists (showing the vendor of
each part), and
(vi) each marketing brochure or publication, or sales
tool, used by GDG for the Hardware or Software.
(vii) Within thirty (30) days after completion of
certification and readiness to deploy its Next Generation Technology, GDG shall
deliver one copy of Next Generation Software and Development Software in object
code only (source and object for
<PAGE>
Delivery Software) to MagiNet, and related Documentation. Within thirty (30)
days completion of certification and readiness to deploy an Upgrade to Software
or Hardware, GDG shall deliver such materials relating to the Upgrade and
related Documentation to MagiNet.
(viii) a complete Software bug list as of the delivery date
and on a continuing bait at least quarterly, as bugs are known to exist.
(b) Within five days after the Effective Date of this Agreement, GDG
will give written notice to each vendor from which GDG purchases Hardware
components, for which MagiNet has received a License relating to Hardware, that
MagiNet has the right to purchase such components directly from such vendors
under any volume discounts or quantity pricing and terms applicable to GDG.
(i) GDG's vendor list, which GDG hereby agrees to provide
MagiNet within ten (10) days following the Effective Date, is a complete and
accurate list of all of the vendors who supply any parts to GDG for GDG's
manufacture of the Technology, and accurately indicates which of such vendors
are sole source vendors to GDG, all as of the date of this Agreement. As used
herein, a "sole source vendor" shall mean a vendor who is the only manufacturer
for GDG of a part for any Technology and "sole source part" shall mean a part
for which GDG has only one manufacturer.
(ii) Update of Vendor List. GDG agrees to provide to
MagiNet, at times reasonably requested by MagiNet, on a continuing basis, a
complete and accurate list of vendors for the Technology, if any, as of the
request date, which fist indicates which of such vendors are or are expected to
be sole source vendors to GDG.
(iii) Second Source. GDG and MagiNet agree to notify each
other during the first two (2) years after the Effective Date of the identify of
a second manufacturer of a sole source part for the Technology, if any, within
thirty (30) days after learning the identity of any such manufacturer.
(c) GDG will provide at no charge within ninety (90) days after the
date of this Agreement up to twenty-two (22) working days of training for up to
six MagiNet employees at GDG's facilities in Northern California, and a further
twenty-two (22) working days of training shall be provided after ninety (90)
days after the date of this Agreement and before one year after the date of this
Agreement. Training will occur at times mutually agreed by GDG and MagiNet.
MagiNet shall bear all expenses of its employees. The training will be
sufficient to allow a skilled software engineer to create and modify
Applications using the Current Software and the Next Generation Software. After
one year after the date of this Agreement, GDG will provide at no charge
periodic training for up to six (6) MagiNet employees at GDG locations
concerning Upgrades to the Software.
(d) GDG shall provide a competent technical liaison to answer
periodic
12
<PAGE>
questions of MagiNet personnel during normal business hours relating to Hardware
and Software development, maintenance and operation. GDG shall provide such
liaison at no charge during the first six months after the first twenty-two (22)
working days of training described in the preceding paragraph have been
completed. After such six month period ends GDG shall provide such liaison to
MagiNet at its lowest fee for such services charged to a customer of GDG.
(e) GDG and MagiNet shall meet on a periodic basis at least annually
to exchange ideas, market requirements and current and planned developments as a
means of fostering a cooperative and mutually beneficial relationship.
(f) If, as set forth in Section 1.47, GDG or a Controlled Company
creates any Upgrade, then GDG or such Controlled Company shall make such
Upgrades available to MagiNet
within thirty (30) days following release of such Upgrade, at no charge.
(g) On an ongoing basis, GDG agrees to provide Error corrections in
accordance with the resolution times required by the severity level codes
described in Exhibit ("Severity Codes"). GDG shall furnish off-site telephone,
facsimile and electronic mail support, in the form of consultations, assistance
and advice relating to the Error corrections. MagiNet shall submit to GDG
whatever additional data which GDG may reasonably request in order to verify,
diagnose and correct the Error. GDG will use all reasonable efforts to resolve
the Error in accordance with the Severity Codes. GDGs obligations under this
subsection (g) are subject to MagiNet's providing to GDG, at the time of each
report of an Error at a Hospitality Industry Provider, the number of each
applicable modem where such an Error has been identified to exist, to allow
remote access to such modem(s).
(h) For all Software delivered by GDG to Maginet under the terms of
this Agreement, including any Software developed under the terms of a Project
Appendix, MagiNet shall have thirty (30) days (or such other time as may be
mutually agreed upon in the applicable Project Appendix) from the date on which
GDG delivers the Software to MagiNet (the "Acceptance Period") to examine and
test the delivered software to determine that such Software conforms to the
applicable Acceptance Criteria (which in the case of Software delivered other
than under a Project Appendix, will be the Documentation). Within such
Acceptance Period, MagiNet shall provide GDG with written acceptance of the
delivered code or a statement of effors to be corrected, If the Software does
not conform to the Acceptance Criteria, the statement of Errors will rank the
Errors as described in Exhibit H ("Severity Code"). GDG shall correct such
Errors and redeliver the Software to MagiNet, at MagiNet's direction relative to
correction of all or some of the Errors based on both parties' reasonable
assessment of functionality and market need. Both parties agree to reassess
appropriate timelines for resolution of all remaining errors, if any, for
acceptable workarounds in the event no correction is possible to provide the
functionality desired due to third party equipment or software interface that
interferes with arriving at the desired-functionality.
4. Assignment of Distributor Agreements. GDG shall assign to MagiNet
upon
13
<PAGE>
signing of this Agreement, all agreements with TRB, UMDA and any other
authorized distributor(s) of Hardware and/or Software in the Territory for the
Hospitality Industry, all of which as of the Effective Date are listed in
Exhibit F ("GDG distributors"). GDG hereby indemnifies MagiNet against any claim
- ---------
by a GDG distributor or any customer of such distributor, arising from GDG's
negligence or willfull misconduct or "GDG's failure to perform any GDG
obligation or to fulfill any GDG commitment made before the effective date of
the assignment. MagiNet hereby indemnifies GDG against any claim by a GDG
distributor or any customer of such distributor arising from MagiNet's
negligence or willful misconduct or MagiNet's failure to perform any MagiNet
obligation or to fulfill any MagiNet commitment made after the effective date of
such assignment. The indemnification procedures described in Paragraph 11
("Indemnification") shall govern any claim for indemnification.
5. Sale of Hardware
----------------
5.1 Sale of Hardware. For so long as GDG or a Controlled Company is
----------------
in the business of assembling and selling Hardware, GDG agrees that, pursuant to
purchase orders submitted by MagiNet and accepted by GDG or the applicable
Controlled Company in its reasonable discretion, GDG shall sell or shall cause a
Controlled Company to sell, Hardware to MagiNet at a price equal to GDG's
materials cost therefore plus a markup of [***]. In all instances in Section 5
where obligations involve the Controlled Companies, GDG agrees to guarantee the
performance of each such obligation hereunder. The parties agree that
notwithstanding anything to the contrary set forth in the parties' purchase
orders, acknowledgments, acceptance, invoices or other similar documents,
MagiNet may resell, lease, rent or otherwise distribute such Hardware only as
permitted herein. Other terms and conditions, such as delivery dates,
quantities, or deposits required by GDG suppliers, of MagiNet's purchase of
Hardware from GDG shall be as set forth in the parties' purchase orders,
acknowledgments, acceptances, invoices or other similar documents, except where
contradicted by the terms of this Section 5.
5.2 Manufacture by MagiNet. GDG acknowledges that MagiNet may
----------------------
manufacture the Hardware directly or purchase the Hardware from third party
manufacturers (subject to the terms and conditions of Section 3.1(c)) and is
under no obligation to purchase the Hardware from GDG exclusively or at all.
5.3 Forecasts. MagiNet agrees to use reasonable efforts to provide
---------
GDG or the applicable Controlled Company, in response to GDG's-or such
Controlled Company's requests from time to time, with non-binding forecasts of
MagiNet's anticipated aggregate requirements for Hardware during the twelve (12)
month period following each such request. GDG acknowledges, and acknowledges on
behalf of such Controlled Companies, that such forecasts are estimates only, are
inherently uncertain, and are not purchase orders or otherwise binding on the
parties.
5.4 Purchase Orders. Within ten (10) days of receipt of each of
---------------
MagiNet's
*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the securities and exchange commission. Omitted
portions have been filed separately with the Commission.
14
<PAGE>
purchase order GDG or a Controlled Company will either (i) issue a written
acceptance of MagiNet's purchase order or (ii) specify in writing the reasons
why GDG or such Controlled Company cannot accept such purchase order. If no
such acceptance or specification of reasons is given by GDG or a Controlled
Company, GDG or such Controlled Company will be deemed to have accepted the
purchase order. MagiNet will have the right to cancel any order, subject to a
10% cancellation fee, provided that GDG or such Controlled Company is notified
of such cancellation in writing at least forty five (45) days prior to the
shipment date. GDG will comply, and will ensure that any applicable Controlled
Company complies, with all instructions of MagiNet to reschedule shipments
provided that GDG receives such rescheduling instructions at last fifteen (15)
days prior to a scheduled shipment date. With respect to MagiNet orders
accepted by GDG or -a Controlled Company, GDG will, and will cause any relevant
Controlled Companies to, use all reasonable efforts to ship units of the
Hardware to MagiNet in accordance with shipment dates, routing instructions,
quantities, shipping addresses, and manner of shipment specified in MagiNet's
purchase orders. In the event GDG or a Controlled Company is required to make
deposits against the purchase of materials with respect to any particular
MagiNet order, MagiNet will similarly be required to pay such deposits to GDG or
such Controlled Company prior to GDG's or such Controlled Company's acceptance
of such order.
5.5 Payment Terms: CAM or a Controlled Company may invoice MagiNet
-------------
for Hardware following shipment (but not earlier than MagiNet's requested
shipment date). MagiNet will pay such invoices within thirty (30) days of
receipt of invoice. Each invoice will indicate the number of the units shipped,
the shipping date and method, and will be accompanied by a bill of lading or
other documentation issued by the carrier. All prices stated and payments made
hereunder will be in U.S. Dollars.
5.6 Shipments. Shipments will be packaged (i) in accordance with
---------
good commercial practice, and (ii) in a manner acceptable to common carriers and
suitable for air transport. Shipment will be F.O.B. GDG's facility. At MagiNet's
request, on a per purchase order basis, GDG will, and will cause any applicable
Controlled Company to, prepay all shipping fees and bill MagiNet for such costs.
5.7 Problem Reports. GDG will promptly notify MagiNet of any matter
---------------
which (i) has or could reasonably be expected to impact Hardware quality, or
(ii) has delayed or could reasonably be expected to delay scheduled deliveries,
including details of the anticipated effects on GDG's or an applicable
Controlled Company's performance of its obligations under this Agreement.
5.8 Hardware Acceptance. For each unit of Hardware, MagiNet will
-------------------
have thirty (30) calendar days from the date such unit is received by MagiNet or
its subsidiary or customer (the "Acceptance Period") to examine and test the
Hardware unit for conformity with the applicable specifications. During the
Acceptance Period for each unit, MagiNet may (i) accept the unit or (ii) reject
the unit by notifying GDG in writing of the manner in which the unit fails to
conform to the applicable specification. Any unit not expressly rejected by
MagiNet
15
<PAGE>
within the Acceptance Period will be deemed to be accepted by MagiNet as of the
first day following the Acceptance Period. In the event that a unit is
rejected, MagiNet may under terms of Paragraph 5.9 ("Product Warranty") below,
either (i) return the unit to GDG for replacement with a new conforming unit, or
(ii) permit GDG to modify the unit to correct the nonconformity (e.g., by
providing replacement components and modification instructions to MagiNet).
Units that are replaced or modified pursuant to this Paragraph 5.8 will be
subject to a new Acceptance Period. The Hardware warranty period set forth in
Paragraph 5.9 ("Product Warranty") below will run from MagiNet's express or
deemed acceptance of a conforming unit.
5.9 Product Warranty. GDG warrants, and shall cause any applicable
----------------
Controlled Company to warrant, to MagiNet that, for a period of one (1) year
from the date MagiNet delivers a Hardware unit to a customer, but in no event
more than eighteen (18) months from the date of delivery to MagiNet or MagiNet
designee specified in MagiNet's purchase order, such Hardware unit will conform
to the specifications and will be free from any defects in material or
workmanship. MagiNet's sole and exclusive remedy, and GDG or any Controlled
Company's exclusive obligation, for a breach of the foregoing warranty shall be
for GDG or such Controlled Company to repair or replace (at GDG's or such
Controlled Company's option and expense) defective Hardware units promptly after
receipt thereof at GDG's or such Controlled Company's facility. MagiNet will be
responsible for all costs of shipping defective units And parts to GDG's or the
Controlled Company's facility. GDG or such Controlled Company will be
responsible for all return shipping costs of repaired or replacement units;
provided, that if GDG's testing reveals no defect in the Hardware shipped by
MagiNet, GDG shall have no obligation to repair or replace such Hardware and
MagiNet shall be responsible for all returns shipping costs. GDG grants, and
will cause any applicable Controlled Companies to grant, MagiNet the right to
pass through this warranty to MagiNet's customers (whether directly or
indirectly, via a subsidiary or distributor) and such warranty will run directly
from GDG or such Controlled Company to MagiNet's customers beginning from the
date such customers receive the Hardware unit.
5.10 Late Payment In the event that MaGiNet is in arrears in payment
------------
for any shipped Hardware, GDG or the applicable Controlled Company shall have
the right to, at its option, cease shipment of Hardware to MagiNet, or demand
full payment from MagiNet before making any further shipments of Hardware.
5.11 Hardware Selection. MagiNet may use the Software with any
------------------
hardware and is not required to use or distribute the Hardware exclusively or at
all.
6. Related Technology
------------------
6.1 Related Technology License. Provided that MagiNet is not in
--------------------------
arrears with respect to its payment obligations described in Section 7, with
respect to any Related Technology developed by GDG using the Language ("Related
Technology"), GDG shall offer in writing to MagiNet a License on commercially
reasonable terms for such Related Technology pursuant to
16
<PAGE>
this Agreement, which GDG develops or has developed, which can be operated, or
made to operate with minor modifications, with the Technology, to the extent GDG
has the right to license such Related Technology to MagiNet. The parties shall,
for a period of thirty (30) days after the date of GDG's written offer (the
"Negotiation Period") negotiate in good faith to mutually agree upon a royalty
rate for each Related Technology development. Should GDG offer a third party
different and/or more favorable terms than those offered during the Negotiation
Period, GDG agrees to offer the same terms to MagiNet and the parties shall
negotiate in good faith for an additional thirty (30) day negotiation period as
described above. GDG agrees not to sell Related Technology to any third party
for use in the Hospitality Industry in the Territory.
6.2 Content Right of First Offer. MagiNet shall keep GDG advised of
-----------------------------
its requirements for content and GDG shall have right of first offer to develop
for MagiNet or directly with Hyatt for Hyatt content and sell or license such
content or development services to MagiNet or directly to Hyatt for Hyatt
content prior to MagiNet concluding any agreement with a third party for the
development and or license of such content. Upon its receipt of MagiNet's
request for offer, GDG shall have thirty (30) days (the "Offer Period") in which
to prepare and deliver a written offer to MagiNet with respect to such
development and licensing which will include a detailed specification,
availability schedule and price. MagiNet shall not conclude any agreement with a
third party for such development and licensing prior to the end of such Offer
Period. MagiNet may accept or reject GDG's offer in its sole judgement. The
parties agree that in respect of the Master Guest Video Services Agreement that
the revenue shares allocated to the parties will be split on a 50/50 basis for
all advertising brought to the parties of the Master Guest Video Services
Agreement by GDG or Hyatt Parties. GDG's revenue share for advertising provided
by Hyatt Parties' will be contingent on GDG exercising its first right of offer
to perform any design or interface work for such advertisers. MagiNet shall have
the right to use all creative assets produced by GDG for such advertisers at no
cost in the event MagiNet is able to independently sell such advertisers on
deployment of the same assets on MagiNet's other licensed rooms.
7. License and Installment Payments and Deposits.
----------------------------------------------
7.1 MagiNet Payment to GDG. MagiNet agrees to pay GDG payments and
----------------------
deposits against payments as described in Exhibit B ("License Payments and
---------
Payments Deposits") in accordance with the payment terms therein. MagiNet shall
provide GDG with payment reports within forty-five (45) days after the end of
each calendar quarter, stating in reasonable detail the number of rooms on which
payments have accrued pursuant to the terms of Exhibit B ("License Payments and
------- --
Payment Deposits"). MagiNet shall provide such report even if no installment
payments were generated during the reporting period. MagiNet shall keep, and
shall obligate its assignees and sublicensees (including without limitation
distributors) to keep, complete and accurate books and records for the purpose
of determining the amounts payable to GDG under this Agreement, which books and
records shall include, without limitation, records of the number and identity of
rooms for which an installment payment is due and the identity of the
Hospitality
17
<PAGE>
Industry Provider who lets such rooms. Such books and records shall be kept at
MagiNet's and it assignees and sublicensees' principal places of business for
two (2) years after the end of the calendar quarter to which they relate. GDG's
certified public accountant will have the right to audit such books and records
for a period of two (2) years after submission of each payment report. If any
audit demonstrates that MagiNet has underpaid installment payment for any
calendar year by more than five percent (5%), then MagiNet shall reimburse GDG
for the reasonable costs of the audit and shall pay the underpaid installments
together with simple interest thereon from the date due until paid at the rate
of one hundred and ten percent (110%) of the prime or reference rate published
by Bank of America NT and SA from time to time.
7.2 GDG Royalties to MagiNet. Terms for royalty payments to MagiNet
------------------------
will be negotiated at the time licensed by GDG.
7.3 MagiNet Royalties to GDG for Related Technology. Terms for
------------------------------------------------
royalty payments to GDG will be negotiated at the time licensed by MagiNet.
8. Protection of Proprietary Rights
---------------------------------
8.1 Non-Disclosure.
--------------
8.1.1 Obligations: During the term of this Agreement, each party
-----------
may be exposed to certain information concerning, GDG information, the
Technology, Related Technology, Upgrades and/or MagiNet information and MagiNet
Improvements, as applicable, designated as confidential information in
accordance with the terms of Paragraph 8.1.2 ("Designation of Confidential
Information"). Each party agrees that it will not use or disclose to any third
party any of the other party's confidential information without the prior
written consent of the disclosing party except as expressly permitted herein.
Each party hereby consents to the disclosure of its confidential information to
employees and independent contractors of the other party, and to employees of
such other party's majority-held subsidiaries with a need to know and to such
other party's manufacturers and distributors with a need to know.
8.1.2 Designation of Confidential Information: Each Party's
---------------------------------------
confidential information shall, if in written form, be marked "Confidential" or
similarly legended by the other party before being furnished to the other party.
AU oral disclosure of confidential information shall be identified as such prior
to disclosure and summarized, in writing, by the disclosing party and said
summery shall be given to the other party within thirty (30) days of the oral
disclosure.
8.1.3 Exception. Each Party or parties permitted to receive the
---------
confidential information from the other party ("Receiving Parties") in
accordance with this Paragraph 8. 1 ("Non-disclosure") shall not be liable for
disclosure or use of any disclosing party data or information which (i) was in
the public domain at the time it was disclosed to the Receiving Parties or falls
within the public domain during the term of this Agreement, except through the
fault of the Receiving Party; (ii) was known to the Receiving Party at the time
of
18
<PAGE>
disclosure; (iii) was disclosed by the Receiving Party after written approval of
the disclosing party; (iv) becomes known to the Receiving Party from a source
other than the disclosing party without breach of this Agreement by the other
party or a Receiving Party; or (v) was independently developed by the Receiving
Party without the benefit of confidential information received from the
disclosing party.
8.2 Use of Trademarks. GDG grants MagiNet an exclusive license to
-----------------
use the GDG Trademarks which are associated with the Technology, Upgrades and
Related Technology licensed to MagiNet in the Hospitality Industry, in the
Territory in connection with MagiNet's use of the Technology, Upgrades, Related
Technology, if any, and all related advertising and promotional materials.
MagiNet shall provide GDG with a reasonable number of samples of MagiNet's use
of GDG trademarks upon request. All representations of the GDG Trademarks shall
either be exact copies of those used by GDG or shall first be submitted to GDG
for its approval (which shall not be unreasonably withheld) prior to the first
use thereof Once a particular use of a GDG trademark image is approved by GDG,
MagiNet agrees not to alter such image without seeking GDG's prior review and
approval. MagiNet will not oppose any registration of the GDG trademarks by GDG
or a Controlled Company for use in North America. GDG makes no representation
concerning the enforceability of the GDG Trademarks in the Territory or whether
the GDG Trademarks infringe on the rights of third parties in the Territory.
MagiNet, at its expense, may register the GDG Trademarks in the Territory and
MagiNet will own such registrations. MagiNet will provide GDG copies of such
registration certificates when received. In the event that this Agreement
terminates other than for material breach by GDG prior to the time that (i) GDG
has received cash payments from MagiNet equaling or exceeding [***] in the
aggregate hereunder or (ii) December 31, 2002, MagiNet agrees to reassign to
GDG, and does hereby assign to GDG, any and all GDG Trademarks registered by
MagiNet in the Territory, along with all goodwill pertaining thereto. Upon any
termination of this agreement, MagiNet shall immediately cease displaying and
using GDG Trademarks.
8.3 Property Rights, GDG retains all right, title and interest in and
---------------
to the Technology, Upgrades and Related Technology, if any, subject to the
licenses granted herein. MagiNet retains all right, title and interest in and to
the MagiNet Improvements, subject to the licenses granted herein. Each Party
agrees to and will include, in all assignments and sublicenses which permit
reproduction or manufacture, an obligation to apply appropriate copyright,
trademark and other proprietary rights notices in or on the Technology,
Upgrades, and any Related Technology, if any, or MagiNet Improvements, as
applicable.
8.4 Source Code and Source Code Access. Within five (5) days after
----------------------------------
completion and satisfactory demonstration of Next Generation Technology, as
specified in Exhibit B, GDG shall place the source code for all components of
---------
the Language and Toolkit in a mutually agreed upon source code escrow account
pursuant to the Software Escrow Agreement attached as Exhibit G ("Source Code
----------
Escrow") hereto. MagiNet shall pay any and all annual fees, deposit fees,
reporting fees and any other fees and costs associated with such escrow;
however,
*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
19
<PAGE>
GDG will bear the cost of creating the deposit and all updates thereto. In
addition, GDG hereby grants to MagiNet a right to access the source code for all
components of the Toolkit and Language at GDG's facility, as may be needed in
order to insure that MagiNet will meet its commitments with respect to Delivery
Software to MagiNet's Hospitality Industry Provider customers. Such access will
be done during normal business hours and for a specific work that GDG has been
unable or unwilling to perform. Any and all modifications to the Toolkit and
Language made by MagiNet shall be owned by MG (and licensed to MagiNet hereunder
for no additional charge in object code format), and MagiNet agrees to assign,
and does hereby assign to GDG, all right, title and interest therein. The
modified Toolkit and Language will be compiled at GDG so that MagiNet can remove
an object code copy of the modified Toolkit and Language to be used by MagiNet
under the terms of this Agreement.
8.5 Reverse Engineering. With respect to any Software which is
-------------------
licensed to MagiNet under this Agreement solely in object code format, except as
otherwise provided for herein, MagiNet shall not, and shall require that its
assignees and sublicensees do not, reverse engineer, decompile, disassemble,
modify or otherwise have or attempt to have access to the source code of such
Software, except as allowed under Sections 8.4 and 8.6 herein. With respect to
any MagiNet Improvements which are licensed to GDG under this Agreement solely
in object code format, GDG shall not, and shall require that its assignees and
sublicensees do not, reverse engineer, decompile, disassemble, modify or
otherwise have or attempt to have access to the source code of such MagiNet
Improvement software.
8.6 Conditions for Release of Escrow Deposits. Source code and
-----------------------------------------
related documentation for the Language and Toolkit will be released under terms
of the Source Code Escrow Agreement attached as Exhibit G if (i) GDG is declared
----------
bankrupt, is the subject of any voluntary or involuntary bankruptcy petition,
makes an assignment for the benefit of its creditors, or is unable for a period
of ninety (90) days to pay its debts as they come due, (ii) GDG fails to perform
Error corrections in a timely manner per Section 3.3 (g), which corrections
require the use of the source code for the Language and Toolkit in escrow to
resolve, or (iii) failure of GDG to provide access to the Language and Toolkit
at GDG's facility in accordance with the terms of Section 8.4 within seven (7)
days of request by MagiNet, or (iv) the earlier of payment in full of the
purchase price as specified in Exhibit B or December 31, 2002, or (v) the sale
of GDG. Upon MagiNet's obtaining the same from escrow, MagiNet shall have an
exclusive, nontransferable right to use, modify, and copy such source code (a)
Or the purpose of performing the Activities under Section 2 or obligations
described under Section 3.3 (g) (if such access is granted due to the occurrence
of an event under subsection (i), (b) to make error corrections (if such access
is granted due to the occurrence of an event under subsection (ii), or (c) to
prepare derivatives of the Toolkit and Language, in order to insure that MagiNet
will meet its commitments to MagiNet's Hospitality Industry customers by
performing the Activities described under Section 2 or obligations described
under Section 3.3 (g) (if such access is granted due to the occurrence of an
event under subsection (iii)). In the event of a release due to an occurrence of
an event under subsections (ii) or (iii), MagiNet shall, promptly upon making
such corrections or derivatives, return all source code to the escrow agent for
re-deposit, and such escrow agent shall promptly
20
<PAGE>
compile such corrected or derived source code and provide an object code copy
thereof to MagiNet.
8.7 Derivative Works. In the event that MagiNet, following access to
----------------
the Source Code, either by direct access or via source code escrow release
terms, creates derivatives of or to the Language or Toolkit, GDG will certify in
writing (such certification will not be unreasonably withheld) to MagiNet as to
whether such derivative work is "functional" or not. If functional, GDG will
continue to support and warrant the Technology. If not functional, GDG warranty
obligations will cease, with repsect to such non-functional derivative works and
any other Technology, Upgrades or Related Technology affected by such derivative
works, and the parties will negotiate fees for GDG's support services for the
new product if desired. All installment payments will however continue to be due
per Exhibit B.
---------
9. Warranty. GDG warrants to MagiNet that (i) the rights granted under
--------
the Licensed Rights and the Documentation which GDG will provide to MagiNet will
be reasonably sufficient, as of the date hereof and on a continuing basis, to
allow MagiNet (assuming MagiNet has manufacturing skill and know-how typical of
manufacturers of hardware similar to the Technology, if any), to manufacture
products incorporating the Technology, Upgrades and or Related Technology, if
any, conforming in all material respects to the descriptions thereof contained
in the Documentation, (ii) the Technology initially delivered is all of the
Technology possessed by GDG as of the Effective Date and is sufficient to
replicate the GDG System currently installed in hotels (including all necessary
Software and Hardware as of the Effective Date); (iii) the Next Generation
Software produced using the Language will, at a minimum, be a complete
functional replacement for the Current Technology; (iv) the Technology will
perform in accordance with and will conform to the Documentation and the
Technical Requirements in the Hyatt Master Guest Video Services Agreement and
any; (v) the bug list required to be delivered is complete as of the date of
delivery to MagiNet; (vi) GDG has no actual knowledge of any facts which might
lead to a claim on infringement of any patent, copyright, trademark, trade
secret or other proprietary rights of any third party related to the Technology
or Related Technology, if any; and (vii) all source code delivered by GDG will
compile to be identical to the object code version used by GDG in its Guest
Services; provided, that MagiNet's exclusive remedy, and GDG's exclusive
obligation, for a breach by GDG of the foregoing warranty shall be for GDG to
promptly provide to MagiNet the appropriate version of the source code or the
appropriate portions thereof Subject to the terms of release of Source Code from
escrow as stated herein, in any case where GDG hag breached the obligation under
the warranty in subparagraph (i) of this Paragraph 9 ("Warranty"), with respect
to any products implementing the Technology, Upgrades and/or Related Technology,
if any, GDG will grant the necessary rights and/or provide supplemental or
corrected information or Documentation promptly after the receipt by GDG of a
detailed notice of deficiencies, but in no case in more than thirty (30) days
after receipt of such notice. MagiNet's sole and exclusive remedy concerning a
breach of the warranties set forth in subsections (i), (iv) and (v) is for GDG
to repair or replace in a timely manner Software which does not meet the
foregoing warranties provided such repaired or replaced works substantially meet
the functional specifications with equal quality as was previously provided. THE
21
<PAGE>
FOREGOING WARRANTIES YULE IN LIEU OF ALL OTHER WARRANTIES, AND EXCEPT FOR THE
EXPRESS WARRANTIES STATED IN THIS AGREEMENT, GDG MAKES NO ADDITIONAL WARRANTIES,
EXPRESS OR IMPLIED IN FACT OR BY OPERATION OF LAW, STATUTORY OR OTHERWISE AS TO
ANY MATTER WHATSOEVER. IN PARTICULAR, ANY AND ALL WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NONINFRINGEMENT OF THIRD
PARTY RIGHTS ARE EXPRESSLY EXCLUDED. THE FOREGOING WARRANTY DESCRIBED IN
SUBPARAGRAPH (IV) ABOVE WILL NOT BE APPLICABLE TO THE EXTENT THE BREACH OF
WARRANTY IS CAUSED BY (A) UNCERTIFIED MODIFICATIONS OF THE TECHNOLOGY UPGRADES
OR RELATED TECHNOLOGY, INCLUDING WITHOUT LIMITATION MODIFICATION OF THE OBJECTS
OR CODE OF THE SOFTWARE, (B) INSTALLATION OF THE TECHNOLOGY, UPGRADES OR RELATED
TECHNOLOGY IN A MANNER OTHER THAN IN ACCORDANCE WITH GDG'S INSTRUCTIONS, (C)
MANIPULATION OF THE SETUP (A PARAMETERS OF THE TECHNOLOGY, UPGRADES OR RELATED
TECHNOLOGY BY A PARTY OTHER THAN GDG AND WITHOUT GDG'S PRIOR WRITTEN
CERTIFICATION THAT SUCH MODIFICATIONS, INSTALLATION OR MANIPULATION HAVE NOT
VOIDED THIS WARRANTY OR (D) ABUSE, NEGLECT OR MISAPPLICATION OF THE TECHNOLOGY,
UPGRADES OR RELATED TECHNOLOGY. In addition, GDG warranties do not apply to (
a) Software used on non-GDG hardware that has not been certified for use by GDG
to the extent such non GDG hardware caused the breach of warranty
10. Liability. NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY OR ANY
---------
THIRD PARTY FOR ANY INCIDENTAL` SPECIAL OR CONSEQUENTIAL DAMAGES, LOSS OF
PROFITS OR REVENUE, OR INTERRUPTION OF BUSINESS IN ANY WAY ARISING OUT OF OR
RELATED TO THIS AGREEMENT, REGARDLESS OF THE FORM OF ACTION, WHETHER IN
CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT PRODUCT LIABILITY OR OTHERWISE,
EVEN IF ANY REPRESENTATIVE OF THE PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES.
11. Indemnification
---------------
11.1 Indemnity by GDG.
-----------------
a) GDG hereby agrees, at its expense, to defend or settle any
claims, action or proceeding brought against MagiNet and its Technology
distributors and Hospitality Industry Providers arising out of an allegation
that the Technology, Upgrades, or Related Technology infringe any copyright or
trade secret (the "Proprietary Rights") of any third party, and to pay any
judgments or settlements thereon; provided that GDG is promptly notified of any
such claim, action or proceeding, is rendered reasonable assistance as required,
and is permitted to direct the defense or settlement negotiations.
22
<PAGE>
b) GDG hereby agrees, at its expense, to defend or settle any
claim, action or proceeding instituted by Hyatt or by any of GDG's distributors
as specified in Exhibit F against MagiNet arising out of an allegation that the
Technology, Upgrades, or Related Technology infringe any patent of any third
party (the "Limited-Patent Rights"), and to pay any judgments or settlements
thereon, provided that GDG is promptly notified of the institution of any such
claim, action or proceeding, is rendered reasonable assistance as required, and
is permitted to direct the defense or settlement negotiations at any time during
the term of this Agreement;
c) GDG hereby agrees, at its expense, to defend or settle any
other claim, action or proceeding instituted prior to December 31, 2002 against
MagiNet and its other Technology distributors and Hospitality Industry Providers
arising out of an allegation that the Next Generation Technology, Upgrades
thereto, or Related Technology infringe any patent of any third party (the
"Other Patent Rights"), and to pay any judgments or settlements thereon,
provided that GDG is promptly notified of the institution of any such claim,
action or proceeding, is rendered reasonable assistance as required, and is
permitted to direct the defense or settlement negotiations; and further
provided, except for claims covered by I 1. I (b) above,, that IN NO EVENT SHALL
GDG BE LIABLE TO EXPEND MORE THAN 50% OF PAYMENTS RECEIVED FROM MAGINET IN THE
AGGREGATE BY THE TIME OF INSITUTION OF THE CLAIM, ACTION OR PROCEEDING, WITH
RESPECT TO ITS OBLIGATIONS UNDER THIS SECTION 11.1(c). GDG shall have no
responsibility with respect to claims, actions or proceedings instituted after
December 31, 2002, or with respect to which GDG has expended more than 50% of
payments received from MagiNet in the aggregate by the time of institution of
the claim, action or proceeding, under this Section I 1. 1 (c), provided that
during the term of this Agreement GDG agrees to provide a reasonable amount of
technical testimony in claims, actions or proceedings brought against MagiNet
regarding prior art.
d) GDG reserves the right, at its option, to provide technical
workaround solutions for the Technology, Upgrades, Related Technology or
Licensed Rights with respect to all such claims, actions, or proceedings
instituted with respect to Patent Rights prior to December 31, 1996 in lieu of
the defense or settlement of the same, and at all times to remove (by way of
technical workarounds to the Technology, Upgrades, or Related Technology) any
allegation of any infringement of any intellectual property rights it believes
possible. MagiNet agrees at its option to either (i) implement Such workarounds
promptly upon their provision by GDG or (ii) to not implement such workarounds
but absolve GDG of any and all liability under this Section 11.1 and indemnify
GDG against and hold GDG harmless against all claims, including those from
MagiNet Technology distributors and Hospitality Industry Providers, relating to
allegations of intellectual property infringement by the Technology, Upgrades,
or Related Technology as those allegations relate to the workarounds provided.
11.2 Indemnity By MagiNet.
---------------------
a) MagiNet hereby agrees, at its expense, to defend or settle
any claim, action or proceeding brought against GDG arising out of an allegation
that any MagiNet Improvement (excluding any portion consisting of unmodified
Technology, Upgrades or Related
23
<PAGE>
Technology) developed by MagiNet infringes upon any copyright of any third
party; provided that MagiNet is promptly notified, rendered reasonable
assistance as required, and permitted to direct the defense or settlement
negotiations.
b) Maginet hereby further agrees, at its expense, to hold GDG
harmless and to defend or settle any claim, action or proceeding brought against
GDG or in which GDG has any cause to defend itself in any way resulting from
MagiNet's relationship to and current license agreement with On Command Video as
may arise during the term of this Agreement, except in relation to defense of
GDG Technology, Upgrades, and Related Technology as addressed in I 1. I above..
11.3 Mitigation If any Technology, Related Technology, Upgrades or
----------
MagiNet Improvement, as applicable, is, or in the opinion of the indemnifying
party may become, the, subject of any claim, action, or proceeding for
infringement of any intellectual property rights of any third party, or if it is
determined that such Technology, Related Technology, Upgrade or MagiNet
Improvement, as applicable, infringes any intellectual property right of a third
party, or the use, copying, modification or distribution thereof is enjoined,
the indemnifying party may, at its option and expense: (i) procure for the other
party the right under such intellectual property right to use, copy, distribute
and/or prepare derivative works of, as appropriate such Technology, Related
Technology, Upgrade or MagiNet Improvement, as applicable, or (ii) replace such
Technology, Related Technology, Upgrade or MagiNet Improvement, as applicable,
with other functional equivalent software application or (iii) suitably modify
such Technology, Related Technology, Upgrade or MagiNet Improvement, as
applicable.
11.4 Limitations As an indemnifying party, neither party will have an
-----------
indemnification obligation for any claim of infringement arising ( i) from a
combination of Technology, Related Technology, Upgrade or MagiNet Improvement,
as applicable, with other materials not provided by the indemnifying party, to
the extent such infringement would have been avoided without such combination,
(ii) from any modification of Technology, Related Technology, Upgrades or
MagiNet Improvement, as applicable, other than a modification made by the
indemnifying party, to the extent such infringement would have been avoided
without such modification, or (iii) from compliance by the indemnifying party
with specifications, provided by the other party,, to the extent such
infringement would have been avoided by not following the specifications.
11.5 Indemnification Procedures The indemnity party shall have no
--------------------------
obligation to provide indemnification unless the other party notifies the
indemnifying party promptly in writing of such third party claim and gives the
indemnifying party control over the defense an/or settlement of such claim. If
the indemnifying party does not assume the defense of such claim within thirty
(30) days after receiving such notice, then the other party may engage counsel
of its choosing and the indemnifying party shall be obligated to reimburse the
other party for the expenses of defending such claim as incurred. The
indemnifying party may defend or settle such claim as it desires provided that
no settlement shall be made which does not contain a complete
24
<PAGE>
release of the other party from liability. The other party may not settle any
claim the defense of which it has undertaken without the indemnifying party's
written consent, which shall not be unreasonably withheld.
11.6 Entire liability This Section 11 ("Indemnification") states the
----------------
entire liability and obligation of GDG and MagiNet, and the other party's
exclusive remedy with respect to any alleged or actual infringement by the
Technology, New Application, Upgrades, MagiNet Improvements and/or License
Rights of any proprietary right of a third party.
12. Term and Termination
--------------------
12.1 Term. The initial term of this Agreement is for ten (10) years
----
from the Effective Date, unless earlier terminated in accordance with its terms.
Thereafter, this Agreement shall automatically be renewed on its anniversary
dates for successive five (5) year terms unless earlier terminated as set forth
below.
12.2 Termination In the event of any breach of any term or provision
-----------
under this Agreement by either party hereto, the non-breaching party may send a
written notice explaining the nature of the breach to the breaching party, which
notice shall be delivered in accordance with the terms of this Agreement. If any
breach is not cured within sixty (60) days after the giving of the notice of
breach, the non-breaching party may terminate this Agreement upon written
notice.
12.3 Obligation Upon Termination or Expiration Upon the effective
-----------------------------------------
date of termination of this Agreement, (i) the License and MagiNet License to
GDG granted hereunder shall terminate and each party shall immediately
discontinue any new distribution, leasing, licensing or sale of Technology,
Related Technology, Upgrades or MagiNet Improvements, as applicable, to new
customers, (ii) the parties shall retain copies of Documentation of the Software
and MagiNet Improvements, as ray, be the case, solely for use in maintaining
such products for sub licensees, (iii) MagiNet shall warrant in writing within
sixty (60) days of the effective date of termination that, except as permitted
herein, the Documentation and related materials and all copies thereof have been
returned to GDG or erased or destroyed, (iv) GDG shall deliver to MagiNet or
destroy all MagiNet Improvements ( in the form of software or documentation) and
related materials in GDG's possession furnished hereunder by MagiNet, together
with all copies thereto and (v) GDG shall warrant in writing within sixty (60)
days of the effective date of termination that such MagiNet Improvements (in the
form of software or documentation) and related materials and all copies thereof
have been returned -to MagiNet or erased or destroyed. Except as permitted
herein, MagiNet and its assignees and sublicensees and each third party
manufacturer of MagiNet shall return all Documentation in accordance with (ii)
and (iii) above. After termination of this Agreement, existing installations of
Technology, Upgrades, Related Technology and MagiNet Improvements will be
permitted to continue to operate and each party will continue to pay
installments and or royalties as applicable on existing installations in
accordance with the terms of this Agreement.
25
<PAGE>
13. Disputes Any disputes arising out of the Agreement shall be resolved
--------
by binding arbitration under the rules of the Judicial Arbitration and Mediation
Services/Endispute in San Francisco, California (hereafter "JAMS"). A single
arbitrator shall be selected according to JAMS rules within thirty (3O) days of
submission of the dispute to JAMS. The arbitrator shall conduct the arbitration
in accordance with the California Evidence Code. The arbitrator shall have the
power to enter any award that could be entered by a Judge of the Superior Court
of the State of California siting without a jury, and only such power, except
that the arbitrator shall not have the power to award punitive damages, treble
damages, or any other damages witch are not compensatory, even if permitted
under the laws of the State of California or any other applicable law. The
arbitrator shall award the prevailing party its costs and its reasonable
attorneys' fees, and the losing party shall bear -the entire cost of the
arbitration, including the arbitrator's fees. The arbitration award may be
enforced in any court having jurisdiction over the parties and the subject
matter of the arbitration. Notwithstanding the foregoing, the parties
irrevocably submit to non-exclusive jurisdiction of the Superior Court of the
State of California, San Francisco, and the United States District Court for the
Northern District of California, San Francisco Branch, in any action to enforce
an arbitration award.
14. Miscellaneous
-------------
14.1 Notices Any notice or reports required or permitted to be given
under this Agreement shall be given in writing and shall be delivered by
personal delivery, telegram, telex, telecopier, facsimile transmission or
registered mail, postage prepaid, return receipt requested, and shall be deemed
given upon personal delivery five (5) days after deposit in the mail or upon
acknowledgment of receipt of electronic transmission. Notices shall be sent to
the signatory of this Agreement at the address set forth a the beginning of the
Agreement or such other address that either party may specify in writing.
14.2 Export Regulation Neither GDG nor MagiNet nor any of their
-----------------
sublicensees or assignees shall export, directly or indirectly, any information
acquired under the Agreement or any products utilizing any such information to
any county for which the U.S. Government or any agency thereof at the time of
export requires an export license or other government approval without first
obtaining such licence or approval.
14.3 Tax Treaties MagiNet shall comply with any tax treaty
------------
obligations applicable to this Agreement and, upon request, shall provide GDG
with any reasonably necessary information to document GDG's compliance with
applicable tax treaties. In the event that any local or country law requires
withholding of amounts payable by MagiNet or its sublicensees or assignees, GDG
shall be paid the net amount after such withholding.
14.4 Choice of Language The original of this Agreement has been
------------------
written in English and shall be the only authentic version.
14.5 Waiver or Delay Any waiver of any kind or character by either
---------------
party of a
26
<PAGE>
breach of this Agreement must be in writing, shall be effective only to the
extent set forth in such writing, and shall not operate or be construed as a
waiver of any subsequent breach of the other party. No failure of either party
to insist upon strict compliance by the other with any obligation or provision
hereunder, and no custom or practice of the parties at variance with the terms
hereof, shall constitute a waiver of either party's right to demand exact
compliance with the terms of this Agreement. Nor shall either party's delay or
omission in exercising any right, power or remedy upon a breach or default by
the other party impair any such right, power or remedy. The exercise of any
right or remedy provided by this Agreement shall be without prejudice to the
right to exercise any other right or remedy provided by law or equity.
14.6 Force Majeure If by reason of labor disputes, strikes.,
-------------
lockouts, riots, war, inability to obtain labor or materials, earthquake, fire
or other action of the elements, accidents, governmental restrictions,
appropriation or other cause beyond the control of a party hereto, either party
is unable to perform in whole or in part its obligations as set forth in this
Agreement, then such party shall be relieved of those obligations to the extent
it is so unable to perform and such inability to perform shall not make such
party liable to the other party. Neither party shall be liable for any loss,
injury, delay or damages suffered or incurred by the other party due to the
above causes.
14.7 Severability The provisions of this Agreement are severable and
------------
if any one or more such provisions shall be determined to be invalid, illegal or
unenforceable, in whole or in part, the validity, legality and enforceability of
any of the remaining provisions or portions thereof shall not in any way be
affected or impaired thereby and shall nevertheless be binding between the
parties hereto.
14.8 Headings The paragraph headings and captions of this Agreement
--------
are included merely for convenience of reference. They are not to be considered
part of, or to be used in interpreting this Agreement and in no way limit or
effect any of the contents of this Agreement or its provisions.
14.9 Governing Law This Agreement shall be constructed in accordance
-------------
with and all disputes hereunder shall be governed by the laws of the State of
California as applied to transactions taking place wholly within California
between California residents. The parties exclude in its entirety the
application to this Agreement of the United Nations Convention on Contracts for
the International Sale of Goods.
14.10 Attorney's Fees. In any action to interpret or enforce this
---------------
Agreement, the prevailing party shall be awarded all court costs and reasonable
attorney's fees incurred.
14.10 Relationship of the Parties Nothing contained in this Agreement
---------------------------
shall be and construed as creating any agency, partnership, or other form of
joint enterprise between the parties. The relationship between the parties shall
at all times be that of independent contractors. Neither party shall have
authority to contract for or bind the other in any manner whatsoever.
27
<PAGE>
This Agreement confers no rights upon either party except those expressly
granted herein.
14.11 Survival. Sections 3.1(License Grant to MagiNet),3.2(License
--------
Grant to GDG), 4 (Assignment of Distributor Agreements), 8.1 (Non-disclosure),
8.5 (Reverse Engineering), 9 (Warranty), 10. (Liability), 11 (Indemnification),
12.3 (Obligations upon Termination or Expiration), 13 (Disputes), and 14
(Miscellaneous) shall survive any termination of this Agreement.
14.12 Publicity and Public Announcements: Any publicity or public
----------------------------------
announcement by either party regarding this Agreement or the business
relationship described in this Agreement shall be subject to the prior written
consent of the other party, which will not be unreasonably withheld.
14.13 Injunctive Relief. Any breach or threatened breach of Paragraph
------------------
8 ("Protection of Proprietary Rights") by one party shall give the other party
the ability to seek injunctive relief to prevent such breach or threatened
breach, without posting a bond. The parties agree that such breach may
irreparably harm the party whose intellectual property has been or is threatened
to be disclosed, and that money damages might not be sufficient to remedy the
damage caused by such disclosure.
14.14 Counterparts. This Agreement may be executed in two or more,
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instruments.
14.15 Entire Agreement. This Agreement is the complete, entire,
----------------
final and exclusive statement of the terms and conditions of-the agreement
between the parties. This Agreement supersedes, and the terms of this Agreement
govern, 'any prior or collateral agreements or letters of intent between the
parties with respect to the subject matter hereof, except the Hyatt Master Guest
Video Services Agreement. This Agreement may not be modified except in a writing
executed by duly authorized representatives of the parties.
28
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives on the date(s) shown below.
GDG: MagiNet:
Guestserve Development Group MagiNet International Inc.
By:/s/ Philip S. Knadsen By:/s/ R.R. Creager
Printed: PHILIP S. KNADSEN Printed:R.R CREAGER
Title: DIRECTOR Title:- PRESIDENT
Date: 12/20/95 Date:12/20/95
29
<PAGE>
Exhibit A
Technology Description
1 All of GDG's Current and Next Generation Hardware, Software and
Documentation used in the delivery of interactive guest video services
technology as of the Effective Date or as may be developed during the term of
this Agreement;
2. All of the Hardware, Software and Documentation used in the delivery
of interactive guest video services technology required to be delivered and/ or
used under the Hyatt Master Guest Video Services Agreement during the term of
such agreement, including but not limited to all interactive guest video
services defined as Technical Requirements therein and further described in
Exhibit A ("Technical Requirements") of the Hyatt Master Guest Video Services
- ---------
Agreement; and
3. Any other Hardware or Software enhancements to the interactive guest
video services technology developed by GDG as Upgrades or New Applications.
30
<PAGE>
EXHIBIT B
LICENSE PAYMENTS AND PAYMENT DEPOSITS
1. License Cap: The aggregate license shall be a maximum of [***] payable in
-----------
installments over a 7-year period as described below:
2. Installment Deposits: MagiNet shall pay the following installments
---------------------
("Installment Deposits")
a) An initial Installment Deposit of [***] due on January 2, 1996.
For Deposit categories 2 (b) through 2(e) below totaling [***] MagiNet will
open irrevocable commercial letters of credit with a termination date of
February 15, 1996 for item 2(b), with a termination date of March 15, 1996 for
item 2(c), with a termination date of April 15, 1996 for item 2(d) and with a
termination date of April 30, 1996 for item 2(e). It is agreed that all of the
first [***] of deposit funds will be held by GDG in a separate account as
received until all funds are received. In the event not all funds are received
by no fault of GDG performance as required by this Agreement for each deposit
payment, then GDG reserves the right to refund all deposits received and
terminate this Agreement.
b) An Installment Deposit of [***] upon delivery of and acceptance within
15 days by MagiNet of all deliverables described in Attachment A for the Current
Technology.
c) An Installment Deposit of [***] upon delivery of and acceptance within
15 days by MagiNet of all deliverables described in Attachment B for the Next
Generation. Technology, or within 5 days following deposit of the Next
Generation Technology Language source code in the escrow account, whichever is
later.
d) An Installment Deposit of [***] upon delivery of and acceptance within
15 days by MagiNet of all deliverables described in Attachment C for the Tree
Machine interface to On Command Video movie system based on the Next Generation
Technology.
e) An Installment Deposit of [***] for each of the three Converter
versions upon delivery and acceptance within 10 days of 500 units of each of the
Converter versions that meet all deliverables described in Attachment D and that
are fully tested production versions deployable in hotels of MagiNet's choosing.
Within 5 days of signing this Agreement, MagiNet shall place a purchase order to
GDG for these [***] units specifying that the price of these units will be at
cost for both labor and materials, reviewable by MagiNet, payable upon delivery
of each version's lot of [***] units.
f) An Installment Deposit of [***] to be paid the later of one year after
the payment in 2(c) above or January 3, 1997; provided, however, that if all
deliverables required for
[***] Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
31
<PAGE>
the payment described in 2(e) above have not been delivered to and accepted by
MagiNet by April 30, 1996 (which acceptance shall not be unreasonably withheld)
then the Installment Deposit described in this clause 2(f) shall be one year
after acceptance by MagiNet of such deliverables.
g) An Installment Deposit of [***] to be paid one year after the payment in
2(f) above.
3. Room Installments:
------------------
a) MagiNet shall pay Seller [***] per month for each hotel, motel, or
inn room or Service Apartment ("Room Installments") which contains any software
described in 2(b) or 2(c) above ("Delivery Software").
b) For new distributors, MagiNet shall pay Seller the greater of [***]
of all room installments plus net content revenues (the total of which will not
exceed [***] or [***] for each hotel, motel, or inn room or Service Apartment
in such distributor's licensed territory, which contains any software described
in 2(b) or 2(c) above.
c) For current distributors, MagiNet shall pay installments equal to
current license fees less [***] for products deployed under the current
distribution agreements.
d) For all installations in which MagiNet has or will deploy OCV
technology up to and including the end of the second quarter of 1996 and in
which it chooses to also deploy GDG Technology, MagiNet shall pay installments
at the rate of [***] per room.
4. Credits: Room Installments for the twelve-month periods prior to the
Installment Deposits described in 2(f) and 2(g) above shall be fully credited
against such Installment Deposits and any excess shall be applied against
earlier Installment Deposits. Following the date of payment of the Installment
Deposit described in 2(g) above, all subsequent Room Installments shall be
credited at the rate of [***] per room per month against all remaining
Installment Deposits or in the case of distributors or OCV technology overbuild
installations, at the rate of [***] of installments due from distributors or OCV
overbuilds per 3 above.
5. Discontinuance:
a) As of the date of payment of the Installment Deposit described in 2(g)
above MagiNet may at its option elect to discontinue distributing the
Technology. In such event, then as of the date of notice of discontinuance all
previously uncredited and a new Room Installments shall be credited in full
against all remaining Installment Deposits until all such deposits are
completely consumed. After all deposits are completely consumed MagiNet shall
resume paying Room Installments to Seller.
b) MagiNet shall be relieved of any obligation for payment of Room
Installments to GDG to the full extent of any payments made by it at the
direction of GDG or any court or arbitrator following final judgement or GDG's
settlement of any allegation of third party
[***] Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
32
<PAGE>
infringement of its Technology that GDG desires to be paid directly by MagiNet
from the Room Installment cash payments.
6. Payments: Room Installments amounts remaining after allowable credits
--------
shall be paid within 45 days following the end of each calendar quarter.
7. Payment in Full: Seller shall be deemed to be paid in full upon the
---------------
earlier of the end of the seventh year following execution of this Agreement or
receipt by Seller of payments totaling [***].
8. Termination for Material Breach: In the event of a material breach of this
-------------------------------
Agreement by either party remaining uncurred following sixty days following
written notice thereof by the other party, the party not in default may choose
to terminate this Agreement. If MagiNet is the defaulting party Seller may
retain all moneys received and terminate the license except with respect to
installations already installed or contracted for installation for as long as
those hotels are under contract and installments are paid for each on a timely
basis as required herein. If Seller is the defaulting party the source code
escrow shall be triggered requiring delivery to MagiNet of all source code for
all Delivery Software and MagiNet shall have a fully paid license.
33
*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
<PAGE>
ATTACHMENT A
------------
CURRENT TECHNOLOGY DOCUMENTATION
---------------------------------
1. Hardware: Hardware will include all proprietary hardware created by GDG
--------
that is needed to operate its currently installed hotel guest video services
systems. The information will provide a competent hardware manufacturing firm
the necessary data (to be provided via floppy disk and printout) to reproduce
each item listed below:
a. Headend Board:
* film or Gerber files and schematic drawings
* component and vendor list with pricing and finished sample.
* applicable firmware source code
* test procedures, test software, and list of necessary fixtures,
if any
b. Watchdog Board:
* film or Gerber files and schematic drawings
* component vendor list with pricing and finished sample
* applicable firmware source code
* test procedures, test software, and list of necessary fixtures,
if any
c. NTSC Converter Control Module: Rev L6: with remote.
* film or Gerber files and schematic drawings
* component and vendor fist with pricing and finished sample
* applicable firmware source code
* test procedures, test software, and list of necessary fixtures,
if any
d. Television Control Module: Smart Box:
* film or Gerber files and schematic drawings
* component and vendor list with pricing and finished sample
* applicable firmware source code
* test procedures, test software, and list necessary fixtures, if
any
e. ICD Ethernet Board and Enclosure for straight modulation interface
* film or Gerber files and schematic drawings
* component and vendor fist with pricing and finished sample
* applicable firmware source code
* test procedures, test software, and fist necessary fixtures, if
any
f. Network Control System Computer Configurations and Wiring Schematics
* Master Computer configurations
* Slave Computer configurations
* component and vendor list with pricing
* test procedures
34
<PAGE>
g. Rack Components and Design
* rack layouts
* wiring configurations for DCA modulation
* wiring configurations for straight modulation
* component and vendor list with pricing
2. Software: Version 6 software: The following information will enable a
--------
competent C programmer to modify and maintain this version of software:
a. Executable Object code
b. Annotated Source code
c. Block diagram
d. List of all commercial software needed to run the Software and
support its maintenance.
e. User Manuals
f. Training Manuals/documents for Hotel staff training
g. Navigation software and documentation
h. Remote monitoring software and documentation
3. Other:
------
a. Demo software with Hyatt International demo Delivery Software
as is.
b. Hyatt proposal/printed marketing material
c. Billing management procedures, documentation and recommended
third party software for data management.
d. Programming acquisition and pricing terms and information for
Guam and Saipan between Guestserve Systems International
and UMDA.
e. UMDA and TRB distributor contracts and relevant correspondence
files
f. PMS Interface Specifications and list of existing PMS interfaces.
35
<PAGE>
ATTACHMENT B
------------
NEXT GENERATION TECHNOLOGY
---------------------------
(excluding converters; see Attachment D)
----------------------------------------
1. Software:
---------
a. Delivery Software that duplicates Version 6 functionality.
b. Toolkit Software in object code
c. User Manuals for Delivery Software
d. User Manuals for Toolkit Software
e. Remote monitoring software and documentation
f. All variations of firmware required for Current Hardware to be
utilized, if any.
2. Installed Demonstration: This product will be demonstrated in a Hyatt
-----------------------
International Hotel incorporating all the products needed to fulfill the Hyatt
contract requirements at that time as specified in Sections 1,2,3, and 4 of
Exhibit A ("Technical Requirements") of the Master Guest Video Services
Agreement between the parties. MagiNet will pay all pre-approved travel related
expenses for up to 3 GDG personnel for travel out of the US. The demonstration
will include the ability to support game scan rates from the in room devices.
When the game provider and hardware is selected, licensed and interface data is
provided to GDG, the software application will be added to the Delivery Software
library within 60 days. If MagiNet does not provide this interface documentation
for the game of their choice at least 45 days prior to the demonstration, it is
not a requirement for release of Installment Deposits from the Letter of Credit
for Next Generation Technology, however GDG remains obligated to complete the
development of the game of choice within the 60 day performance window.
3. Micropolis Interface Obligation: GDG will provide at no cost to MagiNet a
Micropolis digital server interface in the Next Genreation format upon 90 days
written notice from MagiNet of its intent to use and the location of the hotel
to be so installed. Both parties agree that this GDG performance obligation
shall not be a requirement for release of any funds due to GDG in relation to
this Exhibit B.
36
<PAGE>
ATTACHMENT C
--------------
TREE MACHINE INTERFACE TO ON COMMAND VIDEO MOVIE SYSTEM
--------------------------------------------------------
1. Hardware: Description and specifications for Tree Machine server components
used in demonstration. The Tree Machine is a subsystem external to the OCV
system. It interfaces with the OCV system via an RS-232 serial communication
link. The Tree Machine includes all the hardware necessary to produce baseband
video (NTSC and PAL) and audio output for its applications. The A/V output of
the Tree Machine may be connected to the OCV system's switches or directly to
modulators external to the OCV system. An example application is an interactive
hotel information and reservation function. The Tree Machine must have the
capacity to store tens to hundreds of graphics Ales and display them with a
latency consistent with good user interface guidelines.
2. Software: Delivery in object code form of the Tree Machine server interface
version of the Next Generation Technology software with user documentation. The
Tree Machine will interface with the OCV system according to the OCV/ISP
Protocol. This protocol provides for the capability of the OCV system
initiating application programs on the Tree Machine and passing remote control
key stroke data to the Tree Machine.
Before an application in the Tree Machine is being invoked, the hotel guest will
be interacting with the OCV menu system. It is via the OCV menus that a Tree
Machine application will be selected. When the Tree Machine application has
been started, the OCV system will pass remote control key stroke data to the
Tree Machine application.
Movie viewing will be supported entirely by the OCV system with the OCV system's
menus.
An Integral part of the Tree Machine package is the authoring tools. MagiNet's
clients, i.e, the hotels, are expected to be able to create their own scripts
and graphics files to be displayed by the interactive hotel information and
reservation application. The authoring tools with graphical user interface will
be based on GDG's Next Generation Technology.
3. Demonstration: Demonstrated operability of a fully functional interface
accessing the maximum simultaneous streams of video and audio material stored on
the Tree Machine server functioning via keystrokes from an On Command Video
movie system made available by MagiNet. MagiNet will pay for all travel related
expenses for up to 3 interface personnel to travel to the MagiNet test site for
such demonstration.
37
<PAGE>
ATTACHMENT D
-------------
PRODUCTION CONVERTER DELIVERABLES
---------------------------------
1. Hardware:
---------
a. 500 NTSC converter model 2001-1 per attached functionality
specifications utilizing all production version components
b. 500 PAL I converter model 2001-6 per attached functionality
specifications utilizing all production version components
c. 500 PAL B converter model 2001-4 per attached functionality
specifications utilizing all production version components
c. All drawings, manufacturing and assembly documentation
sufficient to permit MagiNet to have each converter manufactured
by any qualified contract manufacturer.
d. Complete bill of materials with volume pricing at [***] annual
units that will be less than [***] per unit in materials
cost for each converter. Actual production pricing will depend
on the vendor/manufacturer selected and volume commitments by
MagiNet.
e. Firmware required to communicate with GDG guest video services
system for each converter.
f. Procedures/documentation for the creation of television interface
firmware.
g. Remote control design, specification, and sample.
2. Performance, Test Criteria/Functionality Test
---------------------------------------------
a. Demonstrate remote control interface, including functions for
all buttons
b. Demonstrate communications with a tv and a Network Control
System.
c. Demonstrate reception and changeout of downloadable firmware with
a different tv interface.
d. Demonstrate functional interface of all input and output ports.
3. Manufacturing Quality Test Documentation:
-----------------------------------------
a. List of quality tests to be performed on each converter component
and or each converter throughout the manufacturing process
prior to final shipment.
b. Performance criteria for each test for pass/fail designation.
c. Production software and documentation used to test each converter
for functionality.
4. Performance Warranty:
---------------------
a. GDG warranties the performance of all converter designs, within
the limits of product warranties contained in this Agreement, produced under the
manufacturing quality tests in 3 above and as properly installed in hotels per
installation specifications.
5. Converter Variations:
---------------------
a. GDG will provide, subsequent to acceptance of first NTSC and PAL
converters noted in I above and receipt of deposits as specified in Exhibit B
(2e), the variations of NTSC and PAL converter designs required for performance
of the Hyatt agreement.
38
*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
<PAGE>
CONVERTER 2001-1. 2001-4, 2001-6 BLACK BOX TYPE
-----------------------------------------------
FUNCTIONALITY SPECIFICATION
---------------------------
(PRELIMINARY)
-------------
RF INPUT
Frequency [***]
[***]
[***]
Level [***]
Connector [***]
RF OUTPUT
Channel [***]
[***]
[***]
[***]
Level [***]
Connector [***]
A/V INPUT [***]
A/V OUTPUT
Video Level [***]
Audio Output Level [***]
Mute [***]
Connector [***]
IR INPUT Carrier Frequency [***]
Sensitivity [***]
Codes [***]
IR OUTPUT
Carrier Frequency [***]
Codes [***]
FORCED TUNING [***]
USER INTERFACE
Game Control [***]
Program Selelction, do [***]
Data (Printer, etc.) [***]
DISPLAY CHARACTER
Mode 1 [***]
[***]
Mode 2 [***]
HEAD END COMMUNICATION [***]
FIRMWARE
Memory [***]
Update [***]
POWER [***]
39
*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
<PAGE>
EXHIBIT C
-----------
INTELLECTUAL PROPERTY
---------------------
(REGISTERED)
------------
1. Patents: None Applicable
Patent Applications: None Applicable
2. Copyrights: None Applicable (only unregistered)
3. Trademarks: The name "Guestserve".
40
<PAGE>
EXHIBIT D
----------
DOCUMENTATION
-------------
1. Hardware: Current Technology
---------
a. Headend Board:
* film or Gerber files and schematic drawings
* component and critical component vendor list
* applicable firmware source code
* test procedures, test software, and list necessary fixtures, if
any
b. Watchdog Board:
* film or Gerber files and schematic drawings
* component and critical component vendor fist
* applicable firmware source code
* test procedures, test software, and list necessary fixtures, if
any
c. NTSC Converter Control Module:
* film or Gerber files and schematic drawings
* component and critical component vendor fist
* applicable firmware source code
* test procedures, test software, and list necessary fixtures, if
any
d. Television Control Module:
* film or Gerber files and schematic drawings
* component and critical component vendor fist
* applicable firmware source code
* test procedures, test software, and list necessary fixtures, if
any
e. ICD Ethernet Board and Enclosure for straight modulation interface
* film or Gerber files and schematic drawings
* component and critical component vendor fist
* applicable firmware source code
* test procedures, test software, and list necessary fixtures, if
any
f. Network Control System Computer Configurations and Wiring Schematics
* Master Computer configurations
* Slave Computer configurations
* component and vendor list
* test procedures
g. Rack Components and Design
* rack layouts
* wiring, configurations for DCA modulation
* wiring configurations for straight modulation
* component and vendor list
41
<PAGE>
2. Hardware: Next Generation Technology
--------
a. New Converters:
* One NTSC converter model 2001-1 per attached
functionality specifications utilizing all
production version components
* One PAL I converter model 2001-6 per attached
functionality specifications utilizing all
production version components
* All drawings, manufacturing and assembly documentation
sufficient to permit MagiNet to have each converter
manufactured by any qualified contract manufacturer.
* Complete bill of materials with volume pricing at
[***] annual units that will be less than [***] per
unit in materials cost for each converter. Actual
production pricing will depend on the
vendor/manufacturer selected and volume commitments
by MagiNet,
* Firmware required to communicate with GDG guest video
services system for each converter.
* Procedures/documentation for the creation of television
interface firmware.
3. Software: Current Technology
--------
a. Version 6 software: The following information will enable a
competent C programmer to modify and maintain this
version of software:
* Executable Object code
* Annotated Source code
* Block diagram
* List of all commercial software needed to run the
Software and support its maintenance.
* User Manuals
* Training Manuals/documents for Hotel staff training
* Navigation software and documentation
* Remote monitoring software and documentation
* Manufacturing Quality Test Documentation:
*List of quality tests to be performed on each
converter component and or each converter
throughout the manufacturing process prior to final
shipment.
*Performance criteria for each test for pass/fail
designation.
*Production software and documentation used to test
each converter for functionality.
b. Demo software with Hyatt International demo Delivery Software
as is.
c. Billing management procedures, documentation and recommended
third party software for data management.
d. PMS Interface Protocol documentation
*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
42
<PAGE>
4. Software: Next Generation Technology
--------
a. Delivery Software that duplicates Version 6 functionality in
source and object code.
b. Toolkit Software in object code
c. User Manuals for Delivery Software
d. User Manuals for Tollkit Software
e. Remote monitoring software and documentation
f. All variations of firmware required for Current Hardware to be
utilized, if any.
g. Delivery in object code form of the digital file server interface
version of the Current Technology software with user
documentation.
43
<PAGE>
EXHIBIT E
----------
Sample Project Appendix
PROJECT APPENDIX NO.______
TO THE
TECHNOLOGY LICENSE AGREEMENT
Name of Project:_____________________________________
This Appendix sets forth additional and difference terms and conditions
particular to the Project(s) described below and when executed by MagiNet
International, Inc. ("MagiNet") and Guestserve Development Group, Inc. ("GDG"),
shall be incorporated by reference into the Technology License Agreement between
GDG and MagiNet effective as of Me "Agreement") and shall constitute a binding
agreement between MagiNet and GDG. Such difference or additional terms and
conditions are applicable only to the Project(s) described below and in no way
after the terms and conditions applicable to other Project(s) incorporated into
the Agreement by addition of a Project Appendix.
All the terms used in this Appendix shall retain the same meaning as
defined in the Agreement and such definitions are incorporated herein by
reference. Any additional defined terms used herein will be defined in this
Appendix and will be applicable only to this Appendix. The effective date of
this Appendix is______________________, 1995 ("Appendix Effective Date").
1 Background. The factual background for this Project(s) is as follows:
-----------
2. Purpose and Objectives. The purpose and objectives of the Project(s)
-----------------------
contemplated by this Appendix are:
2.1
2.2
<PAGE>
(+ Stacey Snowman Adds RE Old Section 2 Deletes)
IN WITNESS WHEREOF, the parties have caused this Project Appendix No.____
to be signed by their duly authorized representatives.
MagiNet: GDG:
MAGINET INTERNATIONAL, INC. GUEST SERVE DEVELOPMENT GROUP INC.
By: By:
Name: Name:
Title: Title:
Date: Date:
Address: 405 Tasman Drive Address: 3020 Bridgeway
Sunnyvale, CA 94089 Sausalito, CA 94965
<PAGE>
Specification Changes
In accordance with paragraph 2.2 ("Specification Changes") of the
Technology License Agreement, MagiNet requests the following change.
Changed Item:
From:
To:
Reason for Change:
Resolution of the Requested Change (to be filled in by GDG):
MagiNet agreement with the proposed resolution:
MagiNet GDG:
(Printed Name) (Printed name)
By: By:
Tide: Tide:
Date: Date:
<PAGE>
HYATT PROJECT APPENDIX NO. 1
-----------------------------
TO THE
TECHNOLOGY LICENSE AGREEMENT
Name of Project:
This Appendix sets forth additional and difference terms and conditions
particular to the Project(s) described below and when executed by MagiNet
International, Inc. ("MagiNet") and Guestserve Development Group, Inc. ("GDG"),
shall be incorporated by reference into the Technology License Agreement between
GDG and MagiNet effective as of (the ("Agreement") and shall constitute a
binding agreement between MagiNet and GDG. Such different or additional terms
and conditions are applicable only to the Project(s) described below and in no
way alter the terms and conditions applicable to other Project(s) incorporate
into the Agreement by addition of a Project Appendix.
All the terms used in this Appendix shall retain the same meaning as
defined in the Agreement and such definitions are incorporated herein by
reference. Any additional defined terms used herein will be defined in this
Appendix and will be applicable only to this Appendix. The effective date of
this Appendix is , 1995 ("Appendix Effective Date").
1. Background. The factual background for this Project(s) is as follows:
----------
2. Purpose and Objectives. The purpose and objectives of the Project(s)
----------------------
contemplated by this Appendix are:
2.1
2.2
3. Nature of the Projects. For the Project(s) described in this Appendix,
----------------------
GDG will provide one or more of the following services as follows (check as
applicable):
____Consulting Services (with no Deliverables).
____Development and/or Installation of Software and/or Hardware.
<PAGE>
4. Special Issues: This section describes unique facets of the Project,
--------------
or interdependencies that need to be addressed:
1.
2.
3.
5. Resources. The Resources assigned by GDG to perform the services:
----------
6. Payment Terms
--------------
6.1 Payments. As consideration for the Project(s) described in this
--------
Appendix, MagiNet shall pay GDG as follows:
6.2 Expenses. MagiNet shall reimburse GDG for out-of-pocket Expenses
--------
as follows:
6.3 Reduction. In accordance with the terms of Paragraph 2.4
----------
"Deliverables") the reduction (in either the form of a reduced
payment of a credit) for late completion of milestones shall
be:
7. Milestone Schedule:
-------------------
Milestone # Description Date
---------- ----------- -----
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Project Appendix No.
_____to be signed by their duly authorized representatives.
MagiNet: GDG:
MAGINET INTERNATIONAL, INC. GUESTSERVE DEVELOPMENT
GROUP., INC.
By: By:
Name:- Name:
Tide: Tide:
Date: Date:
Address: 405 Tasman Drive Sunnyvale, CA 94089
Address: 3020 Bridge way Sausalito, CA 94965
<PAGE>
EXHIBIT F
-----------
GDG Distributors
1. United Micronesia Development Association (Saipan, Guam, Palau)
2. Triloka Roda Buana (Singapore, Malaysia, Indonesia, Brunei)
<PAGE>
Exhibit G
-----------
Software Escrow Agreement
-------------------------
PREFERRED REGISTRATION
TECHNOLOGY ESCROW AGREEMENT
Account Number________________
THIS PREFERRED REGISTRATION TECHNOLOGY ESCROW AGREEMENT, including all Exhibits
attached hereto (this "Escrow Agreement", is made effective as of this
----------------
day of 1995, by and among:
(i) DATA SECURITIES INTERNATIONAL, INC. ("DSI"), a Delaware corporation;
---
(ii) GUESTSERVE DEVELOPMENT GROUP, [INC] ("Depositor"), a corporation;
---------
and
(iii) MAGINET INTERNATIONAL [INC.] ("Preferred Registrant"), a
--------------------
corporation;
with reference to the following:
RECITALS
WHEREAS, Depositor has entered into that certain License Agreement with
Preferred Registrant regarding certain proprietary technology and other
materials to which this Escrow Agreement is attached ("Software License
Agreement");
----------------------
WHEREAS, Depositor and Preferred Registrant desire this Escrow Agreement to be
supplementary to the Software License Agreement pursuant to 11 United States
Code Section 365(n); and
WHEREAS, Depositor will deposit with DSI proprietary data as described in
Exhibit A hereto (the "Deposit Material") to provide for retention,
--------- ----------------
administration and controlled access for Preferred Registrant under the
conditions specified herein.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt of which is
hereby acknowledge, and in consideration of the promises, mutual covenants and
conditions contained herein, the parties hereto agree as follows:
<PAGE>
1. Deposit Account. Immediately following the delivery- of this Escrow
---------------
Agreement to DSI by Depositor and Preferred Registrant (the "Delivery Date"),
-------------
DSI shall open a deposit account ("Deposit Account") for Depositor. The opening
---------------
of the Deposit Account means that DSI shall establish an account ledger in the
name of Depositor, assign a deposit account number ("Deposit Account Number"),
calendar renewal notices to be sent to Depositor and Preferred Registrant and
request the initial deposit ("Initial Deposit Material") from Depositor.
------------------------
2. Preferred Registration Account. Immediately following the delivery date,
------------------------------
DSI shall open a registration account ("Registration Account") for Preferred
--------------------
Registrant. The opening of the Registration Account means that DSI shall
establish under the Deposit Account an account ledger with a unique registration
number ("Registration Number") in the name of Preferred Registrant, calendar
-------------------
renewal notices to be sent to Preferred Registrant and request the Initial
Deposit from Depositor. DSI shall promptly notify the Preferred Registrant in
writing upon receipt of Initial Deposit Material.
3. Exhibit B. Notices and Communications. Notices and invoices to Depositor,
-------------------------------------
Preferred Registrant or DSI should be sent to the parties at the addresses
identified in Exhibit B attached hereto. Documents, payment of fees, deposits of
---------
material, and any written communication should be sent to the DSI offices as
identified in the Exhibit B. All notices hereunder of any type or nature,
---------
including payment, shall be written and deemed given upon receipt if sent by (a)
personal delivery; (b) U.S. Certified Mail, Return Receipt requested; or (c) a
private nationally prominent express carrier. Depositor and Preferred Registrant
each agree to name their respective designated contact Within seven (7) days of
the Delivery Date ("Designated Contact") to receive notices from DSI and to act
------------------
on their behalf in the performance of this obligations as set forth in this
Escrow Agreement. Depositor and Preferred Registrant agree to notify DSI
immediately in the event of a change of their Designated Contact in the manner
stipulated in Exhibit B.
---------
4. Exhibit C and Deposit Material. Depositor shall provide the Initial Deposit
------------------------------
Material to DSI Or retention and administration in the Deposit Account within
five (5) days of the Delivery Date. The Initial Deposit Material shall be
submitted together with a completed document called a "Description of Deposit
Material," hereinafter referred to as Exhibit C. Each Exhibit C must be signed
--------- ---------
by Depositor prior to submission to DSI and shall be signed by DSI upon
completion of the Deposit Material inspection. Depositor represents and warrants
that it lawfully possesses or will possess all Deposit Material, can transfer
Deposit Material to DSI and has the authority to store Deposit Material in
accordance with the terms of this Escrow Agreement.
5. Deposit Material Inspection. Upon receipt of an Exhibit C and Deposit
--------------------------- ---------
Material, DSI shall be responsible only for reasonably matching and labeling of
the materials to the item descriptions listed on the Exhibit C and validating
---------
the count of
<PAGE>
the materials to the quantity listed on the Exhibit C. DSI shall not be
---------
responsible for any other claims made by the Depositor on the Exhibit C.
---------
Acceptance shall occur when DSI concludes that the Deposit Material inspection
is complete. Upon acceptance, DSI shall sign the Exhibit C and assign it the
---------
next Exhibit C number. DSI shall issue a copy of the Exhibit C to Depositor and
----------- ---------
Preferred Registrant in writing within ten (10) days of receipt, provided that
if DSI does not accept, it shall immediately inform Depositor and Preferred
Registrant of that and the reason for nonacceptance. DSI shall then promptly
redeposit and the procedures shall continue until accepted.
6. Deposit Changes. Depositor shall be obligated to update the Deposit Account
---------------
with supplemental or replacement Deposit Material of technology releases
promptly after Depositor delivers the golden Master of the Deposit Material to
Preferred Registrant; provided, that Depositor shall not be obligated to update
the Deposit Account more than once every four (4) months. Supplemental Deposit
Material ("Supplemental Material") is Deposit Material which is to be added to
--------------------
the Deposit Account. Replacement Deposit Material shall be destroyed or returned
to Depositor. The existing deposit ("Deposit") means all Exhibits and their
-------
associated Deposit Material currently in DSI's possession. Destroyed or returned
Deposit Material is not part of the Deposit; however, DSI shall keep records of
the destruction or return of Deposit Material.
7. Use of Released Materials by Preferred Registrant. If any Deposit Material
-------------------------------------------------
is released to Preferred Registrant hereunder, Preferred Registrant shall have a
royalty-free license (subject to any royalty provided for in the software
License Agreement) to use such Deposit Material to maintain and support the
Software (as defined in the Software License Agreement). After resolution of the
problem or end of the event, as the case may be, which led to the release, the
Preferred Registrant shall return to Depositor all copies of the released
Deposit Material, shall remove all copies of the same from its computer system,
and will so certify to Depositor.
8. Storage Unit. DSI shall store the Deposit in defined units of space, called
------------
storage units. The cost of the first storage unit shall be included in the
annual Deposit Account fee.
9. DSI's Obligations of confidentiality. DSI agrees to establish a locked
------------------------------------
receptacle in which it shall place the Deposit and shall put the receptacle
under the administration of one or more of its officers, selected by DSI, whose
identity shall be available to Depositor at all times. DSI shall exercise a
professional level of care in carrying out the terms of this Escrow Agreement.
DSI acknowledges Depositor's assertion that the Deposit shall contain
proprietary data and that DSI has an obligation to preserve and protect the
confidentiality of the Deposit. Except as expressly provided for in this Escrow
Agreement, DSI agrees that it shall not divulge, disclose, make available to
third parties, or make any use whatsoever of the Deposit.
<PAGE>
10. Audit Rights. DSI agrees to keep records of the activities undertaken and
------------
materials prepared pursuant to this Escrow Agreement. DSI shall issue to
Depositor and Preferred Registrant a semiannual report profiling the Deposit
Account. Such report shall identify the Depositor, Preferred Registrant, the
current Designated Contacts, selected special services, and the Exhibit C
history, which includes Deposit Material acceptance and destruction or return
- ---------
dates. Upon reasonable notice, during normal business hours and during the terms
of this Escrow Agreement, Depositor and/or Preferred Registrant shall be
entitled to inspect the records of DSI pertaining to this Escrow Agreement, and
accompanied by an employee of DSI, inspect the physical status and condition of
the Deposit. The Deposit may not be changed during the audit.
11. Term of the Escrow Agreement. The term of this Escrow Agreement is
----------------------------
coterminous with that of the Software License Agreement, and my only be
terminated earlier as follows:
(a) by mutual written agreement of Depositor and Preferred Registrant and
delivery of such agreement to DSI.
(b) except in the case of non-renewal as provided above, in the event of
The nonpayment of fees owed to DSI, DSI shall provide Written notice
of delinquency to all parties. Any party to this escrow agreement
shall have the right to make the payment to DSI to cure the default.
If the past-due payment is not received in full by DSI Within one (1)
month of the date of such notice, then DSI shall have the right to
terminate this Escrow Agreement any time thereafter by sending written
notice of termination to all parties. DSI shall have no obligation to
deliver the Deposit or to take any other action under this Escrow
Agreement so long as any payment which is due to DSI remains unpaid.
Upon termination, DSI shall have the same rights with respect to the
return or destruction of the Deposit as in the case of non-renewal in
subsection (a) above; or
(c) upon termination of the Software License Agreement subject to survival
as shall return the Deposit then in escrow to Depositor after the
payment of all cost, fees, and expenses due DSI.
12. Expiration. If this Escrow Agreement is not renewed, or is otherwise
----------
terminated, all duties and obligations of DSI to Depositor and Preferred
Registrant shall terminate, except that DSI's obligation to return the Deposit
to Depositor shall survive the termination and expiration of this Escrow
Agreement.
<PAGE>
13. Contents of Deposit.
--------------------
a. The Deposit Material delivered to DSI consists of the following as
further described in Exhibit A: source code deposited on computer
---------
magnetic media; related technical documentation, and
descriptions and locations of programs not owned by Depositor but
required for use and/or support.
b. The Deposit will be set forth in Exhibit C.
---------
14. Indemnification. DSI shall be responsible to perform its obligations under
---------------
this Escrow Agreement and to act in a reasonable and prudent manner in all
respects with regard to this escrow arrangement. Except for the duties stated in
the preceding sentence, Depositor and Preferred Registrant each agree to
indemnify, defend and hold harmless DSI from any claims, actions, damages,
costs, attorneys' fees and other liabilities incurred by DSI relating in any way
to this escrow arrangement, except insofar as such liabilities arise by reason
of DSI's gross negligence or willful misconduct.
15. Filing for Release of Deposit by Preferred Registrant. Upon notice to DSI by
-----------------------------------------------------
Preferred Registrant of the occurrence of a release condition as described in
Section 16 of the Software License Agreement ("Notice of Release") and payment
-----------------
of the release request fee, DSI shall notify Depositor by certified mail or
commercial express mail service with a copy of the notice from Preferred
Registrant. If Depositor provides DSI with Contrary Instruction (as defined
below) within ten (10) days of receipt of a Notice of Release, DSI shall not
deliver the Deposit Material to Preferred Registrant.
16. Contrary Instructions. "Contrary Instruction" is the filing of an
---------------------
instruction with DSI by Depositor stating that a Contrary Instruction is in
effect. Such Contrary Instruction means an officer of Depositor warrants that a
release condition has not occurred or has been cured, DSI shall send a copy of
the instruction by certified mail or commercial express mail service to
Preferred Registrant. DSI shall notify both Depositor and Preferred Registrant
that there is a dispute to be resolved pursuant to Section 19. Upon receipt of
contrary Instruction, DSI shall continue to store the Deposit pending Depositor
and Preferred Registrant joint instruction, resolution pursuant to Section 19,
order by a court of competent jurisdiction, or termination by non-renewal of
this Escrow Agreement.
17. Release of Deposit to Preferred Registrant. If DSI does not receive
------------------------------------------
Contrary Instruction from Depositor in accordance with the procedure set forth
in Section 16 above, DSI is authorized to release the Deposit to the Preferred
Registrant filing for release Allowing receipt of any fees due to DSI including
delivery fees.
<PAGE>
18. Release Conditions of Deposit to Preferred Registrant. The conditions for
-----------------------------------------------------
release of the Deposit are set forth in the Software License Agreement, which
provisions are incorporated herein by this reference.
19. Dispute. Depositor and Preferred registrant agree that if Contrary
-------
Instructions are timely given by Depositor pursuant to Section 16 hereof, then
Depositor and Preferred Registrant shall submit their dispute regarding
Preferred Registrant's Notice of Release to arbitration by a single arbitrator
who is a member of the American Arbitration Association ("AAA") according to its
rules and regulations then in effect, in Palo Alto, California. The AAA shall
choose the arbitrator within two (2) days of such submission and the arbitration
shall commence within three (3) business days of such selection and shall
continue for consecutive business days until resolved. Each party shall have one
day in which to present its evidence and arguments to the arbitrator. The
arbitrator shall render his or her decision on the third day of arbitration. The
decision of the arbitrator shall be final and binding upon the parties and
enforceable in any court of competent jurisdiction, and a copy of such decision
shall be delivered immediately to Depositor, Preferred Registrant and DSI. The
sole question to be determined by the arbitrator shall be whether or not there
existed a valid release condition at the time Preferred Registrant delivered the
Notice of Release to DSI pursuant to Section 15. If the arbitrator finds that a
release condition was properly met and the Notice of Release was properly given
by Preferred Registrant, DSI shall promptly deliver the Deposit to Preferred
Registrant. All fees and charges by the American Arbitration Association and the
reasonable attorneys' fees and costs incurred by the prevailing party in the
arbitration shall be paid by the non-prevailing party in the arbitration.
20. Equitable Relief. Each party agrees the other shall be entitled to seek
----------------
equitable relief to enforce its rights hereunder, in addition to such party's
other remedies.
21. General. DSI may act in good faith reliance upon any instruction,
-------
instrument, or signature believed in good faith to be genuine and may rely in
good faith on the fact any employee giving any written notice, request, advice
or instruction in connection with or relating to this Escrow Agreement has been
duly authorized to do so DSI may provide copies of this ]Escrow Agreement or
account history information to any Designated Contact of Depositor or Preferred
Registrant upon their request. For purposes of termination or replacement, the
Deposit shall be returned only to Depositor's Designated Contact, unless
otherwise instructed by Depositor's Designated Contact. DSI is not responsible
for failure to fulfill its obligations under this Escrow Agreement due to causes
beyond DSI's control. This Escrow Agreement is to be governed by and construed
in accordance with the laws of the State of California without any reference to
the conflicts of law rules. Subject to the provisions of the Software License
Agreement this Escrow Agreement constitutes the entire agreement among the
parties concerning the subject matter hereof, and supersedes all previous
communications, representations, understandings, and
<PAGE>
Requests from Deposit or Preferred Registrant to change the Designated Contact
should be given in writing by the Designated Contact or an authorized employee
of Depositor or Preferred Registrant.
<PAGE>
agreements, either oral or written, among the parties. This Escrow Agreement
may be amended only in a writing signed by the parties. If any provision of the
Escrow Agreement is held by any court to be invalid or unenforceable, that
provision will be severed from the Escrow Agreement and any remaining provisions
will continue in full force.
22. Fees. Fees are due upon receipt of signed contract, receipt of Deposit
----
Material, or when service is requested, whichever is earliest. Preferred
Registrant shall pay DSI all fees due under this Escrow Agreement. If the
payment is not timely received by DSI, DSI shall have the right to accrue and
collect interest at the rate of one and one-half percent per month (18% per
annum) from the date of the invoice for all late payments. All service fees and
renewal fees will be those specified in DSI's Fee and Services Schedule in
effect at the time of renewal or request for service, except as otherwise
agreed. DSI's current Fee Schedule is attached as Exhibit D. For any increase in
------------
DSI standard fees, DSI shall notify Depositor and Preferred Registrant
at least ninety (90) days prior to the renewal of the Escrow Agreement. For any
service not listed on the Fee and Services Schedule, DSI shall provide a quote
prior to rendering such service.
IN WITNESS WHEREOF, the parties have caused this Escrow Agreement to be executed
by their respective authorized representatives.
GUESTSERVER DEVELOPMENT GROUP [INC.]
By:
Name:
Title:
MAGINET INTERNATIONAL [INC.]
By:
Name:
Title:
DATA. SECURITIES INTERNATIONAL, INC.
By:
Name:
Title:
<PAGE>
SCHEDULE 1
TO SOURCES CODE AGREEMENT
General Description of Materials
to be Deposited
<PAGE>
SCHEDULE 2
TO
SOURCE CODE AGREEMENT
DESIGNATED CONTACT
Account Number
Notices, Deposit Material returns
and communication, including delinquencies Invoices to Depositor should
to Depositor should be addressed to: be addressed to:
Company Name:
Address:
Designated Invoice Contact:
Contact:
Telephone:
Facsimile:
State of Incorporation:
Notices and communication, including delinquencies to Preferred Registrant
should be addressed to:
Company Name: Invoices to Preferred Address:
Registrant should be
addressed to:
Designated
Contact:
Telephone:
Facsimile: Invoice Contact:
<PAGE>
Contracts, Deposit Material and Invoice Drive
49 Stevenson Street
Suite 200 Suite 550
San Diego, CA 92123 San Francisco, CA
94105
Telephone: (619) 694-1900 Telephone: (415) 541-9013
Facsimile: (619) 694-1919 Facsimile: (415) 541-9424
<PAGE>
EXHIBIT H
----------
Severity Codes
1. During development and code acceptance:
---------------------------------------
1. Priority. The problem is so severe that the module cannot be
--------
integrated into the code. These problems must be corrected as soon as possible
(Win a day or two) and the corrected module submitted to MagiNet.
2. Secondary. The problem is important, but can wait up to one week to be
---------
resolved unless otherwise required under the terms of a Project Appendix. The
corrected module must then be resubmitted to MagiNet. Inconsistencies in the
user interface or minor Errors in the code are examples of Secondary problems.
3. Minor. The problem exists, but does not affect the overall MagiNet
-----
delivery date. The corrected module must then be resubmitted to MagiNet within
two weeks unless otherwise required under the terms of a Project Appendix.
Nonconformance with standards, code modules which are too long, lack of
comments, or unclear function or variable names are examples of Minor problems.
II. After delivery to a Hospitality Industry Provider:
-------------------------------------------------
The impact of an Error is a composite of many factors:
(I) the number of guests affected;
(ii) the type of service that is disrupted;
(iii) the length of the outage;
(iv) the number of times the problem has recurred;
(v) the availability of a bypass; and
(vi) the length of time the problem has been open.
There are codes for communicating the overall impact of an Error in a
consistent manner. These codes provide a means of prioritizing problems and
thus help ensure that the attention and resources devoted to each Error are
consistent with its impact.
<PAGE>
Two (2) codes are used, as follows:
1. Severity code - refers to the level of criticality based on the nature of
the failure and the alternatives available. Severity remains the same
throughout the life of the Error.
2. Priority code - is used to distinguish between Errors of the same severity.
All Errors, unless otherwise defined are assigned, by default, an initial
priority of four If the Error is open too long, the outage is excessive, or the
Error recurs, the priority may be increased. Therefore, the criticality of an
Error increases as it ages. However, priority may also be increased by
management, based on individual Error review.
The following are the severity and priority codes to be used in the Error
management process:
SEVERITY DESCRIPTION
Critical/1 Total application outage with no bypass or alternative
available.
There is a critical impact; all the Guests are affected.
High/2 A component of the System is down, degraded or unusable.
A large number of Guests are affected. No acceptable
alternative or bypass is available.
Medium/3 A component, minor application or procedure of the
System is down, unusable or difficult to use. It is not
critical but the function or applications are
restricted. A small number of Guests are affected. An
acceptable alternative or bypass is available.
Low/4 A component or procedure not critical for Guest
satisfaction with the System is unusable. An alternative
is available, deferred maintenance is acceptable.
<PAGE>
Resolution Times for Severity Codes:
- ------------------------------------
Associated with each severity code, there is maximum target resolution
time. If the maximum resolution time is exceeded, MagiNet may increase the
priority using the escalation procedures, as described in the next section. The
Error resolution times are as follows:
SEVERITY MAXIMUM
RESOLUTION
TIME
Critical/1 1 day
High/2 3 days
Medium/3 10 days
Low/4 30 days
Escalation and Notification Procedures:
- ---------------------------------------
Associated with severity codes and resolution times, the escalation and
notification procedures are handled by MagiNet.
For severity. 2, 3 and 4 problems, when the resolution time has elapsed
and the Error has not been fixed, MagiNet has the authority to increase the
severity and/or priority based on the following guidelines, as well as to inform
the appropriate management personnel, as required:
PRIORITY DESCRIPTION
Critical/l Target resolution time exceeded by two hundred percent
(200%); duration of outage exceeds standard by two
hundred percent (200%); Error recurs more than five (5)
times.
High/2 Target resolution time exceeded by one hundred percent
(100%); duration of outage exceeds standard by one
hundred percent (100%).
Medium/3 Target resolution dates and times exceeded by fifty
percent (50%); duration of outage exceeds fifty percent
(50%).
Low/4 Initial priority for all Errors.
<PAGE>
PROBLEM BYPASS/RECOVERY
- -----------------------
Bypass and recovery will provide partial or complete Circumvention of a
problem, usually prior to the final resolution. These procedures may or may not
make the failing component usable again. It could be possible, for instance, to
bypass the effects of a failing component while the component itself is still
down. In this case, the service may be restored, perhaps with some degradation,
without necessarily correcting the Error.
(I) GDG will determine availability of bypass/recovery procedure;
(ii) If procedure is available, follow the appropriate instructions for
execution. It may require getting authorization from MagiNet; and
(iii) If no temporary bypass/recovery or permanent procedure exists, GDG
will proceed to find a permanent solution.
<PAGE>
EXCLUSIVE LICENSE AGREEMENT Exhibit 10.7
---------------------------
THIS EXCLUSIVE LICENSE AGREEMENT is made March 15, 1993 by PACIFIC PAY VIDEO
LIMITED, a California corporation ("Licensor") and COMSAT VIDEO ENTERPRISES,
INC., a Delaware corporation ("Licensee").
RECITALS
--------
A Licensor is in the business of designing, manufacturing, installing,
maintaining, and operating hotel pay-per-view video selection and distribution
("VSAD") systems and components.
B. Licensor is the exclusive licenses of On Command Video Corporation, a
Delaware corporation ("OCV"), which is the owner of patents and patent rights
concerning certain types of VSAD systems allowing guests to select from a large
number of programs for viewing at any time. Licensor's territories under its
Technology License Agreement with OCV include the Asia/Pacific region.
C. Licensor is designing and developing a modulator, a converter box, and
other VSAD components and system technology for use in connection with its
distribution of VSAD systems. Licensor is the owner or licensee of certain
patents, trade secrets, and trademarks, and possesses certain nonproprietary
know-how, concerning this technology.
D. Licensor wishes to increase market acceptance of VSAD systems that utilize
these patent rights, trade secrets, know-how, inter alia by expediting and
----------
expanding the use of such systems by hotel operators outside of the Asia/Pacific
region covered by the Technology License Agreement and in portions of that
region being sublicensed by Licensor to Licensee by separate Exclusive
Sublicense Agreement; and Licensee will assist Licensor in these efforts.
E. Licensee has an established support organization, experience in the
distribution of video pay-per-view products and services, and an existing hotel
operator customer base, and is willing to market VSAD systems and components
that utilize Licensor's and OCV's patent rights, trade secrets, and know-how to
those customers and to others which it may develop.
F. Licensee and Licensor have entered a Series B Preferred Stock and Warrant
Purchase Agreement pursuant to which Licensee is making a substantial financial
investment in Licensor.
G. As additional consideration for its investment in Licensor, Licensee
wishes to obtain an exclusive license to use Licensor's patent rights, trade
secrets, trademarks, and know-how, including, but not limited to the right to
utilize them in connection with the design, manufacture, reproduction,
modification, demonstration, marketing, distribution, leasing,
<PAGE>
page 2
licensing, selling, financing, installing, maintaining, operating, programming,
or otherwise implementing use of VSAD systems or components, and to obtain VSAD
system components using Licensor's technology.
NOW, THEREFORE, in consideration of the above premises, and the terms,
covenants, and conditions set forth in this Agreementthe parties agree as
follows:
l. Definitions
-----------
The following definitions shall control for purposes of this Agreement:
l.l "Patent Rights" shall mean the rights embodied in the patents and patent
applications owned by Licensor or acquired by Licensor by license or otherwise
from third parties, including but not limited to those listed in Exhibit A
hereto, in further patents acquired by and patent applications filed by
Licensor, or acquired by Licensor by license or otherwise, during the term of
this Agreement that are related to VSAD systems and their components, and all
continuing applications, reissued patents, and reexamined patents stemming from
such patent and patent applications, as well as all foreign equivalents,
1.2 "Trade Secrets" shall mean all information concerning the VSAD systems and
components that is in the possession of Licensor it any time during the term of
this Agreement, that is not commonly known to others, and that previously has-
been or is hereafter designated by Licensor as constituting a trade secret
(including but not limited to software owned, licensable, or transferable by
Licensor, and any, improvements, developments, or enhancements to such trade
secrets made during the term of this Agreement), Such Trade Secrets shall
include, but not be limited to the principal trade secrets as of the date of
execution of this Agreement which are identified by OCV (without disclosure of,
confidential subject matter) in the attached Exhibit B.
1.3 "Know-How" shall mean all information concerning VSAD systems and
components that is in the possession of Licensor at any time during the term of
this Agreement and that is not designated by Licensor as a trade secret
(including but not limited to software owned, licensable, or transferable by
Licensor, and any improvements, developments, or enhancements to such non-trade
secret information made during the term of this Agreement),
1.4 "Trademarks" shall mean the tradenames and marks, the associated logo-
types, and any other trade or service names or marks developed by Licensor or
acquired by Licensor by license or otherwise at any time during the term of this
Agreement for use in connection with VSAD systems and components.
<PAGE>
page 3
1.5 "Licensed Market" shall mean the market defined in Exhibit C hereto,
2. Grant of License
----------------
2.1 Licensor hereby grants to Licensee a worldwide, irrevocable, and exclusive
license to use in the Licensed Market the Patent Rights, Trade Secrets,
Trademarks, and Know-How, including, but not limited to the right to utilize
them in connection with the design, manufacture, reproduction, modification,
demonstration, marketing, distribution, leasing, licensing, selling, financing,
installing, maintaining, operating, programming, or otherwise implementing use
("Implementation and Use") of VSAD systems and components.
2.2 Licensor hereby grants to Licensee a worldwide, irrevocable, and
nonexclusive license to use in the Licensed Market any other Patent Rights,
Trade Secrets, Trademarks, and Know-How, including, but not limited to the right
to the Implementation and Use of VSAD systems and components, to which Licensor
has rights but does not have the right to make the grant of exclusive rights
made in subparagraph 2.1 above.
2.3 Notwithstanding the above grants, Licensor shall retain the right to
continue to use the Patent Rights, Trade Secrets, Trademarks, and Know-How in
the territories excluded from the Licensed Market, as defined in Exhibit C.
2.4 Licensee hereby grants to Licensor the right to use any developments,
improvements, and enhancements that may be made by Licensee to the Patent
Rights, Trade Secrets, and Know-How licensed hereunder (the "Licensee
Developments"),
3. Transfer of information
-----------------------
3.1 Licensor shall deliver to Licensee promptly after the execution of this
Agreement, a functional engineering unit of Licensor's pending modulator and
converter box VSAD system components, copies of patent applications and other
written materials, including descriptions, drawings, blueprints, source code and
object modules for software, instructional manuals, memoranda and like
documents, and other materials in sufficient detail to disclose fully the Patent
Rights, Trade Secrets, and Know-How in existence on the effective date of this
Agreement. Licensor shall deliver to Licensee equivalent engineering units (for
hardware) and documentation for Patent Rights, Trade Secrets, and Know-How
acquired by Licensor subsequent to the effective date of this Agreement
(including that arising from developments, improvements, and enhancements)
within sixty (60) days after acquisition by Licensor.
3.2 Promptly after execution of this Agreement, Licensor and Licensee will
arrange for a Technology Risk Assessment Test to be performed on the converter
box VSAD system component as soon as
<PAGE>
page 4
possible after execution of this Agreement, as described in Exhibit D.
3.3 Promptly after execution of this Agreement, Licensor shall provide
instruction and training to appropriately qualified employees of Licensee
sufficient to enable Licensee to fully and independently utilize the Patent
Rights, Trade Secrets, Trademarks, and Know-How in the Implementation and Use of
VSAD systems and components based on such technology in the Licensed Market.
The initial 160 man-hours of such instruction and training shall be provided
without charge. Additional hours of instruction and training shall be provided
subject to reimbursement of Licensor's direct costs (including a three percent
(3%) markup to cover general and administrative overhead).
3.4 Licensee shall provide equivalent engineering units (for hardware),
documentation, instruction, and training to Licensor with respect to the
Licensee Developments granted by Licensee, to Licensor pursuant to subparagraph
2.4, subject to reimbursement of Licensee's direct costs (plus a three (3%)
markup to cover general and administrative overhead) by Licensor.
4. Manufacture of Products Using Licensor's Technology
---------------------------------------------------
4.1 Licensee agrees to purchase from or through Licensor, at Licensor's direct
cost (plus an agreed markup to cover general and administrative overhead), as
further provided in subparagraph 4.2 below, and without additional consideration
or royalty, its requirements of VSAD system or component products which utilize
the Licensor's Patent Rights, Trade Secrets, and Know-How. Licensee also shall
provide assistance to Licensor in financing such production for Licensee through
methods including credit guaranties, volume guarantees, or cash advances for
parts orders. Licensee shall order the manufacture of specific products through
separate agreements with Licensor covering Licensee's requirements concerning
volume, price, delivery, financing, warranty, and other terms pertinent to each
specific product order.
4.2 For orders requiring Licensor to handle delivery or billing/payment
documentation, the agreed markup for general and administrative overhead shall
be three percent (3%) of direct costs. For orders handled by Licensor directly
with Licensor's subcontractors, no markup shall apply. Licensor shall secure
for Licensee a pro-rata portion of any quantity discount benefits permitted by
Licensor's subcontractors which take into account the volume of orders made by
Licensee.
For re-orders of items previously furnished through Licensor's subcontractors
which are then to be furnished directly by Licensor, the price charged by
Licensor to Licensee shall not exceed the amount previously charged until
production has stabilized and an acceptable direct cost and general and
<PAGE>
page 5
administrative overhead markup can be negotiated in good faith between Licensor
and Licensee.
For orders of products requiring special development to meet Licensee's
requirements direct cost and markup for general and administrative overhead
shall be negotiated on a case by case basis. Where up-front research,
development, and engineering costs are paid by Licensee, then Licensor shall be
obligated to reimburse Licensee for those costs should Licensor sell the
specially developed products (or derivations) to third parties, Licensee and its
agents shall have the right to audit the books and records of Licensor
pertaining to direct costs and general and administrative overhead to verify the
accuracy and validity of charges at reasonable times and notice.
4.3 If Licensor files (or has filed against it and fails to remove it within
sixty (60) days), an action seeking bankruptcy, insolvency, the appointment of a
receiver or trustee, or any other protection from creditors, or makes or seeks
to make a general assignment for the benefit of creditors, or if for any other
reason Licensor is unable to meet or commit to meet Licensee's requirements as
to any specific product order, then Licensee shall have the right to have its
affected product orders manufactured by itself or through any other manufacturer
or supplier without additional consideration or royalty to Licensor. In any
event, Licensor agrees to provide engineering support and assistance to Licensee
in implementing such manufacture of products which utilize the Licensor's Patent
Rights, Trade Secrets, and Know-How subject to reimbursement of Licensee's
direct costs (plus a three (3%) markup to cover general and administrative
overhead).
5. Patent Marking
--------------
Licensee agrees to apply all appropriate U.S. and foreign patent numbers and
other proprietary marks to all products manufactured by or for it that utilize
Patent Rights licensed pursuant to this Agreement.
6. Term
----
This Agreement shall become effective on execution and shall continue for as
long as Licensor (including its successors, transferees, or assigns) has any
proprietary interest in the subject matter. Neither party shall have a right to
terminate this Agreement in the event of any breach by the other party, but
shall be limited to any other remedies that may be provided at law or in equity.
7. Software
--------
Licensor acknowledges and agrees that the license set forth in Section 2
includes a license to any software owned, licensable, or transferable by
Licensor (now or in the future) which are
<PAGE>
page 6
necessary for or useful to the Implementation and Use of VSAD systems and
components. Licensor undertakes to appropriately copyright any such software in
accordance with Licensor's standard practices. Pursuant to Section 3 Licensor
shall transfer to Licensee any source codes, object modules, instruction
manuals, flowcharts, and other materials in Licensor's possession which are
necessary for or useful to understanding and utilizing the software.
8. Maintenance of Patents
----------------------
Licensor shall be responsible, at its expense, for maintaining those patents
(including patent applications) necessary, to the Patent Rights worldwide. In
the event Licensor determines not to pursue or to continue maintaining any such
patent, it shall so notify Licensee. Licensee then shall have the option to
make any necessary payments in order to pursue or to continue to maintain the
patent and upon making such payments shall be entitled to any rights associated
with the patent and, at Licensee's request, Licensor shall assign all right,
title and interest in that patent to Licensee. Licensor shall notify License on
a periodic basis of the fees Licensor pays in pursuing or maintaining patents
and patent applications.
9. Technical Assistance
--------------------
Following the Transfer of Information under Paragraph 3, Licensor agrees to make
Licensor personnel or agents available at Licensee's request to provide
reasonable technical assistance to Licensee to assist Licensee in effectively
utilizing the rights and information licensed hereunder, subject to
reimbursement of Licensor's direct costs (including a three (3%) markup to cover
general and administrative overhead) by Licensee, This technical assistance
shall be furnished by technical personnel selected by Licensor, at Licensee's
plant or at Licensee's plant, at Licensee's election.
10. Confidentiality
---------------
10.1 Licensee agrees to maintain all information concerning Patent Rights and
Trade Secrets confidential and not to disclose the same to anyone outside of
Licensee's immediate organization, either during or after the term of this
Agreement, except upon receiving Licensor's express written consent which shall
not be unreasonably withheld. Licensee further agrees not to use any such
information for any purpose other than as contemplated herein, and to impose
similar restrictions on any other person or entity to whom such information is
made available by Licensee as permitted by this Agreement. This shall not
restrict Licensee from disclosing such proprietary information necessary to
enable its customers to operate VSAD systems or components acquired from
Licensee which utilize it.
<PAGE>
page 7
10.2 The obligations imposed upon Licensee hereunder shall not apply to any
information that is or was known to Licensee at the time of disclosure thereof
by Licensor; that is or was, or subsequently becomes publicly available through
sources other than Licensor or Licensee, such as by the issuance to Licensor of
U.S. or foreign patents on such information; that is or was rightfully obtained
and received by Licensee from a third party; that is or was independently
developed by Licensee without assistance from Licensor; or that is or was
excluded in writing by Licensor from the provisions hereof.
11. Representations and Warranties
-----------------------------
11.1 Licensor represents and warrants that it is the owner or licensee of the
entirety of the Patent Rights, Trade Secrets, and Trademarks, and that their
transfer and Implementation and Use as contemplated in this Agreement will not
violate the rights of any third party.
11.2 As to the Know-How and any other information disclosed, licensed, or
transferred by Licensor to Licensee pursuant to this Agreement, Licensor
represents and warrants that it has the right to disclose, license, and transfer
such Know-How or other information to and for the use of Licensor without
violation of the rights of any third party.
12. Third Party Claims
------------------
The parties will promptly notify each other in writing of any claim by a third
party that use of any Patent Rights, Trade Secrets, Know-How, or Trademarks
violates any patent, copyright, trade secret or other intellectual property
right of a third party. Licensor will defend, at its own expense, any suit or
proceeding against Licensee in a court of the United States for the infringement
of United States patents, copyrights, or trade secrets based upon Licensee's use
of Patent Rights, Trade Secrets, Know How, or Trademarks. Licensor shall pay
all damages and costs finally awarded against Licensee because of such patent,
trade secret, or copyright infringement. At Licensee's option, it shall have
the right to participate in the defense of any such action, and to control its
own defense at its cost and expense. Licensor's duties hereunder are
conditioned upon Licensee giving Licensor prompt written notice of commencement
of any suit or proceeding or any claims of infringement, Licensee giving
Licensor sole control of the defense and settlement of such action, and
furnishing to Licensor copies of communications relating to the alleged
infringement and giving to Licensor all information and assistance (at
Licensor's expense) necessary to defend or settle such suit or proceeding.
Licensor shall not be bound by any settlement made without Licensor's prior
written consent.
<PAGE>
page 8
13. Third Party Infringement
------------------------
Licensor and Licensee shall notify one another of all information concerning any
actual, alleged or imminently threatened infringement in the Licensed Market of
the Patent Rights, Trade Secrets, Know-How, or Trademarks by third persons. In
the event of a potential infringement, Licensor or its designee shall bring, at
its own expense, an appropriate action against any person infringing directly or
contributorily. In such case, Licensee shall have the right to participate in
the action at its own expense. All recoveries from such suit shall first be
applied to reasonably reimburse all expenses incurred by Licensor, and the
balance shall be paid to Licensee. No settlement shall be made without
Licensee's prior written consent which shall not be unreasonably withheld.
14. Remedies; Severability; Nonwaiver
---------------------------------
14.1 Each party understands and agrees that a breach by it of any of the terms,
covenants, and conditions of this Agreement will cause irreparable damage to the
other party which may not be adequately remedied solely by an action for
damages, and each party expressly waives the defense that a remedy in damages
will be adequate. Therefore, the injured party shall be entitled to seek and
obtain an injunction from any court of competent jurisdiction, restraining any
further violation of this Agreement, in addition to any other available
remedies.
14.2 If any agreement, covenant or other provision of this Agreement is
invalid, illegal or incapable of being enforced by reason of any rule or public
policy, all other agreements, covenants, and provisions of this Agreement,
shall, nevertheless, remain in full force and effect. If any of the rights and
restrictions contained herein shall be deemed to be unenforceable by reason of
the extent, duration or scope thereof, or otherwise, then the parties
contemplate that the court making such determination shall reduce such extent,
duration, scope, or other provisions hereof, and enforce such rights or
restrictions in their reduced form for all purposes , and manner contemplated
hereby.
14.3 A party's election of any one or more remedies shall be cumulative and
shall not constitute a waiver of the party's right to pursue other available
remedies. Any failure by a party to enforce any provision of this Agreement
shall not be construed as a waiver of such provision, or prevent the enforcement
of each and every other provision of this Agreement.
15. Notice
------
Any notice, request, demand, approval, consent, or other communication
("communication") permitted or required to be given by this Agreement shall be
effective only if in writing and delivered (i) personally, or (ii) by registered
or certified
<PAGE>
page 9
mail, postage prepaid, return receipt requested, or (iii) by prepaid domestic
courier, receipt acknowledged, or (iv) by telecopier or other electronic
communications or similar conveyance, transmission confirmed, and addressed as
follows, or at such address as a party may from time to time communicate to the
other parties:
If to Licensor: Robert Creager
Pacific Pay Video Limited
310 University. Avenue, Suite 218
Palo Alto, CA 94301
Telephone: (415) 617-1999
Telecopier: (415) 321-1332
With a copy to: Iver Kern, Esq,
Wilson, Sonsini, Goodrich & Rosati
2 Palo Alto Square
Palo Alto, CA 94306
Telephone: (415) 493-9300
Telecopier: (415) 858-4486
If to Licensee: Charlie Lyons
Comsat Video Enterprises, Inc.
22300 Comsat Drive
Clarksburg, MD 20871
Telephones (301) 428-4111
Telecopier: (301) 428-3285
with copies to: Warren Y. Zeger, Esq.
COMSAT Corporation
950 L'Enfant Plaza, S.W.
Washington, D.C. 20024
Telephone: (202) 863-6666
Telecopier: (202) 863-4137
and to: John S. McClintic, Esq.
Bancroft & McAlister
601 Montgomery Street, Suite 900
San Francisco, CA 94111
Telephone 415-788-8855
Telecopier 415-397-1925
If delivered personally, or by telecopier or other electronic conveyance,
the deemed date of delivery shall be the date on which the communication is
dispatched. If delivered by mail or by courier, the deemed date of delivery
shall be the date on which the communication is received. All communications
shall bear the date on which they are dispatched or deposited in the mail.
<PAGE>
page 10
16. Further Acts
------------
The parties to this Agreement agree to execute any further instruments and to
perform any further acts reasonably necessary to carry out the provisions of
this Agreement.
17. Binding Effect
--------------
All rights and obligations under this Agreement shall inure to the benefit of
and be binding upon the heirs, personal representatives, assigns, and successors
of the parties, regardless of whether transfer of title has been made in
accordance with the provisions of this Agreement.
18. Entire Agreement
----------------
This document contains the entire agreement of the parties with respect to its
subject matter, and supersedes any and all agreements or understandings, whether
written or oral, that may have been made between the parties prior to the date
of execution. This Agreement may not be changed or terminated orally, and no
change, termination or waiver of any of its provisions shall be valid, unless in
writing and signed by the party against whom such claim, termination or waiver
is sought to be enforced.
19. Governing Law
-------------
This Agreement is to be construed and performed in accordance with the laws of
the State of California.
20. Arbitration of Disputes
-----------------------
Except as to disputes concerning the scope, validity, or infringement of any
patent which shall be resolved through action filed in the federal district
court for the Northern District of California, disputes between the parties
concerning this Agreement shall be resolved through final and binding
arbitration. Either party may elect to commence arbitration by giving notice to
the other party. The arbitration shall be conducted in San Francisco,
California, under the commercial arbitration rules then in effect of the
American Arbitration Association. Any arbitrator selected to serve shall be
qualified by training and experience for the matters for which such arbitrator
is designated to serve. The written decision and findings of the arbitrator
shall be conclusive as between the parties and may be entered in any court
having jurisdiction The parties shall equally share the costs of the
arbitration, but shall each bear their own attorneys fees and costs.
21. No Partnership or Agency Relationship
-------------------------------------
The relationship of the parties established by this Agreement is one of licensor
and licensee and nothing in this
<PAGE>
page 10
Agreement shall be construed to establish a principal-agent, employer-employee,
partnership or joint venture relationship between the parties.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as
of the date first set forth above.
LICENSOR:
PACIFIC PAY VIDEO LIMITED
By /s/ Robert R. Creager
Its Presidents
Dated: 3/15/93
LICENSEE:
COMSAT VIDEO ENTERPRISES, INC.
By /s/ Charlie Lyons
Dated: 3/19/93
<PAGE>
Exhibit A
PATENT RIGHTS
------------
Licensor is preparing to file three patent applications concerning the
following:
(a) a Multi-Standard converter cable box that handles television channels
in two or more television signal formats (such as NTSC and PAL);
(b) a remote control scheme for controlling both the cable box and
television in a coordinated fashion despite the lack of any connection between
the two, other than the connection to the television's antenna or cable port;
and
(c) apparatus and method for enabling the cable box to determine whether
or not the associated television is turned on and tuned to the proper channel,
without any special connections between the cable box and television.
<PAGE>
Exhibit B
TRADE SECRETS
-------------
Trade Secrets covered by this Agreement include, without limitation, the
following principal trade secrets identified by Licensor (without disclosure of
confidential subject matter):
(a) an improved television signal modulator for use in the head end of
cable television and VSAD systems.
(b) control software for Licensor's and OCV's VSAD system, including
software executed by the converter cable box and software run by the head and
controller.
<PAGE>
Exhibit C
LICENSED MARKET
---------------
The Licensed Market covered by this Agreement is worldwide, excluding only the
following territories:
The "Territory" (including the Asia/Pacific Region) as such term may be
defined from time to time under that certain Technology License Agreement
between PPV and On Command Video Corporation dated April 15, 1992. The parties
further acknowledge and agree that the Licensed Market includes Central and
South America and the Republics of the former Soviet Union, an Licensor's rights
to that portion of the Territory are being licensed by Licensor to Licensee
under an Exclusive Sublicense Agreement dated the date of this Agreement, and
shall include the continent of Africa in the event that Licensee shall foreclose
on its security interest in that portion of the Territory granted under an
amendment to Programming Services Agreement between Licensor and Licensee dated
the date of this Agreement.
<PAGE>
Exhibit D
TECHNOLOGY RISK ASSESSMENT TEST
-------------------------------
A Technology Risk Assessment Test for the converter box VSAD system component
under development by Licensor will be performed by Dr. Robert Fenwick of On
Command Video Corporation, using the following equipment set-up and procedures:
1) The PPV Multi-Standard converter (see "converter") will be connected to a
standard OCV system and will co-exist with other televisions on the same system
which are using the standard OCV television interface.
2) The Remote IR sensing unit will be installed as it will be in a hotel
installation configuration.
3) The H-Sync plate will be installed as it will be in a hotel installation
configuration.
4) The remote control will be either a test sample of the actual OEM unit
being designed by Bondwell for PPV or a learning remote which for all intents
and purposes will perform the same function. The remote must:
(a) Control both the television and the converter unit simultaneously.
(b) Issue all commands used by the OCV system to access Pay Per View
movies.
(c) Control the television's volume.
(d) Turn off and on the television while simultaneously forcing the
television to a specific channel which will be the output channel of the
converter unit.
5) The converter must pass all status information Which is expected by and is
standard for the OCV headend system.
6) Removal of the H-Sync plate while a movie is in progress must result in a
power off status being sent to the head end.
7) A sequence of preview movie, preview a second movie, select television
mode, and select movie for viewing must be performed successfully by the PPV
remote/converter combination.
8) The video quality presented on the television must be subjectively assessed
as equivalent to that of the best of any OCV system under the same conditions
using a standard OCV interface.
<PAGE>
9) The converter at select all off air TV channels currently supplied on the
OCV internal test (Ch. 2, Ch. 4 through 13 inclusive and Ch. 15).
10) The converter must select all 16 OCV Pay Per View channels.
If all the above tests and conditions are met, the PPV Multi-Standard converter
will be then deemed to have passed the TRAT.
<PAGE>
EXHIBIT 10.8
EXCLUSIVE SUBLICENSE AGREEMENT
------------------------------
THIS AGREEMENT is made March 15, 1993 between PACIFIC PAY VIDEO LIMITED, a
California corporation (the "Company"), and COMSAT VIDEO ENTERPRISES, INC., a
Delaware corporation ("CVE"), as to a portion of that certain Technology License
Agreement dated April 15, 1992 between the Company and ON COMMAND VIDEO
CORPORATION, a Delaware corporation ("OCV").
RECITALS
--------
A. The Company is in the business of designing, manufacturing, installing,
maintaining and operating hotel pay-per-view video selection and distribution
("VSAD") systems and components.
B. The Company is the exclusive licensee of OCV, which is the owner of patents
and patent rights concerning certain types of VSAD systems allowing guests to
select from a large number of programs for viewing at any time. The Company's
exclusive territories under the Technology License Agreement include the
Asia/Pacific region, as defined under the Technology License Agreement.
C. CVE has an established support organization and experience in the
distribution of video pay-per-view products and services, and desires to use its
organization and experience to market VSAD systems that utilize the Company's
and OCV's patent rights, trade secrets, and know-how in central and South
America and the Republics of the Former Soviet Union.
D. The Company and CVE entered a Series B Preferred Stock and Warrant Purchase
Agreement pursuant to which CVE is making a substantial financial investment in
the Company.
E. As additional consideration for its investment in the company, along with
the rights granted under the Exclusive License Agreement entered this date
between the Company and CVE as to the Company's patent rights, trade secrets,
trademarks and know-how as to VSAD systems and components, CVE desires to obtain
and the Company desires to grant a sublicense of the Company's exclusive rights
under the Technology License Agreement to distribute VSAD systems which use
OCV's patent rights, trade secrets, and know-how in the territories of Central
and South America and the Republics of the Former Soviet Union,
NOW, THEREFORE, in consideration of the above premises, and the terms,
covenants, and conditions set forth in this Agreement, the parties agree as
follows:
1. Sublicense of Exclusive Rights. The Company hereby sublicense to CVE all of
------------------------------
its exclusive rights, title, and interest, and delegates to CVE responsibility
for performance of all of its duties, under the Technology License Agreement as
to the territories of Central and South America and of the Republics
<PAGE>
page 2
of the Former Soviet Union, The Company shall not itself utilize such rights,
title, and interest, nor assign, sublicense or otherwise transfer such rights,
title, and interest to others, except where such rights have reverted back to
the Company as provided for in subparagraph 5.2.
2. Acceptance. CVE hereby accepts each and every right, title, and interest
----------
of the Company under the Technology License Agreement as to the territories of
Central and South America and of the Republics of the Former Soviet Union, and
covenants and agrees fully to perform and comply with each and every duty,
obligation, covenant, and agreement of the Company required to be performed and
complied with under the Technology License Agreement as to the territories of
Central and South America and of the Republics of the Former Soviet Union, with
the same force and effect as if CVE originally had been a party to the
Technology License Agreement.
3. Royalties. Royalties due from CVE as to sales in the territories of
---------
Central and South America and Of the Republics of the Former Soviet Union shall
be paid directly to the Company for retention by the Company or payment to OCV
as provided under the Technology License Agreement.
4. Indemnification. CVE shall indemnify, defend, and hold harmless the
---------------
Company from any and all liability, losses, claims, damages, and costs
(including attorneys fees) which may arise from this assignment and assumption
of rights under the Technology License Agreement as to the territories of
Central and South America and of the Republics of the Former Soviet Union.
5. Term; Reversion of Rights
-------------------------
5.1 This Agreement shall become effective on execution and shall continue for
as long the Company (including its successors, transferees, or assigns) has any
proprietary interest in the subject matter. Neither party shall have a right to
terminate this Agreement in the event of any breach by the other party, but
shall be limited to any other remedies that may be provided at law or in equity.
5.2 The exclusive rights sublicensed to CVE under this Agreement as to the
territory of Central and South America, and/or the territory of the Republics of
the Former Soviet union, shall revert back to the Company if CVE has not entered
into implementation of the Company's VSAD system and component technology in any
part of such territory(ies) through demonstration, marketing, distribution,
leasing, licensing, selling, financing, installing, maintaining, operating,
<PAGE>
page 3
programming, or otherwise within five (5) years of the date of this Agreement.
The Company covenants and agrees that Upon such reversion it will fully perform
and comply with each and every duty, obligation, covenant and agreement required
to be performed and complied with under the Technology License Agreement as to
those rights.
6. Remedies; Severability; Nonwaiver
---------------------------------
6.1 Each party understands and agrees that a breach by it of any of the terms,
covenants and conditions of this Agreement will cause irreparable damage to the
other party which may not be adequately remedied solely by an action for
damages, and each party expressly waives the defense that a remedy in damages
will be adequate. Therefore, the injured party shall be entitled to seek and
obtain an injunction from any court of competent jurisdiction, restraining any
further violation of this Agreement, in addition to any other available
remedies,
6.2 If any agreement, covenant, or other provision of this Agreement is
invalid, illegal or incapable of being enforced by reason of any rule or public
policy, all other agreements, covenants, and-provisions of this Agreement,
shall, nevertheless, remain in full force and effect, If any of the rights and
restrictions contained herein shall be deemed to be unenforceable by reason of
the extent, duration or scope thereof, or otherwise, then the parties
contemplate that the court making such determination shall reduce such extent,
duration, scope or other provisions hereof, and enforce such rights or
restrictions in their reduced form for all purposes and manner contemplated
hereby,
6.3 A party's election of any one or more remedies shall be cumulative and
shall not constitute a waiver of the party's right to pursue other available
remedies. Any failure by a party to enforce any provision of this Agreement
shall not be construed as a waiver of such provision, or prevent the enforcement
of each and every other provision of this Agreement.
7. Notices
-------
Any notice, request, demand, approval, consent, or other communication
("communication") permitted or required to be given by this Agreement shall be
effective only if in writing and delivered (i) personally, or (ii) by registered
or certified mail, postage prepaid, return receipt requested, or (iii) by
prepaid domestic courier, receipt acknowledged, or (iv) by telecopier or other
electronic communications or similar conveyance, transmission confirmed, and
addressed as follows, or at such address as a party may from time to time
communicate to the other parties:
<PAGE>
page
If to the Company: Robert Creager
Pacific Pay Video Limited
310 University Avenue, Suite 218
Palo Alto, CA 94301
Telephone: (415) 617-1999
Telecopier: (415) 321-1332
With a copy to: Iver Kern, Esq,
Wilson, Sonsini, Goodrich & Rosati
2 Palo Alto Square Palo Alto, CA 94306
Telephone:(415) 493-9300
Telecopier:(415) 858-4486
If to CVE: Charlie Lyons
Comsat Video Enterprises, Inc.
22300 Comsat Drive
Clarksburg, MD 20871
Telephone:(301) 428-4111
Telecopier:(301) 428-3285
With copies to: Warren Y. Zager, Esq.
COMSAT Corporation
950 L'Enfant Plaza, S.W.
Washington, D.C. 20024
Telephone:(202) 863-6666
Telecopier:(202) 863-4137
and to: John S. McClintic, Esq,
Bancroft & McAlister
601 Montgomery Street, Suite 900
San Francisco, CA 94111
Telephone 415-788-8855
Telecopier 415-397-1925
If delivered personally, or by telecopier or other electronic conveyance,
the deemed date of delivery shall be the date on which the communication is
dispatched. If delivered by mail or by courier, the deemed data of delivery
shall be the date on which the communication is received. All communications
shall bear the date on which they are dispatched or deposited in the mail.
8. Further Acts
------------
The parties to this Agreement agree to execute any further instruments and
to perform any further acts reasonably necessary to carry out the provisions of
this Agreement.
9. Binding Effect
--------------
This Agreement shall inure to the benefit of, and shall be binding upon,
the successors and assigns of the parties.
<PAGE>
page 5
10. Entire Agreement
----------------
This Agreement contains the entire agreement between the parties with
respect to the transactions to be consummated under this Agreement and related
transactions and supersedes all prior arrangements and understandings.
11. Governing Law
-------------
This Agreement is to be construed and performed in accordance with the laws
of the State of California.
12. Arbitration of Disputes
-----------------------
Except as to disputes concerning the scope, validity, or infringement of
any patent which shall be resolved through action filed in the federal district
court for the Northern District of California, disputes between the parties
concerning this Agreement shall be resolved through final and binding
arbitration. Either party may elect to commence arbitration by giving notice to
the other party. The arbitration shall be conducted in San Francisco,
California, under the commercial arbitration rules then in effect of the
American Arbitration Association. Any arbitrator selected to serve shall be
qualified by training and experience for the matters for which such arbitrator
is designated to serve. The written decision and findings of the arbitrator
shall be conclusive as between the parties and may be entered in any court
having jurisdiction. The parties shall equally share the costs of the
arbitration, but shall each bear their own attorneys fees and costs.
IN WITNESS WHEREOF, the parties have signed this Agreement to be effective as of
the first date written above.
PACIFIC PAY VIDEO LIMITED COMSAT VIDEO ENTERPRISES, INC.
By /s/ Robert R. Creager By /s/ Charlie Lyons
<PAGE>
EXHIBIT 10.9
AGREEMENT BETWEEN
MAGINET CORPORATION AND INTERGAME LTD.
This Agreement is effective as of July 8, 1996, by and between MagiNet
Corporation, a California corporation ("MagiNet"), with offices at 405 Tasman
Drive, Sunnyvale, California 94089, and InterGame Ltd., a Bermuda corporation
("InterGame"), with offices at Gibbons Building, First Floor, 10 Queen Street,
Hamilton HM 11 , Bermuda.
RECITALS
--------
A. MagiNet is engaged in building a global interactive network for the
delivery of electronic entertainment and information including, in particular,
delivery into hotel rooms.
B. InterGame is engaged in designing, implementing and operating electronic
video gaming programs for use with interactive PC and other platform-based
systems.
C. Maginet and InterGame have agreed to install InterGame's gaming software
on MagiNet's network subject to and in accordance with the terms of this
Agreement.
AGREEMENT
---------
In consideration of the mutual covenants and promises set forth below,
InterGame and MagiNet agree as follows:
1. DEFINITIONS. For purposes of this Agreement, the following terms shall have
the following definitions:
CAPITAL COSTS shall mean [***] of the costs incurred by MagiNet in
connection with the procurement and installation of the Systems (i.e., MagiNet's
standard headend computer, video server and in-room equipment (including, if
necessary, an MATV upgrade and shipping and duties in connection with such
procurement and installation, but not including any special equipment required
to provide gaming services and not including televisions) (initially estimated
at [***] per room on average), plus [***] of costs incurred by MagiNet in
connection with the procurement and installation of any special equipment
required to deliver gaming services (initially estimated at [***] per room on
average), including the costs (including interest) of obtaining competitive
financing or self-financing for such procurement and installation.
FIELD OF USE shall mean rooms (other than common areas and casinos) in
hotels, motels and inns and other transient lodging worldwide.
GAMING SOFTWARE shall mean software and any and all elements thereof,
including, but not limited to, all literal and non-literal aspects of such
software, involving any game of chance with a random outcome played for money.
*** Confidential treatment requested pursuant to a request for confidential
treatement filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
<PAGE>
GROSS REVENUES shall mean all amounts collected by InterGame (whether by
credit card or otherwise) for use of IGS within the Field of Use.
IGS shall mean the InterGame network system, including the Gaming Software
contained thereon.
INTERFACE shall mean the interface for the IGS to be used on the System, to
be developed by InterGame pursuant to the provisions of Section 3(b) hereof.
NET REVENUES shall mean Gross Revenues less Operating Expenses.
NON-CONFORMITY shall mean (i) the inability to perform any published,
agreed upon or intended feature or function repeatedly, without interruption,
loss of data or erroneously or improperly formatted output; (ii) any misspelled
or incorrect text or typographical errors; (iii) any virus; and (iv) defects in
physical media arising in duplication and/or manufacture; provided, however,
that such defects in physical media shall not constitute a Non-Conformity for
purposes of the last sentence of the first paragraph of Section 12.2 hereof.
OPERATING EXPENSES shall mean (a) amounts paid to IGS users in conjunction
with their use of the IGS, including, but not limited to, prizes or winnings,
(b) credit card or similar payment processing fees, (c) credit card or similar
chargebacks and/or reversals (and other costs incurred in connection therewith),
(d) refunds (and other costs incurred in connection therewith), (e) taxes or
duties, if any, imposed on Gross Revenues (including, without limitation, duties
imposed on MagiNet by foreign governmental authorities as a result of the
delivery of the IGS or the Gaming Software to MagiNet in their jurisdiction, but
not including taxes imposed on InterGame, such as taxes on its net income or
withholding taxes on royalties, if any), (f) amortization of Capital Costs as
provided in paragraph 2(c) of this Agreement, (g) telecommunications costs, (h)
an amount not to exceed [***] Gross Revenues payable to InterGame as a
recoupment of maintenance expenses incurred and to be incurred by InterGame with
respect to the IGS and the Interface, (i) an amount not to exceed [***] of Gross
Revenues payable to MagiNet as a recoupment of maintenance expenses incurred and
to be incurred by MagiNet with respect to the Systems (other than the IGS and
the Interface), and (j) all other expenses and costs not set forth above that
InterGame and MagiNet agree in writing should be included as Operating Expenses.
SYSTEM shall mean MagiNet's video delivery system.
[***] Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
2
<PAGE>
2. MAGINET'S RESPONSIBILITIES. MagiNet agrees as follows:
(a) To use its reasonable best efforts to market IGS to its customers and
prospective customers wherever local laws permit in-room or other gaming within
the Field of Use.
(b) To lead the negotiation of contracts and arrangements with the various
governing and regulatory bodies as may be required by applicable law.
(c) To obtain, install and finance all hardware required to operate IGS on
the System. Capital Costs shall be recouped by MagiNet as an Operating Expense
by amortizing the Capital Costs over a period equal to the term of the related
hotel contract, not to exceed a period of sixty (60) months.
(d) To use reasonable best efforts to identify and resolve all legal and
licensing issues which may need to be addressed by MagiNet in connection with
the financing, procurement, installation and operation of the Systems containing
IGS, and to assist InterGame in identifying legal and licensing issues which may
need to be addressed by InterGame as the owner of IGS, including, if requested,
facilitating introductions to appropriate parties.
(e) To identify, in consultation with InterGame, prospective customer
locations and assess the economic feasibility of installing and operating IGS at
each prospective customer location; provided, however, that MagiNet has no
obligation to install IGS in any particular location, and shall have sole
discretion in making final determinations as to installation at customer
locations.
(f) To provide access to InterGame, or cause third parties to provide
access to InterGame, to any source code, object code, interface specifications
and other technical information and assistance regarding the System hardware
platform as may be necessary for InterGame to interface IGS into the System to
the extent that MagiNet has the right to do so, subject to the provisions of
Section 11.3 hereof regarding handling and safeguarding of Confidential
Information. If MagiNet is unable to provide or cause third parties to provide
any such access or assistance and, as a result, InterGame cannot reasonably
fulfill its obligations under this Agreement, InterGame may terminate this
Agreement upon at least sixty (60) days' written notice to MagiNet; provided,
however, that MagiNet's failure to provide access to third party software, code,
specifications or other technical information or third party assistance shall
not constitute a breach of this Agreement
(g) To install or procure the installation of the IGS and to thereafter
maintain the Systems and the equipment provided to run the IGS.
(h) To provide to InterGame within sixty (60) days following the
completion of each installation a report substantially in accordance with the
form attached hereto as Exhibit A, together with such other documentation as
InterGame may reasonably request
3
<PAGE>
from MagiNet in support of the amounts claimed by MagiNet as Capital Costs
hereunder. Reimbursement for Capital Costs in excess of five hundred fifty
dollars (U.S. $550) per room on average shall be subject to agreement between
the parties.
3. INTERGAME'S RESPONSIBILITIES. InterGame agrees as follows:
(a) To supply IGS to MagiNet for use in accordance with the
terms of this Agreement
(b) Based on the information and materials provided by MagiNet
pursuant to paragraph 2(f), to design and develop an interface for IGS to be
used on the System (the "Interface"), and to assist MagiNet in identifying the
specifications for the hardware to be purchased by MagiNet pursuant to paragraph
2(c). The specifications for such Interface shall be set forth in a written
document signed by MagiNet and InterGame and attached hereto as Annex 1.
(c) To use reasonable best efforts to perform or cause to be
performed all back-office, accounting, collection, disbursement and related
legal functions with respect to the administration of the IGS and the revenue
generated thereby (other than those identified in Section 2 above), including
without limitation:
(i) the development of all project plans, cost
estimates and similar materials for the IGS portion of the system at each
installation;
(ii) the recordation, retention and maintenance in good
faith of all books and records (including, but not limited to, financial
records) with respect to the IGS and all revenues generated thereby;
(iii) the management of all staff necessary to perform
all back-office, accounting disbursement and other administrative functions
in connection with the IGS and the revenue generated thereby, including the
payment of awards;
(iv) the management, as necessary, of all merchant
services and relationships with the providers of such merchant services and
relationships and interface with gaming authorities; and
(v) the delivery to MagiNet, as soon as available, all
transaction data analysis reports with respect to the gambling games comprising
the Gaming Software.
(d) Subject to the provisions of Section 12.2 hereof, to
determine, in its sole discretion, which gambling games comprising the Gaming
Software will be included in IGS at any particular location, subject to the
approval of same by MagiNet, which approval shall not unreasonably be withheld
(and which particular determinations may be designated pursuant to an Addendum
hereto or other amendment hereof executed by the parties), and may enhance,
upgrade, add, remove or replace any games it chooses at any installation
4
<PAGE>
at any time, subject to the approval of same by MagiNet, which approval shall
not unreasonably be withheld.
(e) To deliver to MagiNet, as soon as available, a copy of a letter
of certification from international Gaming Laboratories, a company located in
the United States whose primary business is to certify as to the randomness
integrity of gambling game, to the effect that each of the gambling games
comprising the Gaming Software are in compliance with applicable "random
outcome" standards.
(f) To provide a reasonably detailed general accounting of all
transactions with respect to the Systems to MagiNet on or prior to the last
business day of each calendar month.
(g) To establish, in its sole discretion, the "hold" percentage
(i.e., the amount which the operator of the IGS deducts and retains out of the
aggregate amount wagered by users of the IGS) with respect to all gambling games
comprising the Gaming Software, which "hold" percentage shall not be less than
[***], unless otherwise agreed to by InterGame and MagiNet.
(h) To provided MagiNet with copies of the IGS, Gaming Software and
Interface as required by MagiNet to perform its activities as contemplated by
this Agreement.
(i) To support and maintain the IGS and Interface in accordance with
this Agreement.
4. MUTUAL EXCLUSIVITY.
4.1. MAGINET EXCLUSIVITY. Subject to Section 4.3 hereof, so long as
MagiNet is not in material default of any provision of this Agreement, the
System shall be the exclusive system for the delivery of IGS within the Field of
Use during the term of this Agreement
4.2. INTERGAME EXCLUSIVITY. Subject to Section 4.3 hereof, so long
as InterGame is not in material default of any provision of this Agreement,
MagiNet shall not supply any gambling games (including any it may have developed
itself) other than IGS through its system within the Field of Use during the
term of this Agreement.
4.3. CONDITION TO EXCLUSIVITY. The exclusivity provided in Section
4.1 and 4.2 above shall terminate if the following milestones and installations
are not met:
<TABLE>
<CAPTION>
Date of Acceptance by MagiNet
of Golden Masters of at least No. of rooms in which customers
Five (5) Gaming Software Titles may access IGS through the System
- ------------------------------- ---------------------------------
<S> <C>
one year [***]
</TABLE>
5
*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the securities and exchange commission. Omitted portions
have been filed separately with the Commission.
<PAGE>
<TABLE>
<S> <C>
two years [***]
three years [***]
four years [***]
five years [***]
</TABLE>
4.4 EXCEPTIONS TO EXCLUSIVITY. If MagiNet notifies InterGame in
writing that MagiNet was unable to obtain a contract for IGS with a facility
within the Field of Use, InterGame shall be permitted to solicit a separate bid
to install and operate (and, in fact, install and operate if the bid is
accepted) IGS with the company that provides interactive video services to such
facility. In such event, InterGame shall pay to MagiNet [***] of its Net Revenue
related to such facility during the term of the related contract and any
extensions. InterGame shall not enter into any additional contracts with any
MagiNet competitor for any IGS installations at other sites within the Field of
Use except under the circumstances described in this Section 4.4.
If InterGame fails to perform its obligations hereunder with respect
to continuing support of the IGS at any installation, or if InterGame declines
to participate in an installation in which MagiNet has obtained a contract
within the Field of Use, MagiNet may, at its option, solicit and procure from a
third party gaming capability to perform its obligations at such installation or
under such contract; provided, that MagiNet shall not be allowed to use any of
the IGS or related documentation in connection with such installation. In such
event, InterGame shall not be entitled to any share of the revenues generated by
such installation.
In addition, if MagiNet shall notify InterGame in writing of a
specific opportunity to market a particular title and can provide evidence
satisfactory to InterGame that such an opportunity in fact exists, InterGame
shall, upon delivering written notice to MagiNet within thirty (30) days after
InterGame's receipt of MagiNet's notice and satisfaction with such evidence,
have the right to develop such title and to provide such title as part of the
content of the IGS pursuant to this Agreement, subject to a milestone schedule
to be negotiated and agreed upon by the parties with respect to the development
and delivery of such title; provided, however, that in no event will InterGame
be obligated to complete any such development in less than one hundred eighty (1
80) days from the date it delivers such notice to MagiNet. In the event that
InterGame (i) declines to develop such title, (ii) does not respond to MagiNet's
notice within said thirty (30) day period or (iii) does not complete the
development of such title within one (1) year after receipt of MagiNet's notice,
MagiNet shall be permitted to solicit and procure the development of such title
from a third party. In such event, InterGame agrees to provide reasonable
assistance to such third party (at such third party's expense) in order to allow
such title to be interfaced with the IGS; provided, that such third party agrees
in writing to adhere to standard and customary obligations with respect to the
protection and non-disclosure of InterGame's proprietary intellectual property
rights in and to the IGS and related documentation.
6
[***] Confidential treatment requested pursuant to a request for confidential
treatment filed with the securities and exchange commission. Omitted
portions have been filed separately with the Commission.
<PAGE>
During the term of this Agreement, except as provided herein, MagiNet shall not
install any Gaming Software which is not provided by InterGame pursuant to this
Agreement.
5. PUBLICITY. Neither party shall make any public statements, issue any
press release, conduct any advertising or promotional activities, or make any
other disclosure relating to this ,Agreement without the express prior written
consent of the other party, which consent shall not be unreasonably withheld.
The parties acknowledge that it is in their mutual interest to include reference
to the relationship represented by this Agreement in presentations or proposals
to potential customers. This Agreement, and the terms and provisions hereof,
shall be deemed to be "Confidential Information" for purposes of Section 11.3
hereof.
6. FINANCIAL ARRANGEMENTS.
6.1. COLLECTION OF REVENUES. InterGame shall collect all Gross
Revenues. Any Gross Revenues inadvertently paid to or received by MagiNet shall
be immediately remitted to InterGame.
6.2. REVENUE SHARING. On or before the 15th day of each month,
InterGame shall pay to MagiNet an amount equal to [***] of Net Revenues actually
received by InterGame during the preceding month. Each payment shall be
accompanied by a detailed accounting of how MagiNet's share of Net Revenues was
determined, including a breakdown of Operating Expenses.
6.3. RECOUPMENT AND REIMBURSEMENT. On or before the 15th day of each
month, InterGame shall also pay to MagiNet an amount equal to those Operating
Expenses payable to MagiNet.
6.4. AUDIT RIGHTS.
(a) MagiNet may designate a certified public accountant who may
audit InterGame's books and records concerning the Gross Revenue, Net Revenue
and Operating Expense relating solely to the operation of IGS on the System.
Such examination shall be at MagiNet's sole cost and expense, conducted during
normal business hours and upon reasonable notice, and may not be conducted more
than once annually; provided, that if an audit reveals a discrepancy in such
books and records to the detriment of MagiNet in excess of 5% of the share of
Net Revenue due to MagiNet, then the cost and expense of such audit shall be
paid by InterGame. The books and records for a particular accounting period may
only be audited during the three (3) years following rendition of the accounting
statement for such period. Further, such examination shall be conditioned upon
the accountant's agreement to InterGame that (i) he will not voluntarily
disclose any findings to any person other than MagiNet or MagiNet's attorney or
other advisers; (ii) he is not being compensated on a contingent fee basis; and
(iii) he shall review all tentative findings with InterGame's designated
employee prior to rendering an
*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
7
<PAGE>
audit report to MagiNet in order to remedy any factual errors and to clarify any
issues which have resulted from a misunderstanding or misstatement of fact.
(b) With respect to any claim by MagiNet that additional monies
are payable by InterGame to MagiNet hereunder based upon an audit by MagiNet of
InterGame's books and records, InterGame shall not be deemed in breach hereunder
unless, within ninety (90) days after its receipt of MagiNet's written claim to
be sent by certified or registered mail, return receipt requested, that
additional monies are due and payable together with a copy of the audit report
prepared in connection with such audit, InterGame neither (i) pays such
additional monies claimed by MagiNet, together with interest on such amount
accruing from the date such amount would otherwise have been due at a rate per
annum equal to the greater of (x) seven percent (7%) or (y) the maximum amount
permitted by applicable law, nor (ii) contests such claim, in whole or in part,
by notice to MagiNet. If InterGame, in good faith and in its reasonable business
judgment, so contests any claim InterGame shall not be deemed in breach
hereunder unless such claim is reduced to a final, non-appealable judgment and
InterGame fails to pay MagiNet the amount of such judgment together with
interest on such amount accruing from the date such amount would otherwise have
been due at a rate per annum equal to the greater of (x) seven percent (7%) or
(y) the maximum amount permitted by applicable law, within thirty (30) days
after InterGame receives notice of the entry of such judgment.
7. SPECIFICATIONS; DELIVERY AND ACCEPTANCE.
7.1. SPECIFICATIONS. Upon execution of this Agreement, the parties
shall consult and agree upon the specifications to be provided by MagiNet for
the System and by InterGame for the IGS, and shall negotiate and agree upon the
specifications for the Interface. After mutual agreement of the parties as to
all such specifications, InterGame shall commence development of the Interface.
7.2. SHIPPING. After mutual agreement of the parties as to a
delivery date with respect to a particular installation, InterGame will ship the
IGS software on that date or such later date as may be designated in shipping
instructions from MagiNet.
7.3. ACCEPTANCE. Each of the IGS and the Interface (and, if
delivered separately, each game comprising the Gaming Software) delivered by
InterGame to MagiNet hereunder shall be in the form of a "golden master" and
shall be deemed accepted by MagiNet unless MagiNet delivers written notice of a
Non-Conformity in the software within twenty (20) business days after receipt.
InterGame shall correct any Non-Conformities specified by MagiNet in such notice
as promptly as practicable, but in no event more than twenty (20) business days
following receipt by InterGame of such notice. Corrections shall also be subject
to acceptance or rejection for Non-Conformities under this Section 7.3. In the
event InterGame is unable to correct a Non-Conformity in accordance with the
provisions of this Section 7.3, InterGame will exercise reasonable best efforts
to promptly provide a substitute for the subject Gaming Software title. After
acceptance of the "golden masters" for at least five (5) Gaming Software titles,
InterGame shall at all times ensure that MagiNet has a minimum of five (5)
Gaming Software titles
8
<PAGE>
functioning without any Non-Conformities and shall use reasonable best efforts
to maintain nine (9) Gaming Software titles functioning without Non-
Conformities, subject to MagiNet's obligations to maintain the Systems (other
than the IGS and the Interface) as provided herein.
7.4. BACK OFFICE DEMONSTRATION. InterGame shall demonstrate its back
office capabilities as specified in Section 3(c) hereof to MagiNet's reasonable
satisfaction prior to the first installation in each country.
8. CUSTOMER CANCELLATIONS. If a MagiNet customer contract for IGS is
canceled or terminated prior to the installation of IGS through no fault of
either party, each party shall be responsible for the actual direct costs and
expenses incurred by that party in preparation for such installation prior to
cancellation or termination. However, if either party's default is responsible
for the cancellation or termination, that party shall pay for the other party's
costs and expenses in addition to its own, upon receipt of an invoice from the
other party, subject to the limitations of Paragraph 13 hereof.
9. CONTINUING SUPPORT AND TRAINING. InterGame shall provide at its
expense support to MagiNet in the form of (a) instruction in the use of IGS and
any related documentation and (b) technical support to answer questions related
to the operation of IGS. In addition, InterGame shall provide at its expense
reasonable training services for MagiNet employees engaged in technical and
marketing activities associated with the IGS. Such training shall include
training for direct application as well as "train-the-trainer" training. All
such services training shall take place at mutually acceptable times and
locations. Each party shall pay necessary travel and living expenses for its
own personnel involved in training activities.
10. TERM AND TERMINATION.
10.1. TERM. The initial term of this Agreement shall begin as of the
date hereof and shall expire five (5) years from the date hereof; provided,
however, that with respect to any particular installation of IGS pursuant to a
MagiNet customer contract for IGS that extends beyond the term of this
Agreement, this Agreement shall remain in full force and effect for the
remainder of the term of that customer agreement or renewal thereof, but only
with respect to that installation. If neither party has provided written notice
of default to the other party as of the end of such term or any extension
thereof, this Agreement will be automatically extended for additional periods of
one year each, unless terminated in writing by either party upon at least ninety
(90) days' written notice to the other party.
10.2. TERMINATION ON INSOLVENCY. Either party may immediately
terminate this Agreement if the other party files a petition in bankruptcy,
makes an assignment for the benefit of creditors, is adjudicated insolvent or
bankrupt, petitions or applies for a receiver or trustee for a substantial part
of its property, commences any proceeding under any reorganization arrangement,
dissolution or liquidation law or statute of any jurisdiction, or takes any
corporate action with respect to any of the foregoing, or if there is commenced
9
<PAGE>
against such party any such proceeding which has not been dismissed within sixty
(60) days after commencement.
10.3. TERMINATION ON DEFAULT. Either party may terminate this
Agreement on thirty (30) days prior written notice if the other party materially
defaults in the performance of any obligation under this Agreement which remains
uncured for ninety (90) days after receipt by the defaulting party of a written
notice describing the default in reasonable detail. The failure by either party
to fulfill any of its maintenance and/or -Support obligations shall constitute a
material default in the performance of a material obligation for purposes of
this Agreement. After acceptance by MagiNet of the "golden masters" for at least
five (5) Gaming Software titles, the failure on the part of InterGame to ensure
that MagiNet has a minimum of five (5) Gaming Software titles functioning
without any NonConformities shall constitute a material default in the
performance of a material obligation for purposes of this Agreement.
11. INTELLECTUAL PROPERTY AND PROPRIETARY INFORMATION.
11.1. OWNERSHIP, TITLE AND LICENSE. InterGame shall have and retain
all ownership of and title to the IGS, the Gaming Software and the Interface
(excluding any public domain elements incorporated therein), and the related
documentation therefor, including modifications and enhancements thereto, if
any, made at MagiNet's request. IGS, the Gaming Software and the Interface, and
the related documentation therefor, constitute the proprietary intellectual
property of InterGame, protected by U.S. and other copyright and intellectual
property laws. Subject to the licenses granted by InterGame to MagiNet below in
this Section 11.1, nothing in this Agreement shall be construed as granting any
rights of ownership or title in or to the IGS, the Gaming Software or the
Interface to MagiNet. If requested by InterGame, MagiNet shall assist InterGame
(at InterGame's expense) in obtaining and perfecting InterGame's copyright and
other intellectual property protection of IGS and the related documentation.
During the term of this Agreement, MagiNet shall not challenge any copyright or
other intellectual property right of InterGame.
InterGame hereby grants to MagiNet for the term of this Agreement,
subject to the other terms and conditions hereof, an exclusive, non-transferable
(except as set forth in Section 24 hereof) license to use the IGS solely within
the Field of Use in connection with the Systems. InterGame hereby grants to
MagiNet an irrevocable, nonexclusive, perpetual, fully paid-up license to use,
modify, reproduce and distribute the Interface solely in connection with the
Systems and MagiNet hereby accepts such license.
MagiNet shall have and retain ownership and title to the System (other
than the IGS, the Gaming Software and the Interface and related documentation),
including modifications and enhancements thereto, if any, made at InterGame's
request. The System and the related documentation (other than the IGS, the
Gaming Software and the Interface and related documentation) are proprietary
intellectual property of MagiNet, protected by U.S. and other copyright and
intellectual property laws. During the term of this Agreement, InterGame shall
not challenge any copyright or other intellectual property right of MagiNet.
10
<PAGE>
11.2. RIGHTS RESERVED. All patent, trademark, service mark,
copyright, design, manufacturing and reproduction rights relating in any way to
IGS, the Gaming Software or the Interface, and the related documentation
therefor, are reserved to InterGame. All patent, trademark, service mark,
copyright, design, manufacturing and reproduction rights relating in any way to
the System, (other than the IGS, the Gaming Software and the Interface and
related documentation therefor) are reserved to MagiNet and its licensors.
11.3. CONFIDENTIAL INFORMATION. InterGame and MagiNet each agree to
treat as confidential the other's proprietary rights and information, including,
but not limited to, information regarding each party's technology described
hereunder (including, with respect to MagiNet's technology, the System (other
than the IGS, the Gaming Software and the Interface) and, with respect to
InterGame's technology, the IGS, the Gaming Software and the Interface) which is
disclosed, whether verbally or in writing, pursuant to the performance of this
Agreement ("Confidential Information"), using at least the same degree of care
in handling and safeguarding the other's Confidential Information as it used in
handling and safeguarding its own Confidential Information, but in no case less
then reasonable care. Without limiting the generality of the foregoing,
InterGame and MagiNet each agree to use its reasonable best efforts (a) not in
any manner to disclose or otherwise permit any person or entity access to the
other's Confidential Information or any part thereof, except as contemplated
herein in connection with the installation of the Systems within the Field of
Use or except with the other party's express written permission; (b) to ensure
that its employees, agents, representatives and independent contractors are
advised of the confidential nature of the other's Confidential Information and
that they are prohibited from copying or revealing the same except as allowed
under this Agreement; and (c) to take any and all other reasonable actions to
ensure the continued confidentiality and protection of such other party's
Confidential Information and to prevent access thereto by any person or entity
not authorized hereunder. Without limiting the generality of the foregoing,
neither party shall use the other party's Confidential Information for any
purpose whatsoever except (x) in the performance of this Agreement, or (y) as
necessary to respond to any demand for information from any court, governmental
entity or governmental agency, or as may be required by federal or state
securities laws; provided, however, that the recipient will use reasonable
efforts to cooperate with the discloser to minimize such disclosure and to
assist the discloser in obtaining a protective order prior to such disclosure.
Each party acknowledges and agrees that, in the event of its threatened or
actual breach of the provisions of this Section 11.3, damages alone will be an
inadequate remedy, that such breach will cause the other party great, immediate
and irreparable injury and damage, and that the other party shall therefore be
entitled to injunctive and other equitable relief in addition to, and not in
lieu of, any remedies it may have at law or otherwise under this Agreement.
12. REPRESENTATIONS AND INDEMNIFICATION.
12.1. AUTHORITY. InterGame represents to MagiNet that it has
sufficient right, title and interest in IGS to enter into this Agreement, and
that is has no knowledge of any facts related to IGS which might lead to a claim
of infringement of any patent, copyright,
11
<PAGE>
trade secret or other proprietary or contractual rights of any third party.
InterGame shall defend, indemnify and hold MagiNet harmless from any claim,
liability, loss or damage MagiNet may incur as a result of any breach of this
representation by InterGame. In the event that a court of competent jurisdiction
determines such infringement to exist, or otherwise enjoins the use of the IGS
or any portion thereof, InterGame shall, without limiting its other obligations
hereunder, use reasonable efforts to either (i) provide a noninfringing version
of the IGS to MagiNet or (ii) negotiate a license to that portion of the IGS
which has been found to be infringing; provided, that such license is available
to InterGame on commercially reasonable terms and conditions. In addition,
MagiNet, at its option, may direct InterGame by written notice to discontinue,
and may itself discontinue the use of, any Gaming Software title provided by
InterGame hereunder which is the subject of any claim of infringement brought by
or on behalf of a third party.
12.2. PERFORMANCE OF IGS AND INTERFACE. InterGame represents to
MagiNet that the IGS and the Interface shall be free of Non-Conformities and
shall perform in accordance with the IGS documentation and the specifications
agreed upon as set forth in paragraph 7.1 throughout the term of this Agreement
provided that (a) the System is as described in written system specifications
furnished to InterGame pursuant to Section 7.1 hereof and (b) MagiNet obtains,
installs and maintains the hardware required to operate and deliver the IGS for
each installation. InterGame shall use reasonable best efforts to promptly
correct any such Non-Conformity. In the event that MagiNet shall have notified
InterGame of three (3) separate and unrelated occurrences of Non-Conformities
with respect to the IGS, the Interface or any particular Gaming Software title
or InterGame shall not have corrected any such Non-Conformity after two (2)
attempts at correction, InterGame, at MagiNet's option and upon written demand
by MagiNet to InterGame, shall substitute the subject Gaming Software title with
another gaming software title.
InterGame represents to MagiNet that the gambling games supplied to MagiNet
as a part of the IGS will include the number of games, features and quality, and
will be maintained and updated in a manner, equivalent to that provided with
respect to the latest version of any such games produced and made commercially
available by InterGame to any of its other customers. Pursuant to the foregoing
representation, InterGame shall provide as a part of the IGS the nine (9)
gambling games identified on Exhibit B attached hereto. In addition, InterGame
shall use its reasonable best efforts to ensure that the number, features and
quality of such games stay current with the number, features and quality of
commercially available gambling games produced by competitors of InterGame which
are installed either in aircraft or in venues substantially comparable to the
Field of Use. With respect only to installations of IGS at Hyatt hotel
properties, "reasonable best efforts" with respect to this Section 12.2 shall
mean efforts by InterGame with respect to the features, quality and
competitiveness of the IGS gambling games that are equivalent to the efforts
required to be exerted by MagiNet in the provisions set forth in Exhibit C
attached hereto.
12.3 PERFORMANCE OF THE SYSTEM. MagiNet represents to InterGame that
the System (other than the IGS, the Gaming Software and the Interface) shall be
free of Non-Conformities and any defects in design which prevent it from being
used to convey
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<PAGE>
IGS to users of the System, provided that IGS and the Interface operate as
described in written specifications agreed upon by InterGame and MagiNet
pursuant to Section 7.1 hereof. If InterGame reports a Non-Conformity in the
performance of the System (other than the IGS and the Interface), MagiNet shall
use reasonable best efforts to promptly correct any such Non-Conformity.
12.4 MUTUAL INDEMNIFICATION. InterGame and MagiNet shall each
defend, indemnify and hold harmless the other, their officers, directors,
agents, and employees, against all claims, losses, actions, damages, expenses or
other liabilities (including, without limitation, costs and reasonable
attorneys' fees) arising out of or resulting from any act or omission by it, its
agents or subcontractors, which causes bodily injury or death of any person, or
damage to or destruction or any property, except to the extent that such damages
or claims are caused by the other party or by any third party.
13. LIMITATION OF LIABILITY AND WARRANTIES. Under no circumstances shall
either party be liable to the other for any consequential, incidental or special
damages, including loss of profits, even if advised by the other party of the
possibility of such damages. Except as set forth above in Section 12, no
warranty, express or implied, is made or deemed to be made by either party, and
each party expressly disclaims any other such warranty including without
limitation any implied warranty of merchantability or fitness for a particular
purpose.
14. NOTICES. All notices under this Agreement must be in writing and
shall be deemed delivered (a) when personally delivered, (b) ten (10) days after
mailing by certified or registered mail (postage prepaid and return receipt
requested) or (c) upon transmission by telecopier if electronic confirmation of
receipt is received and if written confirmation of the transmission is mailed on
the same day as the transmission by certified or registered mail (postage
prepaid and return receipt requested). Notices shall be sent to the address set
forth below (or to any other address given by either party to the other party in
writing):
MagiNet Corporation 405 Tasman Drive
Attention: President Sunnyvale, California 94089
Facsimile:(415) 734-1687
InterGame Ltd. Gibbons Building, First Floor
Attention: Yohei Yamashita, 10 Queen Street
President Hamilton HM 11, Bermuda
Facsimile:(714) 756-8658
15. RELATIONSHIP OF THE PARTIES. This Agreement does not constitute a
partnership agreement, nor does it create a joint venture, employment or agency
relationship between the parties. Neither party shall hold itself out contrary
to the provisions of this Section 15 or the terms of this Agreement.
16. AMENDMENT. No amendment or modification of this Agreement shall be
effective unless in writing and signed by both parties. Any term, provision or
condition of
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<PAGE>
this Agreement may be amended or modified including with respect only to its
applicability or interpretation under certain expressly specified circumstances
or within certain expressly specified countries, territories or jurisdiction,
pursuant to a written Addendum to this Agreement if such Addendum is signed by
both parties. Except as provided in such Addendum the terms, provisions and
conditions of this Agreement, as otherwise amended and modified from time to
time pursuant to this Section 16, shall not otherwise be effected and shall
remain in full force and effect.
17. WAIVER. No failure or delay by either party in exercising or
enforcing any right, power or remedy under this Agreement shall operate as a
waiver of the right, power or remedy. No waiver of any term, condition, breach
or default of this Agreement shall be construed as a waiver of any other or
subsequent term, condition or default,
18. FORCE MAJEURE. Neither party shall be considered in default or liable
for any delay or failure to perform its obligations under this Agreement if such
failure or delay arises directly or indirectly from forces beyond the control of
the non-performing party, including, but not limited to, acts of nature,
government action, labor disputes, quarantine, shortages of material, unusually
severe weather conditions, earthquakes, war or insurrection. The time for
performance of the affected party's obligations shall be extended for a period
of time equivalent to the delay caused by such force majeure.
19. EXCUSED OR DELAYED PERFORMANCE. Each party's performance under this
Agreement shall be excused or delayed to the extent that third parties (such as
the other party, property management system providers, cable network providers,
suppliers and manufacturers) do not cooperate with either party in its efforts
to perform its duties hereunder. Any such delay shall be allowed for a time
equivalent to the time during which the cause of the delay continues. The
delayed party shall (a) immediately notify the other party when such delay
occurs, (b) use Rs reasonable best efforts to cause the third party to cooperate
and (c) use it reasonable best efforts to And reasonable alternative methods of
performing hereunder.
20. SEVERABILITY. If any provision of this Agreement is held by a court
of competent jurisdiction to be unenforceable or unlawful, the remaining
provisions of this Agreement shall remain in full force and effect to the extent
that the intent of the parties can be enforced.
21. GOVERNING LAW AND VENUE. The validity, construction and performance
of this Agreement shall be governed by the laws of California applicable to
contracts made and to be performed in California, without regard to conflicts of
law rules. The parties hereby consent to venue and jurisdiction in California
with respect to any legal action to be taken with respect to this Agreement.
22. MEDIATION; ARBITRATION.
(a) Neither party shall commence an arbitration proceeding pursuant
to the provisions of paragraph (b) of this Section 22 unless such party shall
first give a written
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<PAGE>
notice (a "Dispute Notice") to the other party setting forth the nature of the
dispute. The parties shall attempt in good faith to resolve the dispute by
mediation under the Commercial Mediation Rules of the American Arbitration
Association ("AAA") in effect on the date of this Agreement. If the parties
cannot agree on the selection of a mediator within twenty (20) days after
delivery of the Dispute Notice, the mediator will be selected by the AAA. If the
dispute has not been resolved by mediation as provided within sixty (60) days
after delivery of the Dispute Notice, then the dispute shall be determined by
arbitration in accordance with the provisions of paragraph (b) of this Section
22.
(b) Any controversy, claim or dispute of whatever nature arising out
of or related to this Agreement or the construction, interpretation,
performance, breach, termination, enforceability or validity thereof, whether
such claim existed prior to or arises on or after the date of this Agreement,
which is not settled through mediation as provided in paragraph (a) above, shall
be determined by arbitration by a panel of three arbitrators in Santa Clara
County, California, governed by the Federal Arbitration Act and administered by
the AAA under its Commercial Arbitration Rules, except that (i) persons eligible
to be selected as arbitrators shall be limited to lawyers with excellent
academic and professional credentials (1) who are or have been a partner in a
highly respected law firm for a least 10 years specializing in either general
commercial litigation or general corporate and commercial matters and (2) who
have had both training and experience as arbitrators, and (ii) each party shall
be entitled to strike on a peremptory basis, for any reason or no reason, any or
all of the names of potential arbitrators on the list submitted to the parties
by the AAA as being qualified in accordance with the criteria set forth herein.
If the parties cannot agree on a mutually acceptable panel of arbitrators from
the one or more lists submitted by the AAA, the AAA shall designate three
persons who, in his or her opinion, meet the criteria set forth herein, which
designees may include persons named on any list submitted by the AAA. Each party
shall be entitled to strike one of such three designees, and the selection of
the panel of arbitrators shall be made from among such designees which have not
been so stricken by either party in accordance with their indicated order of
mutual preference. The arbitrators shall conduct the arbitration in accordance
with the Evidence Code of the State of California, as then existing and in
effect, and will allow usual and customary discovery and document production
prior to such arbitration, subject to any scheduling with respect thereto which
the arbitrators may set in their discretion.
(c) The arbitrators shall have the power to enter any award that
could be entered by a judge of the Superior Court of the State of California
sitting without a jury, and only such power, except that the arbitrators shall
not have the power to award punitive damages, treble or other damages which are
not compensatory, even if permitted under the laws of the State of California.
The arbitrators shall base their award on California law and the judicial
precedent thereof and, unless both parties agree otherwise, shall include in
such award a statement of the reasons and the findings of fact and conclusions
of law upon which the award is based. The arbitration award may be enforced in
any court having jurisdiction over the parties and the subject matter of the
arbitration. Without in any way limiting the foregoing, the parties irrevocably
submit to the non-exclusive jurisdiction of the federal and state courts of
California in any action to enforce an arbitration award.
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<PAGE>
(d) If either party fails to proceed with mediation or arbitration as
provided herein or unsuccessfully seeks to stay such mediation or arbitration,
or fails to comply with any arbitration award, or is unsuccessful in vacating or
modifying the award pursuant to a petition or application for judicial review,
the other party shall be entitled to be awarded costs, including reasonable
attorneys' fees, paid or incurred by such other party in successfully compelling
such arbitration or defending against the attempt to stay, vacate or modify such
arbitration award and/or successfully defending or enforcing the award.
23. SURVIVAL. The provisions of Section 4.4 with respect to payment
obligations of InterGame to MagiNet and Sections 11, 12, 13, 20, 21, 22 and 23
shall survive any termination or expiration of this Agreement.
24. ASSIGNMENT;SUBSIDIARIES. Either party may assign this Agreement to
the surviving entity resulting from a corporate reorganization, merger or sale
of all or substantially all of its assets, so long as the surviving entity
expressly assumes the assignor's obligations under this Agreement in writing.
Otherwise, neither party may assign, voluntarily, by operation of law, or
otherwise, any rights or delegate any duties under this Agreement (other than
the right to receive payments) without the other party's prior written consent,
which shall not be unreasonably withheld. This Agreement will bind and inure to
the benefit of the parties and their respective successors and permitted
assignees.
25. INTERPRETATION. The section and paragraph headings of this Agreement
are intended as a convenience only and shall not affect the interpretation of
its provisions. Where the context of this Agreement requires, singular terms
shall be considered plural, and vice-versa.
26. ENTIRE AGREEMENT. This Agreement, including any schedules, exhibits
and Addenda hereto, as it and they may from time to time be amended, constitutes
the complete, final and entire agreement between the parties, and supersedes all
prior negotiations between the parties concerning its subject matter, except for
the nondisclosure agreement between the parties which has been incorporated into
this Agreement by reference.
27. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall. constitute one and the same instrument; however, this Agreement
shall be no force or effect until executed by both parties.
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IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective as of the first date written above.
MAGINET CORPORATION INTERGAME LTD.
By:/S/ R Craeger By:/s/Y Yamashita
Robert Creager, Chairman Yohel Yamashita, President
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EXHIBIT A
Form of Report of Capital Cost Recovery
---------------------------------------
[Attached]
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<PAGE>
EXHIBIT
-------
MAGINET CORPORATION
REPORT OF CAPITAL COST RECOVERY
Hotel_______
On Revenue Date____________ # Rooms [***]
<TABLE>
<CAPTION>
Basic System Total Per Room
------ --------
<S> <C> <C>
Equipment [***] [***]
Installation [***] [***]
MTV Upgrade [***] [***]
Shipping and Duties [***] [***]
[***] [***]
[***] [***]
Gaming portion % [***] [***]
Gaming portion [***] [***]
Gaming equipment [***] [***]
-------- ----
[***] [***]
Monthly cost recovery [***] [***]
</TABLE>
Capital cost recovered over length of hotel contract, not to exceed 60 months
assumed to be 60 months.
Financing costs estimated at [***]
Recovery of capital cost is based on actual cost of system and financing costs.
18
- -------------------------------------------------------------------------------
*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
<PAGE>
EXHIBIT B
List of Games
-------------
Draw Poker
Joker Poker
Deuces Wild Poker
Bonus Poker [or a substitute title]
Blackjack
Roulette
Three Line Slots
Four Line Slots
Ten-Way Slots
19
<PAGE>
EXHIBIT C
Special Provisions With Respect to Installations of IGS at Hyatt Hotel
----------------------------------------------------------------------
Properties
----------
[Attached]
20
<PAGE>
14. NEW TECHNOLOGIES
----------------
14.1. MagiNet and GDG shall at all times offer to the Hyatt Parties and
each Hotel the most advanced guest video services and features (and
associated technologies) either of them Parties or its competitors
offers to any other hotel.
14.2. MagiNet and GDG shall provide the Hyatt Parties with written notice
of any new guest video :services and features (and associated
technologies) within thirty (30) days of the party's first knowledge
of such development(s).
14.3. The Parties agree that the Advisory Board will periodically,, and at
least quarterly hold a meeting to review the guest video services and
features (and associated technologies) currently available to hotel
chains and hotels competitive with the Hotels and the services and
features (and associated technologies) which may become available in
the industry, whether from MagiNet, GDG or otherwise.
14.4. Should Hyatt determine that it is commercially necessary in order to
maintain its competitive position in the marketplace for one or more
services or features (and associated technologies), or a more
advanced version of existing services or features (and associated
technologies), to be added to the System, then GDG and/or MagiNet
shall within nine (9) months of written notice from the Hyatt Parties
of such determination (which shall be six (6) months in cases where
such service or feature and associated technology is in use in the
marketplace), implement the service or feature and associated
technology in all future Hotel installations and in any Hotels then
subject to Individual Agreements. The failure of MagiNet or GDG to
comply with this provision shall be a default under this Agreement
and shall be subject to the remedies set forth in section 26.3
hereof. The failure of MagiNet and/or GDG to comply with this
provision shall also permit Hyatt and or Hotels to obtain from a
third party those services
or features (and associated technologies) not provided by MagiNet or
GDG, notwithstanding the exclusivity provisions of section 4.3.
hereof.
14.5. Should MagiNet or GDG add to the System a service or feature (and
associated technology) requested by Hyatt or otherwise, such service
or feature (and associated technology) will be implemented in such a
way as not to prevent Hyatt from providing consistent guest services
throughout its Hotels. The failure
of MagiNet and GDG to comply with this provision shall also permit
Hyatt and/or Hotel to obtain any assistance from a third party
necessary to provide such consistent service, notwithstanding the
exclusivity provisions of Section 4.3. hereof.
<PAGE>
ADDENDUM
This Addendum is entered into as of this 8th day of July, 1996, by and
between MagiNet Corporation, a California corporation, including its
subsidiaries ("MagiNet"), and InterGame, Ltd., a Bermuda corporation
("InterGame").
Reference is made to the Agreement Between MagiNet and InterGame dated as
of ___, 1996 (the "Agreement" ). Capitalized terms used in this Addendum and not
otherwise defined herein shall have the respective meanings ascribed thereto in
the Agreement.
In consideration of the following mutual covenants and agreements, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged by the parties, the parties hereby agree as follows:
1. EFFECT OF ADDENDUM ON THE AGREEMENT. Notwithstanding anything to the
-----------------------------------
contrary provided in the Agreement, the parties hereto hereby agree that the
following covenants, agreements, terms and conditions shall amend, modify and
supplement the Agreement, but only with respect to the conduct of business by
the parties in the Philippines. Except as and to the extent provided herein with
respect only to the conduct of business by the parties in the Philippines, the
terms, provisions and conditions of the Agreement shall remain in full force and
effect.
2. ADDITIONAL CONTRACTS. The parties acknowledge and agree that InterGame
--------------------
shall use its best efforts to negotiate and enter into (i) a contract with Delta
Resources Limited, a Bahamian limited corporation ("DRL"), which contract will
provide for the pertinent terms applicable to DRL as set forth herein and shall
be subject to the approval of MagiNet (the "DRL Contract"); and (ii) a contract
with the Philippine Amusement Game Corporation ("PAGCOR"), which contract will
provide for the pertinent terms applicable to PAGCOR as set forth herein and
shall be subject to the approval of MagiNet (the "PAGCOR Contract"). InterGame
will ensure that the PAGCOR Contract contains, among other things, a provision
that PAGCOR will be obligated to enter into a contract with each Hotel Property
(as defined below) with respect to the transactions contemplated by the PAGCOR
Contract and that InterGame and MagiNet will have the right to review and
approve the form and substance of such contract. MagiNet will review each of the
DRL Contract and the PAGCOR Contract and will not disapprove such contracts
unless it has a reasonable good faith business reason for doing so. In the event
that MagiNet disapproves either the DRL Contract or the PAGCOR Contract in
accordance with the provisions of this paragraph 2, MagiNet may terminate this
Addendum immediately upon delivery of written notice to InterGame.
3. ADDITIONAL OBLIGATIONS OF MAGINET. MagiNet shall, promptly upon the
---------------------------------
reasonable request of InterGame, provide a list to InterGame of facilities in
the Field of Use (collectively, the "Hotel Properties" and, individually, a
"Hotel Property"), which list shall include some or all of the hotel properties
set forth on Exhibit A attached hereto, a chronological schedule for the
completion of said installations, subject to the availability of deliverables
from InterGame, Such list may be revised and updated by MagiNet from time to
time to reflect any changes thereto which MagiNet
<PAGE>
may determine in its discretion to be necessary or appropriate. MagiNet may
also install and maintain Systems at Hotel Properties which are not identified
on Exhibit A. Notwithstanding the foregoing, and subject to Section 2(e) of the
Agreement, MagiNet shall use its commercially reasonable best efforts to solicit
the installation of the Systems at all Hotel Properties identified on Exhibit A
and shall use its commercially reasonable best efforts to negotiate and enter
into contracts with each such Hotel Property with respect to the installation,
operation and maintenance of such Systems in form and substance substantially
consistent with its then existing policies and practice and to cause said
installations to occur at each Hotel Property in accordance with such
chronological schedule of installations set forth on such list. During the term
of this Addendum, MagiNet shall use its reasonable best efforts to ensure that
the installed Systems operate in such a manner to, among other things, provide
sufficient capacity to satisfy simultaneous user demand demonstrated from time
to time at each such Hotel Property and to maintain the installed Systems (other
than the IGS, the Gaming Software or the Interface) in good working order for
continual use at each Hotel Property. Subject to MagiNet's rights of recoupment
set forth in the Agreement, MagiNet shall be solely responsible for and shall
pay for all costs associated with the installation, operation and maintenance of
the Systems (other than the IGS and the Interface) during the term of this
Addendum. Nothing in the Agreement or this Addendum shall entitle InterGame or
any other entity to any payment or revenue from any of MagiNet's interactive
entertainment services and/or products generated by the Systems at the Hotel
Properties (or elsewhere) which do not involve the IGS or the Gaming Software.
Upon or prior to installation at any Hotel Property, MagiNet shall secure
competitive financing or shall self-finance for a term of not greater than five
(5) years to pay for all Capital Costs.
Without in any way limiting the generality of the foregoing, MagiNet will
provide for the activation of the Systems by the use of a credit card "swipe" to
be used with the television set in each room in which a System is installed and,
where required, will also provide a lock-out feature on the Systems.
4. ADDITIONAL OBLIGATIONS OF INTERGAME. Within one hundred eighty (180)
-----------------------------------
days of the execution of the PAGCOR Contract, InterGame shall deliver to MagiNet
the latest available version of a series of nine (9) casino style games
comprising the Gaming Software for installation into the Systems for use within
the Hotel Properties, the working titles of which games are set forth on Annex I
attached hereto. Delivery of such Gaming Software shall be made to MagiNet at
its main office in California. InterGame shall from time to time provide to
MagiNet, for installation in all Hotel Properties, upgrades of all Gaming
Software and new Gaming Software as they become commercially available during
the term of the PAGCOR Contract and any extensions thereof.
InterGame shall cause to be kept and maintained at its principal office in
Hamilton, Bermuda full and correct books and financial records of the revenues
generated by the Gaming Software pursuant to the PAGCOR Contract. Such books
and accounts shall be kept in such a manner as to clearly separate all income
and expenses and to which sources they are attributable and shall, during
regular business hours, be promptly made available for inspection and
duplication by MagiNet or its designated representatives, including attorneys,
auditors and accountants, upon reasonable request
<PAGE>
by MagiNet. For financial reporting purposes in accordance with the Agreement
and this Addendum, InterGame shalt follow U.S. generally accepted accounting
principles.
Without in any way limiting the foregoing, InterGame agrees to perform the
following additional functions:
(a) As soon as available, deliver to MagiNet and PAGCOR a copy of a
letter of certification from International Gaming Laboratories, a company
located in the United States whose primary business is to certify as to the
randomness integrity of gambling games, to the effect that the gambling games
comprising the Gaming Software are in compliance with applicable "random
outcome" standards.
(b) Provide a reasonably detailed general accounting of all
transactions with respect to the Systems to MagiNet, DRL and PAGCOR on or prior
to the last business day of each calendar month.
(c) Establish, in its sole discretion, the "hold" percentage (i.e.,
the amount which the operator of the IGS deducts and retains out of the
aggregate amount wagered by users of the IGS) with respect to all titles
comprising the (Gaming Software, which "hold" percentage shall not be less than
[***]; provided, that, pursuant to the PAGCOR Contract, InterGame or PAGCOR
shall be allowed to recommend any "hold" percentage in excess of [***] with
respect to any single game and shall be free to agree upon any such recommended
"hold" percentage excess of [***].
5. ALLOCATION OF REVENUE. For purposes of this Addendum, "Gross Revenue"
---------------------
shall mean all moneys generated through the Gaining Software from any source of
any kind within the Systems at the Hotel Properties collected by PAGCOR pursuant
to the PAGCOR Contract or otherwise. As used in this Addendum, "Contract
Revenue" shall mean the remainder of Gross Revenue received by InterGame from
PAGCOR pursuant to the PAGCOR Agreement after deduction and payment by PAGCOR of
(i) an amount equal to [***] of Gross Revenue for government franchise fees and
any other administrative and governmental charges, if any (the "Governmental
Fees"); (ii) an amount equal to [***] of Gross Revenue for fees, if any, with
respect to the Hotel Properties (the "Hotel Fees"); (iii) the amortized Capital
Costs incurred by MagiNet (the "Amortized Capital Costs Fee") (payable to
MagiNet); (iv) an amount equal to [***] of Gross Revenue for expenses incurred
in connection with the maintenance of the Gaming Software (payable to InterGame)
(the "Software Maintenance Fee"); (v) an amount equal to [***] of Gross Revenue
for expenses incurred in connection with the maintenance of the Systems (other
than the Gaining Software), including any third party license or other fees
associated with the Systems ("System Maintenance Fee") (payable to MagiNet);
(vi) a technical royalty in an amount equal to [***] of Gross Revenue (the
"Technical Royalty") (payable to InterGame, for allocation equally among and
distribution by InterGame to MagiNet, DRL and InterGame pursuant to Section 6
below); and (vii) an amount equal to [***] of balance of Gross Revenue remaining
after payment of the amounts set forth in clauses (i) through (vi), payable to
PAGCOR. Except as herein provided, no other deductions shall be permitted unless
approved in writing by InterGame, MagiNet, DRL and PAGCOR.
[***] Confidential treatment requested pursuant to a request for confidential
treatment filed with the securities and exchange commission. Omitted
portions have been filed separately with the Commission.
<PAGE>
6. PAYMENTS.
--------
6.1 PAYMENTS BY PAGCOR. Pursuant to the PAGCOR Contract, PAGCOR
------------------
shall collect Gross Revenue and pay the following out of Gross Revenue (after
deduction of credit card processing fees) on the last day of each month in the
following order of priority:
6.1.1 FIRST, the Governmental Fees;
6.1.2 SECOND, the Hotel Fees;
6.1.5 THIRD, the Amortized Capital Costs Fee, to MagiNet; and
6.1.3 FOURTH, the Software Maintenance Fee, to InterGame;
6.1.4 FIFTH, the System Maintenance Fee, to MagiNet;
6.1.6 SIXTH,, the Technical Royalty Fee, to InterGame (for
further disbursement to MagiNet, DRL and InterGame); and
6.1.7 SEVENTH, the Contract Revenue to InterGame.
6.2 DISTRIBUTIONS BY INTERGAME. Prior to any distribution by
--------------------------
InterGame of any portion of the Contract Revenue to any person, InterGame shall
allocate equally among and distribute to MagiNet, DRL and InterGame the
Technical Royalty within ten (10) days of receipt thereof from PAGCOR. After
payment of the Technical Royalty, InterGame shall pay to DRL an amount equal to
[***] of the difference between Contract Revenue and the Technical Royalty and,
thereafter, shall allocate equally and distribute to MagiNet, DRL and InterGame
the balance of Contract Revenue remaining, if any.
7. BANK ACCOUNT FOR DEPOSIT OF CONTRACT REVENUE. Unless otherwise agreed
--------------------------------------------
in writing by MagiNet and InterGame, all Contract Revenue from PAGCOR pursuant
to the PAGCOR Contract shall be denominated in U. S. Dollars and shall be
deposited by InterGame with the Bank of Bermuda. Withdrawals from said bank or
banks shall be made by signature of InterGame, or by such other individual(s) as
may be agreed in writing by MagiNet and InterGame. There shall be no commingling
of the monies and funds received as Contract Revenue with monies and funds of
any other entity or person and said monies and funds shall be maintained in a
separate and distinct account.
8. TERMINATION This Addendum may be terminated be either party, upon
-----------
written notice to the other party, at any time after the expiration or other
termination of the PAGCOR Contract.
9. COUNTERPARTS. This Addendum may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original and all of which
together shall comprise but a single instrument.
- -------------------------------------------------------------------------------
*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto have caused this Addendum to
be executed by its duly authorized representative as of the date first above
written.
INTERGAME, LTD.,
a Bermuda corporation
By: /s/ Y. Yamashita
Yohei Yamashita, President
MAGINET CORPORATION,
A California corporation
By: /s/ R Creager
Robert Creager, Chairman
<PAGE>
ANNEX I
List of Titles
--------------
Draw Poker
JokerPoker
Deuces Wild Poker
Bonus Poker [or a substitute title]
Blackjack
Roulette
Three Line Slots
Four Line Slots
Ten-Way Slots
<PAGE>
EXHIBIT A
Hotel Properties
----------------
[Attached]
<PAGE>
PHILIPPINES HOTEL ANALYSIS
Prepared by
InterGame, Ltd.
[***]
[***] Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange
Commission. Omitted portions have been filed separately
with the Commission.
<PAGE>
EXHIBIT 10.10
================================================================================
MAGINET CORPORATION
UP TO $30,000,000
10.5% SENIOR SECURED NOTES DUE 2000
______________________
NOTE AGREEMENT
______________________
Dated August 15, 1995
================================================================================
*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
<PAGE>
TABLE OF CONTENTS
Page
----
<TABLE>
<CAPTION>
<S> <C>
1.AUTHORIZATION OF ISSUE OF SECURITIES
1.1 Series A Notes.................................................... 1
1.2 Series B Notes.................................................... 1
1.3 Pledge Agreement.................................................. 2
1.4 Warrants.......................................................... 2
1.5 Reference to Notes................................................ 2
2. PURCHASE AND SALE OF SECURITIES......................................... 2
2.1 Purchase and Sale of Securities................................... 2
2.2 Purchase and Sale of Series B Notes............................... 3
3. CONDITIONS OF CLOSING................................................... 4
3.1 Representations and Warranties.................................... 4
3.2 Performance; No Default........................................... 4
3.3 Compliance Certificate............................................ 4
3.4 Opinion of Purchasers' Special Counsel............................ 4
3.5 Opinion of Company's Counsel...................................... 4
3.6 Opinions of Local Counsel......................................... 5
3.7 Opinion of Agent's Counsel........................................ 5
3.8 Pledge Agreement.................................................. 5
3.9 Collateral Assignment Agreement................................... 5
3.10 Shareholders' Agreement........................................... 5
3.11 Corporate Reorganization.......................................... 6
3.12 Purchase Permitted by Applicable Laws............................. 6
3.13 Payment of Closing Fees........................................... 6
3.14 Private Placement Number.......................................... 6
3.15 Proceedings....................................................... 6
3.16 Appointment of Agent.............................................. 6
3.17 Additional Financing.............................................. 6
3.18 Sale of Securities to other Initial Purchasers.................... 7
3.19 Conditions at Second Closing Date................................. 7
3.20 Principal Amount of Series B Notes................................ 7
3.21 Accession to Appointment Agreement................................ 7
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................... 7
4.1 Organization, Standing, etc....................................... 7
4.2 Authorization; Enforceability..................................... 8
4.3 Warrants and Warrant Shares....................................... 8
4.4 Qualification..................................................... 8
4.5 Financial Statements.............................................. 8
4.6 Actions Pending................................................... 9
4.7 Outstanding Debt.................................................. 9
4.8 Title to Properties............................................... 9
4.9 Intellectual Properties........................................... 9
4.10 Taxes............................................................. 10
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
4.11 Compliance with Laws, etc......................................... 10
4.12 Conflicting Agreements and Other Matters.......................... 10
4.13 Offering of Securities............................................ 11
4.14 Use of Proceeds................................................... 11
4.15 ERISA............................................................. 11
4.16 Governmental Consent.............................................. 13
4.17 Zoning and Environmental Compliance............................... 13
4.18 Investment Company Act and Holding Company........................ 13
4.19 Disclosure........................................................ 14
4.20 Solvency.......................................................... 14
4.21 Foreign Assets Control Regulations, etc........................... 14
4.22 Hotel Contracts................................................... 14
4.23 Joint Venture Agreements.......................................... 15
5. REPRESENTATIONS OF EACH PURCHASER....................................... 15
5.1 Nature of Purchase................................................ 15
5.2 Source of Funds................................................... 15
5.3 Release of Collateral............................................. 16
6. PREPAYMENTS............................................................. 17
6.1 Optional Prepayment............................................... 17
6.2 Notice of Optional Prepayment..................................... 17
6.3 Partial Payments Pro Rata......................................... 18
6.4 Retirement of Notes............................................... 18
6.5 Surrender of Notes on Prepayment.................................. 18
7. COVENANTS............................................................... 18
7.1 Books of Record and Account....................................... 18
7.2 Financial Statements, Notices, etc................................ 18
7.3 Inspection of Property............................................ 22
7.4 Covenant to Secure Notes Equally.................................. 22
7.5 Maintenance of Corporate Existence................................ 23
7.6 Maintenance of Properties......................................... 23
7.7 Insurance......................................................... 23
7.8 Taxes............................................................. 23
7.9 Compliance with Laws, etc......................................... 24
7.10 Environmental Compliance.......................................... 24
7.11 Pari Passu Ranking................................................ 24
7.12 Payment of Notes.................................................. 24
7.13 Security Documents; Further Assurances............................ 25
7.14 Foreign Subsidiaries' Security.................................... 25
7.15 Pledge of Shares of New Subsidiaries.............................. 26
7.16 Notification of Registration...................................... 26
7.17 Sub-licences or Assignments and Consents.......................... 26
7.18 Removal of Legends................................................ 26
8. NEGATIVE COVENANTS...................................................... 26
8.1 Liens.............................................................. 27
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
8.2 Restricted Payments................................................ 29
8.3 Adjusted Consolidated Net Worth.................................... 30
8.4 Total Debt to Total Adjusted Capitalization........................ 30
8.5 Total Debt to Historical EBITDA.................................... 30
8.6 Historical EBITDA.................................................. 30
8.7 Merger, Consolidation, etc......................................... 31
8.8 Sale of Assets..................................................... 32
8.9 Cumulative Installed Rooms......................................... 33
8.10 Offering of Adult Titles........................................... 34
8.11 Amendments to the Technology License Agreement..................... 34
8.12 Transactions with Affiliates....................................... 34
8.13 Additional Pledged Securities; Restrictions
on PPV............................................................. 34
9. EVENTS OF DEFAULT AND ENFORCEMENT........................................ 36
9.1 Events of Default; Acceleration.................................... 36
9.2 Rescission of Acceleration......................................... 38
9.3 Notice of Acceleration or Rescission............................... 38
9.4 Other Remedies..................................................... 39
10. DEFINITIONS AND INTERPRETATION, ETC...................................... 39
10.1 Defined Terms...................................................... 39
10.2 Accounting Principles, Terms and Determinations.................... 47
11. MISCELLANEOUS............................................................ 47
11.1 Payments........................................................... 48
11.2 Expenses........................................................... 49
11.3 Consent to Amendments.............................................. 50
11.4 Solicitation of Holders of Notes................................... 50
11.5 Form, Registration, Transfer and Exchange of
Notes; Lost Notes.................................................. 50
11.6 Persons Deemed Owners.............................................. 51
11.7 Survival of Representations and Warranties......................... 51
11.8 Successors and Assigns............................................. 52
11.9 Disclosure to Other Persons........................................ 52
11.10 Notices............................................................ 52
11.11 Payments Due on Non-Business Days.................................. 53
11.12 Satisfaction Requirement........................................... 53
11.13 Entire Agreement................................................... 53
11.14 Governing Law...................................................... 53
11.15 Severability....................................................... 53
11.16 Descriptive Headings............................................... 53
11.17 Counterparts....................................................... 53
11.18 Severalty of Obligations........................................... 54
11.19 Consent to Jurisdiction; Service of Process........................ 54
11.20 Waiver of Jury Trial............................................... 54
</TABLE>
<PAGE>
PURCHASER SCHEDULE
SCHEDULE 1.2 - Pledged Security
SCHEDULE 3.11 - Description of Reorganization
SCHEDULE 4.1 - Subsidiaries
SCHEDULE 4.7 - Outstanding Debt
SCHEDULE 4.9 - Related Interests in Intellectual Property
SCHEDULE 4.12 - Restrictive Covenants
SCHEDULE 4.15 - ERISA
SCHEDULE 4.16 - Governmental Consents
SCHEDULE 8.1 - Liens
EXHIBIT A-1 - Form of Series A Note
EXHIBIT A-2 - Form of Series B Note
EXHIBIT B-1 - Form of Pledge Agreement
EXHIBIT B-2 - Form of Pledge Agreement (Japanese law)
EXHIBIT C - Form of Warrant
EXHIBIT D-1 - Form of Opinion of Counsel to the Company
EXHIBIT D-2 - Form of Opinion of Counsel to the Agent
EXHIBIT D-3 - Form of Local Counsel Opinion
EXHIBIT E - Form of Collateral Assignment Agreement
EXHIBIT F - Form of Appointment Agreement
EXHIBIT G - Form of Second Amendment to Shareholders' Agreement
EXHIBIT H - Gross Revenue Analysis
<PAGE>
MAGINET CORPORATION
405 TASMAN DRIVE
SUNNYVALE, CALIFORNIA 94089
Senior Secured Notes due 2000 with Warrants
August 15, 1995
To Each of the Purchasers Named in
the Purchaser Schedule Attached Hereto
Ladies and Gentlemen:
The undersigned, MagiNet Corporation, a company organized under the
laws of the State of California (the "Company"), hereby agrees with each of the
purchasers named in the Purchaser Schedule attached hereto (herein called the
"Initial Purchasers") and any subsequent purchaser which executes an instrument
of accession to this Note Agreement in the form of Annex I attached hereto
(herein called the "Subsequent Purchasers" and together with the Initial
Purchasers, the "Purchasers") as follows:
SECTION 1. AUTHORIZATION OF ISSUE OF SECURITIES.
1.1. Series A Notes. The Company has authorized the issue and sale
of its senior promissory notes (herein called the "Series A Notes") in the
aggregate principal amount of $24,900,000 to be dated the date of issue thereof,
to mature August 15, 2000, to bear interest on the unpaid balance thereof from
the date thereof until the principal thereof shall have become due and payable
at the rate of 10.5% per annum (subject to adjustment pursuant to Sections 8.6
and 8.9) and on overdue payments at the rate specified therein, each such
promissory note to be substantially in the form of Exhibit A-1 attached hereto.
The Series A Notes issued pursuant hereto will constitute direct, and, except as
provided herein, secured obligations of the Company and will rank at least pari
passu with all other outstanding obligations of the Company, present or future.
1.2. Series B Notes. On or before December 31, 1995, the Company may
authorize the issue and sale of senior promissory notes (herein
<PAGE>
2
called the "Series B Notes") to one or more Subsequent Purchasers reasonably
acceptable to the Initial Purchasers, in the aggregate principal amount of up to
$5,100,000, to be dated the date of issue thereof, to mature on August 15, 2000,
to bear interest on the unpaid balance thereof from the date thereof until the
principal thereof shall have become due and payable at a rate per of 10.5% annum
(subject to adjustment pursuant to Sections 8.6 and 8.9) and on overdue payments
at the rate specified therein, each such promissory note to be substantially in
the form of Exhibit A-2 attached hereto. Any Series B Notes issued pursuant
hereto will constitute direct, and, except as provided herein, secured
obligations of the Company and will rank at least pari passu with all other
outstanding obligations of the Company, present or future.
1.3. Pledge Agreement. The obligations of the Company hereunder and
under each of the Notes shall be secured by way of a pledge of the amount of
capital stock or similar equity interests specified in Schedule 1.2 opposite the
name of each of the companies listed on Schedule 1.2, together with all proceeds
thereof (collectively, the "Pledged Securities") in favor of The Chase Manhattan
Bank, N.A., as collateral agent (the "Agent") for the Purchasers, pursuant to
one or more pledge agreements in substantially the form of Exhibit B-1 attached
hereto, other than with respect to PPV Japan, Inc, the Pledged Securities of
which shall be pledged pursuant to an agreement of assignment of collateral in
substantially the form of Exhibit B-2 attached hereto (each a "Pledge
Agreement").
1.4. Warrants. The Company will authorize the issue of warrants in
substantially the form of Exhibit C hereto (the "Warrants") to subscribe at the
price per share (subject to adjustment as set forth in the Warrants) set forth
in the Warrants for up to 1,714,286 (subject to adjustment as set forth in
Section 4.3 and in the Warrants) shares of common stock of the Company, no par
value per share (the "Common Stock").
1.5. Reference to Notes. The term "Notes" as used herein shall
include each of the Series A Notes and Series B Notes (each a "Series") and any
Note delivered pursuant to any provision of this Agreement and each such senior
promissory note delivered in substitution or exchange for any other Note
pursuant to any such provision. The term "Warrants" as used herein shall
include each such common stock purchase warrant delivered pursuant to any
provision of this Agreement and each such warrant delivered in substitution or
exchange for any other Warrant pursuant to any such provision. The term
"Securities" shall include both the Notes and the Warrants.
SECTION 2. PURCHASE AND SALE OF SECURITIES.
2.1. Purchase and Sale of Securities. The Company hereby agrees to
sell to each Initial Purchaser, and, subject to the terms and conditions hereof,
each Initial Purchaser hereby agrees (x) to purchase from the Company the
aggregate principal amount of the Series A Notes set forth opposite such
NOTE AGREEMENT
<PAGE>
3
Initial Purchaser's name in the Purchaser Schedule attached hereto at the
purchase price of 100% of such aggregate principal amount and (y) to accept from
the Company the aggregate number of Warrants set forth opposite such Initial
Purchaser's name in the Purchaser Schedule attached hereto. The Company will
deliver to such Initial Purchaser, at the offices of White & Case, at 1155
Avenue of the Americas, New York, New York 10036, (i) one or more Series A Notes
registered in such Initial Purchaser's name (or in the name of such Initial
Purchaser's nominee), evidencing Series A Notes in the aggregate principal
amount of Series A Notes to be purchased by such Initial Purchaser and in the
denomination or denominations specified with respect to such Initial Purchaser
in the Purchaser Schedule against payment by such Initial Purchaser of the
purchase price thereof by transfer of immediately available funds for credit to
the Company's account #035004328-7 at Silicon Valley Bank, Santa Clara,
California, ABA No. 121-140-399, and (ii) one or more Warrants registered in
such Initial Purchaser's name, evidencing the aggregate number of Warrants to be
delivered to such Initial Purchaser, on the date of closing, which shall be
August 15, 1995 or any other date on or before August 31, 1995 upon which the
Company and the Initial Purchasers may mutually agree (herein called the "First
Closing Date").
If at the First Closing Date the Company fails to tender the
Securities to each Initial Purchaser as provided or any of the conditions
specified in Section 3 shall not have been fulfilled to the satisfaction of each
Initial Purchaser, such Initial Purchaser will, at its election, be relieved of
all further obligations under this Agreement, without thereby waiving any other
rights that it may have by reason of such failure or nonfulfillment.
2.2. Purchase and Sale of Series B Notes. The Company may from time
to time agree to sell to a Subsequent Purchaser reasonably acceptable to the
holders of the Series A Notes, and, subject to the terms and conditions hereof,
each such Subsequent Purchaser shall (x) execute and deliver an instrument of
accession in the form of Annex I hereto which shall provide the information for
the Purchaser Schedule, which shall be supplemented accordingly, (y) purchase
from the Company the aggregate principal amount of the Series B Notes set forth
opposite such Subsequent Purchaser's name in the Purchaser Schedule as so
supplemented at the purchase price of 100% of such aggregate principal amount
and (y) if applicable accept from the Company, the aggregate number of Warrants
offered to such Purchaser. The Company will deliver to such Subsequent
Purchaser at the offices of White & Case at 1155 Avenue of the Americas, New
York, New York 10036, (i) one or more Series B Notes registered in such
Subsequent Purchaser's name (or in the name of such Subsequent Purchaser's
nominee), evidencing Series B Notes in the aggregate principal amount of Series
B Notes to be purchased by such Subsequent Purchaser and in the denomination or
denominations specified with respect to such Subsequent Purchaser in the
Purchaser Schedule against payment by such Subsequent Purchaser of the purchase
price thereof by transfer of immediately available funds for credit to the bank
account of the Company
NOTE AGREEMENT
<PAGE>
4
with a bank in the United States, as specified by the Company and (ii) if
applicable, one or more Warrants registered in such Subsequent Purchaser's name,
evidencing the aggregate number of Warrants to be delivered to such Subsequent
Purchaser, on the second closing date, which shall be on such date on or before
December 31, 1995 as the Company and the Subsequent Purchasers may mutually
agree (herein called the "Second Closing Date"). The term "closing date" or
"date of closing" shall mean either the First Closing Date or the Second Closing
Date, as the case may be.
SECTION 3. CONDITIONS OF CLOSING. Each Initial Purchaser's obligation
to purchase and pay for the Series A Notes to be purchased by such Initial
Purchaser hereunder and each Initial Purchaser's obligation to accept the
Warrants to be issued to each Initial Purchaser hereunder is subject to the
satisfaction, on or before the First Closing Date, of the conditions set forth
in Sections 3.1 through 3.18, inclusive. Each Subsequent Purchaser's obligation
to purchase and pay for the Series B Notes which may be purchased by a
Subsequent Purchaser hereunder and each Subsequent Purchaser's obligation to
accept Warrants, if any, which may be issued to each Subsequent Purchaser
hereunder is subject to the satisfaction, on or before the Second Closing Date,
of the conditions set forth in Sections 3.19 through 3.21, inclusive.
3.1. Representations and Warranties. The representations and
warranties of the Company contained in this Agreement and the other Note
Documents and those otherwise made in writing by or on behalf of the Company in
connection with the transactions contemplated by this Agreement shall be true on
and as of the First Closing Date, except as affected by the consummation of such
transactions.
3.2. Performance; No Default. The Company shall have performed and
complied with all agreements and conditions contained in this Agreement and any
other Note Document required to be performed or complied with by it prior to or
at the closing and at the time of the closing there shall exist no Event of
Default or Default.
3.3. Compliance Certificate. The Company shall have delivered to such
Initial Purchaser an Officers' Certificate, dated the First Closing Date,
certifying that the conditions specified in Sections 3.1 and 3.2 have been
complied with or fulfilled.
3.4. Opinion of Initial Purchasers' Special Counsel. Such Initial
Purchaser shall have received from White & Case, who are acting as special
counsel for the Initial Purchasers in connection with this transaction, a
favorable opinion satisfactory to such Initial Purchaser as to such matters
incident to the matters herein contemplated as such Initial Purchaser may
reasonably request.
NOTE AGREEMENT
<PAGE>
5
3.5. Opinion of Company's Counsel. Such Initial Purchaser shall have
received from Wilson, Sonsini, Goodrich & Rosati, U.S. counsel for the Company,
a favorable opinion satisfactory to such Initial Purchaser and substantially in
the form of Exhibit D-1 attached hereto.
3.6. Opinions of Local Counsel. Such Initial Purchaser shall have
received from local counsel in the respective jurisdictions of organization for
each Subsidiary and Joint Venture Vehicle listed on Schedule 1.2, favorable
opinions satisfactory to such Initial Purchaser and substantially in the form of
Exhibit D-2 attached hereto.
3.7. Opinion of Agent's Counsel. Such Initial Purchaser shall have
received from White & Case, counsel for the Agent, a favorable opinion
satisfactory to such Initial Purchaser and substantially in the form of Exhibit
D-3 attached hereto.
3.8. Pledge Agreement. The Company shall have duly authorized,
executed and delivered a Pledge Agreement, and any other Pledge Agreements as
such Initial Purchaser reasonably deems advisable in connection with the Pledged
Securities and such Initial Purchaser shall have received a certified copy
thereof, and at the First Closing Date such Pledge Agreement(s) shall be in full
force and effect and shall constitute a valid, binding and enforceable
obligation in accordance with its terms, and the Company shall cause to be
delivered to the Agent all the certificated Pledged Securities, if any, referred
to in any such Pledge Agreement, together with executed and undated stock
powers, and such Initial Purchaser shall have received such confirmation from
the Company and the Agent with respect thereto as it may reasonably request. At
the First Closing Date, such Initial Purchaser shall receive copies of such
Pledge Agreement(s) in the form executed and delivered by the parties thereto.
3.9. Collateral Assignment Agreement. The Company shall have caused
PPV to have duly authorized, executed and delivered a collateral assignment
agreement with respect to the Technology License Agreement in substantially the
form of Exhibit E hereto (the "Collateral Assignment Agreement") in favor of the
Agent for the benefit of the Noteholders and such Initial Purchaser shall have
received a certified copy thereof, and at the First Closing Date such Collateral
Assignment Agreement shall be in full force and effect and shall constitute a
valid, binding and enforceable obligation in accordance with its terms. At the
First Closing Date, such Initial Purchaser shall receive copies of such
Collateral Assignment Agreement in the form executed and delivered by the
parties thereto. The Collateral Assignment Agreement shall allow Pacific Pay
Video Limited to sublicense or to assign rights under the Technology License
Agreement to Subsidiaries and Joint Venture Vehicles of the Company.
NOTE AGREEMENT
<PAGE>
6
3.10. Shareholders' Agreement. The second amendment to the
Shareholders' Agreement substantially in the form of Exhibit G hereto shall have
been duly authorized, executed and delivered by the parties thereto, and such
Initial Purchaser shall have received fully executed counterparts thereof, and
on the date of the First Closing Date, the Shareholders' Agreement, as amended,
shall be in full force and effect and such Initial Purchaser shall have received
such confirmation from the Company with respect thereto as such Initial
Purchaser may reasonably request.
3.11. Corporate Reorganization. The corporate reorganization
described in Schedule 3.11 shall have occurred and except as described in
Schedule 3.11, all of the assets of PPV shall have been duly and validly
transferred to the Company and such Initial Purchaser shall have received such
confirmation from the Company with respect thereto as such Initial Purchaser may
reasonably request.
3.12. Purchase Permitted By Applicable Laws. The purchase of and
payment for the Notes and acceptance of the Warrants by such Initial Purchaser
on the First Closing Date on the terms and conditions herein provided (including
the use of the proceeds of such Notes by the Company) shall not violate any
applicable law or governmental regulation (including, without limitation,
section 5 of the Securities Act or Regulation G, T, U or X of the Board of
Governors of the Federal Reserve System), shall not subject such Initial
Purchaser to any tax, penalty, liability or other undesirable condition under or
pursuant to any applicable law or governmental regulation, shall not require
reliance by such Initial Purchaser on provisions (such as Section 1405(a)(8) of
the New York Insurance Law) permitting limited investments by insurance
companies without restriction as to the character of the particular investment,
and such Initial Purchaser shall have received such certificates or other
evidence as it may request to establish compliance with this condition.
3.13. Payment of Closing Fees. The Company shall have paid the
reasonable fees, charges and disbursements of White & Case, special counsel to
the Initial Purchasers and Agent and of local counsel, if any, retained by the
Initial Purchasers, which are reflected in statements of such counsel rendered
to the Company prior to or on the First Closing Date.
3.14. Private Placement Number. White & Case shall have obtained for
the Notes a private placement number issued by Standard & Poor's CUSIP Service
Bureau (in cooperation with the Securities Valuation Office of the National
Association of Insurance Commissioners).
3.15. Proceedings. All corporate and other proceedings taken or to be
taken in connection with the transactions contemplated hereby and all documents
incident thereto shall be satisfactory in substance and form to such Initial
Purchaser, and such Initial Purchaser shall have received all such
NOTE AGREEMENT
<PAGE>
7
counterpart originals or certified or other copies of such documents as it may
reasonably request.
3.16. Appointment of Agent. The Company, the Agent and each of the
Initial Purchasers shall have executed and delivered the Appointment Agreement.
3.17. Additional Financing. The Company shall have provided evidence
in form and substance satisfactory to such Initial Purchaser that an investor
acceptable to such Initial Purchaser shall be committed to
make equity and/or debt investments in the Company on terms and conditions
satisfactory to such Initial Purchaser in an aggregate amount of at least
$5,100,000 prior to January 1, 1996.
3.18. Sale of Securities to other Initial Purchasers. The Company
shall have sold to the Initial Purchasers the Notes to be purchased by them at
the First Closing Date and shall have received payment in full therefor and the
Company shall have issued to the other Initial Purchasers the Warrants to be
issued to them at the First Closing Date.
3.19. Conditions at Second Closing Date. The Series A Notes shall be
outstanding and the conditions specified in Sections 3.1 through 3.15,
inclusive, shall have been satisfied as of the Second Closing Date with respect
to the Series B Notes (unless otherwise waived by the Subsequent Purchasers)
with all references in such Sections (and in the exhibits referenced therein) to
Series A Notes being read as Series B Notes, Initial Purchaser being read as
Subsequent Purchaser and to First Closing Date being read as the Second Closing
Date, mutatis mutandis.
3.20. Principal Amount of Series B Notes. The outstanding aggregate
principal amount of the Series B Notes shall be not greater than $5,100,000.
3.21. Accession to Appointment Agreement. Such Subsequent Purchasers
shall have acceded to the Appointment Agreement in accordance with the terms
thereof.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company represents and warrants as follows:
4.1. Organization, Standing, etc. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. Schedule 4.1 sets forth (i) the name of each Subsidiary and Joint
-
Venture Vehicle of the Company, (ii) its jurisdiction of incorporation or, if
--
not incorporated, operations and (iii) the percentage of its Voting Shares owned
---
by the Company and each other Subsidiary or Joint
NOTE AGREEMENT
<PAGE>
8
Venture Vehicle of the Company. All of the Voting Shares of each Subsidiary and
Joint Venture Vehicle shown in Schedule 4.1 as being owned by the Company and
its Subsidiaries have been validly issued, are fully paid and nonassessable and
are owned by the Company or another Subsidiary free and clear of any Lien
(except for Liens arising under the Security Documents or otherwise disclosed in
Schedule 4.1). Each Subsidiary and Joint Venture Vehicle is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization and has all requisite corporate power and authority and all
material rights and permits to own and operate its properties and to carry on
its business as now conducted and as proposed to be conducted.
4.2. Authorization; Enforceability. The Company has all requisite
corporate power and authority and all material rights and permits to own and
operate its properties, to carry on its business as now conducted and as
proposed to be conducted, to enter into this Agreement, the other Note
Documents, to issue and sell the Securities and to carry out the terms of the
Note Documents. The execution and delivery of this Agreement and each of the
other Note Documents and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
on the part of the Company, and this Agreement and the other Note Documents
constitute, and the Securities when issued hereunder for value will each
constitute, a legal, valid and binding obligation of the Company, enforceable in
accordance with their respective terms.
4.3. Warrants and Warrant Shares. The Company has reserved and
unissued shares of its Common Stock at least equal to the shares of Common Stock
issuable upon exercise of the Warrants. The shares of Common Stock issuable
upon exercise of any Warrant have been duly authorized, and upon payment
therefor in accordance with the terms of such Warrant, shall be validly issued,
fully paid and nonassessable shares, with no liability on the part of the
exercising holder with respect to obligations of the Company. As of the First
Closing Date, on a fully-diluted basis the Common Stock into which the Warrants
are exercisable represents approximately 11.4% of the capital stock of the
Company; provided, that if the conditions specified in Section 1.b of the
Warrants are not satisfied on or before December 31, 1995, the stock into which
the Warrants are exercisable will represent approximately 23.2% of the capital
stock of the Company.
4.4. Qualification. Each of the Company, its Subsidiaries and its
Joint Venture Vehicles is duly qualified or authorized to do business and is in
good standing in every jurisdiction in which the properties owned, leased or
operated by the Company or such Subsidiary or Joint Venture Vehicle or the
nature of the business now conducted by the Company or such Subsidiary or Joint
Venture Vehicle makes such qualification necessary, except where the failure to
be so qualified would not have a Material Adverse Effect.
<PAGE>
9
4.5. Financial Statements. The Company has furnished each Purchaser
with the following financial statements, identified by a principal financial
officer of the Company: (i) the audited consolidated balance sheets of PPV and
-
its Subsidiaries at December 31, in each of the years 1992, 1993 and 1994, and
the related consolidated statements of income, stockholders' equity and cash
flows of PPV and its Subsidiaries for the fiscal years ended on such dates and
(ii) the unaudited consolidated balance sheets of PPV and its Subsidiaries at
--
June 30, 1995 and the related consolidated statements of income, stockholders'
equity and cash flows of PPV and its Subsidiaries for the 6 month period ended
on such date. Such financial statements (including any related schedules and/or
notes and subject, as to interim statements, to changes resulting from audits
and year-end adjustments and the absence of footnotes), have been prepared in
accordance with generally accepted accounting principles consistently followed
throughout the periods involved and show all liabilities, direct and contingent,
of PPV and its Subsidiaries required to be shown in accordance with such
principles. The consolidated financial statements fairly present the financial
condition of PPV and its Subsidiaries as at the dates thereof and for the
periods indicated. There has been no material adverse change in the business,
operations, affairs, condition (financial or other), properties or prospects of
the Company and its Subsidiaries taken as a whole since December 31, 1994.
4.6. Actions Pending. There is
(x) no action, suit, investigation or proceeding pending or, to the
knowledge of the Company, threatened against the Company or any of its
Subsidiaries or Joint Venture Vehicles or any properties or rights of the
Company or any of its Subsidiaries, and
(y) to the knowledge of the Company, no action, suit, investigation or
proceeding pending or threatened against On Command Video Corporation or
any of its properties,
by or before any court, arbitrator or administrative or governmental body which
(i) questions the validity of this Agreement or any other Note Document or any
-
action taken or to be taken pursuant to this Agreement or any other Note
Document or (ii) could reasonably be expected to result in any Material Adverse
--
Effect.
4.7. Outstanding Debt. Schedule 4.7 sets forth all outstanding Debt
of the Company, its Subsidiaries and its Joint Venture Vehicles (including all
Financing Leases and purchase money mortgages). There exists no default or
event of default under the provisions of any instrument evidencing any Debt of
the Company or its Subsidiaries or its Joint Venture Vehicles or of any
agreement relating thereto.
<PAGE>
10
4.8. Title to Properties. The Company and each of its Subsidiaries
and its Joint Venture Vehicles has good and marketable title to its real
properties (other than properties to which it has perpetual easements or which
it leases) and good title to all of its other properties, including the
properties reflected in the balance sheet as at December 31, 1994 referred to in
Section 4.5 (other than properties and assets disposed of in the ordinary course
of business). The Company and each of its Subsidiaries and its Joint Venture
Vehicles enjoys peaceful and undisturbed possession under all leases necessary
in any material respect for the conduct of its business, and all such leases are
valid and subsisting and are in full force and effect.
4.9. Intellectual Properties. Except as disclosed in Schedule 4.9,
the Company and each of its Subsidiaries and its Joint Venture Vehicles owns or
possesses rights to all patents, patent applications, copyrights, copyright
applications, trade secrets, trade names and trademarks, technologies, methods,
processes or other proprietary properties or information and all rights with
respect to the foregoing (collectively, "Intellectual Properties") necessary for
the conduct of their respective businesses as now conducted. Neither the Company
nor any Subsidiary nor any Joint Venture Vehicle has received a notification of
infringement of any Intellectual Property that, if adversely determined,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect. Except as disclosed in Schedule 4.9, no officer,
director, employee or shareholder of the Company or any Subsidiary or any Joint
Venture Vehicle (other than the Company or another Subsidiary) owns or has, nor
at the date of closing will own or have, any interest in any Intellectual
Property owned or used by the Company or any Subsidiary or any Joint Venture
Vehicle in connection with its businesses.
4.10. Taxes. The Company and each of its Subsidiaries and its Joint
Venture Vehicles has filed all federal, state, foreign and other income tax
returns which are required to be filed, and has paid all taxes as shown on such
returns and on all assessments received by it to the extent that such taxes have
become due, except such taxes as are being contested in good faith by
appropriate proceedings for which adequate reserves have been established in
accordance with generally accepted accounting principles. The consolidated
Federal income tax returns of the Company and its Subsidiaries (i) for all
-
calendar years through 1993, inclusive, have been filed with the Internal
Revenue Service, (ii) none have been audited by the Internal Revenue Service and
--
(iii) all returns remain open. The state income tax returns required to be
---
filed by the Company and its Subsidiaries (a) for all calendar years through
-
1993, inclusive, have been filed and (b) none have been audited and all are
-
open.
4.11. Compliance with Laws, Etc. Neither the Company nor any of its
Subsidiaries nor any of its Joint Venture Vehicles is in violation of (i) any
-
laws, ordinances, governmental rules or regulations to which it is subject or by
which it or any of its assets might be bound, (ii) any order, judgment or
--
<PAGE>
11
decree of any court, arbitrator or administrative or governmental body to which
it is subject or by which it or any of its assets might be bound, (iii) any term
---
of any contract, agreement or other instrument to which it is a party or by
which it or any of its assets might be bound, or (iv) any term of its charter or
--
by-laws, except which, either in any case specified in clauses (i), (ii), (iii)
and (iv) or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.
4.12. Conflicting Agreements and Other Matters. Neither the Company
nor any of its Subsidiaries nor any of its Joint Venture Vehicles is a party to
any contract or agreement or subject to any charter or other corporate
restriction which could reasonably be expected to result in a Material Adverse
Effect. Neither the execution and/or delivery of this Agreement or any of the
other Note Documents, nor the offering, issuance and sale of the Securities, nor
fulfillment of nor compliance with the terms and provisions hereof and of any
other Note Documents will conflict with, or result in a breach of the terms,
conditions or provisions of, or constitute a default under, or result in any
violation of, or result in the creation of any Lien (other than Liens in favor
of the Purchasers) upon any of the properties of the Company or any of its
Subsidiaries or any of its Joint Venture Vehicles pursuant to, the charter or
by-laws of the Company or such Subsidiary or such Joint Venture Vehicle, any
award of any arbitrator or any agreement (including any agreement with
stockholders), instrument, order, judgment, decree, statute, law, rule or
regulation to which the Company or any Subsidiary is or may be subject. The
Company is not a party to, or otherwise subject to any provision contained in,
any instrument evidencing Debt of the Company, any agreement relating thereto or
any other contract or agreement (including its charter) which limits the amount
of, or otherwise imposes restrictions on the incurring of, Debt of the Company
of the type to be evidenced by the Notes except as set forth in the agreements
listed in Schedule 4.12.
4.13. Offering of Securities. Neither the Company nor any agent
acting on its behalf has, directly or indirectly, offered the Notes or the
Warrants or any similar security of the Company for sale to, or solicited any
offers to buy either the Notes or the Warrants or any similar securities of the
Company from, or otherwise approached or negotiated with respect thereto with,
any Person other than the Purchasers and not more than 100 other institutional
investors, and neither the Company nor any agent acting on its behalf has taken
or will take any action which would subject the issuance or sale of either the
Notes or the Warrants to the provisions of section 5 of the Securities Act or to
the provisions of any securities or Blue Sky law of any applicable jurisdiction.
4.14. Use of Proceeds. The proceeds of the sale of the Notes will
be used for working capital and other general corporate purposes (including
without limitation the funding of the operations of Subsidiaries and Joint
Venture Vehicles and the acquisition of businesses or assets of businesses that
<PAGE>
12
are compatible with the Company). None of the transactions contemplated by this
Agreement will violate or result in a violation of section 7 of the Exchange Act
or any regulations issued pursuant thereto, including, without limitation,
Regulations G, T, U and X of the Board of Governors of the Federal Reserve
System. None of such proceeds will be used, directly or indirectly, for the
purpose, whether immediate, incidental or ultimate, of purchasing or carrying
any margin stock or for the purpose of maintaining, reducing or retiring any
Debt which was originally incurred to purchase or carry any stock that is
currently a margin stock or for any other purpose which might constitute this
transaction a "purpose credit" within the meaning of such Regulation G.
4.15. ERISA.
(a) The present value of the benefit liabilities (within the meaning
of section 4001(a)(16) of ERISA) under each Plan does not exceed the current
value (within the meaning of section 3(26) of ERISA) of the assets of such Plan
allocable to such benefit liabilities, determined on the basis of assumptions
and methods (including, without limitation, those used in valuing Plan assets)
each of which is reasonable and in accordance with actuarial standards and
applicable law.
(b) None of the Company, any of its Subsidiaries or any ERISA
Affiliate has breached the fiduciary rules of ERISA or engaged in any prohibited
transaction, and no such breach or prohibited transaction has occurred, that
could result in any direct or indirect liability (including as a result of an
indemnification obligation) of the Company, any of its Subsidiaries or any ERISA
Affiliate in connection with a suit for damages or pursuant to section 409(i) or
502(1) of ERISA or section 4975 of the Code.
(c) No accumulated funding deficiency (as defined in section 302 of
ERISA or section 412 of the Code), whether or not waived, has been incurred or
exists with respect to any Plan. Full payment has been made within the time
required under the Code or the terms of any Plan of all amounts which the
Company or any Subsidiary or ERISA Affiliate is required under applicable law to
have paid as contributions to each Plan.
(d) Other than for premiums payable in the normal course that are not
past due, none of the Company, any Subsidiary or any ERISA Affiliate has
incurred (either directly or indirectly, including as a result of an
indemnification obligation) any material liability under or pursuant to Title I
or IV of ERISA or the penalty or excise tax provisions of the Code relating to
employee benefit plans and no event, transaction or condition has occurred or
exists or, to the Company's best knowledge, is expected to occur or exist with
respect to any Plan which would result in any such liability to the Company, any
Subsidiary or any ERISA Affiliate. There has been no reportable event (within
the meaning of section 4043(c) of ERISA) or any other event or condition with
respect to any Plan which presents a risk of termination of, or the appointment
<PAGE>
13
of a trustee to administer, any such Plan by the PBGC. No Plan is a
Multiemployer Plan or a "multiple employer" plan.
(e) Except liability for continuation coverage provided pursuant to
section 4980B of the Code, no postretirement benefits are provided under any
welfare benefit plan (as defined in Section 3(l) of ERISA) of the Company, any
Subsidiary or the ERISA Affiliates.
(f) The execution and delivery of this Agreement and of each of the
Note Documents and the issuance and sale of the Securities thereunder will be
exempt from, or will not involve any transaction which is subject to, the
prohibitions of section 406 of ERISA and section 4975 of the Code and will not
involve any transaction in connection with which a penalty could be imposed
under section 502(i) of ERISA or a tax could be imposed pursuant to section 4975
of the Code. The representation by the Company in the immediately preceding
sentence is made in reliance upon and subject to the accuracy of each
Purchaser's representation in Section 5.2 of this Agreement.
(g) Neither the Company, nor any Subsidiary of the Company, nor any
ERISA Affiliate is either a "party in interest" (as defined in Title I, Section
3(14) of ERISA), nor a "disqualified person" (as defined in section 4975(e)(2)
of the Code) nor are the Securities "employer securities" (as defined in Title
I, Section 407(d)(i) of ERISA) with respect to any employee benefit plan other
than those identified in Schedule 4.15 attached hereto.
(h) Each Foreign Pension Plan has been maintained in substantial
compliance with its terms and with the requirements of any and all applicable
laws, statutes, rules, regulations and orders and has been maintained, where
required, in good standing with applicable regulatory authorities. Neither the
Company nor any of its Subsidiaries nor any of its Joint Venture Vehicles has
incurred any obligation in connection with the termination of or withdrawal from
any Foreign Pension Plan. The present value of the accrued benefit liabilities
(whether or not vested) under each Foreign Pension Plan, determined as of the
end of the Company's most recently ended fiscal year on the basis of actuarial
assumptions, each of which is reasonable, did not exceed the current value of
the assets of such Foreign Pension Plan allocable to such benefit liabilities.
4.16. Governmental Consent. Neither the nature of the Company and
its businesses or properties, nor any relationship between the Company and any
other Person, nor any circumstance in connection either with the offering,
issuance, sale or delivery of the Securities or with performance under the Note
Documents is such as to require any authorization, consent, approval, exemption
or other action by or notice to or filing with any court or administrative or
governmental body in connection with the execution and delivery of this
Agreement or any other Note Document, the offering, issuance, sale or delivery
of the Securities or performance under, fulfillment of or
NOTE AGREEMENT
<PAGE>
14
compliance with the terms and provisions hereof, of the Securities or of any
other Note Document except for such actions, notices or filings as have been
made prior to the date hereof or shall be timely made after the date hereof and
listed on Schedule 4.16.
4.17. Zoning and Environmental Compliance. The Company, each of its
Subsidiaries and its Joint Venture Vehicles and all of their respective
properties and facilities have complied at all times and in all respects with
all Environmental Laws, except where failure to comply could not reasonably be
expected to result in a Material Adverse Effect. Neither the Company nor any of
its Subsidiaries nor any of its Joint Venture Vehicles is aware of any claim or
demand against it or any of its Subsidiaries or any of its Joint Venture
Vehicles seeking damages, responses, costs, clean-up or any other form of relief
in equity or at law arising out of or relating to the treatment, disposal,
release, threatened release or presence of Hazardous Materials, which claim or
demand, individually or in the aggregate, might reasonably be expected to have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries nor
any of its Joint Venture Vehicles has acquired, incurred or assumed, directly or
indirectly, any contingent liability in connection with the release of any
Hazardous Material into the environment, which liability might result in a
Material Adverse Effect.
4.18. Investment Company Act and Holding Company Status. Neither the
Company nor any Subsidiary is an investment company or a person directly or
indirectly controlled by or acting on behalf of an investment company within the
meaning of the United States Investment Company Act of 1940, as amended. Neither
the Company nor any Subsidiary is a "holding company" or "subsidiary company" of
a "holding company", or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company", or a "public utility", within the
meaning of the United States Public Utility Holding Company Act of 1935, as
amended.
4.19. Disclosure. Neither this Agreement, any other Note Document,
the Private Placement Memorandum, nor any other document, certificate or
statement furnished to the Purchasers by or on behalf of the Company or any
Subsidiary in connection herewith contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
contained herein and therein not misleading (it being understood that with
respect to pro forma calculations and estimates regarding future developments
contained in the Private Placement Memorandum, such pro forma calculations and
estimates are based on assumptions the Company in good faith believes are
reasonable and there are no facts presently known to the Company which would
cause the Company to change such projections and estimates in any material
respect). There is no fact known to the Company or any of its Subsidiaries
which materially adversely affects or in the future may (so far as the Company
can now foresee) materially adversely affect the business, operations, affairs,
condition (financial or other), properties or
NOTE AGREEMENT
<PAGE>
15
prospects of the Company and its Subsidiaries taken as a whole, or the ability
of the Company to perform its obligations under this Agreement or any other Note
Document and which has not been set forth in this Agreement, any other Note
Document, the Private Placement Memorandum or in the other documents,
certificates and statements furnished to the Purchasers by or on behalf of the
Company prior to the date hereof in connection with the transactions
contemplated hereby.
4.20. Solvency. The Company is, and upon giving effect to the
issuance of the Securities will be, a "solvent institution", as said term is
used in Section 1405(c) of the New York Insurance Law, whose "obligations are
not in default as to principal or interest", as said terms are used in said
Section 1405(c).
4.21. Foreign Assets Control Regulations, Etc. None of the
transactions contemplated by this Agreement (including the use of proceeds of
the sale from the Securities) or any other Note Document will result in a
violation of any of the foreign assets control regulations of the United States
Treasury Department (31 CFR, Subtitle B, Chapter V, as amended), or any enabling
legislation or Presidential Executive Order in connection therewith.
4.22. Hotel Contracts. Each Hotel Contract of each Subsidiary and
Joint Venture Vehicle of the Company constitutes a legal, valid and binding
obligation of such Subsidiary and such Joint Venture Vehicle, as the case may
be, and is in full force and effect.
4.23. Joint Venture Agreements. (a) Each Joint Venture Agreement of
the Company and each of its Subsidiaries constitutes a legal, valid and binding
obligation of the Company or such Subsidiary and is in full force and effect.
(b) The Joint Venture Agreement between PPV and JAFTA Japan Co., Inc.
dated July 15, 1992 has been superseded in its entirety by the Amended and
Restated Joint Venture Agreement between PPV, JAFTA Japan Co., Inc. and Izumi
Kikaku Co. Ltd. dated November 11, 1993 and is no longer in full force and
effect.
SECTION 5. REPRESENTATIONS OF EACH PURCHASER. On the First Closing
Date, each Initial Purchaser represents, and on the Second Closing Date, each
Subsequent Purchaser represents as follows:
5.1. Nature of Purchase. Such Purchaser is acquiring the Securities
for its own account and not with a view to or for sale in connection with any
distribution thereof within the meaning of the Securities Act, provided that the
--------
disposition of such Purchaser's property shall at all times be and remain within
its control.
NOTE AGREEMENT
<PAGE>
16
5.2. Source of Funds. Each Purchaser represents that at least one of
the following statements concerning each source of funds to be used by it to pay
the purchase price of the Securities (a "Source") is accurate on and as of the
date of closing:
(a) the Source is an insurance company pooled separate account that is
maintained solely in connection with the Purchaser's fixed contractual
obligations under which the amounts payable, or credited, to an employee
benefit plan and to any participant or beneficiary of such plan (including
any annuitant) are not affected in any manner by the investment performance
of the separate account; or
(b) the Source is either (i) an insurance company pooled separate
account, within the meaning of Prohibited Transaction Class Exemption
("PTCE") 90-1 (issued January 29, 1990), or (ii) a bank collective
investment fund, within the meaning of the PTCE 91-38 (issued July 12,
1991) and, except as the Purchaser has disclosed to the Company in writing
pursuant to this clause (b), no employee benefit plan or group of plans
maintained by the same employer or employee organization beneficially owns
more than 10% of all assets allocated to such pooled separate account or
collective investment fund; or
(c) the Source is an "investment fund" managed by a "qualified
professional asset manager" or "QPAM" (as defined in Part V of PTCE 84-14,
issued March 13, 1984), no employee benefit plan's assets that are included
in such investment fund, when combined with the assets of all other
employee benefit plans established or maintained by the same employer or by
an affiliate (within the meaning of Section V(c)(1) of PTCE 84-14) of such
employer or by the same employee organization and managed by such QPAM,
exceed 20% of the total client assets managed by such QPAM, the conditions
of Part I(c) and (g) of PTCE 84-14 are satisfied, and (i) the identity of
such QPAM and (ii) the names of all employee benefit plans whose assets are
included in such investment fund have been disclosed to the Company in
writing pursuant to this clause (c); or
(d) the Source is a governmental plan; or
(e) the Source is one or more employee benefit plans, or a separate
account or trust fund comprised of one or more employee benefit plans, each
of which has been identified to the Company in writing pursuant to this
clause (e); or
(f) the Source is an "insurance company general account," as such term
is defined in the Department of Labor Prohibited Transaction Class
Exemption 95-60 (issued July 12, 1995) ("PTCE 95-60") and as of the date of
this Agreement there is no "employee benefit
NOTE AGREEMENT
<PAGE>
17
plan" with respect to which the aggregate amount of such general account's
reserves and liabilities for the contracts held by or on behalf of such
"employee benefit plan" and all other "employee benefit plans" maintained
by the same employer (and affiliates thereof as defined in Section V(a)(1)
of PTCE 95-60) exceeds 10% of the total reserves and liabilities of such
general account (as determined under PTCE 95-60) (exclusive of separate
account liabilities) plus surplus as set forth in the National Association
of Insurance Commissioners Annual Statement filed with the state of
domicile of the Purchaser; or
(g) the Source is not an "employee benefit plan" as defined in Title
I, Section 3(3) of ERISA or a "plan" as defined in Section 4975(c) of the
Code (collectively a "plan").
As used in this Section 5.2, the terms "employee benefit plan", "governmental
plan" and "separate account" shall have the respective meanings assigned to such
terms in Section 3 of ERISA.
5.3. Release of Collateral. Each Purchaser agrees that it shall
instruct the Agent to release any and all security interests in the Collateral
in the event that each of the following conditions shall have been, and at the
relevant date of determination, continue to be satisfied:
(i) the ratio of Total Debt to Historical EBITDA of the Company is
less than 3.5:1;
(ii) Cumulative Installed Rooms is greater than or equal to 66.67% of
Projected Cumulative Installed Rooms; and
(iii) any such Collateral securing indebtedness for borrowed money of
the Company or its Subsidiaries in favor of any Person (other than the
Noteholders) shall have been released.
For purposes of determining whether the requirements of clauses (i) and (ii)
have been met, such determination shall be made on a quarterly basis as of each
of March 31, June 30, September 30 and December 31 of each year, beginning on
December 31, 1996.
SECTION 6. PREPAYMENTS. The Notes shall be subject to prepayment
only with respect to the optional prepayments permitted by Section 6.1.
6.1. Optional Prepayment. The Notes shall not be subject to
prepayment prior to the third anniversary of the date of closing and thereafter
shall be subject to prepayment, in whole at any time or from time to time in
part (in multiples of $100,000), at the option of the Company, (x) from the
third anniversary of the date of closing to but not including the fourth
anniversary of
<PAGE>
18
the date of closing at 101% of the principal amount so prepaid plus interest
thereon to the prepayment date and (y) from and after the fourth anniversary of
the date of closing at 100% of the principal amount so prepaid plus interest
thereon to the prepayment date. If the final maturity of the Notes is
accelerated pursuant to Section 9.1 hereof, the Company shall also pay a premium
(i) from the date of closing to but not including the first anniversary of the
date of closing at 104% of the principal amount of the Notes outstanding plus
interest accrued thereon, (ii) from the first anniversary of the date of closing
to but not including the second anniversary of the date of closing at 103% of
the principal amount of the Notes outstanding plus interest accrued thereon,
(iii) from the second anniversary of the date of closing to but not including
the third anniversary of the date of closing at 102% of the principal amount of
the Notes outstanding plus interest accrued thereon, (iv) from the third
anniversary of the date of closing to but not including the fourth anniversary
of the date of closing at 101% of the principal amount of the Notes outstanding
plus interest accrued thereon and (iv) from and after the fourth anniversary of
the date of closing at 100% of the principal amount of the Notes outstanding
plus interest accrued thereon.
6.2. Notice of Optional Prepayment. The Company shall give the
holder of each Note irrevocable written notice of any prepayment pursuant to
Section 6.1 not less than 30 days nor more than 60 days prior to the prepayment
date, (i) specifying such prepayment date, (ii) specifying the aggregate
- --
principal amount of all outstanding Notes held by such holder that is to be
prepaid on such date and (iii) stating that such prepayment is to be made
---
pursuant to Section 6.1. Notice of prepayment having been given as aforesaid,
the principal amount of the Notes specified in such notice, together with
interest thereon to the prepayment date and together with the premium, if any,
with respect thereto, shall become due and payable on such prepayment date.
6.3. Partial Payments Pro Rata. Upon any partial prepayment of the
Notes pursuant to Section 6.1, the principal amount so prepaid shall be
allocated to all Notes at the time outstanding (regardless of Series) and in
proportion, as nearly as practicable, to the respective outstanding principal
amounts thereof, with adjustments to the extent practicable, to equalize for any
prior prepayments not in such proportion.
6.4. Retirement of Notes. The Company shall not, and shall not
permit any of its Subsidiaries or Affiliates to, prepay or otherwise retire in
whole or in part prior to their stated final maturity, or purchase or otherwise
acquire (other than by prepayment pursuant to Section 6.1 or upon acceleration
of such final maturity pursuant to Section 9.1), directly or indirectly, Notes
held by any holder. Any Notes so prepaid or otherwise retired or purchased or
otherwise acquired by the Company or any of its Subsidiaries or Affiliates shall
not be deemed to be outstanding for any purpose under this Agreement.
<PAGE>
19
6.5. Surrender of Notes on Prepayment. Subject to Section 11.1, upon
any partial prepayment of a Note, at the option of the holder thereof, such Note
may be (i) surrendered to the Company pursuant to Section 11.5 in exchange for a
-
new Note in a principal amount equal to the principal amount remaining unpaid on
the surrendered Note or (ii) made available to the Company for notation thereon
--
of the portion of the principal so prepaid. Any Note paid or prepaid in full
shall be surrendered to the Company, if so requested by the Company, and shall
be canceled and shall not be reissued, and no Note shall be issued in lieu of
the prepaid principal amount of any Note.
SECTION 7. COVENANTS. The Company covenants that from and after the
date of this Agreement through the closing and thereafter for the benefit of the
holders of the Notes so long as any Note remains outstanding:
7.1. Books of Record and Account. The Company will, and will cause
each of its Subsidiaries and Joint Venture Vehicles to, keep true and proper
books of record and account which are sufficient to allow the Company to prepare
financial statements which fairly present the results of the operations and
financial position of the Company on a consolidated basis, and will reflect in
its financial statements adequate accruals and appropriations to reserves, all
in accordance with generally accepted accounting principles consistently applied
and with the applicable provisions of any regulatory authorities having
jurisdiction over the Company and its Subsidiaries and Joint Venture Vehicles.
7.2. Financial Statements, Notices, Etc. The Company covenants that
it will deliver to each holder of Notes in duplicate:
(i) as soon as practicable and in any event within 20 days after the
end of each month, a consolidated balance sheet of the Company and its
Subsidiaries as at the end of such month, a consolidated statement of
income of the Company and its Subsidiaries for such month, a report on the
backlogs for such month and a hotel by hotel gross revenue analysis of the
Company and its Subsidiaries for such month, all in form consistent with
the Company's historical monthly statements as shown in Exhibit H hereto
and in reasonable detail and reasonably satisfactory to the Required
Holder(s) and the financial statements shall be certified by an authorized
financial officer of the Company as fairly presenting the results of
operations and financial position of the Company on a consolidated basis,
subject to changes resulting from quarterly and year-end adjustments and
the absence of footnotes;
(ii) as soon as practicable and in any event within 45 days after the
end of each quarterly period (other than the last quarterly period) in each
fiscal year a consolidated balance sheet of the Company
<PAGE>
20
and its Subsidiaries as at the end of such quarterly period and the related
consolidated statements of income, retained earnings and cash flows of the
Company and its Subsidiaries for such quarterly period and, in the case of
the second and third quarterly periods, for the period from the beginning
of the current fiscal year to the end of such quarterly period, setting
forth in each case in comparative form figures for the corresponding period
in the preceding fiscal year, all in reasonable detail and reasonably
satisfactory in form to the Required Holder(s) and certified by an
authorized financial officer of the Company as fairly presenting the
results of operations and financial position of the company on a
consolidated basis, subject to changes resulting from year-end adjustments
and the absence of footnotes;
(iii) as soon as practicable and in any event within 90 days after
the end of each fiscal year, (A) consolidated statements of income and cash
flows and a consolidated statement of retained earnings of the Company and
its Subsidiaries for such year, and a consolidated balance sheet of the
Company and its Subsidiaries as at the end of such year, setting forth for
each consolidated report in comparative form corresponding figures from the
preceding fiscal year, accompanied by the report of independent public
accountants of recognized national standing selected by the Company in such
accountants' standard form whose report shall be without limitation as to
the scope of the audit and shall have been prepared in accordance with
generally accepted accounting principles) and (B) consolidating statement
of income and cash flows of the Company and its Subsidiaries and its Joint
Venture Vehicles for such year and consolidating balance sheets of the
Company and its Subsidiaries and its Joint Venture Vehicles as at the end
of such fiscal year, setting forth in comparative form figures for the
corresponding period in the preceding fiscal year and certified by an
authorized financial officer of the Company as fairly presenting the
results of operations and financial position of the Company and each
Subsidiary and each Joint Venture Vehicle;
(iv) together with each delivery of financial statements required by
clauses (ii) and (iii) above, an Officers' Certificate (A) stating that the
-
signer has reviewed the terms hereof and of the Notes and has made, or
caused to be made under his or her supervision, a review of the
transactions and condition of the Company and its Subsidiaries and its
Joint Venture Vehicles during the accounting period covered by such
financial statements, (B) stating that such review has not disclosed the
-
existence during or at the end of such accounting period, and that the
signer does not have knowledge of the existence as at the date of such
Officers' Certificate, of any condition or event which constitutes a
Default or Event of Default, or, if any such condition or event existed or
exists, specifying the nature and period of existence thereof and what
action the Company has taken or is taking or proposes to take with
<PAGE>
21
respect thereto, (C) demonstrating compliance by the Company and its
-
Subsidiaries and its Joint Venture Vehicles with the provisions of Sections
8.1(j), 8.2(a), 8.3, 8.4, 8.5, 8.6, 8.8 and 8.9 and (D) stating Historical
-
EBITDA and the number of Cumulative Installed Rooms as of the date of such
financial statements;
(v) together with each delivery of financial statements required by
clause (iii) above, a certificate of the independent accountants giving the
report thereon (A) stating that their audit examination has included a
-
review of the financial covenants of this Agreement and that such review is
sufficient to enable them to make the statement referred to in subclause
(C) of this clause (v), (B) stating whether, in the course of their audit
-
examination, they obtained knowledge (and whether, as of the date of such
written statement, they have knowledge) of the existence of any condition
or event which constitutes a Default or Event of Default or any failure of
the Company to keep, perform, observe or fulfill any of its covenants or
agreements set forth in this Agreement and, if so, specifying the nature
and period of existence thereof and (C) stating that they have examined the
-
Officers' Certificate delivered in connection with each fiscal year end
pursuant to clause (iv) of this Section 7.2 and that the matters set forth
in such Officers' Certificate pursuant to subclause (B) of such clause (iv)
relating to financial covenants only have been properly stated in
accordance with the terms of this Agreement;
(vi) promptly upon their becoming available, (x) copies of each
financial statement, proxy statement, notice or report sent by the Company
or any of its Subsidiaries to its stockholders generally and copies of each
report (whether regular, periodic or otherwise) and any registration
statement (without exhibits), prospectus or written communication (other
than transmittal letters) in respect thereof filed by the Company or any of
its Subsidiaries with, or received by the Company or any of its
Subsidiaries in connection therewith from, any securities exchange or the
SEC or any governmental body or agency succeeding to the functions of the
SEC) and (y) copies of any press releases relating to the Company or any
Subsidiary thereof;
(vii) promptly upon receipt thereof, a copy of each other report
submitted to the Board of Directors of the Company or any Subsidiary or any
Joint Venture Vehicles by independent accountants in connection with any
annual, interim or special audit made by them of the books of the Company
or any of its Subsidiaries or any of is Joint Venture Vehicles, together
with the Company's and each such Subsidiary's responses to such reports;
(viii) promptly upon a Responsible Officer obtaining knowledge of any
condition or event which constitutes a Default or Event of De-
<PAGE>
22
fault or Event of Default or that the holder of any Note has given any
notice or taken any other action with respect to a claimed default
hereunder or that any Person has given any notice to the Company or any
Subsidiary or taken any other action with respect to a claimed default or
event of default, an Officers' Certificate describing the same and the
period of existence thereof and specifying what action the Company has
taken or is taking or proposes to take with respect thereto;
(ix) immediately upon becoming aware of the occurrence of (A) any
-
"reportable event" as defined in section 4043(c) of ERISA and the
regulations issued thereunder, (B) any "prohibited transaction" as defined
-
in section 4975 of the Code or as described in section 406 of ERISA in
connection with any Plan or any trust created thereunder or (C) any other
-
event or condition with respect to any Plan which could constitute grounds
for, or result in, the (1) termination of, or the appointment of a trustee
-
to administer, any Plan, (2) imposition of a Lien on any property of the
-
Company, any Subsidiary or ERISA Affiliate or (3) the incurrence of any
-
liability by the Company, any of its Subsidiaries or any ERISA Affiliate
pursuant to Title I or IV of ERISA or the penalty or excise tax provisions
of the Code relating to employee benefit plans, an Officers' Certificate
signed by the chief financial officer of the Company setting forth the
details respecting such event or condition, the action, if any, that the
Company or any Subsidiary or ERISA Affiliate proposes to take with respect
thereto (including a copy of any notice, report or application filed with,
given to or received from the PBGC, the Internal Revenue Service or the
Department of Labor with respect to such event or condition), and any
action, when known, taken or threatened by the PBGC, the Internal Revenue
Service or the Department of Labor with respect to such event or condition;
(x) promptly upon assuming an obligation to contribute to a
"Multiemployer Plan" (within the meaning of section 4001(a)(3) of ERISA),
written notice thereof and of the identity of such plan;
(xi) promptly upon receipt thereof by a Responsible Officer of the
Company or any of its Subsidiaries or any of its Joint Venture Vehicles, a
copy of (A) any written inquiry, notice, claim or complaint to the effect
-
that the Company or any of its Subsidiaries or Joint Venture Vehicles is or
may be liable to any Person as a result of the release by the Company, any
of its Subsidiaries, any of its Joint Venture Vehicles or any other Person
of any Hazardous Material into the environment and (B) any written inquiry
-
regarding or notice or complaint alleging any violation of or liability
under any Environmental Law or any health and safety legislation by the
Company or any of its Subsidiaries or any of its Joint Venture Vehicles,
which release, violation or liability could
<PAGE>
23
reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect.
(xii) prompt written notice of any action, suit or administrative
proceeding to which the Company or any of its Subsidiaries or any of its
Joint Venture Vehicles is a party which, if adversely determined, would
materially impair the right of the Company or any of its Subsidiaries or
any of is Joint Venture Vehicles to carry on its business substantially as
now conducted, or could reasonably be expected to have a Material Adverse
Effect;
(xiii) promptly upon receipt or transmittal thereof, copies of all
communications received by the Company from, or sent by the Company to, the
Agent pursuant to the terms of the Security Documents; and
(xiv) with reasonable promptness, such other data and information as
such holder of a Note may reasonably request from time to time.
7.3. Inspection of Property. The Company covenants that it will
permit any Person designated by the holder of any Note in writing, at such
holder's expense (except that if a Default or Event of Default shall have
occurred and be continuing at the time of such inspection or examination, the
Company shall reimburse such holder for all such reasonable expenses), to visit
and inspect any of the properties of the Company and its Subsidiaries, to
examine the books of account, records, reports and other papers of the Company
and its Subsidiaries and make copies thereof or extracts therefrom and to
discuss the affairs, finances and accounts of any of such corporations with the
principal officers of such corporations and their independent public
accountants, all at such reasonable times and with reasonable notice and as
often as such holder may reasonably request.
7.4. Covenant to Secure Notes Equally. The Company covenants that,
if it or any Subsidiary or any Joint Venture Vehicle shall create or assume any
Lien upon any of its property, whether now owned or hereafter acquired, other
than any Lien permitted by the provisions of Section 8.1 (unless prior written
consent to the creation or assumption thereof shall have been obtained pursuant
to Section 11.3), it will make or cause to be made effective provision whereby
the Notes will be secured by such Lien equally and ratably with any and all
other Debt thereby secured (and upon the disposition thereof will be entitled,
equally and ratably with such other Debt, to receive the proceeds of any
property or assets subject to such Lien) and, in any case, the Notes shall have
the benefit of an equitable Lien on such property to the full extent that, and
with such priority as, the holders of the Notes may be entitled under applicable
law. Compliance with this Section 7.4 shall not cure any Default or Event of
Default arising under Section 8.1.
<PAGE>
24
7.5. Maintenance of Corporate Existence. The Company will, and will
cause its Subsidiaries and Joint Venture Vehicles to, do all things necessary to
preserve and keep in full force and effect their respective existences,
franchises and material rights except as specifically permitted hereunder;
provided, however, that a Subsidiary may be liquidated or merged with or into
another Subsidiary if the Board of Directors of the Company determines in good
faith that such liquidation or merger is in the best business interest of the
Company and such liquidation or merger is permitted under Sections 8.7(b) and
8.8.
7.6. Maintenance of Properties. The Company will maintain or cause
to be maintained in good repair, working order and condition all properties used
or useful in the business of the Company and its Subsidiaries and Joint Venture
Vehicles and from time to time will make or cause to be made all necessary
renewals, replacements, additions, betterments and improvements thereto.
7.7. Insurance. The Company will, and will cause its Subsidiaries
and its Joint Venture Vehicles to, maintain with financially sound and reputable
insurers having a rating by A.M. Best Company of "A-XII" or better or an
equivalent rating in the local jurisdiction of any Subsidiary or any Joint
Venture Vehicle organized under the laws of a country other than the United
States, at the time of issuance or renewal of such policy, insurance with
respect to its properties and business against such casualties and
contingencies, of such types (including, without limitation, property damage,
public liability, business interruption, larceny, embezzlement, or other
criminal misappropriation insurance) and in such amounts as is customary in the
case of corporations of established reputation engaged in the same or similar
business and similarly situated.
7.8. Taxes. The Company will, and will cause its Subsidiaries to,
pay all taxes, assessments and other governmental charges and levies imposed
upon it or any of its properties or in respect of any of its franchises,
business, income or profits when the same become due and payable as shown on the
returns therefor as prepared in good faith by the Company or such Subsidiary or
Joint Venture Vehicle and all claims (including, without limitation, claims or
demands of materialmen, mechanics, carriers, warehousemen, landlords and other
like Persons) for sums which have become due and payable and which by law have
or might become a Lien upon any of its properties, provided that no such charge
--------
or claim need be paid if being contested in good faith by appropriate
proceedings promptly initiated and diligently conducted and if such reserves or
other appropriate provision, if any, as shall be required by generally accepted
accounting principles shall have been made therefor and if the Company's or any
such Subsidiary's or Joint Venture Vehicle's title to and its right to use its
property are not materially adversely affected thereby. The Company will not
consent to or permit the filing of or be a party to any consolidated income tax
return on behalf of itself or any of its Subsidiaries or
<PAGE>
25
any of its Joint Venture Vehidles with any Person (other than a consolidated
return of the Company and its Subsidiaries) except if the Company is acquired in
compliance with Section 8.7.
7.9. Compliance with Laws, etc. The Company will, and will cause its
Subsidiaries and Joint Venture Vehicles to, comply with the requirements of all
applicable laws, rules, regulations and orders of any governmental authority,
and maintain all licenses, permits, franchises and other governmental
authorizations necessary to the ownership of its properties or the conduct of
its business, the noncompliance with which, or the failure of which to maintain,
could reasonably be expected to have a Material Adverse Effect.
7.10. Environmental Compliance. The Company will, and will cause its
Subsidiaries and Joint Venture Vehicles to, keep any properties it owns or
operates free of contamination from Hazardous Materials and free from other
potentially harmful physical or chemical conditions, except where such Hazardous
Materials are utilized in compliance with applicable law. The Company will, and
will cause its Subsidiaries and Joint Venture Vehicles to, use and operate all
of its facilities and properties in compliance with all Environmental Laws
(including keeping all necessary permits, approvals, certificates and licenses
in effect and remaining in compliance therewith) and handle all Hazardous
Materials in compliance with all applicable Environmental Laws, in each case,
the noncompliance with which could reasonably be expected, individually or in
the aggregate, to have a Material Adverse Effect. Upon providing the holders of
the Notes with copies of all materials described in clause (xi) of Section 7.2,
as promptly as reasonably practicable the Company will, and will cause its
Subsidiaries and Joint Venture Vehicles to, cure any violation (including the
taking of all necessary and appropriate remedial action) or have dismissed with
prejudice any actions or proceedings referred to therein, except where the
failure to do so would not have, individually or in the aggregate, a Material
Adverse Effect.
7.11. Pari Passu Ranking. The Company undertakes that its obligations
under this Note Agreement and the Notes will rank at least pari passu (in right
of payment) with all of its other present and future Debt.
7.12. Payment of Notes. The Company will punctually pay or cause to
be paid the principal, premium, if any, and interest due and payable in respect
of the Notes in accordance with the terms thereof.
7.13. Security Documents; Further Assurances. The Company agrees
that it will not amend, terminate, modify, supplement or grant any waiver with
respect to any Security Document without the written consent to each such
amendment, termination, modification, supplement or waiver of the Required
Holder(s). The Company agrees to perform its obligations under the Security
Documents in accordance with the respective terms thereof. The Company agrees
that it will not increase the fees of the Agent without the prior
<PAGE>
26
written consent of the Required Holder(s). At the Company's expense, the Company
agrees that it shall, or shall cause an agent on its behalf to, file any
continuation statements which are required to be filed and take such other
action as is necessary in any jurisdiction (including, for the avoidance of
doubt, continuation statements under the Uniform Commercial Code of the State of
California) in order to preserve and protect the security interests created
pursuant to the Security Documents and to maintain the validity, effectiveness
and enforceability of the Security Documents. The Company will, and will cause
each of its Subsidiaries and its Joint Venture Vehicles to, at the expense of
the Company and its Subsidiaries and its Joint Venture Vehicles, (i) make,
-
execute, endorse, acknowledge, file and/or deliver to the Agent from time to
time such conveyances, transfer endorsements, powers of attorney, certificates,
and other assurances or instruments as the Agent or the Required Holder(s) may
reasonably require, (ii) maintain each of the Security Documents in full force
--
and effect at all times (including the priority thereof), (iii) preserve and
---
protect the Collateral and protect and enforce its rights and title and the
rights and title of the Noteholders and the Agent to the Collateral, (iv) notify
--
the Noteholders and the Agent of any consent, filing, recording or registration
requirements in the respective jurisdictions of organization for each Subsidiary
and Joint Venture Vehicle whose securities have been pledged pursuant to the
Pledge Agreements and which are required to maintain the validity, effectiveness
and enforceability of the Security Documents and (v) take such further steps
-
relating to the Collateral covered by any Security Document as the Agent or the
Required Holder(s) may reasonably require.
7.14. Foreign Subsidiaries' Security. If following a change in the
relevant sections of the Code or the regulations, rules, rulings, notices or
other official pronouncements issued or promulgated thereunder, counsel for the
Company acceptable to the Required Holder(s) does not within 30 days after a
request from the Required Holder(s) deliver evidence reasonably satisfactory to
the Required Holder(s) that, with respect to any Foreign Subsidiary or any
Foreign Joint Venture Vehicle of the Company which has not already had all of
its stock held by the Company pledged pursuant to a Pledge Agreement, a pledge
of 66% or more of the total combined voting power of all classes of capital
stock of such Foreign Subsidiary or Foreign Joint Venture Vehicle entitled to
vote would cause the undistributed earnings of such Foreign Subsidiary or such
Foreign Joint Venture Vehicle as determined for Federal income tax purposes to
be treated as a deemed dividend to the Company as a result of the pledge of the
capital stock of such Foreign Subsidiary or such Foreign Joint Venture Vehicle
by the Company, then in the case of a failure to deliver the evidence described
above (such event in such circumstances being referred as a "Change in Tax Law
Event"), then that portion of such Foreign Subsidiary's or such Foreign Joint
Venture Vehicle's outstanding capital stock or similar equity interest held by
the Company not theretofore pledged pursuant to a Pledge Agreement shall be
pledged by the Company to the Agent pursuant to a Pledge Agreement (or another
pledge agreement in substantially similar
<PAGE>
27
form, if needed). All documents delivered pursuant to this Section 7.14 shall be
in form and substance reasonably satisfactory to the Required Holder(s).
7.15. Pledge of Shares of New Subsidiaries. If the Company organizes
or acquires any new Subsidiaries or Joint Venture Vehicles, the Company will
pledge all classes of capital stock held by it of such Subsidiaries or Joint
Venture Vehicles to secure the obligations of the Company under the Notes and
this Agreement pursuant to a pledge agreement in form and substance satisfactory
to the Required Holders; provided, that until the occurrence of a Change in Tax
Law Event, the Company shall not be obligated to pledge in excess of 66% of the
total combined voting power of any such Subsidiary or Joint Venture Vehicles,
and provided, further, that the capital shares of a newly acquired Subsidiary or
Joint Venture Vehicle, other than any Subsidiary or Joint Venture Vehicle
organized under the laws of South Africa, may be subject to existing Liens at
the time of acquisition as may be permitted pursuant to the terms of this
Agreement.
7.16. Notification of Registration. The Company agrees to notify the
Agent and the Noteholders in the event that it registers as a foreign
corporation in Australia.
7.17. Sub-licenses or Assignments and Consents. The Company agrees
(x) to cause PPV to sub-license or assign the Technology License Agreement to
each of the Company's Subsidiaries and Joint Venture Vehicles and (y) to obtain
the consent of the Singapore Board of Film Censors in connection with the
transfer and pledge of the shares of PPV Singapore PTE Ltd, in each case, by
December 31, 1995.
7.18. Removal of Legends. The Company agrees that if either (i) it
"shows profit" or (ii) it lists its securities on an approved exchange, in each
case, as such terms are defined and interpreted by the Department of
Corporations of the State of California pursuant to Section 260.141.12 of the
Rules of the Commissioner of Corporations, the Company promptly shall notify the
Securityholders of such event, and the Company shall, at its expense, file an
application with the Commissioner requesting removal of the legend condition and
upon approval of such application execute and deliver new Securities in exchange
for the existing Securities held by such Securityholders, which new Securities
shall not contain the legend regarding the restrictions on transfer imposed by
the California Department of Corporations.
SECTION 8. NEGATIVE COVENANTS. The Company covenants that from and
after the date of this Agreement through the closing and thereafter for the
benefit of the holders of the Notes so long as any Note remains outstanding:
8.1. Liens. Unless the obligations of the Company under the Note
Agreement and the Notes are secured equally and ratably with such Liens
<PAGE>
28
in form and substance satisfactory to the holders of the Notes, so long as any
of the Notes are outstanding, the Company will not, and will not permit any
Subsidiary or Joint Venture Vehicle to, create, incur, assume or suffer to exist
any Lien upon or with respect to any of its properties, whether now owned or
hereafter acquired, including without limitation, the Technology License
Agreement, except:
(a) Liens existing as of the date of issuance of the Notes and
reflected in Schedule 8.1; provided that such Liens shall not at any time
hereafter encumber any assets or secure Debt other than that which by the
terms applicable thereto, at the date hereof, such Liens encumber, secure
or are intended to secure or encumber;
(b) any attachment or judgment Lien, unless the judgment it secures
shall not, within 60 days after the entry thereof, have been bonded,
discharged or execution thereof stayed pending appeal, or shall not have
been discharged within 60 days after the expiration of any such stay and
for which adequate reserves have been established in accordance with
generally accepted accounting principles;
(c) Liens incidental to the conduct of business or the ownership of
properties and assets (including Liens in connection with worker's
compensation, unemployment insurance and other like laws, warehousemen's
and attorney's liens and statutory landlords' liens) and Liens to secure
the performance of bids, tenders or trade contracts, or to secure statutory
obligations, surety or appeal bonds or other Liens of like general nature
incurred in the ordinary course of business and not in connection with the
borrowing of money; provided that, aggregate obligations secured thereby in
--------
excess of $500,000 shall not be more than 30 days overdue unless such
obligations are being contested in good faith by appropriate actions or
proceedings and appropriate book reserves with respect thereto have been
established in accordance with generally accepted accounting principles;
(d) Liens on real or personal property acquired (whether directly or
through the acquisition of stock of a corporation owning such property) or
constructed after the date of closing ("After-Acquired Property"), or Liens
on improvements to property after the date of closing, which Liens are
given to secure the payment of the purchase price or cost incurred in
connection with such acquisition or construction of After-Acquired Property
or such improvements including, without limitation, (x) a security interest
granted to or title retention reserved by the seller of the After-Acquired
Property to secure the purchase price owing to the seller or (y) a security
interest the proceeds of which were used to pay for the purchase,
construction or improvement of such property; provided that (i) such Liens
-------- -
shall only be permitted (pursuant to this clause (d)) to the extent to
which they
<PAGE>
29
shall attach to the assets acquired, constructed or improved, (ii) the
--
Liens shall have been created or incurred not later than 270 days after the
date of acquisition or the date of completion of the construction or
improvements, as the case may be, and (iii) the amount secured by such
---
Liens does not exceed the purchase price of the property so acquired or the
cost of the construction or improvements;
(e) any Lien existing on any property of any corporation at the time
such corporation is merged or consolidated with or into the Company or
becomes a Subsidiary or Joint Venture Vehicle of the Company, provided that
--------
(i) no such Lien shall extend to or cover any property other than property
-
initially subject thereto and improvements thereto, (ii) the incurrence of
--
the Debt secured by such Lien does not violate any other provisions herein,
(iii) such Lien and the Debt it secures are not incurred in connection with
---
or in contemplation of such merger, consolidation or sale and (iv) such
--
Liens shall be permitted by this clause (e) only for the period ending 360
days after such event;
(f) any Lien arising under the Security Documents;
(g) Liens for taxes, assessments or other governmental charges or
levies not yet due or payable or which are being contested in good faith by
appropriate proceedings, provided that appropriate book reserves with
--------
respect thereto have been established in accordance with generally accepted
accounting principles;
(h) the extension, renewal or replacement of any Lien permitted by
paragraphs (a) through (e) in respect of the same property theretofore
subject thereto, without increase of the principal amount of the Debt
secured thereby, provided that no such extension, renewal or replacement of
--------
any Lien permitted by paragraph (e) shall extend the time period set forth
in clause (iv) therein;
(i) sub-licenses or assignments of the rights of PPV under the
Technology License Agreement to any Subsidiary or Joint Venture Vehicle;
and
(j) notwithstanding the restrictions provided herein, the Company
and any one or more Subsidiaries may create, issue, incur or assume Liens
otherwise prohibited by this Section 8.1, provided that neither
(A) the aggregate amount of all Debt or other obligations secured by
such Liens not otherwise permitted by this Section 8.1 nor
(B) the total book value of the assets subject to such Liens
NOTE AGREEMENT
<PAGE>
30
shall exceed the greater of (i) 15% of Total Consolidated Assets and (ii)
- --
(x) at any time on or before June 30, 1996, $12,500,000, and (y) at any
time thereafter, $20,000,000.
A Lien equally and ratably securing the obligations of the Company under
the Note Agreement and the other Note Documents shall not be considered
acceptable to the Required Holder(s) in accordance with this Section 8.1 unless
either (x) the Company shall provide the holders of Notes with opinions of
counsel (reasonably satisfactory to the Required Holder(s)) in all relevant
jurisdictions, which opinions shall be in form and substance satisfactory to the
Required Holder(s), as to such matters as the Required Holder(s) shall
reasonably request, it being understood, that the opinions relating to the
enforceability of any such Lien for the benefit of the holders of Notes shall
not be subject to any exception relating to insolvency or bankruptcy which would
not have been necessary to take had the obligations of the Company been
similarly secured by such a Lien on the date on which the Notes were issued or
(y) the holders of Notes are made parties to, or beneficiaries under, an
intercreditor agreement with the new secured lenders pursuant to which the
obligations of the Company under this Agreement and the other Note Documents are
effectively secured by the security received by the new lenders in form and
substance reasonably satisfactory to Required Holder(s).
The Company shall not impose any Lien on any of the Collateral (other than
as allowed pursuant to clause (f) of this Section 8.1) unless the holders of
Notes are made parties to, or beneficiaries under, an intercreditor agreement
with the Persons benefiting from such Lien (in form and substance reasonably
satisfactory to Required Holder(s)), pursuant to which the obligations of the
Company under this Agreement and the Notes shall in effect be secured equally
and ratably with the Lien benefiting such other Persons.
8.2. Restricted Payments. The Company will not, and will not permit
any Subsidiary or Joint Venture Vehicle to, make any Restricted Payment, except
that, so long as no Default or Event of Default then exists or would result
therefrom,
(a) the Company may redeem or purchase shares of its capital stock
(or options to purchase its capital stock) held by former employees of the
Company or any of its Subsidiaries following the termination of their
employment, provided that the aggregate amount of all such redemptions or
--------
purchases does not exceed 5% of the total outstanding capital stock of the
Company in any fiscal year; and
(b) the Company or any Subsidiary shall be permitted to purchase
shares of the capital stock of any other Subsidiary or joint venture
partner, provided that the transaction is pursuant to the reasonable
requirements or objectives of the Company's or such Subsidiary's business
and is upon fair and reasonable terms on an arm's length basis.
NOTE AGREEMENT
<PAGE>
31
8.3. Adjusted Consolidated Net Worth. The Company will not permit
Adjusted Consolidated Net Worth at any time to be less than the sum of (x)
$10,000,000 and (y) 50% of the aggregate net proceeds, on a cumulative basis, of
any equity offerings concluded by the Company or by any Subsidiary of the
Company at any time after December 31, 1995.
8.4. Total Debt to Total Adjusted Capitalization. The Company will
not permit Total Debt at any time to exceed 80% of Total Adjusted
Capitalization.
8.5. Total Debt to Historical EBITDA. The Company will not permit
the ratio of Total Debt to Historical EBITDA (x) at December 31, 1996, to exceed
5:1, (y) at March 31, June 30, September 30 and December 31, 1997, to exceed 4:1
and (z) at the end of any calendar quarter following December 31, 1997 to and
until the maturity of the Notes, to exceed 3.5:1.
8.6. Historical EBITDA. (a) The Company will not permit Historical
EBITDA as of the last day of each period set forth below to be less than [***]
of the Projected EBITDA set forth opposite such period below:
<TABLE>
<CAPTION>
Period Projected EBITDA
------ ----------------
<S> <C>
[***]
</TABLE>
[***] Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
<PAGE>
32
June 30, 2000 75,399
(b) If at the time of any determination Historical EBITDA is less than 80%
of Projected EBITDA relevant to the time of determination, then until Historical
EBITDA is determined to be equal to or greater than 80% of Projected EBITDA
relevant to the time of determination, the interest rate on the Notes shall
increase to 11.5%, it being understood that such increase in the interest rate
shall not cure any default arising under clause (a) of this Section 8.6 as a
consequence of Historical EBITDA being less than an amount equal to 50% of
Projected EBITDA.
(c) For purposes of determining whether the Company is in compliance with
its obligations under this Section 8.6, for the corresponding period set forth
above, Historical EBITDA shall be determined (x) for the period ending on
September 30, 1996, on an adjusted basis including only the three quarters ended
March 31, June 30 and September 30, 1996 and (y) beginning with the period
ending on December 31, 1996, on a quarterly basis each of March 31, June 30,
September 30 and December 31 of each year with respect to the quarter then ended
and the immediately preceding three consecutive fiscal quarters.
8.7. Merger, Consolidation, etc. (a) The Company covenants that it
will not merge or consolidate with any other Person, or sell, lease or otherwise
dispose of all or substantially all its assets to any other Person, unless (A)
-
no Default or Event of Default has occurred and is continuing or would exist
immediately after such merger or consolidation or sale of assets and (B) in the
-
case of a merger or consolidation, the Company is the continuing or surviving
corporation or, if the Company is not the continuing or surviving corporation or
in the case of a transfer of assets, (i) the surviving corporation or transferee
-
is a corporation organized and existing under the laws of the United States of
America or a state thereof or the District of Columbia, (ii) such corporation
--
shall have executed and delivered to each holder of any Securities its
assumption in writing (in form and substance reasonably satisfactory to the
Required Securities Holder(s)) of the due and punctual payment of the principal,
premium, if any, and interest payable with respect to the Notes and the
performance and observance of every other covenant and condition of this
Agreement and the other Note Documents, (iii) such corporation shall have caused
---
to be delivered to each holder of any Securities an opinion of independent
counsel, in form and substance reasonably satisfactory to the Required
Securities Holder(s), to the effect that all agreements or instruments effecting
such assumption have been duly authorized, executed and delivered by such
surviving, continuing or resulting corporation or such transferee and constitute
a legal, valid and binding obligation against such corporation enforceable in
accordance with their terms and (iv) immediately after giving effect to such
--
transaction (and such assumption) such corporation
<PAGE>
33
could incur at least $1 of additional Total Debt without a Default or an Event
of Default occurring hereunder.
(b) Except as allowed pursuant to Section 8.8, the Company will not permit
any Subsidiary or any Joint Venture Vehicle to, directly or indirectly,
consolidate with or merge into any other Person or permit any other Person to
consolidate with or merge into it, except that any Subsidiary or any Joint
Venture Vehicle may consolidate with or merge into the Company or a Subsidiary
if the Company or the Subsidiary or the Joint Venture Vehicle of which the
Company owns the higher percentage interest, as the case may be, shall be the
surviving corporation and if, immediately after giving effect to such
transaction, no Default or Event of Default shall have occurred and be
continuing.
8.8. Sale of Assets. The Company will not and will not permit any
Subsidiary or Joint Venture Vehicle to (whether by a single transaction or a
number of related or unrelated transactions and whether at one time or over a
period of time) sell, transfer, lease out, lend or otherwise dispose of (whether
outright, by a sale-and-repurchase or sale-and-leaseback arrangement, or
otherwise and whether to another member of the Group or any other Person) (each
a "Disposal") all or any part of its assets (other than a sale of substantially
all of the assets of the Company permitted pursuant to Section 8.7) if the net
book value of such assets, when aggregated with all other assets (other than
inventory sold in the normal course of business) disposed of by any member of
the Group or Joint Venture Vehicle (A) within the same fiscal year, would exceed
-
10% of the value of the Total Consolidated Assets of the Group (as reported in
the Company's most recent published quarterly consolidated financial statements)
or (B) since the Notes have been outstanding, would exceed 25% of Total
-
Consolidated Assets of the Group (as reported in the Company's most recent
published quarterly consolidated accounts), unless (i) both immediately before
-
and after giving effect thereto, no Default or Event of Default has occurred and
is then continuing and (ii) such Disposal is made for cash and within 180 days
--
of such a Disposal such cash proceeds are used either (x) to purchase another
-
asset or other assets of a similar value in one or more of the lines of business
of the Company (as determined by the Board of Directors) or (y) to cause the
-
Company to repay an amount of indebtedness of the Company (other than
indebtedness subordinated to the Notes) equal to the amount of such cash
proceeds in excess of the foregoing 10% or 25% of the Total Consolidated Assets
of the Group. The following Disposals shall not be taken into account under
this Section:
(i) Disposals in the ordinary course of business;
(ii) Disposals of individual assets having a book value of less than
$1,000,000;
<PAGE>
34
(iii) a Disposal of assets by one Subsidiary or Joint Venture Vehicle
of the Company to another Subsidiary of the Company or to the Company;
(iv) the exchange of assets for other assets of a similar nature and
value;
(v) Disposals consisting of the assignment, licensing or sub-
licensing of intellectual property rights by the Company, any Subsidiary or
Joint Venture Vehicle to any Subsidiary or Joint Venture Vehicle; and
(vi) any Disposal which the Required Holder(s) shall have agreed in
writing shall not be taken into account.
A merger or consolidation of a Subsidiary into any Person (other than a
Subsidiary) shall be treated for purposes of this Section 8.8 as a Disposal of
all the assets of such Subsidiary. A merger or consolidation of a Subsidiary
into another Subsidiary, where the percentage shareholder interest of the
Company in the surviving or resulting Subsidiary is less than the percentage
interest of the Company in either of the merging or consolidating Subsidiaries,
shall be treated for purposes of this Section 8.8 as a disposition of assets
equal to the excess, if any, of (A) the sum of the separate percentage interests
of the Company's ownership of each of the merging or consolidating Subsidiaries
multiplied by the respective total assets of each Subsidiary over (B) the
percentage interest of the Company's ownership of the surviving or resulting
Subsidiary multiplied by the total assets of the surviving or resulting
Subsidiary.
8.9. Cumulative Installed Rooms. (a) The Company will not permit
Cumulative Installed Rooms as of the last day of each period set forth below to
be less than [***] of Projected Cumulative Installed Rooms set forth opposite
such period below:
Period Cumulative Installed Rooms
------ --------------------------
[***]
*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
<PAGE>
35
[***]
(b) If at the time of any determination Cumulative Installed Rooms is less
than 80% of Projected Cumulative Installed Rooms relevant to the time of
determination, then until Cumulative Installed Rooms is determined to be equal
to or greater than 80% of Projected Cumulative Installed Rooms relevant to the
time of determination, the interest rate on the Notes shall increase to 11.5%,
it being understood that such increase in the interest rate shall not cure any
default arising under clause (a) of this Section 8.9 as a consequence of
Cumulative Installed Rooms being less than an amount equal to 50% of Projected
Cumulative Installed Rooms.
(c) For purposes of determining whether the Company is in compliance with
its obligations under this Section 8.9, for the corresponding period set forth
above Cumulative Installed Rooms shall be determined on a quarterly basis for
the period ended March 31, June 30, September 30 and December 31 of each year.
8.10. Offering of Adult Titles. The Company will not, at any time,
have Adult Titles represent more than 30% of all video entertainment titles
offered by the Group and its Joint Venture Vehicles; provided, that the Company
will not, and will not permit any member of the Group or any Joint Venture
Vehicle, at any time, to offer films which are illegal to exhibit in the United
States. The Company covenants that it will, and will cause each of its
Subsidiaries and Joint Venture Vehicles to, include Lock-out Functions in each
video system it installs.
- ------------------------------------------
*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.
<PAGE>
36
8.11. Amendments to the Technology License Agreement. So long as the
Collateral Assignment Agreement remains in full force and effect, the Company
will not amend, modify or supplement in any material respect or terminate the
Technology License Agreement without the prior written consent of the Required
Holder(s); provided, however, if Company delivers a written notice to the
--------
Noteholders which states that (i) the Company desires to amend, modify or
supplement the Technology License Agreement pursuant to this Section 8.11 and
(ii) the Noteholders must respond to such notice within four Business Days from
the date of receipt or will be deemed to have consented to the request, and the
Required Holder(s) fail to respond to such notice within four Business Days,
such failure to respond shall be deemed to be a consent to any such amendment,
modification or supplement.
8.12. Transactions with Affiliates. The Company will not, and will
not permit any Subsidiary or Joint Venture Vehicle to, directly or indirectly,
enter into any transaction (including, without limitation, the purchase, sale or
exchange of assets or the rendering of services) with any Affiliate (other than
a Wholly Owned Subsidiary), except in the ordinary course of and pursuant to the
reasonable requirements of the Company's or such Subsidiary's business and upon
fair and reasonable terms that are no less favorable to the Company or such
Subsidiary, as the case may be, than those which would be obtained in an arm's
length transaction at the time with a Person not an Affiliate.
8.13. Additional Pledged Securities; Restrictions on PPV.
(a) Until the following conditions in this Section 8.13(a) have been
satisfied, the covenants in Section 8.13(b) shall be binding upon the Company:
(i) the Company shall have provided evidence satisfactory to the
Noteholders that the capital stock or similar equity interests of each of
Pacific Pay Video (Thailand) Limited and Pacific Pay Video (Taiwan) Inc.
have been transferred from PPV to the Company and that the Company is the
registered holder thereof;
(ii) the Company shall have duly authorized, executed and delivered
one or more Pledge Agreements pursuant to which the Company shall have
pledged the capital stock or similar equity interests of each of Pacific
Pay Video (Thailand) Limited and Pacific Pay Video (Taiwan) Inc., together
with all proceeds thereof to secure the obligations of the Company
hereunder and under the Notes;
(iii) each Noteholder shall have received a certified copy of such
Pledge Agreement(s) and such Pledge Agreement(s) shall be in full force and
effect and shall constitute valid, binding and enforceable obligations in
accordance with their terms and each Noteholder shall have received an
opinion (in form and substance satisfactory to Required
<PAGE>
37
Holder(s)) from independent counsel reasonably acceptable to Required
Holder(s) to such effect; and
(iv) the Company shall cause to be delivered to the Agent all the
certificated Pledged Securities, if any, referred to in any such Pledge
Agreement, together with executed and undated stock powers.
(b) Until the conditions in Section 8.13(a) have been satisfied in full,
the Company will not permit PPV to
(i) transact any business other than as incidental to the holding of
the Technology License Agreement and the holding of the capital stock or
similar equity interests of each of Pacific Pay Video (Thailand) Limited
and Pacific Pay Video (Taiwan) Inc.;
(ii) incur any Debt in an aggregate amount in excess of $100,000
other than Debt due to the Company or to a wholly-owned Subsidiary of the
Company;
(iii) create, incur, assume or suffer to exist any Lien (including
Liens otherwise permitted by Section 8.1) upon or with respect to any of
the capital stock or similar equity interests of either of Pacific Pay
Video (Thailand) Limited or Pacific Pay Video (Taiwan) Inc.;
(iv) transfer any of the capital stock or similar equity interests of
either of Pacific Pay Video (Thailand) Limited or Pacific Pay Video
(Taiwan) Inc. except to the Company in accordance with Section 8.13(a);
(v) liquidate, wind-up or otherwise terminate its corporate
existence; or
(v) merge or consolidate with any Person (including any merger or
consolidation which would otherwise be permitted in accordance with Section
8.7).
SECTION 9. EVENTS OF DEFAULT AND ENFORCEMENT.
9.1. Events of Default; Acceleration. If any of the following events
shall occur and be continuing for any reason whatsoever (and whether such
occurrence shall be voluntary or involuntary or come about or be effected by
operation of law or otherwise):
(i) the Company defaults in the payment of any principal of or
premium payable with respect to any Note when the same shall
<PAGE>
38
become due, either by the terms thereof or otherwise as herein provided; or
(ii) the Company defaults in the payment of any interest on any Note
for more than ten days after the date due; or
(iii) the Company or any Subsidiary or Joint Venture Vehicle shall
fail to make any payment when due on any indebtedness for borrowed money,
aggregating $5,000,000 (or the equivalent thereof in any other currency) or
more in aggregate principal amount; or any event shall occur (other than
the mere passage of time) or any condition shall exist in respect of any
such indebtedness for borrowed money, or under any agreement securing or
relating to such indebtedness for borrowed money, the effect of which is to
require (or permit any holder of such indebtedness or a trustee to require)
such indebtedness, or a portion thereof, to be paid prior to its stated
maturity or prior to its regularly scheduled date of payment; or
(iv) any representation, warranty or other statement made by the
Company herein or by or on behalf of the Company in any instrument
furnished in compliance with or in reference to this Agreement shall be
false or misleading in any material respect or shall omit or fail to state
information, which omission or failure makes such representation, warranty
or other statement false or misleading in any material respect; or
(v) the Company fails to perform or observe any agreement contained
in Section 8.1, 8.3, 8.4, 8.5, 8.6, 8.9, 8.10 or 8.11 and such failure
shall not be remedied within 15 days after any Responsible Officer obtains
actual knowledge thereof; or
(vi) the Company fails to perform or observe any agreement contained
in Section 8.2, 8.7 or 8.8; or
(vii) the Company fails to perform or observe any other agreement,
term or condition contained herein or in any of the other Note Documents
and such failure shall not be remedied within 60 days after any Responsible
Officer obtains actual knowledge thereof; or
(viii) the Company or any of its Subsidiaries shall (A) generally not
-
be paying its debts as they become due, (B) file, or consent by answer or
-
otherwise to the filing against it of, a petition for relief or
reorganization or arrangement or any other petition in bankruptcy, for
liquidation or to take advantage of any bankruptcy or insolvency law of any
jurisdiction, (C) make an assignment for the benefit of its creditors, (D)
- -
consent to the appointment of a custodian, receiver, trustee or other
officer with similar powers with respect to it
<PAGE>
39
or with respect to any substantial part of its property, (E) be adjudicated
-
insolvent or (F) take corporate action for the purpose of any of the
-
foregoing, unless the Required Holders have consented to such event in
writing prior to the occurrence thereof; or
(ix) if a court or governmental authority of competent jurisdiction
shall enter an order appointing, without consent by the Company or any of
its Subsidiaries, a custodian, receiver, trustee or other officer with
similar powers with respect to it or with respect to a substantial part of
its property, assets or revenues, or if an order for relief shall be
entered in any case or proceeding for liquidation or reorganization or
otherwise to take advantage of any bankruptcy or insolvency law of any
jurisdiction, or ordering the dissolution, winding-up or liquidation of the
Company or any of its Subsidiaries, or if any petition for any such relief
shall be filed against the Company or any of its Subsidiaries and such
petition shall not be dismissed within 30 days, unless the Required Holders
have consented to such event in writing prior to the occurrence thereof; or
(x) a final judgment or judgments for the payment of money in an
aggregate amount in excess of $5,000,000 (excluding portions covered by
insurance, provided that the insurer has admitted in writing its
responsibility for any such liability) is or are outstanding against one or
more of the Company and its Subsidiaries and/or, within 60 days after entry
thereof, any one of such judgments is not discharged, bonded or execution
thereof stayed pending appeal, or within 60 days after the expiration of
any such stay, such judgment is not discharged; or
(xi) any Security Document or any provision thereof shall cease to
be in full force and effect, or shall cease to give the Agent the Liens,
rights, powers and privileges purported to be created thereby, or the
Company or any Subsidiary or any Joint Venture Vehicle shall default in the
due performance or observance of any term, covenant or agreement on its
part to be performed or observed pursuant to the Security Documents and
such default shall not be remedied within 15 days after a Responsible
Officer obtains actual knowledge thereof;
then (A) if such event is an Event of Default specified in clause (i) or (ii) of
-
this Section 9.1, the holder of any Note may at its option, by notice in writing
to the Company, declare such Note to be, and such Note shall thereupon be and
become, immediately due and payable at par together with interest accrued
thereon and premium, if any, payable with respect thereto pursuant to Section
6.1, without presentment, demand, protest or other notice of any kind, all of
which are hereby waived by the Company, (B) if such event is an Event of Default
-
specified in clause (viii) or (ix) of this Section 9.1 with respect to the
Company, all of the Notes at the time outstanding shall automatically become
immediately due and payable at par together with interest accrued thereon, and
<PAGE>
40
premium, if any, payable with respect thereto pursuant to Section 6.1, without
presentment, demand, protest or notice of any kind, all of which are hereby
waived by the Company, and (C) if such event is not an Event of Default
-
specified in clause (viii) or (ix) of this Section 9.1 with respect to the
Company, the Required Holder(s) of the Notes then outstanding may at its or
their option, by notice in writing to the Company, declare all of the Notes to
be, and all of the Notes shall thereupon be and become, immediately due and
payable at par together with interest accrued thereon and together with any
premium payable pursuant to Section 6.1 with respect to each Note, without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Company.
9.2. Rescission of Acceleration. At any time after any or all of the
Notes shall have been declared immediately due and payable pursuant to Section
9.1, the Required Holder(s) may, by notice in writing to the Company, rescind
and annul such declaration and its consequences if (i) the Company shall have
-
paid all overdue interest on the Notes, the principal of and premium, if any,
payable with respect to any Notes which have become due otherwise than by reason
of such declaration, and interest on such overdue interest to the extent
permitted by law and overdue principal in an amount at the rate specified in the
Notes, (ii) the Company shall not have paid any amounts which have become due
--
solely by reason of such declaration, (iii) all Events of Default and Defaults,
---
other than non-payment of amounts which have become due solely by reason of such
declaration, shall have been cured or waived pursuant to Section 11.3 and (iv)
--
no judgment or decree shall have been entered for the payment of any amounts due
pursuant to the Notes or this Agreement. No such rescission or annulment shall
extend to or affect any subsequent Event of Default or Default or impair any
right arising therefrom.
9.3. Notice of Acceleration or Rescission. Whenever any Note shall
be declared immediately due and payable pursuant to Section 9.1 or any such
declaration shall be rescinded and annulled pursuant to Section 9.2, the Company
shall forthwith give written notice thereof to the holder of each Note at the
time outstanding.
9.4. Other Remedies. If any Event of Default shall occur and be
continuing, the holder of any Note may proceed to protect and enforce its rights
under this Agreement and such Note by exercising such remedies as are available
to such holder in respect thereof under applicable law, either by suit in equity
or by action at law, or both, whether for specific performance of any covenant
or other agreement contained in this Agreement or any other Note Document or in
aid of the exercise of any power granted in this Agreement or the other Note
Documents; provided, that in the case of the Security Documents, no holder of
--------
any Note may proceed to protect or enforce its rights under this Agreement and
such Note by exercising remedies as are available to such holder in respect
thereof under applicable law through the Agent without the consent of the
Required Holder(s). No course of dealing and no delay on
<PAGE>
41
the part of any holder of any Note in exercising any right, power or remedy
shall operate as a waiver thereof or otherwise prejudice such holder's rights,
powers or remedies. No remedy conferred in this Agreement or any Security
Document upon the holder of any Securities or on the Agent, as the case may be,
is intended to be exclusive of any other remedy, and each and every such remedy
shall be cumulative and shall be in addition to every other remedy conferred
herein or now or hereafter existing at law or in equity or by statute or
otherwise.
10. DEFINITIONS AND INTERPRETATION, ETC. For the purpose of this
Agreement, the terms defined in the introductory sentence and in Sections 1 and
2 shall have the respective meanings specified therein, and the following terms
shall have the meanings specified with respect thereto below:
10.1. Defined Terms.
"Adult Titles" shall mean any motion pictures not rated by the Motion
Picture Association of America in the United States (or an equivalent rating
accorded by a similar body in any other jurisdiction).
"Adjusted Consolidated Net Worth" shall mean the sum of (i) minority
interests, plus (ii) the par value (or value stated on the books of the Company)
of the capital stock (but excluding treasury stock and capital stock subscribed
and unissued) of the Company and its Subsidiaries, plus (iii) the amount of the
additional paid-in capital, retained earnings and any cumulative translation
adjustment of the Company and its Subsidiaries, in each case determined as of
such date in accordance with generally accepted accounting principles with
respect to the Company and its Subsidiaries on a consolidated basis.
"Affiliate" shall mean, at any time, (a) with respect to any Person,
any other Person that at such time directly or indirectly through one or more
intermediaries Controls, or is Controlled by, or is under common Control with,
such first Person, and (b) any Person (other than a Noteholder) beneficially
owning or holding, directly or indirectly, 5% or more of any class of voting or
equity interests of the Company or any Subsidiary or any corporation of which
the Company and its Subsidiaries beneficially own or hold, in the aggregate,
directly or indirectly, 5% or more of any class of voting or equity interests.
As used in this definition, "Control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise. Unless the context otherwise clearly requires, any
reference to an "Affiliate" is a reference to an Affiliate of the Company.
<PAGE>
42
"Appointment Agreement" shall mean the agreement substantially in the
form of Exhibit F hereto pursuant to which the Agent is appointed to act as
security trustee for the benefit of the Noteholders.
"Business Day" shall mean any day other than a Saturday, a Sunday or a
day on which commercial banks in New York or California are required or
authorized to be closed.
"Change in Tax Law Event" shall have the meaning provided in Section
7.14.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations promulgated and rulings issued thereunder.
Section references to the Code are to the Code, as in effect at the date of this
Agreement and any subsequent provisions of the Code, amendatory thereof,
supplemental thereto or substituted therefor.
"Collateral" shall mean the Pledged Securities and the interests of
PPV under the Technology License Agreement assigned in favor of the Agent on
behalf of the Noteholders pursuant to the Collateral Assignment Agreement.
"Collateral Assignment Agreement" shall have the meaning provided in
Section 3.9.
"Competitor" means any entity which derives or plans to derive a
material portion of its revenues, directly or indirectly, from the provision to
the hotel industry of television entertainment, information or transaction
processing services.
"Confidential Information" shall mean information delivered to the
Purchasers by or on behalf of the Company or any Subsidiary in connection with
the transactions contemplated by or otherwise pursuant to this Agreement that is
proprietary in nature and that was clearly marked or labeled or otherwise
adequately identified when received by such Purchasers as being confidential
information of the Company or such Subsidiary, provided, that such term does not
--------
include information that (a) was publicly known or otherwise known to such
Purchasers prior to the time of such disclosure, (b) subsequently becomes
publicly known through no act or omission by such Purchasers or any person
acting on its behalf, (c) otherwise becomes known to such Purchasers other than
through disclosure by the Company or any Subsidiary or (d) constitutes financial
statements delivered to such Purchasers under Section 7.2 that are otherwise
publicly available.
"Cumulative Installed Rooms" shall mean the aggregate number of rooms
the Company, its Subsidiaries and Joint Venture Vehicles have under contract to
provide an in-room, on-demand, pay-per-view entertainment and
NOTE AGREEMENT
<PAGE>
43
information system in hotels and in which rooms such a system has been
installed, is fully operational and is capable of generating income; provided,
--------
however, that "Cumulative Installed Rooms" shall not include rooms installed
- -------
with systems acquired as a result of a merger or consolidation with, or
acquisition of, any single competitor of the Company if the number of rooms
installed with systems so acquired in any such transaction exceeds 10,000.
"Current Debt" shall mean, with respect to any Person, all liabilities
for borrowed money and all liabilities secured by any Lien existing on property
owned by such Person (whether or not those liabilities have been assumed) which,
in either case, are payable on demand or within one year from the date of the
creation thereof, plus the aggregate amount of Guarantees by such Person of all
such liabilities of other Persons except (i) any liabilities which are renewable
-
or extendible at the option of the debtor to a date more than one year from the
date of creation thereof and (ii) any liabilities which, although payable within
--
one year, constitute principal payments on indebtedness expected to mature more
than one year from the date of its creation.
"Debt" shall mean Current Debt and Funded Debt.
"Dollar or $" shall each mean the lawful currency of the United States
of America.
"Environmental Laws" shall mean any and all statutes, laws,
regulations, ordinances, rules, judgments, orders, decrees, permits,
concessions, grants, franchises, licenses, agreements or governmental
restrictions relating to pollution and the protection of the environment or the
release of any materials into the environment, including but not limited to
those related to hazardous substances or wastes, air emissions and discharges to
waste or public systems.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and rulings
issued thereunder. Section references to ERISA are to ERISA, as in effect at the
date of this Agreement and any subsequent provisions of ERISA, amendatory
thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean each person (as defined in Section 3(9)
of ERISA) which together with the Company or a Subsidiary of the Company would
be deemed to be a "single employer" (i) within the meaning of Section
414(b),(c), (m) or (o) of the Code or (ii) as a result of the Company or a
Subsidiary of the Company being or having been a general partner of such person.
"Event of Default" shall mean any of the events specified in Section
9, provided that there has been satisfied any requirement therein in connection
with such event for the giving of notice, or the lapse of time, or the
NOTE AGREEMENT
<PAGE>
44
happening of any further condition, event or act, and "Default" shall mean any
of such events, whether or not any such requirement has been satisfied.
"Exchange Act" shall mean the United States Securities Exchange Act of
1934, as amended.
"Financial Institution" shall mean an institutional investor (other
than an individual) which is an "accredited investor" as defined in Regulation D
of the Securities Act.
"Financing Lease" shall mean any lease which is shown or is required
to be shown in accordance with generally accepted accounting principles as a
liability on the balance sheet of the lessee thereunder.
"First Closing Date" shall have the meaning specified in Section 2.1.
"Foreign Pension Plan" shall mean any plan, fund (including without
limitation, any superannuation fund) or other similar program established or
maintained outside the United States of America by the Company or any one or
more of its Subsidiaries or its Joint Venture Vehicles primarily for the benefit
of employees of the Company or such Subsidiaries or such Joint Venture Vehicles
residing outside the United States of America, which plan, fund or other similar
program provides, or results in, retirement income, a deferral of income in
contemplation of retirement or payments to be made upon termination of
employment, and which plan is not subject to ERISA or the Code.
"Foreign Joint Venture Vehicle" shall mean any Joint Venture Vehicle
that is incorporated or organized outside of the United States or any State or
territory thereof.
"Foreign Subsidiary" shall mean any Subsidiary that is incorporated or
organized outside of the United States or any State or territory thereof.
"Funded Debt" shall mean (without duplication), with respect to any
Person, (i) all liabilities for borrowed money other than Current Debt, (ii) all
- --
liabilities secured by any Lien existing on property owned by such Person
(whether or not those liabilities have been assumed) other than Current Debt,
(iii) the aggregate amount of Guarantees by such Person other than Guarantees of
- ----
Current Debt of other Persons and (iv) accrued royalty payments for programming,
--
which are outstanding one year from their creation.
"Group" shall be the Company and each of its Subsidiaries.
NOTE AGREEMENT
<PAGE>
45
"Guarantee" shall mean, with respect to any Person, any direct or
indirect liability, contingent or otherwise, of such Person with respect to any
indebtedness, lease (other than Operating Leases), dividend or other obligation
of another, including, without limitation, any such obligation directly or
indirectly guaranteed, endorsed (otherwise than for collection or deposit in the
ordinary course of business) or discounted or sold with recourse by such Person,
or in respect of which such Person is otherwise directly or indirectly liable,
including, without limitation, any such obligation in effect guaranteed by such
Person through any agreement (contingent or otherwise) to purchase, repurchase
or otherwise acquire such obligation or any security therefor, or to provide
funds for the payment or discharge of such obligation (whether in the form of
loans, advances, stock purchases, capital contributions or otherwise), or to
maintain the solvency or any balance sheet or other financial condition of the
obligor of such obligation, in any such case if the purpose or intent of such
agreement is to provide assurance that such obligation will be paid or
discharged, or that any agreements relating thereto will be complied with, or
that the holders of such obligation will be protected against loss in respect
thereof. The amount of any Guarantee shall be equal to the outstanding
principal amount of the obligation guaranteed or such lesser amount to which the
maximum exposure of the guarantor shall have been specifically limited.
"Hazardous Material" shall mean (i) any "hazardous substance", as
-
defined by the United States Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, (ii) any "hazardous waste", as defined by
--
the United States Resource Conservation and Recovery Act of 1976, as amended,
(iii) any petroleum product, or (iv) any pollutant or contaminant or hazardous,
- ---- --
dangerous or toxic chemical, material or substance the handling, release or
presence of which is regulated pursuant to or otherwise governed by any
Environmental Law.
"Historical EBITDA" shall mean as of the date of determination the sum
of all earnings before interest, taxes, depreciation and amortization of the
Company on a consolidated basis during the immediately preceding four
consecutive fiscal quarters, as set forth in the books and financial records of
the Company.
"Hotel Contracts" shall mean contracts to provide services to hotels.
"Joint Venture Agreements" shall mean the Amended and Restated Joint
Venture Agreement between PPV, JAFTA Japan Co., Inc. and Izumi Kikaku Co. Ltd.
dated November 11, 1993, the Joint Venture Agreement between PPV and Nag Yong
Lee dated March 1, 1995, Shareholders Agreement between PPV and Mr. Arun
Churdboonchart and AC Telecom Ltd, dated as of May 6, 1995, and the Pacific Pay
Video (Taiwan), Inc Shareholder Agreement dated as of August 1, 1994.
NOTE AGREEMENT
<PAGE>
46
"Joint Venture Vehicle" shall mean any corporation, partnership,
association, joint venture or other entity (other than a Subsidiary) at least
40% of the total combined voting power of all classes of Voting Shares or equity
capital of which shall, at the time as of which any determination is being made,
be owned by the Company either directly or through Subsidiaries.
"Lien" shall mean any interest in property securing an obligation owed
to, or a claim by, a person other than the owner of the property, whether such
interest is based on the common law, statute or contract, and including but not
limited to the security interest lien arising from a mortgage, encumbrance,
pledge, conditional sale or trust receipt or a lease, consignment or bailment
for security purposes. The term "Lien" shall not include reservations,
exceptions, encroachments, easements, rights-of-way, covenants, conditions,
restrictions, leases and other minor title exceptions and encumbrances affecting
property, provided that they do not constitute security for monetary
--------
obligations. For the purposes of this Agreement, the Company, a Subsidiary or a
Joint Venture Vehicle shall be deemed to be the owner of any property which it
has acquired or holds subject to a conditional sale agreement or other
arrangement pursuant to which title to the property has been retained by or
vested in some other Person for security purposes, and such retention or vesting
shall be deemed to create a Lien on such property.
"Lock-out Function" shall mean the function of video program
entertainment systems installed in a hotel room, which enables the user to
prevent or limit access to Adult Titles in such room.
"Material Adverse Effect" shall mean, with respect to an action or
event or group of actions or events, (i) a material adverse effect on the
business, operations, affairs, condition (financial or other), properties or
prospects of the Company or on the consolidated business, operations, affairs,
condition (financial or other), properties or prospects of the Company and its
Subsidiaries and Joint Venture Vehicles, taken as a whole or (2) a material
adverse effect on the ability of the Company to perform and comply with its
obligations under this Agreement, the Notes or any other Note Document.
"Multiemployer Plan" shall mean any Plan which is a "multiemployer
plan" (as such term is defined in section 4001(a)(3) of ERISA).
"Note Documents" shall mean (i) the Note Agreement; (ii) any Security
Document; (iii) the Notes; (iv) the Warrants; (v) the Shareholders Agreement and
(vi) any other agreement, instrument, certificate or document executed and
delivered in connection with any Note Document.
"Noteholder" shall mean, at any time, a registered holder of Notes.
NOTE AGREEMENT
<PAGE>
47
"Officers' Certificate" shall mean a certificate signed in the name of
the Company by at least two Responsible Officers of the Company.
"Operating Lease" shall mean any lease of property under which the
Company or a Subsidiary is liable as lessee, or is liable by Guarantee of the
obligations of another Person as lessee, other than a Financing Lease.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
governmental authority succeeding to any of its functions.
"Person" shall mean and include an individual, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization or a government
or any department or agency thereof.
"Plan" shall mean any multiemployer or single-employer plan as defined
in Section 4001 of ERISA, which is maintained or contributed to by (or to which
there is an obligation to contribute of) the Company or a Subsidiary of the
Company or an ERISA Affiliate, and each such plan for the five year period
immediately following the latest date on which the Company, or a Subsidiary of
the Company or an ERISA Affiliate maintained, contributed to or had an
obligation to contribute to such plan.
"Pledged Securities" shall have the meaning specified in Section 1.2.
"PPV" shall mean Pacific Pay Video Limited.
"Private Placement Memorandum" shall mean the confidential private
placement memorandum of the Company prepared by the Company dated February 1995,
together with any supplemental information provided in writing to the Purchasers
subsequently, including, without limitation, the Long-Range Plan, dated as of
July 21, 1995.
"Projected EBITDA" shall mean, at any time during a period set forth
in Section 8.6, that amount set forth opposite such period in Section 8.6.
"Projected Cumulative Installed Rooms" shall mean, at any time during
a period set forth in Section 8.9, that amount set forth opposite such period in
Section 8.9.
"Required Holder(s)" shall mean the holder or holders of at least 70%
of the aggregate principal amount of the Notes from time to time outstanding.
"Required Securities Holder(s)" shall mean both (i) Required Holder(s)
and (ii) the holder or holders of Warrants exercisable into shares of
NOTE AGREEMENT
<PAGE>
48
Common Stock which in the aggregate amount to at least 70% of the aggregate
number of shares of Common Stock into which all the Warrants are exercisable.
"Responsible Officer" shall mean the president, the treasurer, the
chief executive officer, the chief operating officer, the chief financial
officer or the chief accounting officer of the Company.
"Restricted Payment" shall mean (i) dividends or other distributions
-
in respect of capital stock of the Company (except distributions in such stock)
and (ii) the redemption or acquisition of such stock or of warrants, rights or
--
other options to purchase such stock (except when solely in exchange for such
stock) or the redemption or acquisition by a Subsidiary of the Company of shares
not directly or indirectly held by the Company unless made, contemporaneously,
from the net proceeds of a sale of such stock; in either case, valued at the
fair market value of the property being dividended, distributed or otherwise
transferred as a distribution.
"Second Closing Date" shall have the meaning specified in Section 2.2.
"securities" and "security" shall have the meaning specified for the
term "security" in section 2(1) of the Securities Act.
"Securities Act" shall mean the United States Securities Act of 1933,
as amended.
"Security Documents" shall mean the Pledge Agreement(s), the
Collateral Assignment Agreement, the Appointment Agreement, any other documents
executed in connection therewith and any other security documents entered into
after the closing date.
"Shareholders' Agreement" shall mean the Shareholders' Agreement dated
as of September 29, 1994, as amended by the First Amendment dated May 16, 1995,
by and between PPV and the existing rights holders listed therein.
"Subsidiary" shall mean any corporation, partnership, association,
joint venture or other entity at least 50% of the total combined voting power of
all classes of Voting Shares or equity capital of which shall, at the time as of
which any determination is being made, be owned by the Company either directly
or through Subsidiaries, or in respect of which the Company has the power to
control the financial and operating policies.
"Technology License Agreement" shall mean the Technology License
Agreement dated April 15, 1992 between PPV and On Command Video Corporation, as
amended from time to time.
<PAGE>
48
"Total Adjusted Capitalization" shall mean the sum of Total Debt and
Adjusted Consolidated Net Worth.
"Total Consolidated Assets" shall mean the total assets of the
Company and its Subsidiaries, on a consolidated basis, determined in accordance
with generally accepted accounting principles.
"Total Debt" shall mean (without duplication), as of any date of
determination, the total of all Debt of the Company, its Subsidiaries and Joint
Venture Vehicles.
"Transferee" shall mean any direct or indirect transferee of all or
any part of any Note purchased by the Purchaser under this Agreement.
"United States" or "U.S." shall mean the United States of America.
"Voting Shares" shall mean, with respect to any incorporated company,
any shares of such company whose holders are entitled under ordinary
circumstances to vote for the election of directors of such company
(irrespective of whether at the time stock of any other class or classes shall
have or might have voting power by reason of the happening of any contingency)
and with respect to any company which is not incorporated, any interest in such
company which entitles the holder thereof to participate either in the
management or the profits of such company.
"Wholly Owned Subsidiary" shall mean, as applied to any Subsidiary, a
Subsidiary all the outstanding shares (other than directors' qualifying shares,
if required by law) of every class of stock of which are at the time owned by
the Company or by one or more Wholly Owned Subsidiaries or by the Company and
one or more Wholly Owned Subsidiaries.
10.2. Accounting Principles, Terms and Determinations. All
references in this Agreement to generally accepted accounting principles shall,
unless otherwise specified, be deemed to refer to generally accepted accounting
principles as practiced in the relevant jurisdiction, in effect at the time of
application thereof.
SECTION 11. MISCELLANEOUS.
11.1. Payments. The Company agrees that, so long as any Purchaser
shall hold any Note, it will make payments of principal of, interest on and any
premium payable with respect to such Note, by wire transfer of immediately
available funds for credit (not later than 12:00 noon, New York City time, on
the date due) to such Purchaser's account or accounts as specified in the
Purchaser Schedule attached hereto, or such other account or accounts in
<PAGE>
50
the United States as such Purchaser may designate in writing without presentment
of or notation on the Notes, notwithstanding any contrary provision herein or in
any Note with respect to the place of payment. Each holder of a Note by its
purchase thereof agrees that, before disposing of such Note, such holder will
make a notation thereon (or on a schedule attached thereto) of all principal
payments previously made thereon and of the date to which interest thereon has
been paid. The Company agrees to afford the benefits of this Section 11.1 to any
Transferee which shall have agreed to be bound by the provisions of this Section
11.1.
11.2. Expenses. The Company agrees, whether or not the transactions
contemplated hereby shall be consummated, to pay, and save each Purchaser and
any Transferee harmless against liability for the payment of, all out-of-pocket
expenses arising in connection with such transactions, including (i) all
-
reasonable document production and duplication charges, (ii) the reasonable
--
fees, charges and disbursements of any special counsel engaged by such Purchaser
or such Transferee in connection with the Note Documents and the transactions
contemplated thereby, (iii) the reasonable costs and expenses associated with
---
obtaining private placement numbers for the Notes, (iv) the reasonable out-of-
--
pocket costs and expenses each Purchaser incurred in connection with the
purchase of the Securities, (v) the cost and expenses (including fees) of the
-
Agent under any Security Document, including without limitation the costs and
expenses described in each of the Pledge Agreements, (vi) the reasonable costs
--
and expenses of delivering to each Purchaser, insured to its satisfaction, the
Securities purchased by such Purchaser hereunder, (vii) the reasonable cost of
---
delivering to the Company (insured to the satisfaction of the holder of such
Note) any Note surrendered to the Company pursuant to this Agreement and the
cost of delivering to any Purchaser or Transferee any Note issued in
substitution or replacement therefor, (viii) the costs and expenses, including
----
attorneys' fees (including the allocated costs and expenses of in-house
counsel), incurred by such Purchaser or such Transferee relating to (A) the
-
exchange of Notes, (B) the consideration by such Purchaser or Transferee of any
-
proposed amendments, waivers or consents (regardless of whether or not consented
to or actually executed) pursuant to the provisions of this Agreement or the
Notes, (C) the enforcement of (or determining whether or how to enforce) any
-
rights under this Agreement or any other Note Document or the collection of any
amounts due such Purchaser or Transferee under the Note Documents including,
without limitation, costs and expenses incurred in any bankruptcy case,
insolvency, restructuring or workout, (D) the preparation for, negotiations
-
regarding, consultations concerning or the defense of legal proceedings
involving any claim or claims made or threatened against such Purchaser or
Transferee arising out of the Note Documents or (E) responding to any subpoena
-
or other legal process or informal investigative demand issued in connection
with this Agreement or the transactions contemplated hereby or by reason of such
Purchaser's or such Transferee's having acquired any Security. Notwithstanding
the foregoing, the Company shall not be obligated to reimburse any Purchaser or
Transferee for any
<PAGE>
51
expenses, costs, outlays or fees incurred in connection with any action or
proceeding to enforce any of the provisions of the Note Documents which a court
of competent jurisdiction determines was not undertaken in good faith.
The Company also agrees to pay the costs and expenses or other taxes,
fees and charges incurred with respect to the recording, registering or filing
of any instrument to secure the Notes pursuant to Section 7.4 and compliance
with all statutes and regulations as may be necessary or desirable in order to
establish, protect, perfect and preserve any Lien created or maintained pursuant
to Section 7.4. The Company also will pay, and will save each Purchaser
harmless from all claims in respect of the fees, if any, of brokers and finders
(other than those retained by such Purchaser) and any and all liabilities with
respect to any taxes (including interest and penalties) which may be payable in
respect of the execution and delivery of this Agreement or any other Note
Documents, any instrument required to secure the Notes pursuant to Section 7.4,
the issue of the Notes hereunder and any amendment or waiver under or in respect
of this Agreement, the Notes or any other Note Document.
In furtherance of the foregoing, on the date of closing, the Company
will pay or cause to be paid the reasonable fees and disbursements of your
special counsel provided that such fees and disbursements are reflected in a
statement of such special counsel submitted to the Company at least three days
prior to the date of closing and, in addition, the Company will also pay or
cause to be paid, promptly upon receipt of supplemental statements therefor,
additional fees, if any, and disbursements of such special counsel in connection
with the transactions hereby contemplated.
The obligations of the Company under this Section 11.2 shall survive
the transfer of any Note or portion thereof or interest therein by any Purchaser
or any Transferee, the payment of any Note, the acceptance of any Warrant or the
termination of this Agreement or any other Note Document.
11.3. Consent to Amendments. This Agreement may be amended and the
Company may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, if the Company shall obtain the written consent
to such amendment, action or omission to act, of the Required Holder(s) except
that, without the written consent of the holder or holders of all Notes at the
time outstanding, no amendment to this Agreement shall change the maturity of
any Note, or change the principal of, or the rate or time of payment of interest
on or any premium payable with respect to any Note, or affect the time, amount
or allocation of any prepayments, or change the proportion of the principal
amount of the Notes required with respect to any consent, amendment, waiver or
declaration. Each holder of any Note at the time or thereafter outstanding and
the Company shall be bound by any consent authorized by this Section 11.3,
whether or not such Note shall have been marked to indicate such consent, but
any Notes issued thereafter may bear a notation referring to any such consent.
No course of dealing between the
<PAGE>
52
Company and the holder of any Note nor any delay in exercising any rights
hereunder or under any Note shall operate as a waiver of any rights of any
holder of such Note. As used herein and in the Notes, the term "this Agreement"
and references thereto shall mean this Agreement as it may from time to time be
amended or supplemented.
11.4. Solicitation of Holders of Notes. Neither the Company nor any
Affiliate will solicit, request or negotiate for or with respect to any proposed
waiver or amendment of any of the provisions of this Agreement or the Notes
unless each holder of the Notes (irrespective of the amount of Notes then owned
by it) shall be informed thereof by the Company and shall be afforded the
opportunity of considering the same and shall be supplied by the Company with
sufficient information to enable it to make an informed decision with respect
thereto. Executed or true and correct copies of any waiver sent or effected
pursuant to the provisions of Section 11.3 shall be delivered by the Company to
each holder of outstanding Notes forthwith following the date on which the same
shall have been executed and delivered by the holder or holders of the requisite
percentage of outstanding Notes. Neither the Company nor any Affiliate will,
directly or indirectly, pay or cause to be paid any remuneration, whether by way
of supplemental or additional interest, fee or otherwise, to any holder of a
Note for any consent by such Person to any waiver or amendment of any of the
terms and provisions of this Agreement or the Notes unless such remuneration is
concurrently paid, on the same terms, ratably to the holders of all of the Notes
then outstanding.
11.5. Form, Registration, Transfer and Exchange of Notes; Lost Notes.
The Notes are issuable as registered notes without coupons in denominations of
at least $100,000, except as may be necessary to reflect any principal amount
not evenly divisible by $100,000. The Company shall keep at its principal
office a register in which the Company shall provide for the registration of
Notes and of transfers of Notes. Any holder of any of the Notes may sell,
assign or otherwise transfer any of such Notes to (x) any Financial Institution
or (y) subject to the immediately succeeding sentence, any other Person other
than a Person which is at the time of such sale, assignment or transfer a
Competitor. Unless such Noteholder is transferring such Notes to a Financial
Institution, the transferring Noteholder shall notify the Company in writing as
to the identity of such proposed transferee, and such Noteholder shall not
transfer such Note to such Person if the Company, within 5 Business Days of
receipt of such notice, notifies such Noteholder (with supporting details) that
the proposed transferee is a Competitor and that the Company objects to such
transfer, it being understood that if the Noteholder does not receive such a
notice from the Company within such 5 Business Days, the proposed transferee
shall not be considered a Competitor for purposes hereof and the transfer shall
not be prohibited hereby. Any Transferee shall have acceded to the Appointment
Agreement in accordance with the terms thereof by executing an Instrument of
Accession in the form of Annex I to the Appointment Agreement. Upon surrender
for registration of transfer of any Note at the principal office
<PAGE>
53
of the Company, the Company shall, at its expense, execute and deliver one or
more new Notes of like tenor and of a like aggregate principal amount,
registered in the name of such transferee or transferees. At the option of the
holder of any Note, such Note may be exchanged for other Notes of like tenor and
of any authorized denominations, of a like aggregate principal amount, upon
surrender of the Note to be exchanged at the principal office of the Company.
Whenever any Notes are so surrendered for exchange, the Company shall, at its
expense, execute and deliver the Notes which the holder making the exchange is
entitled to receive. Every Note surrendered for registration of transfer or
exchange shall be duly endorsed, or be accompanied by a written instrument of
transfer duly executed, by the holder of such Note or such holder's attorney
duly authorized in writing. Any Note or Notes issued in exchange for any Note or
upon transfer thereof shall carry the rights to unpaid interest and interest to
accrue which were carried by the Note so exchanged or transferred, so that
neither gain nor loss of interest shall result from any such transfer or
exchange. Upon receipt of written notice from the holder of any Note of the
loss, theft, destruction or mutilation of such Note and, in the case of any such
loss, theft or destruction, upon receipt of such holder's unsecured indemnity
agreement, or in the case of any such mutilation upon surrender and cancellation
of such Note, the Company will make and deliver a new Note, of like tenor, in
lieu of the lost, stolen, destroyed or mutilated Note.
11.6. Persons Deemed Owners. Prior to due presentment for
registration of transfer, the Company may treat the Person in whose name any
Note is registered as the owner and holder of such Note for the purpose of
receiving payment of principal of, interest on and any premium payable with
respect to such Note and for all other purposes whatsoever, whether or not such
Note shall be overdue, and the Company shall not be affected by notice to the
contrary. Subject to the preceding sentence, any holder of any of the Notes may
grant participations in such Note to (x) any Financial Institution or (y)
subject to the immediately succeeding sentence, any other Person other than a
Person which is at the time of the granting of such participation a Competitor.
Unless such Noteholder is granting a participation in the Notes to a Financial
Institution, the granting Noteholder shall notify the Company in writing as to
the identity of such proposed grantee, and such Noteholder shall not grant such
participation to such Person if the Company, within 5 Business Days of receipt
of such notice, notifies such Noteholder (with supporting details) that the
proposed grantee is a Competitor and that the Company objects to such transfer,
it being understood that if the transferring Noteholder does not receive such a
notice from the Company within such 5 Business Days, the proposed grantee shall
not be considered a Competitor for purposes hereof and the granting of the
participation shall not be prohibited hereby.
11.7. Survival of Representations and Warranties. All
representations and warranties contained herein or made by or on behalf of the
Company in connection herewith shall survive the execution and delivery of this
Agreement and the Securities, the transfer by the Purchaser of any Note,
<PAGE>
54
together with the Warrants or portion thereof or interest therein and the
payment of any Note, and may be relied upon by any Transferee, regardless of any
investigation made at any time by or on behalf of the Purchaser or any
Transferee. All statements contained in any certificate or other instrument
delivered by or on behalf of the Company pursuant hereto or in connection with
the transactions contemplated hereby shall be deemed representations and
warranties of the Company hereunder.
11.8. Successors and Assigns. All covenants and other agreements in
this Agreement contained by or on behalf of any of the parties hereto shall bind
and inure to the benefit of the respective successors and assigns of the parties
hereto (including, without limitation, any Transferee) whether so expressed or
not.
11.9. Disclosure to Other Persons. Each holder of Notes agrees to
use its best efforts to hold in confidence all Confidential Information;
provided that nothing herein shall prevent the holder of any Note from
- --------
delivering copies of any financial statements and other documents (whether or
not constituting Confidential Information) delivered to such holder, and
disclosing any other information (whether or not constituting Confidential
Information) disclosed to such holder, by or on behalf of the Company or any
Subsidiary or Joint Venture Vehicle thereof in connection with or pursuant to
this Agreement to (i) such holder's directors, officers, employees, agents and
-
professional consultants, (ii) any other holder of any Note, (iii) any Person to
-- ---
which such holder offers to sell such Note or any part thereof (if such Person
has agreed in writing prior to its receipt of such Confidential Information to
be bound by the provisions of this Section 11.9), (iv) any Person to which such
--
holder sells or offers to sell a participation in all or any part of such Note
(if such Person has agreed in writing prior to its receipt of such Confidential
Information to be bound by the provisions of this Section 11.9), (v) any Person
-
from which such holder offers to purchase any security of the Company, (vi) any
--
federal or state regulatory authority having jurisdiction over such holder,
(vii) the National Association of Insurance Commissioners or any similar
---
organization, (viii) any Person holding any debt instrument issued by the
----
Company, (ix) any Person responsible for rating the Notes or any other debt
--
instrument issued by the Company or (x) any other Person to which such delivery
-
or disclosure may be necessary or appropriate (A) in compliance with any law,
-
rule, regulation or order applicable to such holder, (B) in response to any
-
subpoena or other legal process or informal investigative demand or (C) in
-
connection with any litigation to which such holder is a party. Each holder of
a Note, by its acceptance of such Note, will be deemed to have agreed to be
bound by and to be entitled to the benefits of this Section 11.9 as though it
were a party to this Agreement.
11.10. Notices. All written communications provided for hereunder
shall be delivered by hand, by internationally recognized overnight delivery
service (with charges prepaid) or by telecopy (if immediately followed
<PAGE>
55
by a duplicate delivery by hand or prepaid internationally recognized overnight
delivery service) and (i) if to the Purchaser, addressed to the Purchaser at the
-
address specified for such communications in the Purchaser Schedule attached
hereto, or at such other address as the Purchaser shall have specified to the
Company in writing, (ii) if to any other holder of any Note, addressed to such
--
other holder at such address as such other holder shall have specified to the
Company in writing or, if any such other holder shall not have so specified an
address to the Company, then addressed to such other holder in care of the last
holder of such Note which shall have so specified an address to the Company and
(iii) if to the Company, addressed to it at its address shown at the beginning
---
of this Agreement, Attention: Chief Financial Officer, or at such other address
as the Company shall have specified to the holder of each Note in writing. Any
notice so addressed shall be deemed given (A) when delivered if by hand, (B)
- -
when telecopied (if followed with a delivery the following day by hand or
overnight delivery service) or (C) one Business Day after delivery prepaid to
-
any internationally recognized overnight delivery service.
11.11. Payments Due on Non-Business Days. Anything in this Agreement
or the Notes to the contrary notwithstanding, any payment of principal of or
interest on any Note, or any premium payable with respect thereto, that is due
on a date other than a Business Day shall be made on the next succeeding
Business Day. If the date for any payment is extended to the next succeeding
Business Day by reason of the preceding sentence, the period of such extension
shall be included in the computation of the interest payable on such Business
Day.
11.12. Satisfaction Requirement. If any agreement, certificate or
other writing, or any action taken or to be taken, is by the terms of this
Agreement required to be satisfactory to any Purchaser or to the Required
Holder(s), the determination of such satisfaction shall be made by such
Purchaser or the Required Holder(s), as the case may be, in the sole and
exclusive judgment of the Person or Persons making such determination.
11.13. Entire Agreement. Subject to the last sentence of Section
11.3, this Agreement and the Notes embody the entire agreement and understanding
between the Purchasers and the Company and supersede all prior agreements and
understandings relating to the subject matter hereof.
11.14. Governing Law. This Agreement shall be construed and enforced
in accordance with, and the rights of the parties shall be governed by, the law
of the State of New York.
11.15. Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
<PAGE>
56
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11.16. Descriptive Headings. The descriptive headings of the several
Sections of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
11.17. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one instrument.
11.18. Severalty of Obligations. The sales of Notes to the
Purchasers are to be several sales, and the obligations of the Purchasers under
this Agreement are several obligations. Except as provided in Section 3.18, no
failure by any Purchaser to perform its obligations under this Agreement shall
relieve any other Purchaser or the Company of any of its obligations hereunder,
and no Purchaser shall be responsible for the obligations of, or any action
taken or omitted by, any other Purchaser hereunder.
11.19. Consent to Jurisdiction; Service of Process. For the purposes
of assuring that the holders of the Notes may enforce their rights under this
Agreement, the Company for itself and its successors and assigns, hereby
irrevocably (i) agrees that any legal or equitable action, suit or proceeding
-
against the Company arising out of or relating to this Agreement or the Notes or
any transaction contemplated hereby or the subject matter of any of the
foregoing may be instituted in any state or Federal court in the State of New
York, (ii) waives any objection which it may now or hereafter have to the venue
--
of any action, suit or proceeding in the State of New York or any claim of forum
-----
non conveniens in the State of New York, and (iii) irrevocably submits itself to
- -------------- ---
the non-exclusive jurisdiction of any state or Federal court of competent
jurisdiction in the State of New York for purposes of any such action, suit or
proceeding. Without limiting the foregoing, the Company hereby appoints, in the
case of any such action or proceeding brought in the courts of or in the state
of New York, CT Corporation System, with offices on the date hereof at 1633
Broadway, New York, New York 10019, to receive, for it and on its behalf,
service of process in the State of New York with respect thereto, provided the
Company may appoint any other person, reasonably acceptable to the Required
Holder(s), with offices in the State of New York to replace such agent for
service of process upon delivery to the Noteholders of a reasonably acceptable
agreement of such new agent agreeing so to act. The Company agrees that service
of process by means of notice (as provided in Section 11.10) of any such action,
suit or proceeding with respect to any matter as to which it has submitted to
jurisdiction as set forth in this Section 11.19 shall be taken and held to be
valid personal service upon it.
<PAGE>
57
11.20. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY
AND UNCONDITIONALLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY LEGAL OR EQUITABLE
ACTION, SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
NOTES OR ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY OR THE SUBJECT MATTER OF
ANY OF THE FOREGOING.
<PAGE>
58
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this letter and return the same to the
Company, whereupon this letter shall become a binding agreement among the
Company and the Purchasers.
Very truly yours,
MAGINET CORPORATION
By: /s/ James A. Barth
-------------------------------
Name: James A. Barth
Title: Chief Financial Officer
The foregoing Agreement is
hereby accepted as of the
date first above written.
NEW YORK LIFE INSURANCE COMPANY
By: /s/ Himi Kittner
------------------------------
Name: Himi Kittner
Title: Vice President
THE MUTUAL LIFE INSURANCE COMPANY
OF NEW YORK
By: /s/ Peter W. Oliver
-----------------------------
Name: Peter W. Oliver
Title: Managing Director
WASLIC COMPANY II
By: /s/ Daniel F. Lindley
-----------------------------
Name: Daniel F. Lindley
Title: President & Secretary
NAMTOR BVC LP
By: /s/ Noel Rotham
-----------------------------
Name: Noel Rotham
Title: Partner
<PAGE>
59
Title:
NOTE AGREEMENT
<PAGE>
NOTE AGREEMENT
SCHEDULE 1.2
LIST OF SECURITIES AND PLEDGED SECURITIES
-----------------------------------------
<TABLE>
<CAPTION>
Number of Number of
Name of Subsidiary or Securities Pledged Securities Percentage of Outstanding
Joint Venture Vehicle (ordinary shares) (ordinary shares) Shares of Capital Stock
- --------------------- ----------------- ------------------ -----------------------
Owned by Pledged by
Pledgor Pledgor Pledgor
- ------- ------- -------
<S> <C> <C> <C> <C>
Pacific Pay Video (HK) Limited 10,000 6,600 100% 66%
PPV Singapore Pte Ltd 100,000 66,000 100% 66%
Pacific Pay Video Pty. Limited (ACN
059 748 588) 100 66 100% 66%
Pacific Pay Video New Zealand Limited 100 66 100% 66%
Pacific Pay Video (Korea) Ltd 266,667 176,000 85% 66%
Pacific Pay Video International 1,000 1,000 100% 100%
Pacific Pay Video Limited 100 100 100% 100%
</TABLE>
<PAGE>
Schedule 3.11
DESCRIPTION OF REORGANIZATION
See the attached.
<PAGE>
Pacific Pay Video Limited
-------------------------
Outline for Establishing Holding Company Structure
--------------------------------------------------
Objectives
- ----------
1.) Establish a holding company to facilitate a more appropriate corporate
structure for operating, marketing and managing the Company's products and
services internationally.
2.) Minimize any impact on current financing efforts, taxes, or ability to use
pooling of interest accounting in future acquisitions.
Basis Structure and Implementation
- ----------------------------------
1.) Incorporate two new California corporations: Newholdings (parent) and
NewSub (100% owned subsidiary of NewHoldings).
2.) Merge NewSub into PPV in reverse triangular merger such that all current
PPV shareholders thereafter hold exactly the same interest in NewHoldings
as they did in PPV and NewHoldings holds 100% of the stock of PPV.
3.) All contracts would remain in PPV, except to the extent that contracts need
to be assigned to NewHoldings for it to carry out its administrative and
other responsibilities, and except for contracts related to equity or debt
or similar instruments which would be assumed by NewHoldings (e.g.,
shareholders agreements; SVB arrangements).
4.) The stock in PPV's current in-country subsidiaries would be distributed to
NewHoldings and thereafter such subsidiaries would be operated as
NewHoldings subsidiaries.
5.) NewHoldings may be requested to guarantee certain contracts or that such
contracts be assigned from PPV to NewHoldings, particularly those involving
payment obligations.
6.) All stock plans, options, and warrants would be assumed by NewHoldings.
Stock plans would be available to employees of all NewHoldings
subsidiaries.
Approval
- --------
1.) Only board approval is required to establish the holding company structure
and to distribute shares of existing PPV subsidiaries to NewHoldings.
2.) No dissenters' rights are triggered by the merger.
3.) No federal or state securities law registration should be required.
<PAGE>
Effect on Financing
- -------------------
1.) NY Life understands that the debt financing will be made to the
NewHoldings, New structure should not affect the ability of NY Life to be
secured since collateral is stock of all subsidiaries. NY Life will take
shares of PPV as collateral in addition to the shares of other
subsidiaries.
2.) NewHoldings will allocate cash to PPV and other subsidiaries as needed to
operate each company
Reorganization
- --------------
1.) PPV would continue to hold all existing license rights including the OCV
license. PPV would contract with other subsidiaries of NewHoldings (e.g.,
country operating subsidiaries) for services or technology connected with
the sale and installation of OCV systems.
2.) Employees would be reallocated as appropriate to their function.
Administration would be in the parent along with possibly marketing and/or
sales. Current country operating subsidiaries would not change, except the
equity in such subsidiaries would be held by the parent holding company and
not PPV.
Tax and Accounting
- ------------------
1.) The establishment of the holding company through the reverse triangular
merger will be tax free to each shareholder and each shareholder will carry
over the tax basis in his PPV shares to his NewHoldings shares.
2.) The distribution of the stock of the PPV subsidiaries to NewHoldings will
not result in recognition of gain or loss on a consolidated basis.
3.) Because there is no change in the equity interests of any security holder
in the overall organization, neither the establishment of the holding
company nor the distribution of the stock of the PPV subsidiaries to
NewHoldings should preclude a later pooling of interests acquisition.
4.) Tax counsel and the Company's accountants will provide written opinions to
verify the above conclusions before proceeding with the reorganization.
Contracts
- ---------
1.) Because the reorganization is structured as a reverse triangular merger and
because there is no change of control of the overall entity, contracts with
PPV should be unaffected by the reorganization. To the extent it is
desirable to move a contract to NewHoldings such contract will need to
either permit such assignment to a commonly controlled (i.e., affiliate)
corporation or a consent to such transfer will need to be obtained.
<PAGE>
2.) Section 10.3 of the Shareholders Agreement entered into as part of the
September 1994 financing provides that the shares of NewHoldings issued in
the reorganization will be automatically subject to the terms of that
agreement.
Timetable
- ---------
1.) Assuming June 15 board approval of the reorganization, the merger would
occur during the week of June 19, after tax, accounting, and contract
issues are finalized.
2.) The intent is to complete the reorganization prior to any funding from NY
life.
<PAGE>
Schedule 4.1
SUBSIDIARIES
------------
<TABLE>
<CAPTION>
Name of Subsidiary Jurisdiction of Percent of Voting Shares
or Joint Venture Incorporation Owned by the Company
<S> <C> <C>
Pay Per View Japan, Inc. Japan 90
Pacific PayVideo (HK) Limited Hong Kong 100
PPV Singapore Pte Ltd Singapore 100
Pacific Pay Video (Thailand) Co., Thailand
Limited + 49
Pacific Pay Video (Taiwan) Inc.t Taiwan 55
Pacific Pay Video Pty, Limited Australia 100
Pacific Pay Video New Zealand New Zealand
Limited 100
Pacific Pay Video (Korea) Ltd. Korea 85
Pacific Pay Video International, United States
Inc. (California) 100
Pacific Pay Video Limited United States
(California) 100
</TABLE>
+ Subsidiaries of Pacific Pay Video Limited
<PAGE>
Schedule 4.7
OUTSTANDING DEBT
----------------
Pacific Pay Video limited has indebtedness to Silicon Valley Bank in the
amount of six million dollars ($6,000,000), which will be repaid in full at
closing.
Pay Per View Japan, Inc. has indebtedness to Jafta Japan Co. in the amount
of approximately three hundred thousand dollars ($300,000) pursuant to the
Amended and Restated Joint Venture Agreement by and between Pacific Pay Video
Limited, Jafta Japan Co. and Izumi Kikaku Co. Ltd., dated November 11, 1993.
<PAGE>
Schedule 4.9
RELATED INTERESTS IN INTELLECTUAL PROPERTY
------------------------------------------
None.
<PAGE>
Schedule 4.12
RESTRICTIVE COVENANTS
---------------------
That certain Loan and Security Agreement by and between the Company and
Silicon Valley Bank contains restrictions regarding the incurrence of debt.
However, the Loan and Security Agreement will be terminated upon the closing.
<PAGE>
Schedule 4.15
ERISA
-----
None.
<PAGE>
Schedule 4.16
Post-Closing
Governmental Consents Or Filings
A. Korean.
------
1. Approval, notification or confirmation for the change of the foreign
investment or remittance of foreign currency out of Korea as required by
the Foreign Exchange Management Law of Korea and the regulations thereunder
and the Foreign Capital inducement Law of Korea,
B. Japan.
-----
1. Approval of the Fair Trade Commission under the Japanese Anti-monopoly Law
if any of the assignees is engaged in a "financial business" as defined in
the Japanese Antimonopoly Law, and such Assignee becomes the owner of more
than five percent (ten percent in the case of such assignee being an
insurance company) of the total outstanding shares of stock of the Japanese
subsidiary via enforcement of the Security interest, and such assignee
holds such shares beyond one year.
C. Singapore:
---------
1. Stamping of the instruments of transfer for the Pledged Securities in
PPV-Singapore and the Pledge Agreement.
2. Evidence of the holding by either PPV-Singapore or each of The Marina
Mandarin Hotel, The Orchard Hotel Singapore, the Shangri-La Hotel
(Singapore) and the Hotel Inter-Continental Singapore of the requisite
license under the Singapore Broadcasting Authority Act in connection with
PPV-Singapore's business of in-room shopping and guest services to such
hotels.
3. Approval of the Board of Film Censors Singapore to a change in share
ownership for licenses in connection with the Pledge Agreement.
D. New Zealand:
-----------
None
<PAGE>
E. Australia:
---------
1. Stamping of share transfer forms and Pledge Agreement relating to the
pledging of the PPV-Australia Pledged Securities, enforcement of the Pledge
Agreement, or sale to a third party upon enforcement.
2. Stamping of any pledge agreement or the Pledge Agreement, and the filing of
an Australian Securities Commission filing if MagiNet Corporation is at the
relevant time registered as a foreign corporation in Australia, it
Additional Securities are acquired and pledged to the Agent.
F. Hong Kong:
---------
1. Stamping of the share transfer forms relating to (a) the transfer from PPVL
to MagiNet Corporation, (b) the pledge of the PPV-Hong Kong Pledged
Securities, or (c) the transfer of the shares upon enforcement of the
Pledge Agreement.
G. Other:
-----
1. Filing of Form D pursuant to Regulation D promulgated under the Securities
Act of 1933, as amended, with Federal and any appropriate state
authorities.
<PAGE>
Schedule 8.1
LIENS
-----
To secure its obligations to Comsat Video Enterprises, Inc. under the
Programming Services Agreement the Company granted to Comsat Video Enterprises,
Inc. a security interest in the Company's territorial rights to the continent of
africa under the Technology license Agreement. The Programming Services
Agreement has been terminated by the Company; the only remaining obligation is
an obligation to pay approximately $700,000 or programing services previously
rendered. This amount will be paid immediately after closing.
Silicon Valley Bank has a security interest in substantially all of the
assets of the Company (other than the capital stock of the subsidiaries of the
Company). This security interest will be released substantially
contemporaneously with the closing.
<PAGE>
EXHIBIT A-1
-----------
[FORM OF SERIES A NOTE]
MAGINET CORPORATION
SENIOR SERIES A SECURED NOTE DUE AUGUST 15, 2000
(IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS NOTE, OR ANY INTEREST
THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN
CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT
AS PERMITTED IN THE COMMISSIONER'S RULES.)
No. R-__ __________ __, 19__
$________ New York, New York
PPN 55917@ AA2
FOR VALUE RECEIVED, the undersigned, MAGINET CORPORATION (herein
called the "Company"), a corporation organized under the laws of the State of
California, hereby promises to pay to _______________________________, or
registered assigns, the principal sum of ____________, _________________________
DOLLARS on August 15, 2000, with interest (computed on the basis of a 360-day
year of twelve 30-day months) (i) on the unpaid balance thereof at the rate of
10.5% per annum from the date hereof, payable semiannually on the 15th day of
August and February in each year, commencing with the February 15th next
succeeding the date hereof, until the principal hereof shall have become due and
payable, and (ii) on any overdue payment (including any overdue prepayment) of
principal, any overdue payment of interest and any overdue payment of any
premium payable on demand at a rate per annum from time to time equal to the
greater of (A) 2% plus the interest rate applicable to this Note on the date
such payment became due and (B) 2.0% over the rate of interest publicly
announced by Morgan Guaranty Trust Company of New York from time to time in New
York City as its Prime Rate.
In accordance with the terms of Section 8.6 of the Agreement referred
to below, if at the time of any determination Historical EBITDA is less than 80%
of Projected EBITDA, then until Historical EBITDA is determined to be equal to
or greater than 80% of Projected EBITDA, the interest rate on this Note shall
increase to 11.5%. In accordance with the terms of Section 8.9 of the
Agreement, if at the time of any determination Cumulative Installed Rooms is
less than 80% of Projected Cumulative Installed Rooms, then until Cumulative
Installed Rooms is determined to be equal to or greater than 80% of Cumulative
Installed Rooms, the interest rate on this Note shall increase to 11.5%. (All
capitalized terms in the preceding sentence have the meaning given to them in
the Agreement referred to below.)
<PAGE>
Payments of principal of, interest on and premium, if any, payable
with respect to this Note are to be made at the main office of Morgan Guaranty
Trust Company of New York in The City of New York or at such other place as the
holder hereof shall designate to the Company in writing, in lawful money of the
United States of America.
This Note is one of the Senior Series A Secured Notes due 2000 (herein
called the "Notes") issued pursuant to a Note Agreement, dated August 15, 1995
(herein called the "Agreement"), among the Company and the original purchasers
of the Notes named in the Purchaser Schedule attached thereto and is entitled to
the benefits thereof.
This Note is a registered Note and, as provided in the Agreement, upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new Note
for a like principal amount will be issued to, and registered in the name of,
the transferee. Prior to due presentment for registration of transfer, the
Company may treat the person in whose name this Note is registered as the owner
hereof for the purpose of receiving payment and for all other purposes, and the
Company shall not be affected by any notice to the contrary.
This Note is subject to optional prepayment, in whole or from time to
time in part, on the terms specified in the Agreement.
This Note is secured by the pledge and assignment of certain
Collateral (as defined in the Agreement).
In case an Event of Default, as defined in the Agreement, shall occur
and be continuing, the principal of this Note may be declared or otherwise
become due and payable in the manner and with the effect provided in the
Agreement.
This Note is intended to be performed in the State of New York and
shall be construed and enforced in accordance with the internal law of such
State.
MAGINET CORPORATION
By:
-------------------------
Name:
Title:
<PAGE>
EXHIBIT A-2
-----------
[FORM OF SERIES B NOTE]
MAGINET CORPORATION
SENIOR SERIES B SECURED NOTE DUE AUGUST 15, 2000
(IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS NOTE, OR ANY INTEREST
THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN
CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT
AS PERMITTED IN THE COMMISSIONER'S RULES.)
No. R-__ __________ __, 19__
$________ New York, New York
PPN ________
FOR VALUE RECEIVED, the undersigned, MAGINET CORPORATION (herein
called the "Company"), a corporation organized under the laws of the State of
California, hereby promises to pay to _______________________________, or
registered assigns, the principal sum of ____________, _________________________
DOLLARS on August 15, 2000 with interest (computed on the basis of a 360-day
year of twelve 30-day months) (i) on the unpaid balance thereof at the rate of
10.5% per annum from the date hereof, payable semiannually on the 15th day of
August and February in each year, commencing with the ________ __ next
succeeding the date hereof, until the principal hereof shall have become due and
payable, and (ii) on any overdue payment (including any overdue prepayment) of
principal, any overdue payment of interest and any overdue payment of any
premium payable on demand at a rate per annum from time to time equal to the
greater of (A) 2% plus the interest rate applicable to this Note on the date
such payment became due and (B) 2.0% over the rate of interest publicly
announced by Morgan Guaranty Trust Company of New York from time to time in New
York City as its Prime Rate.
In accordance with the terms of Section 8.6 of the Agreement referred
to below, if at the time of any determination Historical EBITDA is less than 80%
of Projected EBITDA, then until Historical EBITDA is determined to be equal to
or greater than 80% of Projected EBITDA, the interest rate on this Note shall
increase to 11.5%. In accordance with the terms of Section 8.9 of the
Agreement, if at the time of any determination Cumulative Installed Rooms is
less than 80% of Projected Cumulative Installed Rooms, then until Cumulative
Installed Rooms is determined to be equal to or greater than 80% of Cumulative
Installed Rooms, the interest rate on this Note shall increase to 11.5%. (All
capitalized terms in the preceding sentence have the meaning given to them in
the Agreement referred to below.)
<PAGE>
Payments of principal of, interest on and premium, if any, payable
with respect to this Note are to be made at the main office of Morgan Guaranty
Trust Company of New York in The City of New York or at such other place as the
holder hereof shall designate to the Company in writing, in lawful money of the
United States of America.
This Note is one of the Senior Series B Secured Notes due 2000 (herein
called the "Notes") issued pursuant to a Note Agreement, dated August 15, 1995
(herein called the "Agreement"), among the Company and the original purchasers
of the Notes named in the Purchaser Schedule attached thereto and is entitled to
the benefits thereof.
This Note is a registered Note and, as provided in the Agreement, upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new Note
for a like principal amount will be issued to, and registered in the name of,
the transferee. Prior to due presentment for registration of transfer, the
Company may treat the person in whose name this Note is registered as the owner
hereof for the purpose of receiving payment and for all other purposes, and the
Company shall not be affected by any notice to the contrary.
This Note is subject to optional prepayment, in whole or from time to
time in part, on the terms specified in the Agreement.
This Note is secured by the pledge and assignment of certain
Collateral (as defined in the Agreement).
In case an Event of Default, as defined in the Agreement, shall occur
and be continuing, the principal of this Note may be declared or otherwise
become due and payable in the manner and with the effect provided in the
Agreement.
This Note is intended to be performed in the State of New York and
shall be construed and enforced in accordance with the internal law of such
State.
MAGINET CORPORATION
By:
-------------------------
Name:
Title:
<PAGE>
EXHIBIT B-1
PLEDGE AGREEMENT
between
MAGINET CORPORATION,
as Pledgor
and
THE CHASE MANHATTAN BANK, N.A.,
as Pledgee
Dated as of August 15, 1995
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Section Page
- ------- -----
<S> <C> <C>
SECTION 2. DEFINITIONS AND PRINCIPLES OF CONSTRUCTION..................2
SECTION 3. PLEDGE OF SECURITIES........................................3
SECTION 4. APPOINTMENT OF AGENTS; ENDORSEMENTS.........................6
SECTION 5. VOTING AND OTHER RIGHTS WHILE NO EVENT OF DEFAULT...........6
SECTION 6. DIVIDENDS AND OTHER DISTRIBUTIONS ..........................7
SECTION 7. REMEDIES IN CASE OF EVENT OF DEFAULT........................7
SECTION 8. APPLICATION OF PROCEEDS....................................10
SECTION 9. PURCHASERS OF PLEDGE COLLATERAL............................11
SECTION 10. FURTHER ASSURANCES.........................................11
SECTION 12. TRANSFER BY THE PLEDGOR....................................12
SECTION 13. REPRESENTATIONS, WARRANTIES AND
COVENANTS OF THE PLEDGOR...................................13
SECTION 14. PLEDGOR'S OBLIGATIONS ABSOLUTE.............................13
SECTION 15. REGISTRATION...............................................13
SECTION 16. INDEMNITY..................................................14
SECTION 17. TERMINATION; RELEASE.......................................15
SECTION 18. NOTICES....................................................15
SECTION 19. MISCELLANEOUS..............................................16
</TABLE>
*This Table of Contents is provided for convenience only and is not a part
of the attached Pledge Agreement.
<PAGE>
EXECUTION COPY
PLEDGE AGREEMENT
----------------
PLEDGE AGREEMENT, dated as of August 15, 1995, between MAGINET CORPORATION,
a corporation organized under the laws of the State of California, as pledgor
(the "Pledgor"), and The Chase Manhattan Bank, N.A., a national banking
--------
association, as collateral agent ("the Pledgee")for the benefit of the
-------
Noteholders pursuant to the Appointment Agreement. Capitalized terms used herein
shall have the meanings provided in Section 2.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Pledgor and the Purchasers have entered into the Note
Agreement providing for the issuance and sale of the Notes and the issuance of
the Warrants as contemplated therein;
WHEREAS, The Chase Manhattan Bank, N.A., the Pledgor and the
Purchasers have entered into the Appointment Agreement providing for the
appointment of The Chase Manhattan Bank, N.A. to act as collateral agent for the
benefit of the Noteholders under the Security Documents (including this
Agreement);
WHEREAS, it is a condition precedent under the Note Agreement to each
Purchaser's obligation, to purchase and pay for the Notes and to accept the
Warrants to be issued under the Note Agreement that the Pledgor shall have
executed and delivered to the Pledgee this Agreement;
WHEREAS, the Pledgor desires to execute this Agreement to satisfy the
conditions described in the preceding paragraphs and to induce the Purchasers to
enter into the Note Agreement and to purchase and pay for the Notes and to
accept the Warrants (and to induce any future Noteholders so to do);
NOW, THEREFORE, in consideration of the benefits accruing to the
Pledgor, the receipt and sufficiency of which are hereby acknowledged, the
Pledgor hereby makes the following representations and warranties to the Pledgee
and hereby covenants and agrees with the Pledgee as follows:
SECTION 1. SECURITY. (a) This Agreement is for the benefit of the
--------
Pledgee as collateral agent for he Noteholders pursuant to the Appointment
Agreement (and,
1
<PAGE>
to the extent provided in Section 16 of this Agreement, for the benefit of the
Pledgee in its individual capacity) to secure: (i) the payment due of the
principal of and interest in respect of the Notes and payment of all other
obligations and liabilities (including without limitation indemnities, premium,
if any, fees and interest thereon) of the Pledgor, now existing or hereafter
incurred under, arising out of or in connection with the Note Agreement, each
Note or any other Note Document (other than the Warrants); and (ii) the due
performance and compliance with the terms of the Note Documents by the Pledgor
(all such principal, interest, obligations and liabilities, collectively, the
"Secured Obligations").
- ---------------------
SECTION 2. DEFINITIONS AND PRINCIPLES OF CONSTRUCTION. For all
------------------------------------------
purposes of this Agreement: (i) capitalized terms not otherwise defined herein
shall have the meanings set forth in the Note Agreement; (ii) the principles of
construction set forth in the Note Agreement shall apply; and (iii) as used
herein, references to "this Agreement", "hereunder" and words of like meaning
shall refer to this pledge agreement.
As used in this Agreement:
"Agreement" and "this Agreement" shall mean this pledge agreement,
--------- --------------
dated as of August 15, 1995, as the same may be modified, amended or
supplemented from time to time.
"Foreign Joint Venture Vehicle" shall mean a Joint Venture Vehicle
-----------------------------
that is incorporated or organized outside of the United States or any State or
territory thereof.
"Legal Mortgage Subsidiaries" shall mean each of Pacific Pay Video
---------------------------
(HK) Limited, PPV Singapore Pte Ltd, Pacific Pay Video Pty. Limited, Pacific Pay
Video New Zealand Limited and any other Subsidiary or Joint Venture Vehicle
incorporated or established under the laws of a jurisdiction which utilizes the
common law concepts of legal and equitable mortgages over shares of capital
stock or similar equity interests.
"Liquidating Dividend" shall have the meaning set forth in Section 6.
--------------------
"Maximum Foreign Pledge" shall mean, in respect of any Foreign
----------------------
Subsidiary or Foreign Joint Venture Vehicle: (i) prior to the occurrence of a
Change in Tax Law Event, the number of Securities representing 66% (or such
other threshold amount as may become relevant after the date hereof in
determining whether a pledge under a pledge agreement would result in the
undistributed earnings of such Foreign Subsidiary or Foreign Joint Venture
Vehicle, as relevant, as determined for Federal income tax purposes being
treated as a deemed dividend to the Pledgor) of the total combined voting power
of all classes of Securities of such Foreign Subsidiary or Foreign Joint Venture
Vehicle entitled to vote; and (ii) on and following the occurrence of a Change
in Tax Law Event, the number of Securities representing the maximum total
combined voting power of all classes of Securities of such Foreign Subsidiary or
Foreign Joint Venture Vehicle entitled to vote that may be pledged without
creating a deemed dividend to the Pledgor.
2
<PAGE>
"Pledge Documents" shall mean: (i) this Agreement (and any other
----------------
pledge agreement in form and substance satisfactory to the Pledgee entered into
as contemplated by this Agreement); (ii) the Note Agreement; and (iii) any other
Note Document to which the Pledgee is or will be a party.
"Secured Obligations" shall have the meaning set forth in Section 1.
-------------------
"Securities" shall mean, with respect to each Subsidiary or Joint
----------
Venture Vehicle, as relevant, all the issued and outstanding shares of capital
stock or similar equity interests of such Subsidiary or Joint Venture Vehicle
(and any options, warrants or other rights to purchase such capital stock or
similar equity interests at any time prior to the date on which the Secured
Obligations are discharged in full) owned by the Pledgor, including without
limitation all such shares of capital stock, similar equity interests, options,
warrants or other rights owned by the Pledgor on the date hereof and all such
capital stock, options, warrants or other rights acquired by the Pledgor in the
future. The Pledgor hereby represents and warrants that on the date hereof (i)
the information set forth in Annex A concerning the Securities and Pledged
Securities of each of its Subsidiaries and Joint Venture Vehicles set forth in
Annex A is true and correct and (ii) there are no options, warrants, or other
rights to purchase any such Securities outstanding.
All Securities described as "Pledged Securities" in Annex A and all
other Securities from time to time pledged, mortgaged or charged hereunder or
under another Pledge Document are hereinafter referred to as the "Pledged
-------
Securities," and the Pledged Securities, together the time held by the Pledgee
- ----------
hereunder, is hereinafter referred to as the "Pledge Collateral".
-----------------
SECTION 3. PLEDGE OF SECURITIES
---------------------
3.1 Pledge. To secure the Secured Obligations and for the
------
purposes set forth in Section 1, the Pledgor: (i) hereby grants to the Pledgee a
continuing security interest of first priority in all of the Pledge Collateral;
(ii) hereby pledges and deposits as security with the Pledgee (except as
otherwise permitted in this Section 3) the Pledged Securities owned by the
Pledgor on the date hereof and delivers to the Pledgee certificates therefor (to
the extent such Pledged Securities are certificated) accompanied by stock powers
for all such Pledged Securities duly executed in blank by the Pledgor (or such
other instruments of transfer as are acceptable to the Pledgee); and (iii)
hereby assigns, transfers, hypothecates, mortgages, charges and sets over to the
Pledgee (including by way of legal mortgage to the extent such Pledged
Securities are issued by a Legal Mortgage Subsidiary) all of the Pledgor's
right, title and interest in and to such Pledged Securities (and in and to the
certificates or instruments (if any) evidencing such Pledged Securities), to be
held by the Pledgee upon the terms and conditions set forth in this Agreement
and the other Pledge Documents.
3.2 Subsequently Acquired Securities. If the Pledgor shall acquire
--------------------------------
(by purchase, stock dividend or otherwise), at any time or from time to time
after the date hereof, any additional Securities:
3
<PAGE>
(i) issued by a Subsidiary or Joint Venture Vehicle, as relevant,
other than a Foreign Subsidiary or Foreign Joint Venture Vehicle, then the
Pledgor will forthwith pledge and deposit such Securities as security with the
Pledgee; or
(ii) issued by a Foreign Subsidiary or Foreign Joint Venture Vehicle,
as relevant, and, as a result of such acquisition, the Pledged Securities in
respect of such Foreign Subsidiary or Foreign Joint Venture Vehicle are less
than such Foreign Subsidiary's or Foreign Joint Venture Vehicle's then existing
Maximum Foreign Pledge, then the Pledgor will forthwith pledge, mortgage or
charge hereunder (or under another pledge agreement in form and substance
satisfactory to the Pledgee, if necessary under any applicable law or if
otherwise desirable to carry into effect the purposes of this Agreement) and
deposit (subject to the proviso below) as security with the Pledgee such
additional Securities as are necessary so that the Pledged Securities in respect
of such Foreign Subsidiary or Foreign Joint Venture Vehicle, as relevant, are
equal to such Foreign Subsidiary's or Foreign Joint Venture Vehicle's then
existing Maximum Foreign Pledge; provided, however, that the Pledgor shall not
-----------------
be required pursuant to this Section
3.2(ii) to deposit as security with the Pledgee Securities issued by a Foreign
Subsidiary or Foreign Joint Venture Vehicle, as relevant, organized and
established after the date hereof (other than a Subsidiary or Joint Venture
Vehicle organized under the laws of South Africa, the Securities of which shall
be pledged to and deposited with the Pledgee under this Agreement (or under
another pledge agreement in form and substance satisfactory to the Pledgee if
necessary or otherwise desirable to carry into effect the purposes of this
Agreement) so as to create a first priority Lien in favor of the Pledgee on such
Securities) so long as such Securities are subject to Liens permitted under
Section 8.1(e) of the Note Agreement and the Lien created by this Agreement (or
any other pledge agreement entered into as contemplated by this Agreement),
which Lien under this Agreement may be junior to the Lien permitted by Section
8.1(e) of the Note Agreement,, and such Securities when pledged, mortgaged or
charged hereunder shall thereafter constitute Pledged Securities, and the
Pledgor will promptly deliver to the Pledgee a certificate executed by a
Responsible Officer describing such Pledged Securities and certifying that the
same have been duly pledged, mortgaged or charged with the Pledgee hereunder-
(or under such other pledge agreement, as the case may be); provided, further,
-----------------
that the Pledgor will deposit such Securities with the Pledgee free and clear of
any Lien other than the Lien created by this Agreement (or any other pledge
agreement entered into as contemplated by this Agreement), which Lien shall then
be a first priority Lien, promptly upon such Securities' no longer being subject
to Liens permitted under Section 8.1(e) of the Note Agreement (whether because
of release or otherwise);
and in each case (except as provided in the first proviso to Section 3.2(ii) and
as provided in Section 3.5) deliver to the Pledgee certificates therefor
accompanied by stock powers duly executed in blank by the Pledgor (or such other
instruments of transfer as are acceptable to the Pledgee), Thereafter such
Securities will constitute Pledged Securities, and the Pledgor will promptly
deliver to the Pledgee a certificate executed by a Responsible Officer
describing such Pledged Securities and certifying that the same have been duly
pledged, mortgaged or charged with the Pledgee hereunder (or under such other
pledge agreement, as the case may be).
3.3 Uncertificated Securities. Notwithstanding anything to the
contrary contained in Sections 3.1 and 3.2, if any Pledged Securities (whether
now owned or hereafter
4
<PAGE>
acquired) are evidenced by an uncertificated security, the Pledgor shall
promptly: (i) notify the Pledgee of such uncertificated security; (ii) take all
actions required to perfect the security interest of the Pledgee therein under
applicable law; and (iii) notify the Pledgee of such actions taken. The Pledgor
further agrees: (i) to take such actions as the Pledgee deems necessary or
reasonably desirable to effect the foregoing and to permit the Pledgee to
exercise any of its rights and remedies hereunder; and (ii) to provide an
opinion of counsel satisfactory to the Pledgee with respect to any such pledge
of uncertificated Pledged Securities upon the pledge thereof and at any other
time promptly upon request of the Pledgee,
3.4 Change in Tax Law Event. If a Change in Tax Law Event occurs,
-----------------------
then the Pledgor shall forthwith pledge, mortgage or charge hereunder (or under
another pledge agreement in form and substance satisfactory to the Pledgee, if
required by applicable law or if otherwise desirable to carry into effect the
purposes of this Agreement), that portion of the Securities of each Foreign
Subsidiary or Foreign Joint Venture Vehicle, as relevant, held by the Pledgor
and not heretofore pledged, mortgaged or charged pursuant to this Agreement (or
another pledge agreement). Thereafter such Securities will constitute Pledged
Securities, and the Pledgor will promptly deliver to the Pledgee a certificate
executed by a Responsible Officer describing such Pledged Securities and
certifying that the same have been duly pledged, mortgaged or charged with the
Pledgee hereunder (or under such other pledge agreement, as the case may be).
3.5 Certain Pledged Securities.Notwithstanding anything to the
---------------------------
contrary contained in this Section 3, for the purpose of enabling the Pledgee to
exercise its rights under this Agreement, the Pledgor undertakes forthwith upon
the execution of this Agreement, if it has not already done so, at the cost of
the Pledgor, to procure the registration of the Pledged Securities issued by any
Legal Mortgage Subsidiary in the name of the Pledgee or its nominee and to
deposit or procure to be deposited with the Pledgee the certificates in respect
of such Pledged Securities together with signed and undated letters of
resignation in the form of Annex C from each director of each Legal Mortgage
Subsidiary appointed by the Pledgor. If the Pledgor shall acquire any additional
Securities issued by any Legal Mortgage Subsidiary, which Securities are
required to be pledged, mortgaged or charged hereunder pursuant to Sections 3.2
(ii) or 3.4, the Pledgor shall promptly upon receipt of such Securities (and at
its own expense) pledge, mortgage or charge such Securities hereunder (or under
another pledge agreement in form and substance satisfactory to the Pledgee, if
necessary under any applicable law or if otherwise desirable to carry into
effect the purposes of this Agreement) and register such Securities in the name
of the Pledgee or its nominee and deposit the certificates in respect of such
Securities with the Pledgee; provided, however, that so long as such
-----------------
Securities are not required to be deposited with the Pledgee pursuant to the
provisos to Section 3.2(ii), the Pledgor shall not be required to either
register such Securities in be name of the Pledgee or in nominee nor deposit
such Securities with the Pledgee. Thereafter such Securities will constitute
Pledged Securities, and the Pledgor will promptly deliver to the Pledgee a
certificate executed by a Responsible Officer describing such Pledged Securities
and certifying that the same have been duly pledged, mortgaged or charged with
the Pledgee hereunder (or under such other pledge agreement, as the case may
be).
5
<PAGE>
SECTION 4. APPOINTMENT OF AGENTS; ENDORSEMENTS. The Pledgee shall
-----------------------------------
have the right to appoint one or More agents for the purpose of retaining
physical possession of the Pledged Securities and other Pledge Collateral, which
may be held (in the discretion of the Pledgee) in the name of the Pledgor,
endorsed or assigned in blankor in favor of the Pledgee or any nominee or
nominees of the Pledgee or an agent appointed by the Pledgee.
SECTION 5. VOTING AND OTHER RIGHTS WHILE NO EVENT OF DEFAULT.
-------------------------------------------------
Unless and until an Event of Default shall have occurred and be continuing:
(a) the Pledgor shall be entitled to vote any and all Pledged
Securities other than those issued by Legal Mortgage Subsidiaries and to give
consents, waivers or ratifications in respect thereof;
(b) the Pledgee shall be entitled to vote any and all Pledged
Securities issued by Legal Mortgage Subsidiaries and to give consents, waivers
or ratifications in respect thereof and to otherwise exercise any and all rights
and powers attaching to such Pledged Securities, in each case as the Pledgor may
direct from time to time by notice in writing to the Pledgee; provided, however,
-----------------
that the Pledgee shall be under no obligation to so vote or give such consents,
waivers or modifications or otherwise act unless it shall have first received
from the Pledgor the amount of any payments required to be made in order for
such rights or powers to be validly exercised; and provided, further, that in
------------------
the absence of any such direction or receipt of such amounts from the Pledgor
the Pledgee shall abstain from exercising such voting or other rights or powers;
and
(c) The Pledgee shall not utilize any director's resignation letter
delivered in connection with Section 3.5 of this Agreement;
provided, that in no event shall the Pledgor cast any vote, or give any consent,
- --------
waiver or ratification or take any action or direct the Pledgee pursuant to
clause (b) above to take any such action which would violate or be inconsistent
with any of the terms of this Agreement, any other Note Document or any other
instrument or agreement referred to herein or therein or which would have the
effect of impairing the position or interests of the Pledgee or any Noteholder,
All such rights of the Pledgor to vote and to give consents, waivers and
ratifications or to direct the Pledgee pursuant to clause (b) above shall cease
upon the earlier to occur of: (i) delivery to the Pledgor of written notice from
any Noteholder pursuant to Section 9.1 of the Note Agreement or the Pledgee
stating that an Event of Default has occurred and is continuing; or (ii) a
Responsible Officer obtaining knowledge of any condition or event which
constitutes an Event of Default, when Section 7 shall become applicable;
provided, that the Pledgee shall be under no duty to deliver the written notice
- ---------
described in clause (i) of the foregoing unless and until it has received a
notice from any Noteholder stating that an Event of Default has occurred and is
continuing.
SECTION 6. DIVIDENDS AND OTHER DISTRIBUTIONS. Unless and until an
---------------------------------
Event of Default shall have occurred and be continuing:
6
<PAGE>
(a) all cash dividends payable in respect of the Pledged Securities
other than Pledged Securities issued by Legal Mortgage Subsidiaries shall be
paid directly to the Pledgor; and
(b) all cash dividends payable in respect of Pledged Securities issued
by Legal Mortgage Subsidiaries shall be paid directly to the Pledgee, which will
pay the amount of such dividends received by it (after taking into account
deductions for withholding or any similar tax) to the Pledgor as soon as
practicable after receipt;
provided, that, notwithstanding any of the foregoing, all cash dividends payable
- --------
in respect of the Pledged Securities which are determined by the Pledgee to
represent in whole or in part an extraordinary, liquidating or other
distribution in return of capital (each, a "Liquidating Dividend") shall be paid
directly to the Pledgee and retained by it as part of the Pledge Collateral
unless the event creating such Liquidating Dividend was permitted by, and did
not otherwise result in an Event of Default occurring under, the Note Agreement.
The Pledgee shall aho be entitled to receive directly, and to retain as part of
the Pledge Collateral:
(i) all other or additional stock or securities of a Subsidiary or
Joint Venture Vehicle, as relevant, paid or distributed by way of dividend in
respect of the Pledged Securities;
(ii) all other or additional stock or other securities or property
(including cash) paid or distributed in respect of the Pledged Securities by way
of stock-split, spin-off, split-up, reclassification, combination of shares or
similar rearrangement; and
(iii) all her or additional stock or other securities or property
which may be paid in respect of the Pledge Collateral by reason of any
consolidation, merger, exchange of stock, conveyance of assets, liquidation or
similar corporate reorganization or otherwise;
except, in each case, prior to the occurrence and continuance of an Event of
- ------
Default, to the extent the receipt of such stock dividends and other securities
distributions would cause the Pledged Securities in respect of any Foreign
Subsidiary or Foreign Joint Venture Vehicle, as relevant, to exceed such Foreign
Subsidiary's or Foreign Joint Venture Vehicle's Maximum Foreign Pledge, in which
case the Pledgee shall be entitled to receive directly and retain as part of the
Pledge Collateral such amount of stock dividends and securities distributions as
is equal, together with the Pledged Securities previously pledged, to such
Foreign Subsidiary's or Foreign Joint Venture Vehicle's then existing Maximum
Foreign Pledge.
SECTION 7. REMEDIES IN CASE OF EVENT Of DEFAULT. In case an Event of
------------------------------------
Default shall have occurred and be continuing, the Pledgee shall be entitled to
exercise all the rights, powers and remedies vested in it (whether vested in it
by this Agreement, by any other Note Document or by law) for the protection and
enforcement of its rights in respect of the Pledge Collateral, and the Pledgee
shall be entitled without limi-
7
<PAGE>
tation to exercise the following rights, which the Pledgor hereby agrees to be
commercially reasonable:
(a) to receive all amounts payable in respect of the Pledge
Collateral otherwise payable under Section 6 to the Pledgor;
(b) to the extent permitted by law and to the extent not previously
transferred, to transfer all or any part of the Pledged Securities into the
Pledgee's name or the name of its nominee or nominees;
(c) to vote all or any part of the Pledged Securities (whether or not
transferred into the name of the Pledgee) and give all consents, waivers and
ratifications in respect of the Pledge Collateral and otherwise act with respect
thereto as though it were the outright owner thereof (the Pledgor hereby
irrevocably constituting and appointing the Pledgee the proxy and attorney-in-
fact of the Pledgor, with full power of substitution to do so, as further
provided in paragraph (e) below);
(d) at any time or from time to time to sell, assign and deliver, or
grant options to purchase, all or any part of the Pledge Collateral, or any
interest therein, at any public or private sale, without demand of performance,
advertisement or notice of intention to sell or of the time or place of sale or
adjournment thereof or to redeem or otherwise (all of which are hereby waived by
the Pledgor), for cash, on credit or for other property, for immediate or future
delivery without any assumption of credit risk, and for such price or prices and
on such terms as the Pledgee may determine, provided that at least 10 days'
notice of the time and place of any such sale shall be given to the Pledgor.
The Pledgor hereby waives and releases to the fullest extent permitted by law
any right or equity of redemption with respect to the Pledge Collateral, whether
before or after sale hereunder, and all rights, if any, of marshalling the
Pledge Collateral and any other security for the Secured Obligations or
otherwise. At any such sale, unless prohibited by applicable law, the Pledgee
on behalf of the Noteholders may bid for and purchase all or any part of the
Pledge Collateral so sold free from any such right or equity of redemption.
None of the Pledgee or the Noteholders shall be liable for failure to collect or
realize upon any or all of the Pledge Collateral or for any delay in so doing
nor shall any of them be under any obligation to take any action whatsoever with
regard thereto; and
(e) (i) The Pledgor hereby irrevocably appoints the Pledgee as its
attorney-infact with right of substitution, so that the Pledgee or any other
Person empowered by the Pledgee shall be authorized, without need of further
authorization from the Pledgor, upon the occurrence and continuance of an Event
of Default and in preservation of the rights of the Pledgee and the Noteholders
hereunder:
(A) to effect the sale of any of the Pledge Collateral in one or
more transactions to the extent permitted by law and in such other
manner as may be determined by the attorney-in-fact, including the
direct sale without public auction of any such Pledge Collateral at
such price, and upon such terms as may be determined by such attorney-
in-fact;
8
<PAGE>
(B) to enter upon any premises where the Pledge Collateral or any
part thereof may be located Without the need for a court order or other
form of authority otherwise than upon the authority granted herein;
(C) to take and retain actual possession and control of any such
Pledge Collateral as receivers without bond or otherwise, and transport any
such Pledge Collateral to any location as determined by such attorney-in-
fact;
(D) to administer, manage and use any of the Pledge Collateral;
(E) to conclude any agreement and collect any moneys thereunder or
otherwise due to the Pledgor in respect of, or generated through the usage
of, any of the Pledge Collateral;
(F) to exercise any of the rights of the Pledgor arising under or in
connection with the Pledge Collateral or to delegate to another Person, in
substitution of such attorney-in-fact, the exercise of such rights of the
Pledgor, under such terms as such attomey-in-fact shall deem proper or
necessary;
(G) to collect, claim and receive all moneys and avail itself of all
benefits that accrue and that may become due and payable to the Pledgor
with respect to the Pledge Collateral and to hold the same as security for
the timely payment and discharge by the Pledgor of the Secured Obligations;
(H) to send written notice to any Subsidiary or Joint Venture Vehicle
of the Pledgor instructing such Subsidiary or Joint Venture Vehicle to pay
all moneys due and owing to the Pledgor from time to time (whether payable
in U.S. dollars, in another convertible foreign currency or otherwise),
with respect to the Pledge Collateral to such bank accounts as shall be
designated in the notice;
(I) to institute and maintain such suits and proceedings as such
attorney-in-fact shall deem expedient to prevent any impairment of the
Pledge Collateral or to preserve and protect such attorney-in-fact's
interest therein;
(J) to execute and deliver such deeds of conveyance or sale as may be
necessary or proper for the purpose of conveying full title and ownership,
free from any claims and rights of the Pledgor, to any of the Pledge
Collateral, after foreclosure thereof; and
(K) in general, to sign such agreements and documents and perform
such acts and things required, necessary or, in the opinion of such
attorney-in-fact, advisable, to fully accomplish the purpose hereof.
(ii) This special power of attorney shall be deemed coupled with an
interest, and cannot be revoked by the Pledgor until the discharge in full of
the Secured Obligations. Upon the earlier to occur of: (A) delivery to the
Pledgor of written notice from any Noteholder pursuant to a notice delivered
under Section 9.1 of the Note Agreement or
9
<PAGE>
the Pledgee stating that an Event of Default has occurred and is continuing; or
(B) a Responsible Officer obtaining knowledge of any condition or event which
constitutes an Event of Default, the Pledgor shall abstain from exercising any
rights with respect to the Pledge Collateral which shall be inconsistent with
the exercise of the rights and functions herein granted to the Pledgee as
attorney-in-fact, including abstaining from collecting, claiming and receiving
any moneys with respect to the Pledge Collateral; provided, that in the Pledgee
--------
shall be under no duty to deliver the written notice described in clause (A) of
the foregoing unless and until it has received a notice from any Noteholder
stating that an Event of Default has occurred and is continuing. To the extent
that the Pledgor shall receive any moneys in respect thereof notwithstanding the
provisions of this paragraph (ii), it shall be deemed to have received such
funds for the account of the Pledgee and shall hold the same in trust and
promptly pay the same to the Pledgee or as it may direct from time to time.
SECTION 8. APPLICATION OF PROCEEDS. All moneys collected by the
-----------------------
Pledgee upon any sale or other disposition of the Pledge Collateral, together
with all other moneys received by the Pledgee hereunder, shall be applied in the
following order of priority:
(a) FIRST, to the payment of such amounts as are due and payable to
the Pledgee or any of its agents (or any prior collateral agent) pursuant to
this Agreement or the Appointment Agreement, including the payment of all costs
and expenses incurred by the Pledgee in connection with such sale, the delivery
of the Pledge Collateral or the collection of any such moneys (including,
without limitation, attorneys' fees and expenses);
(b) SECOND, to the payment of the Secured Obligations in the
following order of priority to the extent such amounts are not sufficient to
repay the Secured Obligations in full and within each category on a pro rata
basis among the Noteholders:
(i) to the payment of charges, fees, indemnity obligations, costs
and expenses due under the Note Agreement or the other Note Documents to the
Noteholders;
(ii) to the payment of interest on interest which became overdue, if
any, with respect to the Notes;
(iii) to the payment of interest on principal with respect to the
Notes which became overdue;
(iv) to the payment of interest accrued with respect to the Notes;
(v) to the payment of principal with respect to the Notes; and
(vi) to the payment of premium, if any, with respect to the Notes.
(c) THIRD, any balance of such money as directed in writing by the
Pledgor.
10
<PAGE>
SECTION 9. PURCHASERS OF PLEDGE COLLATERAL. Upon any sale of the
-------------------------------
Pledge Collateral by the Pledgee hereunder (whether by virtue of the power of
sale herein granted, pursuant to judicial process or otherwise), the receipt of
the Pledgee or the officer making the sale shall be a sufficient discharge to
the purchaser or purchasers of the Pledge Collateral so sold; and such purchaser
or purchasers shall not be obligated to see to the application of any part of
the purchase money paid over to the Pledgee or such officer or be answerable in
any way for the misapplication or nonapplication thereof.
SECTION 10. FURTHER ASSURANCES. Without limitation to the provisions
------------------
of Section 7, the Pledgor agrees that it will (in each case at its own expense):
(a) prepare, execute, file and refile such financing statements,
continuation statements and other documents in such offices as may be necessary
or reasonably desirable and wherever required or permitted by law in order to
perfect and preserve the Pledgee's security interest in the Pledge Collateral,
and the Pledgee agrees to execute such financing statements and other documents
prepared by the Pledgor, and the Pledgor hereby irrevocably authorizes the
Pledgee following am Event of Default, as its attorney-in-fact, to file or cause
to be filed such financing statements and amendments thereto and other documents
relative to all or any part of the Pledge Collateral without the signature of
the Pledgor where permitted by law;
(b) comply with the requirements of Section 7.13 of the Note
Agreement (which provision is incorporated in full herein by reference);
(c) do such further acts and things (including, without limitation,
paying all required documentary and other stamp tax) and execute and deliver to
the Pledgee such additional conveyances, assignments, agreements and instruments
(including without limitation one or more pledge agreements in form and
substance satisfactory to the Pledgee) as may be reasonably required or deemed
advisable to carry into effect the purposes of this Agreement or to further
assure and confirm unto the Pledgee its rights, powers and remedies hereunder;
and
(d) cause its Legal Mortgage Subsidiaries and each director thereof
appointed at any time by the Pledgor or any Subsidiary of the Pledgor: (i) to
register immediately in the register of members or similar document of the Legal
Mortgage Subsidiary any transfer of Pledged Securities which the Pledgee may
request according to the terms of this Agreement; and (ii) to deliver to the
Pledgee a signed and undated letter of resignation from such director, in the
form of Annex C.
SECTION 11. THE PLEDGEE. (a) The Pledgee will hold in accordance with
------------
the terms and provisions of the Appointment Agreement (which terms and
provisions are incorporated in full herein by reference) all Pledge Collateral
at any time received by it under this Agreement. It is expressly understood and
agreed that the obligations of the Pledgee as holder of the Pledge Collateral
and interests therein and with respect to the disposition thereof, and otherwise
under this Agreement, are only those expressly set forth
11
<PAGE>
in this Agreement and in the Appointment Agreement, and no implied covenants or
obligations shall be read into this Agreement against the Pledgee.
(b) In case of any litigation under this Agreement, or in case of any
enforcement of remedies or exercise of rights upon the occurrence of an Event of
Default, or in case the Pledgee deems that, by reason of any present or future
law of any jurisdiction, it may not or may not effectively exercise any of the
powers, rights or remedies herein granted to it or hold title to the properties,
in trust, as herein granted, or take any other action which may be desirable or
necessary in connection therewith, the Pledgee shall be entitled to appoint, to
the extent consistent with applicable law, one or more separate or additional
co-agents.
In the event that the Pledgee appoints an individual or institution as
a separate or additional co-agent: (i) any appointment of any such co-agent by
the Pledgee shall be made only with the prior written consent of the Pledgor and
the Required Holder(s) (except that, if the Pledgee shall have received written
notice from any Holder of Secured Obligations that a Default or an Event of
Default has occurred and is continuing, such consent shall be required only of
the Required Holder(s)), which consent shall not be unreasonably withheld or
delayed; and (ii) each and every remedy, power, right, title, interest, trust,
duty and obligation expressed or intended by this Agreement to be exercised by
or vested in, conveyed to or imposed upon, the Pledgee with respect thereto
shall be exercisable by and vest in such separate or additional co-agent but
only to the extent necessary, appropriate or desirable to enable such separate
or additional co-agent to exercise or have vested in it such powers, rights,
trusts, titles, interests, duties and obligations and remedies, and every
covenant and obligation necessary, appropriate or desirable to the exercise
thereof by such separate or additional co-agent shall run to and be enforceable
by either or any of them.
The Pledgee shall have the right to terminate the appointment of any such
co-agent hereunder with the prior written consent of the Pledgor and the
Required Holder(s) (except that, if the Pledgee shall have received written
notice from any Holder that a Default or an Event of Default has occurred and is
continuing, such consent shall be required only of the Required Holder(s)),
which consent shall not be unreasonably withheld or delayed. Should any
instrument in writing from the Pledgor be required by the separate or additional
co-agent so appointed by the Pledgee to more fully and certainly vest in and
confirm to it such remedies, rights, powers, titles, interests, trusts, duties
and obligations, any and all such instruments in writing shall, on request, be
executed, acknowledged and delivered by the Pledgor. In case any separate or
additional co-agent, or a successor to either, shall become incapable of acting,
resign or be removed, all the remedies, rights, powers, titles, interests,
trusts, duties and obligations of such separate or additional co-agent; so far
as permitted by law, shall vest in and be exercised by the Pledgee until the
appointment of a new agent or successor to such separate or additional co-agent.
SECTION 12. TRANSFER BY THE PLEDGOR. The Pledgor will not assign,
------------------------
sell or otherwise dispose of grant any option with respect to, or create, incur,
assume or suffer to exist any Lien on any portion of the Pledge Collateral or
any other Securities, except: (i) liens in favor of Persons other than the
Noteholders permitted under
12
<PAGE>
Section 8.1 of the Note Agreement; and (ii) Liens created by this Agreement and
by any other Pledge Document.
SECTION 13. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PLEDGOR.
---------------------------------------------------------
The Pledgor represents and warrants that: (i) it is the legal, record and
beneficial owner of, and has good and marketable title to, the Securities
described as owned by it on Annex A hereto in existence on the date hereof,
subject to no Lien (except the Lien created by this Agreement); (ii) it has full
power, authority and legal right to pledge all such Securities pursuant to this
Agreement; (iii) all the shares of such Securities have been duly and validly
issued, are fully paid and nonassessable; (iv) this Agreement (and any other
pledge agreement entered into as contemplated by this Agreement) creates, as
security for the Secured Obligations, a valid and enforceable first priority
perfected Lien on all of the Pledge Collateral in existence on the date hereof,
in favor of the Pledgee for the benefit of the Noteholders, subject to no Lien
in favor of any other Person; (v) other than registrations and filings described
on Annex B hereto (all of which have been made prior to the date hereof or will
be made within the relevant statutory period) no consent, filing, recording or
registration is required to perfect the Lien purported to be created by this
Agreement; and (vi) the stock powers are duly executed and delivered and give
the Pledgee the rights and authority they purport to give. The Pledgor covenants
and agrees that: (i) it will defend the Pledgee's right, tide and lien in and to
the Pledge Collateral against the claims and demands of all Persons; and (ii) it
will take all actions within its powers to ensure that it will have like title
to and right to pledge any other property at any time hereafter pledged to the
Pledgee as Pledge Collateral hereunder.
SECTION 14. PLEDGOR'S OBLIGATIONS ABSOLUTE. The obligations of the
------------------------------
Pledgor under this Agreement shall be absolute and unconditional and shall
remain in full force and effect without regard to, and shall not be released,
suspended, discharged, terminated or otherwise affected by, any circumstance or
occurrence whatsoever, including, without limitation: (i) any renewal,
extension, amendment or modification of, or addition or supplement to or
deletion from, the Note Agreement, any Note or any other instrument or agreement
referred to therein or any assignment or transfer of any thereof; (ii) any
waiver, consent, extension, indulgence or other action or inaction under or in
respect of the Note Agreement, any Note or any other such instrument or
agreement or any exercise or nonexercise of any right, remedy, power or
privilege under or in respect of the Note Agreement, any Note or any other such
instrument or agreement; (iii) any furnishing of any additional security to the
Pledgee or any acceptance thereof or any sale, exchange, release, surrender or
realization of or upon any security by the Pledgee; or (iv) any invalidity,
irregularity or unenforceability of all or part of the Secured Obligations or of
any security therefor or the termination or release of any security therefor.
SECTION 15. REGISTRATION. (a) If an Event of Default shall have
-------------
occurred and be continuing and the Pledgor shall have received from the Pledgee
a written request or requests that the Pledgor cause any registration,
qualification or compliance under any securities law or laws, or listing
requirements, to be effected with respect to all or any part of the Pledged
Securities, the Pledgor as soon as practicable and at its expense will use
13
<PAGE>
its best efforts to cause such registration to be effected (and be kept
effective) and will use its best efforts to cause such qualification and
compliance to be effected (and be kept effective) as may be so requested and as
would permit or facilitate the sale and distribution of such Pledged Securities,
including without limitation, registration under any applicable securities laws
(including the Securities Act) and appropriate compliance with any other
governmental and listing requirements, provided that the Pledgee shall furnish
to the Pledgor such information regarding the Pledgee as the Pledgor may request
in writing and as shall be required in connection with any such registration,
qualification or compliance. The Pledgor will cause the Pledgee to be kept
reasonably advised in writing as to the progress of each such registration,
qualification or compliance and as to the completion thereof, will furnish to
the Pledgee such number of prospectuses, offering circulars or other documents
incident thereto as the Pledgee from time to time may reasonably request, and
agrees to indemnify and hold harmless the Pledgee and all others participating
in such registration, qualification or compliance (or the distribution of such
Pledged Securities) against all losses, liabilities, claims or damages caused by
any untrue statement (or alleged untrue statement) of a material fact contained
therein (or in any related registration statement, notification or the like) or
by any omission (or alleged omission) to state therein (or in any related
registration statement, notification or the like) a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as the same may have been caused by an untrue statement or
omission based upon information furnished in writing to the Pledgor by the
Pledgee expressly for use therein.
(b) If at any time when the Pledgee shall determine to exercise its
right to sell all or any part of the Pledged Securities pursuant to Section 7
such Pledged Securities or the part thereof to be sold shall not, for any reason
whatsoever, be effectively registered under any applicable securities law or
laws (including the Securities Act), the Pledgee may sell such Pledged
Securities or part thereof by private sale in such manner and under such
circumstances as the Pledgee may deem necessary or advisable in order that such
sale may legally be effected without such registration, provided that at least
10 days' notice of the time and place of any such sale shall be given to the
Pledgor. Without limiting the generality of the foregoing, in any such event
the Pledgee: (i) may proceed to make such private sale notwithstanding that a
registration statement for the purpose of registering such Pledged Securities or
part thereof shall have been filed under such securities laws; (ii) may approach
and negotiate with a single possible purchaser to effect such sale; and (iii)
may restrict such sale to a purchaser who will represent and agree that such
purchaser is purchasing for its own account, for investment, and not with a view
to the distribution or sale of such Pledged Securities or any part thereof. In
the event of any such sale, the Pledgee shall incur no responsibility or
liability for selling all or any part of the Pledged Securities at a price which
the Pledgee (acting in accordance with instructions from the Required Holder(s))
may in good faith deem reasonable under the circumstances, notwithstanding the
possibility that a substantially higher price might be realized if the sale were
deferred until after registration as aforesaid.
SECTION 16. INDEMNITY. (a) The Pledgor covenants and agrees to pay to
----------
the Pledgee from time to time, and the Pledgee shall be entitled to, reasonable
compensation for all services rendered by it, and the Pledgor will pay or
reimburse the Pledgee upon its request for all reasonable expenses,
disbursements and advances incurred
14
<PAGE>
or made by the Pledgee in accordance with any of the provisions of this
Agreement or any other Pledge Document (including the compensation and the
expenses and disbursements of its agents and counsel and of all Persons not
regularly in its employ).
(b) The Pledgor also covenants to indemnify the Pledgee (which, for
purposes of this Section 16, shall include in directors, officers, employees and
agents) for, and to hold it harmless from and against, any and all loss,
liability or expense reasonably incurred without gross negligence, wilful
misconduct or bad faith on the part of the Pledgee, arising out of or in
connection with the acceptance or administration of this trust, the exercise of
any rights and remedies arising out of this Agreement or any other Pledge
Document, or the performance of any of its duties, including the reasonable
costs and expenses of defending itself against any claim of liability and in
enforcing any provision of this Agreement or any other Pledge Document (except
any liability incurred with gross negligence, wilful misconduct or bad faith on
the part of the Pledgee), with interest thereon at a rate equal to that in the
Pledgee's customary banking practice with respect to overdrafts (including the
imposition of interest, fund, wage and administrative fees) from the date the
same shall have been paid until actually reimbursed.
(c) The obligations of the Pledgor under this Section 16 to
compensate and indemnify the Pledgee and to pay or reimburse the Pledgee for
reasonable expenses, disbursements and advances shall constitute additional
indebtedness hereunder and shall survive the satisfaction, discharge or other
termination of this Agreement and any other Pledge Document and the resignation
or removal of the Pledgee hereunder
(d) To secure payment of such compensation, reimbursement and
indemnification, the Pledgee shall have a claim and Lien prior to that of any
party, which claim and Lien shall constitute Secured Obligations secured by this
Agreement.
SECTION 17. TERMINATION: RELEASE, Upon:
--------------------
(a) the receipt by the Pledgee of a certificate executed by each
Purchaser certifying that the conditions set forth in Section 5.3 of the Note
Agreement to the release of the Pledge Collateral have been satisfied; or
(b) the date on which the Secured Obligations have been discharged in
full;
this Agreement shall terminate, and the Pledgee, at the written request and
expense of the Pledgor, will promptly execute and deliver to the Pledgor a
proper instrument or instruments acknowledging the satisfaction and termination
of this Agreement, and will duly assign, transfer and deliver to the Pledgor,
without recourse and without any representation or warranty, such of the Pledge
Collateral as may be in the possession of the Pledgee and has not theretofore
been sold or otherwise applied or released pursuant to this Agreement, together
with any moneys at the time held by the Pledgee hereunder,
SECTION 18. NOTICES. All notices and other communications hereunder
-------
shall be in the English language, in writing and made at the addresses, in the
manner and
15
<PAGE>
with the effect provided in Section 11.10 of the Note Agreement, provided that,
for this purpose, the address of the Pledgee shall be as follows:
The Chase Manhattan Bank, N.A.
Corporate Trust Administration
4 Chase MetroTech Center,
3rd Floor, Brooklyn,
New York 11245
Facsimile: (718) 242-5885 or
(718) 242-3529
or sent to the Pledgee at such other address as it may designate for itself by
notice given in accordance with this Section 18.
SECTION 19. MISCELLANEOUS.
-------------
19.1 Benefit of Agreement.
--------------------
This Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective successors and permitted assigns of the parties
hereto and shall inure to the benefit of the Noteholders; provided, however,
-----------------
that the Pledgor may not, without the prior written consent of the Pledgee
(acting on the instructions of all the Noteholders), assign or transfer any of
its rights or obligations hereunder. The Pledgee may transfer, assign or grant
its rights hereunder in connection with an assignment or transfer of all or any
part of its interest in and rights under this Agreement pursuant to the
provisions of Sections 10 and 11 of the Appointment Agreement,
19.2 Amendment, Waiver.
-----------------
This Agreement may be changed, waived, discharged or terminated only with the
written consent of the Required Holder(s), the Pledgor and the Pledgee.
19.3 Governing Law.
-------------
This Agreement is a contract made under the laws of the State of New York of
the United States and shall for all purposes be construed and enforced in
accordance with, and the rights of parties shall be governed by, the laws of
such State.
19.4 Section Headings, Counterparts.
------------------------------
The headings of the several sections and subsections in this Agreement and the
title of this Agreement are inserted for convenience only and shall not any way
affect the meaning or construction of any provision of this Agreement. This
Agreement may be executed in any number of counterparts and by the different
parties hereto on separate counterparts, each of which when so executed and
delivered shall be an original, but all of which together shall constitute one
and the same instrument.
19.5 Severability.
------------
Any prov Any provision of this Agreement which is prohibited orunenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such
<PAGE>
prohibition orunenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
16
<PAGE>
19.6 Consent to Jurisdiction: Service of-Process.
-------------------------------------------
For the purposes of assuring that the Pledgee and the Noteholders may enforce
their respective rights under this Agreement, the Pledgor for itself and its
successors and assigns, hereby irrevocably: (i) agrees that any legal or
equitable action, suit or proceeding against the, Pledgor arising out of or
relating to this Agreement or the other Note Documents (including, without
limitation, the Agreement of Assignment as Collateral, dated as of the date
hereof, among the Pledgor, the Pledgee and the Purchasers), or any transaction
contemplated hereby or the subject matter of any of the foregoing may be
instituted in any state or Federal court in the Borough of Manhattan in the
State of New York; (ii) waives any objection which it may now or hereafter have
to the venue of any action, suit or proceeding in the State of New York or any
claim of forum non conveniens in the State of New York; and (iii) irrevocably
--------------------
submits itself to the non-exclusive jurisdiction of any state or Federal court
of competent jurisdiction in the Borough of Manhattan in the State of New York
for purposes of any such action, suit or proceeding. Without limiting the
foregoing, the Pledgor hereby appoints, in the case of any such action or
proceeding brought in the courts of or in the State of New York, CT Corporation
System, with offices on the date hereof at 1633 Broadway, New York, New York
10019, to receive, for it and on its behalf, service of process in the State of
New York with respect thereto, provided the Pledgor may appoint any other
person, reasonably acceptable to the Pledgee (acting on the instructions of the
Required Holder(s)), with offices in the State of New York to replace such agent
for service of process upon delivery to the Noteholders of a reasonably
acceptable agreement of such new agent agreeing so to act. The Pledgor agrees
that service of process by means of notice (as provided in Section 11.10 of the
Note Agreement) of any such action, suit or proceeding with respect to any
matter as to which it has submitted to jurisdiction as set forth in this Section
19.6 shall be taken and held to be valid personal service upon it.
19.7 No Waiver: Remedies Cumulative.
------------------------------
No failure or delay on the part of the Pledgee or any Noteholder in exercising
any right, power or privilege hereunder or under any other Pledge Document, as
the case may be, and no course of dealing between the' Pledgor and the Pledgee
or any Noteholder shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, power or privilege hereunder or under any other
Pledge Document preclude any other or further exercise thereof or the exercise
of any other right, power or privilege hereunder or thereunder. The rights,
powers and remedies herein or in any other Pledge Document expressly provided
are cumulative and not exclusive of any rights, powers or remedies which the
Pledgee or any Noteholder, as the case may be, would otherwise have. No notice
to or demand on the Pledgor in any case shall entitle the Pledgor to any other
or further notice or demand in similar or other circumstances or constitute a
waiver of the rights of the Pledgee or any Noteholder to any other or further
action in any circumstances without notice or demand.
19.8 New Secured Lenders.
-------------------
The parties acknowledge that Section 8.1 of the Note Agreement contemplates that
the Noteholders may enter into an intercreditor agreement for the purpose of
sharing the Pledge Collateral with the other parties to such agreement in
accordance with the terms thereof. It is understood that at the time of such
event, the Pledgor, the Pledgee and the Noteholders will investigate whether and
how this Agreement may be amended to accommodate and give effect to such an
intercreditor agreement.
17
<PAGE>
IN WITNESS WHEREOF, The Pledgor and the Pledgee have caused this
Agreement to be executed by their duly elected officers duly authorized as of
the date first above written.
MAGINET CORPORATION
By : /s/ James A. Barth
Name : James A. Barth
Title : Chief Financial Officer
THE CHASE MANHATTAN BANK, N.A., as
Collateral Agent
By: /s/
Name :
Title :
IN WITNESS WHEREOF, the Pledgor and the Pledgee have caused this
Agreement to be executed by their duly elected officers duly authorized as of
the date first above written.
MAGINET CORPORATION,
THE CHASE MANHATTAN BANK, N.A.
By: /s/ Rosama E. Abueva
Name: ROSANNA E. ABUEVA
Title: SECOND VICE PRESIDENT
<PAGE>
ANNEX A to
PLEDGE AGREEMENT
LIST OF SECURITIES AND PLEDGED SECURITIES
-----------------------------------------
<TABLE>
<CAPTION>
Number of Number of
Name of Subsidiary or Securities Pledged Securities Percentage of Outstanding
Joint Venture Vehicle (ordinary shares) (ordinary shares) Shares of Capital Stock
<S> <C> <C> <C> <C>
Owned by Pledged by
Pledgor Pledgor Pledgor
Pacific Pay Video (HK) Limited 10,000 6,600 100% 66%
PPV Signapore Pte Ltd. 100,000 66,000 100% 66%
PPV Signapore Pte Limited (ACN) 100 66 100% 66%
059 748 588)
Pacific Pay Video New Zealand 100 66 100% 66%
Limited
Pacific Pay Video (Korea) Ltd. 266,667 176,000 85% 66%
Pacific Pay Video International 1,000 1,000 100% 100P%
Pacific Pay Video Limited 100 100 100% 100%
</TABLE>
<PAGE>
ANNEX B to
PLEDGE AGREEMENT
Registrations and Filings
-------------------------
1. Hong Kong
---------
Registration of the name of the Pledgee in the register of members or
shareholders of the Subsidiary.
2. Singapore
---------
Registration of the name of the Pledgee in the register of members or
shareholders of the Subsidiary.
3. Australia
---------
Registration of the name of the Pledgee in the register of members or
shareholders of the Subsidiary.
4. New Zealand
-----------
Registration of the name of the Pledgee in the register of members or
shareholders of the Subsidiary.
5. Korea
-----
None.
6. California
----------
UCC-1 Financing Statement filed with the California Secretary of State.
7. Japan
-----
None.
<PAGE>
ANNEX C to
PLEDGE AGREEMENT
Form of Director's Resignation Letter
--------------------------------------
To: The Board of Directors of
[name of Subsidiary/Joint Venture Vehicle] (the "Company")
I, [name], hereby resign my position as a director of the Company with effect
from the date set forth below and waive all claims to fees or compensation in
connection with my resignation.
Dated this____ date of____.[signature]
[name]
<PAGE>
EXHIBIT B-2
(Form of Pledge Agreement (Japanese law))
<PAGE>
AGREEMENT OF ASSIGNMENT AS COLLATERAL
This AGREEMENT OF ASSIGNMENT AS COLLATERAL, dated as of August 15, 1995
among MAGINET CORPORATION, a corporation organized under the laws of the State
of California, as assignor (the "Assignor"), and The Chase Manhattan Bank, N.A.,
a national banking association, as collateral agent for the benefit of the
Noteholders (the "Agent") and the banks and financial institutions named in
Schedule A attached hereto (collectively the "Purchasers"). Capitalized terms
used herein shall have the meanings provided in Section
W I T N E S S E T H :
- - - - - - - - - - -
WHEREAS, the Assignor and the Purchasers have entered into the Note
Agreement providing for the issuance and sale of the Notes and the issuance of
the Warrants an contemplated therein;
WHEREAS, the Purchasers, the Assignor and the Agent have entered into the
Appointment Agreement providing for the appointment of the Agent to act as
collateral agent for the benefit of the Noteholders under the Security Documents
(including this Agreement);
WHEREAS, it is at condition precedent under the Note Agreement to each
Purchaser's obligation to purchase and pay for the Notes and to accept the
Warrants to be issued under the Note Agreement that the Assignor shall have
executed and delivered to the Purchasers this Agreement;
WHEREAS, the Assignor acknowledges and confirms that this is one of the
Pledge Agreements (as such term is defined in the Note Agreement);
WHEREAS, the Assignor desires to execute this Agreement to satisfy the
conditions described in the preceding paragraphs and to induce the Purchasers to
enter into the Note Agreement and to purchase and pay for the Notes and to
accept the Warrants (and to induce any future Noteholders so to do);
NOW, THEREFORE, the Assignor hereby makes the following representations and
warranties to the Assignees and hereby covenants and agrees with the Assignees
as follows:
SECTION 1. DEFINITIONS AND PRINCIPLES OF CONSTRUCTION. For all purposes of
------------------------------------------
this Agreement, (i) capitalized terms not otherwise defined herein shall have
the meanings set forth in the Note Agreement and (ii) as used herein, references
to "this Agreement", "hereunder" and words of like meaning shall refer to this
Agreement of Assignment as Collateral.
As used in this Agreement:
"Agreement" and "this Agreement" shall mean this Agreement of Assignment as
--------- --------
Collateral dated as of August 15, 1995, as the same may be modified, amended or
supplemented from time to time.
<PAGE>
"Assignee" or "Assignees" shall mean at any time all or each of the Agent
-------- ---------
and the then Noteholders, which are initially the Purchasers.
"Liquidating Dividend" shall have the meaning set forth in Section 5.
--------------------
"Maximum Foreign Pledge" shall mean, in respect of PPV Japan, (i) prior to
-----------------------
the occurrence of a Change in Tax Law Event, the number of securities
representing 66% (or such other threshold amount as may become relevant after
the date hereof in determining whether a security interest under this Agreement
would result in the undistributed earnings of PPV Japan as determined for
Federal income tax purposes being treated as a deemed dividend to the Assignor)
of the total combined voting power of all classes of securities of PPV Japan
entitled to vote and (ii) on and following the occurrence of a Change in Tax Law
Event, the number of securities representing the maximum total combined voting
power of all classes of securities of PPV Japan entitled to vote that may be
pledged or assigned as collateral without creating a deemed dividend to the
Assignor.
"Noteholder" shall mean from time to time a registered holder of the Notes.
----------
"Pledge Documents" shall mean (i) this Agreement (and any other pledge or
----------------
assignment as collateral agreement in form and substance satisfactory to the
Assignee entered into as contemplated by this Agreement), (ii) the Note
Agreement and (iii) any other Note Document to which any Assignee is or will be
a party.
"PPV Japan" shall mean PPV Japan, Inc, a Japanese corporation.
---------
"Secured ObligAtions" shall mean (i) the payment due of the principal of
------------------
and interest in respect of the Notes and payment of all other obligations and
liabilities (including without limitation indemnities premium, if any, fees and
interest thereon) of the Assignor owed to the Assignees (including the Agent in
its individual capacity), now existing or hereafter incurred under the Note
Agreement, each Note, the Appointment Agreement, any Pledge Document and this
Agreement and (ii) the due performance and compliance with the terms of the Note
Documents by the Assignor.
"Securities" shall mean all the issued and outstanding shares of capital
----------
stock of PPV Japan (and any options, warrants or other rights to purchase such
capital stock at any time prior to the date on which the Secured Obligations are
discharged in full) owned by the Assignor, including without limitation all such
shares of capital stock, options, warrants or other rights owned by the Assignor
on the date hereof and all such capital stock, options, warrants or other rights
acquired by the Assignor in the future. The Assignor hereby represents and
warrants that on the date hereof (i) the Assignor owns 360
- 2 -
<PAGE>
shares of common stock of PPV Japan, which constitutes 90% of the issued and
outstanding shares of capital stock of PPV Japan and (ii) there are no options,
warrants, or other rights to purchase any Securities outstanding.
"Subject Securities" shall mean 264 shares of capital stock of PPV Japan
------------------
owned by the Assignor and all other Securities from time to time assigned as
collateral hereunder. The Subject Securities, together with all proceeds thereof
(including any securities, property and moneys) received and at the time held by
any of the Assignees hereunder, is hereinafter referred to as the "Subject
Collateral."
SECTION 2. ASSIGNMENT OF SECURITIES AS COLLATERAL.
--------------------------------------
2.1 Assignment. To secure the Secured Obligations, the Assignor hereby (i)
----------
assigns the Subject Securities to the Assignees as collateral (Jototanpo) and
---------
delivers to the Agent the share certificates representing the Subject Securities
to be held by the Agent on behalf of all the Assignees upon the terms and
conditions set forth in this Agreement and (ii) assigns the Subject Collateral
to the Assignees as collateral (Jototano). Each Assignee shall have an undivided
--------
interest in the Subject Collateral so assigned, each such interest determined
pro rata in accordance with the amount of the Secured Obligations from time to
time owed to such Assignee.
2.2 Subsequently Acquired Securities. If the Assignor shall acquire (by
--------------------------------
purchase stock dividend or otherwise), at any time or from time to time after
the date hereof, any additional shares or other securities in the capital stock
of PPV Japan and, as a result of such acquisition, the number of the Subject
Securities in respect of PPV Japan is less than PPV Japan's then existing
Maximum Foreign Pledge, then the Assignor will forthwith assign as collateral
hereunder (or under another agreement of assignment as collateral in form and
substance satisfactory to the Agent, if necessary under applicable law or if
otherwise desirable to carry into effect the purposes of this Agreement), and
deliver to the Agent the share certificates representing, such additional
Securities as is necessary so that the number of the Subject Securities is equal
to PPV Japan's then existing Maximum Foreign Pledge. Thereafter such Securities
shall constitute Subject Securities, and the Assignor shall promptly deliver to
the Agent a certificate executed by a Responsible officer describing such
Subject Securities and certifying that the same have been duly assigned as
collateral to the Assignees hereunder or under such other agreement of
assignment as collateral, as the case may be.
2.3 Change In Tax Law Event. If a Change in Tax Law Event occurs, then
------------------------
the Assignor shall forthwith assign as collateral hereunder (or under another
agreement of assignment as collateral in form and substance satisfactory to the
Agent, if necessary under applicable law or if otherwise desirable to carry into
effect the purposes of this Agreement) that portion of the securities of PPV
Japan hold by the Assignor and not heretofore assigned as collateral pursuant to
this Agreement (or
- 3 -
<PAGE>
another agreement of assignment as collateral) and deliver the share
certificates representing such Securities to the Agent. Thereafter such
Securities shall constitute Subject Securities, and the Assignor shall promptly
deliver to the Agent a certificate executed by a Responsible Officer describing
such Subject Securities and certifying that the same have been duly assigned as
collateral to the Assignee hereunder (or under another agreement of assignment
as collateral, as the case may be).
2.4 Non-registration of Subject Securities in Shareholders' Register. The
----------------------------------------------------------------
Assignees shall not have the Subject Securities registered in the shareholders'
register of PPV Japan in any names other than that of the Assignor unless and
until the Subject Securities have been acquired by the Assignee or any other
Person through the enforcement of the security interest in the Subject
Securities created herein or until an Event of Default shall have occurred and
be continuing.
SECTION 3. APPOINTMENT OF AGENTS. The Agent shall receive and continue to
---------------------
retain possession of the Subject Collateral on behalf of the Assignees pursuant
to the terms and conditions of this Agreement and the Appointment Agreement. The
Agent shall have the right to appoint one or more agents (other than the
Assignor) for the purpose of retaining physical possession of the share
certificates representing the Subject Securities and other Subject Collateral on
behalf of the Agent.
SECTION 4. VOTING AND OTHER RIGHTS WHILE NO EVENT OF DEFAULT. Unless and
-------------------------------------------------
until an Event of Default shall have occurred and be continuing, the Assignor
shall be entitled to vote any and all Subject Securities and to give consents,
waivers or ratification in respect thereof; provided, that the Assignor shall
cast no vote, or give any consent, waiver or ratification or take any action
which would violate or be inconsistent with any of the terms of this Agreement,
any other Note Document or any other instrument or agreement referred to herein
or therein or which would have the effect of impairing the position or interests
of the Assignees. All such rights of the Assignor to vote and to give consents,
waivers and ratifications shall cease upon the earlier to occur of (i) delivery
to the Assignor of written notice from any Noteholder or pursuant to a notice
delivered under Section 9.1 of the Note Agreement or the Agent stating that an
Event of Default has occurred and is continuing or (ii) a Responsible Officer
obtaining knowledge of any condition or event which constitutes an Event of
Default, when Sections 2.4 and 6 shall become applicable; provided, that the
Agent shall be under no duty to deliver the written notice described in clause
(i) of the foregoing unless and until it has received a notice from any
Noteholder stating that an Event of Default has occurred and is continuing.
SECTION 5. DIVIDENDS AND OTHER DISTRIBUTIONS. Unless and until an Event of
---------------------------------
Default shall have occurred and be continuing, all cash dividends payable in
respect of the Subject Securities shall be paid directly to the Assignor;
provided, that the
- 4 -
<PAGE>
Assignor shall cause to be paid to the Agent, and the Agent shall have the right
to receive and retain as part of the Subject Collateral, all cash dividends
payable in respect of the Subject Securities which are determined by the Agent
to represent in whole or in part an extraordinary, liquidating or other
distribution in return of capital (each a "Liquidating Dividend"), unless the
event creating such Liquidating Dividend was permitted by, and did not otherwise
result in an Event of Default occurring under, the Note Agreement. In case an
Event of Default shall have occurred and be continuing, the Assignor shall cause
to be paid to the Agent, and the Agent shall have the right to receive and
retain as part of the Subject Collateral, all cash dividends payable in respect
of the Subject Securities. The Assignor shall also cause to be delivered or
paid, as relevant, to the Agent, and the Agent shall have the right to receive
and retain as part of the Subject Collateral:
(a) all other or additional stock or securities of PPV Japan paid or
distributed by way of dividend in respect of the Subject Securities;
(b) all other or additional stock or other securities or property
(including cash) paid or distributed in respect of the Subject Securities by way
of stock-split, spin-off, split-up, reclassification, combination of shares or
similar rearrangement; and
(c) all other or additional stock or other securities or property
(including cash) which may be paid in respect of the Subject Securities by
reason of any consolidation, merger, exchange of stock, conveyance of assets,
liquidation or similar corporate reorganization or otherwise;
except, in each case, prior to the occurrence and continuance of an Event of
- ------
Default, to the extent the receipt of such stock dividends and other securities
distributions would cause the Subject securities of PPV Japan to exceed PPV
Japan's Maximum Foreign Pledge, in which case the Assignor shall cause to be
delivered to the Agent, and the Agent shall have the right to receive and retain
as part of the Subject Collateral, such amount of stock dividends and securities
distributions as is equal, together with the Subject Securities previously
assigned as collateral, to PPV Japan's then existing Maximum Foreign Pledge.
SECTION 6. REMEDIES IN CASE OF EVENT OF DEFAULT. In case an Event of
------------------------------------
Default shall have occurred and be continuing, the Noteholders (as Assignees)
directly or through the Agent shall be entitled to exercise all the rights,
powers and remedies vested in them or it as relevant (whether vested in them or
it by this Agreement, by any other Note Document or by law) for the protection
and enforcement of their or its rights, as relevant in respect of the Subject
Collateral, and the Noteholders (as Assignees) directly or through the Agent
shall be entitled without limitation to exercise the following rights, which the
Assignor hereby agrees to be commercially reasonable:
- 5 -
<PAGE>
(a) to, upon giving written notice to the Assignor, dispose of the
Subject Collateral by such method, at such time and for such price as are
generally considered reasonable by the Agent (acting in accordance with the
instructions from the Required Holder(s)), and apply the proceeds toward the
payment of the Secured obligations in accordance with Section 7 below; and
(b) to, upon giving written notice to the Assignor, acquire the Subject
Collateral as payment of the whole or a part of the Secured Obligations, as
relevant, in the order set forth in Section 7 below at such time and for such
price as are generally (considered reasonable by the Agent (acting in accordance
with the instructions from the Required Holder(s)).
None of the Agent or the other Assignees shall be liable for failure to collect
or realize upon any or all of the Subject Collateral or for any delay in so
doing nor shall any of them be under any obligation to take any action
whatsoever with regard thereto.
SECTION 7. APPLICATION OF PROCEEDS. All moneys collected by the Agent or
-----------------------
the other Assignees upon any sale or other disposition of the Subject Collateral
(including, without limitation, the amount of the price at which the Noteholders
(as Assignees) may acquire the Subject Securities in accordance with Section
6(b), together with all other moneys received by the Agent or the other
Assignees hereunder, shall be applied in the following order of priority:
(a) FIRST, to the payment of such amounts an are due and payable to the
Agent (including in respect of its agents) or to any prior Agent hereunder
pursuant to the Appointment Agreement and this Agreement, including the payment
of all costs and expenses incurred by the Agent in connection with such sale,
the delivery of the Subject Collateral or the collection of any such moneys
(including without limitation reasonable attorneys' fees and expenses); and
(b) SECOND, to the payment of the other Secured Obligations in the
following order of priority to the extent such amounts are not sufficient to
repay such other Secured Obligations in full and within each category on a pro
rata basis among the Noteholders:
(i) to the payment of charges, fees, indemnity obligations, costs and
expenses due under the Note Agreement, each Note, the Appointment Agreement,
this Agreement or the other Pledge Documents to the Noteholders;
(ii) to the payment of interest on interest which became overdue, if any,
with respect to the Notes;
(iii) to the payment of interest on principal with respect to the Notes
which became overdue;
(iv) to the payment of interest accrued with respect
- 6 -
<PAGE>
to the Notes;
(v) to the payment of principal with respect to the Notes;
(vi) to the payment of premium, if any, with respect to the Notes; and
(vii) to the payment of the remaining Secured Obligations, if any.
Following the foregoing applications, any balance of such moneys shall be
returned to the Assignor or otherwise disposed of as directed in writing by the
Assignor.
SECTION 8. PURCHASERS OF COLLATERAL. Upon any sale of the Subject
------------------------
Collateral by the Noteholders (as Assignees) or the Agent hereunder, the receipt
of the Noteholders (as Assignees), the Agent or the officer making the sale
shall be a sufficient discharge to the purchaser or purchasers of the Subject
Collateral so sold, and such purchaser or purchasers shall not be obligated to
see to the application of any part of the purchase money paid over to the
Noteholders (as Assignees), the Agent or such officer or be answerable in any
way for the misapplication or non-application thereof.
SECTION 9. FURTHER ASSURANCES. Without limitation to the provisions of
------------------
Section 6 the Assignor agrees that it shall at its own expense:
(a) do such further acts and things and execute and deliver to the Agent
and the other Assignees such additional conveyances, assignments agreements and
instruments (including, without limitation, one or more pledge or assignment as
collateral agreements in form and substance satisfactory to the Agent) as may be
reasonably required or deemed advisable to carry into effect the purposes of
this Agreement or to further assure and confirm unto the Agent and the other
Assignees its and their rights, powers and remedies hereunder; and
(b) comply with the requirements of Section 7.13 of the Note Agreement
(which provision is incorporated in full herein by reference).
SECTION 10. TRANSFER BY THE ASSIGNOR. The Assignor shall not assign, sell
------------------------
or otherwise dispose of, grant any option with respect to, or create, incur,
assume or suffer to exist any Lien on any portion of the Subject Collateral or
any other Securities, except (i) Liens in favor of Persons other than the
Noteholders permitted under Section 8.1 of the Note Agreement and (ii) Liens
created by this Agreement and by any other Pledge Document.
SECTION 11. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE ASSIGNOR. The
---------------------------------------------------------
Assignor represents and warrants that: (i) it is the owner of, and has good and
marketable title to, 360 shares of the capital stock of PPV Japan in existence
on the
- 7 -
<PAGE>
date hereof, subject to no Lien (except the Lien created by this Agreement);
(ii) it has full corporate power, authority and legal right to assign as
collateral all such Securities pursuant to this Agreement; (iii) all such
Securities have been duly and validly issued, are fully paid and nonassessable;
(iv) this Agreement creates, as security for the Secured Obligations, a valid
and enforceable first priority security interest on all of the Subject
Securities in existence on the date hereof, in favor of the Noteholders (as
Assignees) and the Agent acting on behalf of such Assignees, subject to no Lien
in favor of any other Person; and (v) no consent, filing, recording or
registration is required to perfect the security interest in the Subject
Securities purported to be created by this Agreement. The Assignor covenants and
agrees that: (i) it shall not cause the article on the share transfer
restrictions to be incorporated in the Articles of Incorporation of PPV Japan;
(ii) it will defend the Assignees' right, title and Lien in and to the Subject
Collateral against the claims and demands of all Persons; and (iii) it will take
all actions within its powers to ensure that it will have like title to and
right to assign an collateral any other securities or property at any time
hereafter assigned as collateral to the Assignees as Subject Collateral
hereunder.
SECTION 12. THE AGENT. (a) The Agent will hold in accordance with the
---------
terms and provisions of the Appointment Agreement and this Agreement all Subject
Collateral at any time received by it under this Agreement. It is expressly
understood and agreed that the obligations of the Agent as holder of the Subject
Collateral and with respect to the disposition thereof are only those expressly
set forth in this Agreement and in the Appointment Agreement, and no implied
covenants or obligations shall be read into this Agreement against the Agent.
(b) In case of any litigation under this Agreement, or in case of any
enforcement of remedies or exercise of rights upon the occurrence of an Event of
Default, or in case the Agent deems that, by reason of any present or future law
of any jurisdiction, it may not or may not effectively exercise any of the
powers, rights or remedies herein granted to it or hold title to the properties
as herein granted, or take any other action which may be desirable or necessary
in connection therewith, the Agent shall be entitled to appoint, to the extent
consistent with any applicable law, one or more separate or additional
co-agents.
In the event that the Agent appoints an individual or institution as a
separate or additional co-agent (i) any appointment of any such co-agent by the
Agent shall be made only with the prior written consent of the Assignor and the
Required Holder(s) (except that, if the Agent shall have received written notice
from any Holder of Secured Obligations that a Default or an Event of Default has
occurred and is continuing, such consent shall be required only of the Required
Holder(s)), which consent shall not be unreasonably withheld or delayed and (ii)
each and every remedy, power, right, title, interest, duty and obligation
expressed or intended by this Agreement to be exercised by or vested in,
conveyed to or imposed upon, the Agent with respect
- 8 -
<PAGE>
thereto shall be exercisable by and vest in such separate or additional co-agent
but only to the extent necessary, appropriate or desirable to enable such
separate or additional co-agent to exercise or have vested in it such powers,
rights, trusts, titles, interests, duties and obligations and remedies, and
every covenant and obligation necessary, appropriate or desirable to the
exercise thereof by such separate or additional co-agent shall run to and be
enforceable by either or any of them.
The Agent shall have the right to terminate the appointment of any such
co-agent hereunder with the prior written consent of the Assignor and the
Required Holder(s) (except that, if the Agent shall have received written notice
from any Holder that a Default or an Event of Default has occurred and is
continuing, such consent shall be required only of the Required Holder(s)),
which consent shall not be unreasonably withheld or delayed. Should any
instrument in writing from the Assignor be required by the separate or
additional co-agent so appointed by the Agent to more fully and certainly vest
in and confirm to it such remedies, rights, powers, titles, interest, duties and
obligations, any and all such instruments in writing shall, on request, be
executed, acknowledged and delivered by the Assignor. In case any separate or
additional co-agent, or a successor to either, shall become incapable of acting,
resign or be removed all the remedies, rights, powers, titles, interests,
trusts, duties and obligations of such separate or additional coagent, so far as
permitted by law, shall vest in and be exercised by the Agent until the
appointment of a new agent or successor to such separate or additional co-agent.
SECTION 13. ASSIGNOR'S OBLIGATIONS. The obligations of the Assignor under
----------------------
this Agreement shall be absolute and unconditional and shall remain in full
force and effect without regard to, and shall not be released, suspended,
discharged or terminated or otherwise affected by, any circumstance or
occurrence whatsoever, including without limitation; (i) any renewal, extension,
amendment or modification of, or addition or supplement to or deletion from, the
Note Agreement, any Note or any other instrument or agreement referred to
therein or any assignment or transfer of any thereof; (ii) any waiver, consent,
extension, indulgence or other action or inaction under or in respect of the
Note Agreement, any Note or any other such instrument or agreement or any
exercise or non-exercise of any right, remedy, power or privilege under or in
respect of the Note Agreement, any Note or any other such instrument or
agreement; (iii) any furnishing of any additional security to the Assignees or
any acceptance thereof or any sale, exchange, release, surrender or realization
of or upon any security by the Assignees; or (iv) any invalidity, irregularity
or unenforceability of all or part of the Secured Obligations or of any security
therefor or the termination or release of any security therefor.
SECTION 14. REGISTRATION. If an Event of Default shall have occurred and
------------
be continuing and any registration, qualification or compliance under any
securities law or laws is
- 9 -
<PAGE>
required to be effected by any applicable law with respect to the enforcement of
the security interest in all or any part of the Subject Securities; the
Assignor, at the Agent's written request, as soon as practicable and at its
expense will use its best efforts to cause such registration to be effected (and
be kept effective) and will use its best efforts to cause such qualification and
compliance to be effected (and be kept effective) as may be so requested and as
would permit the enforcement of the security interest in such Subject
Securities, including without limitation, registration under any applicable
securities laws (including the Securities Act) and appropriate compliance with
any other governmental requirements, provided that the Agent shall furnish to
the Assignor such information regarding the Assignees as the Assignor may
request in writing and as shall be required in connection with any such
registration, qualification or compliance. The Assignor will cause the Agent to
be kept reasonably advised in writing as to the progress of each such
registration, qualification or compliance and as to the completion thereof, will
furnish to the Assignees such number of prospectuses, offering circulars or
other documents incident thereto as the Agent from time to time may reasonably
request, and agrees to indemnify the Agent and the other Assignees against all
losses, liabilities, claims or damages caused by any untrue statement (or
alleged untrue statement) of a material fact contained therein (or in any
related registration statement, notification or the like) or by any omission (or
alleged omission) to state therein (or in any related registration statement,
notification or the like) a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as the
same may have been caused by an untrue statement or omission based upon
information furnished in writing to the Assignor by the Agent expressly for use
therein.
SECTION 15. INDEMNITY. (a) The Assignor will pay or reimburse the Agent
---------
upon its request for all reasonable expenses, disbursements and advances
incurred or made by the Agent in accordance with any of the provisions of this
Agreement or any other Pledge Document (including the compensation and the
expenses and disbursements of its agents and counsel and of all Persons not
regularly in its employ).
(b) The Assignor also covenants to indemnify the Agent and the other
Assignees for any and all loss liability or expense reasonably incurred without
gross negligence, wilful misconduct or bad faith on the part of the Agent or the
other Assignees, arising out of or in connection with the acceptance or
administration of the Subject Collateral, the exercise of any rights and
remedies arising out of this Agreement, or the performance of any of its duties,
including the reasonable costs and expenses of defending itself against any
claim of liability and in enforcing any provision of this Agreement or any other
Pledge Document (except any liability incurred with gross negligence, wilful
misconduct or bad faith on the part of the Agent or the other Assignees), with
interest thereon (i) at the rate of 10.5% per annum with respect to amounts
owing to the Noteholders (as Assignees) and (ii) at a rate equal to the
- 10 -
<PAGE>
Agent's customary banking practices with respect to overdrafts (including the
imposition of interest, funds, wage charges and administrative fees), with
respect to amounts owing to the Agent, in each case from the date the same shall
have been paid until actually reimbursed.
(c) The obligations of the Assignor under this Section 15 to indemnify the
Agent and the other Assignees and to pay or reimburse the Agent and the other
Assignees for reasonable expenses, disbursements and advances shall for
avoidance of doubt be a Secured Obligation secured by this Agreement and shall
survive the satisfaction, discharge or other termination of this Agreement and
the resignation or removal of the Agent hereunder.
SECTION 16. TERMINATION; RELEASE. Upon:
--------------------
(a) the receipt by the Agent of a certificate executed by each Noteholder
certifying that the conditions set forth in Section 5.3 of the Note Agreement to
the release of the Subject Collateral have been satisfied; or
(b) the date on which the Secured Obligations have been discharged in
full;
this Agreement shall terminate, and the Agent, at the written request and
expense of the Assignor, shall promptly execute and deliver to the Assignor a
proper instrument or instruments acknowledging the satisfaction and termination
of this Agreement, and shall release, reassign and deliver to the Assignor,
without any representation or warranty, such of the Subject Collateral as maybe
in the possession of the Agent and has not theretofore been sold or otherwise
applied, released or reassigned pursuant to this Agreement, together with any
moneys at the time held by the Agent hereunder.
SECTION 17. NOTICES. All notices and other communications hereunder shall
be in the English language in writing and made at the addresses, in the manner
and with the effect provided in Section 11.10 of the Note Agreement, provided
that, for this purpose, the address of the Agent shall be as follows:
The Chase Manhattan Bank, N.A.
Corporate Trust Administration
4 Chase MetroTech Center
3rd Floor
Brooklyn, New York 11245
Facsimile: (718) 242-5885 or (718) 242-3529
or such other address as the Agent may designate for itself by notice given in
accordance with this Section 17.
SECTION 18. Change of the Assignees. Each of the Assignor, the Agent and
-----------------------
each of the other Assignees hereby (a) acknowledges that the Noteholders (and,
accordingly, the Assignees) may be changed and/or new Noteholders (and
accordingly, new Assignees) may be added from time to time in accordance
with the Note Agreement and the other Note Documents and agrees that, without
taking any action, the security interest created or to be created hereunder
shall automatically be effective for the benefit of the Agent and the then
current Noteholders who shall automatically be deemed to be Assignees hereunder.
The Agent further agrees that the Agent shall maintain possession of the Subject
Collateral in accordance with the terms of this Agreement on behalf of the
Assignees who may be changed or added to from time to time. The Assignor
further agrees that upon the Agent's request the Assignor shall execute and
deliver to the Agent a letter of confirmation in substantially the form attached
hereto as Appendix A, which letter shall be deemed upon delivery to the Agent to
have become an integral part of this Agreement,.
<PAGE>
SECTION 19. MISCELLANEOUS.
-------------
19.1 Benefit of Agreement. This Agreement shall be binding upon and inure
--------------------
to the benefit of and be enforceable by the Assignor, the Agent and the other
Assignees and their respective successors and permitted assigns; provided,
however, that the Assignor may not, without the prior written consent of the
Agent (acting on the instructions of all the other Assignees), assign or
transfer any of its rights or obligations hereunder. Each of the Assignees
(other than the Agent) may assign or transfer its rights hereunder in connection
with an assignment or transfer of all or any part of its interest in and rights
under its Notes and the Note Agreement pursuant to the provisions of the Note
Agreement. The Agent may be replaced by another entity pursuant to the
provisions of Sections 10 and 11 of the Appointment Agreement, in which case the
Subject Collateral shall be transferred, delivered and possessed by the
substituting agent in accordance with the Appointment Agreement and this
Agreement.
19.2 Amendment, Waiver. This Agreement may be changed, waived, discharged
-----------------
or terminated only with the written consent of the Required Holder(s), the Agent
and the Assignor.
19.3 Governing Law. This Agreement is a contract made under the laws of
-------------
Japan and shall for all purposes be construed and enforced in accordance with,
and the rights of parties shall be governed by the laws of Japan; provided,
however, that with respect to the Agent under Section 12 of this Agreement, the
laws of the State of New York shall apply.
19.4 Section Heading, Counterparts. The headings of the several sections
-----------------------------
and subsections in this Agreement are inserted for convenience only and shall
not in any way affect the meaning or construction of any provision of this
Agreement This Agreement may be executed in any number of counterparts and by
the different parties hereto on separate counterparts, each of which when so
executed and delivered shall be an original, but all of which together shall
constitute one and the same instrument.
19.5 Remedies Cumulative. The rights, powers and remedies herein or in
-------------------
any other Pledge Document expressly
- 12 -
<PAGE>
provided are cumulative and not exclusive of any rights, powers or remedies
which the Assignees would otherwise have.
19.6 Severability. Any provision of this Agreement which is prohibited or
------------
unenforceable in Japan shall be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof.
19.7 Consent to Jurisdiction; Service of Process. The Assignor for itself
-------------------------------------------
and its successors, hereby irrevocably; (i) agrees that any action, suit or
proceeding against the Assignor arising out of or relating to this Agreement or
the other Note Documents or any transaction contemplated hereby or the subject
matter of any of the foregoing may be instituted in the Tokyo District Court;
(ii) waives any objection which it may now or hereafter have to the venue of any
action, suit or proceeding in Tokyo or any claim of forum non conveniens in
Tokyo; and (iii) submits itself to the non-exclusive jurisdiction of the Tokyo
District Court or any court competent to hear any appeal from a decision of the
Tokyo District Court for purposes of any such action, suit or proceeding.
19.8 No Waiver. No failure or delay on the part of the Agent or any other
---------
Assignee in exercising any right, power of privilege hereunder and no course of
dealing between the Assignor and the Agent or any other Assignee shall operate
as a waiver thereof; nor shall any single or partial exercise of any right,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, power or privilege hereunder.
19.9 New Secured Lenders. The parties acknowledge that Section 8(i) of
-------------------
the Note Agreement contemplates that the Noteholders may enter into an
intercreditor agreement for the purpose of sharing the Subject Collateral with
the other parties to such agreement in accordance with the terms thereof. It is
understood that at the time of such event, the Assignor, the Agent and the other
Assignees will investigate whether and how this Agreement may be amended to
accommodate and give affect to such an intercreditor agreement.
- 13 -
<PAGE>
IN WITNESS WHEREOF, the Assignor, the Agent and the Purchasers have cause
this Agreement to be executed by their duly elected officers duly authorized as
of the date first above
written.
MAGINET CORPORATION, as Assignor
By /s/ J.A. Barth
Name: James A. Barth
Title: Chief Financial Officer
The Chase Manhattan Bank, N.A., as Agent
and an Assignee
By /s/ R.E. Abueva
Name: Rossana E. Abueva
Title: Second Vice President
New York Life Insurance Company, as an
Assignee
By /s/ Himi L. Kitner
Name: Himi L. Kittner
Title: Vice President
The Mutual Life Insurance Company of New
York, as an Assignee
By /s/ Diane Hom
Name: Diane Hom
Title: Managing Director
Namtor BVC LP, as an Assignee
By /s/ Michael Rothman
Name: Michael C. Rothman
Title: Partner
Waslic Company II, as an Assignee
By /s/ Daniel F. Lindley
Name: Daniel F. Lindley
Title: President & Secretary
- - 14 -
<PAGE>
Schedule A
to
Agreement of Assignment as Collateral
New York Life Insurance Company
51 Madison Avenue
New York, NY 10010
The Mutual Life Insurance Company of New York
1740 Broadway, 11th Floor
New York, NY 10019
Namtor BVC LP
311 South Wacker Drive,
Suite 4190
Chicago, IL 60606
Waslic Company II
c/o Ft. Washington Investment Advisors
400 Broadway
Cincinnati, OH 45202
- 15 -
<PAGE>
APPENDIX A
to Agreement of Assignment as Collateral
Form of a Letter of Confirmation under Section 18
--------------------------------------------------
Date: , 19__
The Chase Manhattan Bank, N.A.
as the Agent for the Noteholders (as Assignees)
Re: Noteholders of the Notes issued by MagiNet Corporation pursuant to the Note
Agreement dated August 15, 1995 and Assignees of the Agreement of
Assignment as Collateral referred to below
Dear Sirs:
We refer to the Agreement of Assignment as Collateral dated August 15, 1995 (as
amended to date, "Assignment as Collateral") made between you as the Agent and
an Assignee, the Purchasers and us. All capitalized terms defined or used
herein and not otherwise defined herein shall have the same meanings specified
in the Assignment as Collateral.
We understand that the current Noteholders, and accordingly the current
Assignees (excluding you), are those listed below and confirm that all security
interests created or to be created under the Assignment as Collateral are
effective for the benefit of you and such other Assignees as if they all were
Assignees on the date the Assignment as Collateral was first executed.
Very truly yours,
MagiNet Corporation
(Authorized Signatory)
(List of Assignees):
<PAGE>
Exhibit C
THIS WARRANT AND ANY SHARES OF CAPITAL STOCK TO BE ACQUIRED UPON THE
EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"). THESE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CON NECTION WITH, THE DISTRIBUTION
THEREOF. THESE SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED, OR TRANSFERRED
UNLESS (I) A REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO THESE
SECURITIES OR (II) THERE IS AN OPINION OF COUNSEL, REASONABLY SATISFACTORY
TO THE COMPANY, THAT AN EXEMPTION THEREFROM IS AVAILABLE.
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
MAGINET CORPORATION
COMMON STOCK PURCHASE WARRANT
AUGUST 15, 1995
VOID AFTER AUGUST 15, 2000
1. Number and Price of Shares Subject to Warrant.
---------------------------------------------
a. Subject to the terms and conditions set forth herein,
____________________________________________________, or its
registered assigns, is entitled to acquire from MAGINET CORPORATION, a
California corporation (the "Company"), at any time after the date
hereof and on or before the date of termination of this Warrant
provided for in Section 3 hereof, up to ____________________ shares
(as may be adjusted pursuant to clause 1(b) below) of duly authorized,
validly issued, fully paid, and non-assessable Common Stock of the
Company (the "Warrant Stock"), for a per share Warrant Price (as
defined below in Section 2). This Warrant is one of a series of
warrants (collectively, the "Warrants", as such term to include all
Warrants issued in substitution therefor) having substantially similar
terms and issued in connection with the sale of the Company's notes
(the "Notes") in a senior secured note financing transaction, which
issuance and sale were made pursuant to the Note Agreement dated
August 15, 1995 (the "Note Agreement").
b. Notwithstanding clause 1(a) above, if either
(x) the conditions set forth in Section 8.13(a) of the Note
Agreement have not been satisfied prior to January 1, 1996 or
<PAGE>
(y) the Company has not received additional investments in the
Company in the aggregate amount of at least $5,100,000 in cash prior
to January 1, 1996 in the form of (A) debt investments or equity
investments other than common equity or Preferred Equity (as
hereinafter defined) on terms and conditions satisfactory to the
Required Holders (as hereinafter defined), or (B) common or Preferred
Equity,
then the number of shares of Warrant Stock represented by this Warrant
shall automatically be increased to ____________ shares. For the avoidance
of doubt, the terms and conditions of any debt investment shall be deemed
to be unsatisfactory to the Required Holder(s) if (A) such debt investment
(i) has any scheduled principal payments due prior to the maturity of the
Notes, (ii) bears interest at a rate higher than that borne by the Notes or
(iii) allows the debt to be prepaid other than on a pro rata basis with the
holders of the Notes, or if (B) with respect to such debt investment, the
investors receive warrants to subscribe for Common Stock of the Company,
and such warrants either (i) are not in form and substance substantially
the same as this Warrant or (ii) provide that the amount of Common Stock
into which the warrants are exercisable is greater than 57,142.88 shares of
Common Stock for each $1,000,000 of debt investment, or if (C) the terms of
such debt investment described in clauses (A) and (B) above can be amended
without the consent of the Required Holders. "Required Holders" shall mean
the holders of Warrants exercisable into shares of Warrant Stock, which in
the aggregate amount to at least seventy percent (70%) of the aggregate
number of shares of Warrant Stock into which all the Warrants then
outstanding are exercisable. "Preferred Equity" shall mean securities which
have terms substantially of a kind similar to the terms of the Company's
outstanding Series A, Series B, and Series C Preferred Stock (such as
dividend and liquidation preferences, convertibility into Common Stock and
voting rights) and which do not have terms of a kind (such as mandatory
redemption or sinking fund provisions) functionally similar to terms found
in debt investments such as the Notes.
2. Warrant Price. Subject to the adjustments set forth in Section 9, this
-------------
Warrant shall be exercisable at a per share purchase price (the "Warrant
Price") of $7.00; provided, however, that if (A) no Liquidity Event (as
defined below) has occurred: (i) on or before June 30, 1998, the Warrant
Price shall be adjusted to $6.00 per share, (ii) on or before June 30,
1999, the Warrant Price shall be adjusted to $5.00 per share, and (iii) on
or before June 30, 2000, the Warrant Price shall be adjusted to $4.50 per
share, or (B) the conditions set forth in clause (x) and (y) of Section 1.b
hereof have not been satisfied, the Warrant Price shall be adjusted to
$4.50 per share; and provided further, that each of the per-share prices in
(A)(i), (ii), and (iii) or (B) of this Section 2 shall be adjusted, as
provided in Section 9, on the same basis as the then applicable Warrant
-2-
<PAGE>
Price. A "Liquidity Event" for purposes of this Section 2 shall mean the
closing of a firm commitment underwritten public offering of the Common
Stock of the Company pursuant to an effective registration statement under
the Act (provided that any such public offering results in gross proceeds
to the Company in excess of $10,000,000); the exchange of the Company's
Common Stock for securities of a corporation which corporation has a pre-
exchange market capitalization of at least $50,000,000 and whose shares are
listed for trading on a national securities exchange or automated quotation
system; or any other merger, acquisition or similar transaction in which
the holders of the Company's Common Stock receive cash in exchange for such
Common Stock, or receive a combination of cash and such listed securities.
3. Termination. This Warrant (and the right to purchase securities upon
-----------
exercise hereof) shall terminate upon the earlier of (i) five (5) years
from the date of this Warrant, or (ii) the closing of a firm commitment
underwritten public offering of the Common Stock of the Company pursuant to
an effective registration statement under the Act, which results in gross
proceeds to the Company in excess of $10,000,000; provided, that if the
holder of this Warrant has exercised its right to include the underlying
Warrant Stock in such public offering, and any such Warrant Stock is
excluded from such underwriting by reason of the underwriter's marketing
limitation, then the holder shall have a period of ten (10) Business Days
(as defined in the Note Agreement) to exercise its right pursuant to this
Warrant to purchase such Warrant Stock, or to effect an exchange described
in Section 8(c) below, at the then effective Warrant Price notwithstanding
the termination provision of this Warrant pursuant to either clause (i) or
(ii) above. The Company shall give the holder of this Warrant written
notice of such public offering at least twenty (20) and no more than ninety
(90) days prior to the closing of the effectiveness of such registration
statement and shall deliver a copy of the preliminary prospectus with
respect to any such public offering to the holder of this Warrant promptly
after it becomes available.
4. No Adjustments. Except as provided in Section 9, no adjustment on account
--------------
of dividends or interest on Warrant Stock will be made upon the exercise
hereof.
5. No Fractional Shares. No fractional shares of Warrant Stock will be issued
--------------------
in connection with any subscription hereunder. In lieu of any fractional
shares which would otherwise be issuable, the Company shall pay cash equal
to the product of such fraction multiplied by the Fair Market Value (as
defined in Section 8) of one (1) share of Warrant Stock on the date of
exercise (minus the Warrant Price if unpaid).
6. No Stockholder Rights. This Warrant shall not entitle its holder to any of
---------------------
the rights of a shareholder of the Company; or
-3-
<PAGE>
impose any liabilities on such holder to purchase any securities or as a
shareholder of the Company, whether such liabilities are asserted by the
Company or by creditors or shareholders of the Company or otherwise.
7. Reservation of Stock. The Company covenants that during the period this
--------------------
Warrant is exercisable, the Company will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the
issuance of Warrant Stock upon the exercise of this Warrant. The Company
agrees that its issuance of this Warrant shall constitute full authority to
its officers who are charged with the duty of executing stock certificates
to execute and issue the necessary certificates for shares of Warrant Stock
upon the exercise of this Warrant.
8. Exercise of Warrant.
-------------------
a. Procedure for Exercise. This Warrant may be exercised by the
----------------------
registered holder or its registered assigns, in whole or in part, by
the surrender of this Warrant at the principal office of the Company,
accompanied by payment in full of the Warrant Price in cash or by
check or by the cancellation of any present or future indebtedness
from the Company to the holder hereof, in accordance with Section
8(b). Upon partial exercise hereof, a new warrant or warrants
containing the same date and provisions as this Warrant shall be
issued by the Company to the registered holder for the number of
shares of Warrant Stock with respect to which this Warrant shall not
have been exercised. A Warrant shall be deemed to have been exercised
immediately prior to the close of business on the date of its
surrender for exercise as provided above, and the person entitled to
receive the shares of Warrant Stock issuable upon such exercise shall
be treated for all purposes as the holder of such shares of record as
of the close of business on such date. As promptly as practicable on
or after such date, and in any event within ten (10) business days
thereafter (unless such exercise shall be in connection with an
underwritten public offering, in which event three (3) business days
after such exercise), the Company at its expense (including the
payment by it of any applicable taxes payable by the Company) will
cause to be issued in the name of and delivered to the holder hereof
or, subject to Section 8, as such holder (upon payment by such holder
of any applicable transfer taxes) may direct, a certificate or
certificates for the number of full shares of Warrant Stock issuable
upon such exercise, together with cash in lieu of any fraction of a
share as provided above in Section 5.
b. Payment with Notes. Upon any exercise of this Warrant, the holder
------------------
hereof may, at its option, instruct the Company to apply to the
payment required by Section 8(a) all or any
-4-
<PAGE>
part of the principal amount then unpaid, the premium, if any, and the
interest on such principal amount then accrued on any one or more
Notes at the time held by such holder, in which case the Company will
accept the aggregate amount of principal and accrued interest on such
principal in satisfaction of a like amount of such payment. In case
less than the entire unpaid principal amount of any Note shall be so
specified, the principal amount so specified shall be credited, as of
the date of such exercise, on a pro rata basis against all future
installments of principal of such Note. In the event that the entire
unpaid principal amount of any Note is applied to the payment of the
Warrant Price, such Note shall be promptly surrendered and canceled
and shall be deemed no longer outstanding for all purposes of the Note
Agreement, except as provided in Section 6.4 thereof. Any interest on
the principal amount applied as payment upon such exercise shall be
paid through the date of payment as the next interest payment date
under the Note Agreement. No premium shall be payable on principal
amounts utilized to pay Warrant Price under this Section 8(b).
c. Net Exercise Rights. Notwithstanding the payment provisions set forth
-------------------
in this Section 8, the holder may elect to receive shares of Warrant
Stock equal to the value (as determined below) of this Warrant by
surrender of this Warrant at the principal office of the Company
together with notice of such election, in which event the Company
shall issue to the holder the number of shares of Common Stock
determined by use of the following formula:
X = Y(A-B)
------
A
Where: X = the number of shares of Common Stock to be issued to
the holder, pursuant to this Section 8(c).
Y = the number of shares of Warrant Stock subject to this
Warrant.
A = the Fair Market Value (as defined below) of one (1)
share of Warrant Stock.
B = Warrant Price per share of Warrant Stock.
For purposes of this Section 8, Fair Market Value of a share as of a
particular date shall mean:
i. If the Company's registration statement under the Act, covering
its initial underwritten public offering of stock has been
declared effective by the Securities and Exchange Commission,
then the fair market value of
-5-
<PAGE>
a share shall be the closing price (the last reported sales
price, if not so reported, the average of the last reported bid
and asked prices) of the Company's stock as of the last business
day immediately prior to the exercise of this Warrant.
ii. If such a registration statement has not been declared effective,
if it has been declared effective but the offering is not
consummated in accordance with the terms of the underwriting
agreement between the Company and its underwriters relating to
such registration statement, or if no such registration statement
has been filed or prepared, then as determined in good faith by
the Company's Board of Directors upon a review of relevant
factors. If the Required Holders disagree in writing with such
determination, then an investment banking firm mutually
acceptable to the Company and the Required Holders shall be
retained to appraise the Fair Market Value of the shares of
Warrant Stock in accordance with recognized appraisal standards
and the determination by such investment banking firm shall be
final and binding. If either (1) no such investment banking
appraisal has been performed within the prior six (6) months, or
(2) the appraised value of a share of Warrant Stock is more than
ten percent (10%) higher than the value determined by the Board
of Directors, then the cost of such appraisal shall be paid by
the Company; in all other circumstances, such cost shall be paid
pro rata by the holders of Warrant Stock requesting such an
appraisal.
d. In the event that the Company determines to effect a private sale of
its capital stock for cash or other consideration in an aggregate
amount equal to $1,000,000 or more, and either (x) the securities held
by other holder(s) of the Company's capital stock are included in such
sale or (y) the proceeds of any such sale are used to repurchase the
Company's outstanding securities, then the Company shall promptly give
the holder written notice thereof and include in such sale (and any
related qualification under blue sky laws or other compliance), and in
any placement involved therein, the Warrant Stock specified in a
written request by the holder received by the Company within fifteen
(15) days after the Company mails such written notice.
9. Adjustment of Warrant Price and Number of Shares. The number and kind of
------------------------------------------------
securities issuable upon the exercise of this Warrant shall be subject to
adjustment from time to time and the Company agrees to provide written
notice to each holder promptly upon the happening of certain events as
follows:
-6-
<PAGE>
a. Adjustment for Dividends in Stock. In case at any time or from time
---------------------------------
to time during the term of this Warrant the holders of the Common
Stock of the Company (or any shares of stock or other securities at
the time receivable upon the exercise of this Warrant) shall have
received, or, on or after the record date fixed for the determination
of eligible shareholders, shall have become entitled to receive,
without payment therefor, other or additional securities or other
property of the Company by way of dividend or distribution, then and
in each case, the holder of this Warrant shall, upon the exercise
hereof, be entitled to receive, in addition to the number of shares of
Common Stock receivable thereupon, and without payment of any
additional consideration therefor, the amount of such other or
additional securities or other property of the Company which such
holder would hold on the date of such exercise had it been the holder
of record of such Common Stock on the date hereof and had thereafter,
during the period from the date hereof to and including the date of
such exercise, retained such shares and/or all other additional
securities or other property receivable by it as aforesaid during such
period, giving effect to all adjustments called for during such period
by this Section 9.
b. Adjustment for Reclassification or Reorganization. In case of any
-------------------------------------------------
reclassification or change of the outstanding Common Stock of the
Company or of any reorganization of the Company during the term of
this Warrant (other than a merger of the Company with and into another
corporation), then and in each such case the Company shall give the
holder of this Warrant at least twenty (20) days notice of the
proposed effective date of such transaction, and the holder of this
Warrant, upon the exercise hereof at any time after the consummation
of such reclassification, change or reorganization, shall be entitled
to receive, in lieu of the stock or other securities and property
receivable upon the exercise hereof prior to such consummation, the
stock or other securities or property to which such holder would have
been entitled upon such consummation if such holder had exercised this
Warrant immediately prior thereto, all subject to further adjustment
as provided in this Section 9. The terms of this Section 9 shall
similarly apply to successive reclassifications, changes or
reorganizations.
c. Stock Splits and Reverse Stock Splits. If at any time during the term
-------------------------------------
of this Warrant the Company shall subdivide its outstanding shares of
Common Stock into a greater number of shares, the Warrant Price in
effect immediately prior to such subdivision shall thereby be
proportionately reduced and the number of shares receivable upon
exercise of the Warrant shall thereby be proportionately increased;
-7-
<PAGE>
and, conversely, if at any time on or after the date hereof the
outstanding number of shares of Common Stock shall be combined into a
smaller number of shares, the Warrant Price in effect immediately
prior to such combination shall thereby be proportionately increased
and the number of shares receivable upon exercise of this Warrant
shall thereby be proportionately decreased.
d. Adjustments with Respect to Certain Diluting Issuances. The Warrant
------------------------------------------------------
Price shall be subject to adjustment from time to time as follows:
i. Warrant Price Adjustment.
(1) If the Company shall issue any Additional Stock (as defined
hereafter) without consideration or for a consideration per
share less than the Warrant Price in effect immediately
prior to the issuance of such Additional Stock, then such
Warrant Price in effect immediately prior to each such
issuance shall (except as otherwise provided in this Section
9(d)) be adjusted by dividing (X) an amount equal to the sum
of (a) the product derived by multiplying the Warrant Price
in effect immediately prior to such issue by the number of
shares of Common Stock (including shares of Common Stock
issued or issuable upon conversion of the outstanding
Preferred Stock, upon exercise of outstanding stock options
and warrants or otherwise under Section 9(d)(i)(5))
outstanding immediately prior to such issue, plus (b) the
consideration, if any, received by or deemed to have been
received by the Company upon such issuance, by (Y) an amount
equal to the sum of (c) the number of shares of Common Stock
(including shares of Common Stock issued or issuable upon
conversion of the outstanding Preferred Stock, upon exercise
of outstanding stock options and warrants or otherwise under
Section 9(d)(i)(5)) outstanding immediately prior to such
issuance, plus (d) the number of shares of Common Stock
issued or deemed to have been issued in such issuance; or
(2) No adjustment of the Warrant Price shall be made in an
amount less than one cent per share, provided that any
adjustment that is not required to be made by reason of this
sentence shall be carried forward and taken into account in
any subsequent adjustment. Except to the limited extent
provided for in Sections 9(d)(i)(5)(c) and 9(d)(i)(5)(d), no
readjustment of the Warrant Price shall have the effect of
increasing the
-8-
<PAGE>
Warrant Price above the Warrant Price in effect immediately
prior to such adjustment.
(3) In the case of the issuance of Additional Stock for cash,
the consideration shall be deemed to be the amount of cash
paid therefor before deducting any reasonable discounts,
commissions or other expenses allowed, paid or incurred by
the Company for any underwriting or otherwise in connection
with the issuance and sale thereof.
(4) In the case of the issuance of Additional Stock for a
consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair
value thereof as determined in good faith by the Board of
Directors. If the Required Holders disagree in writing with
such determination, then (A) if such consideration other
than cash is not securities, an appraisal firm experienced
in valuing property of such type which is mutually
acceptable to the Company and the Required Holders shall be
retained to appraise the fair market value of such
consideration in accordance with recognized appraisal
standards, and the determination by such appraisal firm
shall be final and binding, and (B) if such consideration
other than cash consists of securities, then an investment
banking firm mutually acceptable to the Company and the
Required Holders shall be retained to appraise the fair
market value of the securities in accordance with recognized
appraisal standards, and the determination by such
investment banking firm shall be final and binding. If
either (1) no such appraisal has been performed within the
prior six (6) months with respect to the same property or
securities, or (2) the appraised value of the consideration
is more than ten percent (10%) higher than the value
determined by the Board of Directors, then the cost of such
appraisal shall be paid by the Company; in all other
circumstances, such cost shall be paid pro rata by the
holders of Warrant Stock requesting such an appraisal
(5) In the case of the issuance of options to pur chase or
rights to subscribe for Common Stock, securities by their
terms convertible into or exchangeable for Common Stock or
options to purchase or rights to subscribe for such
convertible or exchangeable securities (where the shares of
Common Stock issuable upon exercise of such options or
rights or upon conversion or exchange of such securities are
not excluded from the definition of Additional Stock), the
following provisions shall apply:
-9-
<PAGE>
(a) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options to purchase or
rights to subscribe for Common Stock shall be deemed to have
been issued at the time such options or rights were issued
and for a consideration equal to the consideration
(determined in the manner provided in Sections 9(d)(i)(3)
and 9(d)(i)(4)), if any, received by the Company upon the
issuance of such options or rights plus the minimum purchase
price provided in such options or rights for the Common
Stock covered thereby;
(b) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such
convertible or exchangeable securities or upon the exercise
of options to purchase or rights to subscribe for such
convertible or exchangeable securities and subsequent con
version or exchange thereof shall be deemed to have been
issued at the time such securi ties were issued or such
options or rights were issued and for a consideration equal
to the consideration, if any, received by the Company for
any such securities and related options or rights (excluding
any cash received on account of accrued interest or accrued
dividends), plus the additional consideration, if any, to be
received by the Company upon the conversion or exchange of
such securities or the exercise of any related options or
rights (the consideration in each case to be determined in
the manner provided in Sections 9(d)(i)(3) and 9(d)(i)(4));
(c) in the event of any change in the number of shares of Common
Stock deliverable upon exercise of such options or rights or
upon conversion of or in exchange for such convertible or
exchangeable securities, including, but not limited to, a
change resulting from the anti-dilution provisions thereof,
the Warrant Price in effect at the time shall forthwith be
readjusted to such Warrant Price as would have applied had
the adjustment that was made upon the issuance of such
options, rights or securities not converted prior to such
change or the options or rights related to such securities
not converted prior to such change been made
-10-
<PAGE>
upon the basis of such change, but no further adjustment
shall be made for the actual issuance of Common Stock upon
the exercise of any such options or rights or the conversion
or exchange of such securities; and
(d) upon the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the
expiration of any options or rights related to such
convertible or exchangeable securities (or upon purchase by
the Company and cancellation or retirement of any such
options or rights not exercised or of any such convertible
securities, the rights of conversion or exchange under which
shall not have been exercised), the Warrant Price shall
forthwith be readjusted to such Warrant Price as would have
applied had the adjustment which was made upon the issuance
of such options, rights or securities or options or rights
related to such securities been made upon the basis of the
issuance of only the number of shares of Common Stock
actually issued upon the exercise of such options or rights,
upon the conversion or exchange of such securities or upon
the exercise of the options or rights related to such
securities.
ii. "Effective Date" means the date of the first sale by the
Company of the Notes.
iii. "Additional Stock" shall mean any shares of Common Stock issued
(or deemed to have been issued pursuant to Section 9(d)(i)(5))
by the Company after the Effective Date other than:
(1) Common Stock issued in a transaction deemed to be a
"liquidation" within the meaning of the Company's Articles
of Incorporation in effect as of the Effective Date.
(2) Common Stock issued or issuable to employees, officers, or
directors of, or consultants to the Company approved by the
Board.
(3) Common Stock issued pursuant to the acquisition of another
corporation by merger, purchase of all or substantially all
of the assets, or other reorganization.
-11-
<PAGE>
(4) Common Stock issued or issuable upon conversion of the
shares of Series A, Series B and Series C Preferred Stock.
(5) Common Stock issued or issuable pursuant to the exercise of
warrants granted in connection with any lease, loan, or
other financing transaction, approved by the Board.
10. Certificate of Adjustment. Whenever the Warrant Price or the number or
-------------------------
type of securities issuable upon exercise of this Warrant is adjusted or
readjusted, as herein provided, the Company at its expense shall promptly
deliver to the record holder of this Warrant a certificate of an officer of
the Company setting forth such adjustment or readjustment and showing in
reasonable detail the facts upon which such adjustment or readjustment is
based, including without limitation a statement of (a) the consideration
received or to be received by the Company for any Additional Stock issued
or sold or deemed to have been issued, (b) the number of shares of Common
Stock outstanding or deemed to be outstanding, and (c) the Warrant Price in
effect immediately prior to such issue or sale and as adjusted and
readjusted (if required by Section 9) on account thereof.
11. No Dilution or Impairment. The Company covenants that it shall not, by
-------------------------
amendment of its Articles of Incorporation or through any reorganization,
consolidation, merger, transfer of assets, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but shall at
all times in good faith assist in carrying out all those terms and in
taking all actions necessary or appropriate to protect the rights of the
holder of this Warrant against dilution or other impairment. Without
limiting the generality of the above provision, the Company (a) will not
take any action which results in any adjustment of the Warrant Price then
in effect if the total number of shares of Common Stock (or other
securities) issuable after the action upon the exercise of all of the
Warrants would exceed the total number of shares of Common Stock (or other
securities) then authorized by the Company's Articles of Incorporation and
available for the purpose of issue upon such exercise, and (b) will take
all necessary or appropriate action in order that the Company may validly
and legally issue fully paid and nonassessable shares upon the exercise of
this Warrant.
12. Transfer of Warrant. The rights and obligations of the Company and the
-------------------
holders of this Warrant shall be binding upon and benefit the successors,
assignors, heirs, administrators and transferees of the parties. Any
transferee hereof agrees to be
-12-
<PAGE>
bound by the restrictions set forth herein and in the Note Agreement.
13. Compliance with Securities Laws. This Warrant or the Warrant Stock may not
-------------------------------
be transferred or assigned, in whole or in part, by the holder hereof
(except to any affiliate hereof) without compliance with applicable federal
and state securities laws. The holder represents and agrees that this
Warrant is being acquired only for investment, for holder's own account,
and not with a view to or for sale in connection with any distribution
thereof within the meaning of the Act, and the holder acknowledges and
agrees that, at any time that it exercises its Warrant, it will represent,
among other things, to the Company that the Warrant Stock that it acquires
through exercise of the Warrant is being acquired by it for its own account
and not with a view to or for sale in connection with any distribution
thereof within the meaning of the Act; provided, that in any case, the
disposition of its property shall at all times be and remain within its
control. The holder of this Warrant acknowledges and agrees that this
Warrant and the Shares have not been registered under the Securities Act
and accordingly will not be transferable except as permitted under the
various exemptions contained in the Securities Act, or upon satisfaction of
the registration and prospectus delivery requirements of the Securities
Act. Therefore, the Warrant and the Warrant Stock must be held indefinitely
unless they are subsequently regis tered under the Securities Act or an
exemption from such regis tration is available. The holder understands that
the certi ficate evidencing the Warrant Stock will be imprinted with a
legend which prohibits the transfer of the Warrant Stock unless they are
registered or unless the Company receives an opinion of counsel (which may
be an opinion of in-house counsel) reasonably satisfactory to the Company
that such registration is not required. The holder is aware of the adoption
of Rule 144 by the Securities and Exchange Commission and that Company is
not now and, at the time it wishes to sell the Warrant Stock, may not be
satisfying the current public information requirements of Rule 144 and, in
such case, holder would be precluded from selling the securities under Rule
144. The holder understands that a stop-transfer instruction will be in
effect with respect to transfer of the Warrant and the Warrant Stock
consistent with the requirements of the securities laws.
14. Waiver and Amendment. Any provision of this Warrant may be amended or
--------------------
waived upon the written consent of the Company and the Required Holders,
and any such amendment or waiver shall be binding upon the remaining
holders of Warrants, except that, without the written consent of the holder
of each Warrant, no amendment or waiver to this Warrant that increases the
Warrant Price, changes the Termination Date, changes the number of shares
purchasable hereunder, changes the method set forth in Sections 8 and 9 for
calculating adjustments thereto, amends this Section 14, or reduces the
percentage required for
-13-
<PAGE>
modification, may be made.. All holders of Warrants, by acceptance hereof,
specifically consent to the binding effect of a written consent authorized
by this Section 14. No failure or delay by any party in exercising any
right or remedy hereunder shall operate as a waiver thereof, and a waiver
of a particular right or remedy on one occasion shall not be deemed a
waiver of any other right or remedy or a waiver of the same right or remedy
on any subsequent occasion.
15. Miscellaneous. This Warrant shall be governed by the laws of the State of
-------------
New York. The headings in this Warrant are for purposes of convenience and
reference only, and shall not be deemed to constitute a part hereof.
Neither this Warrant nor any term hereof may be changed, waived, discharged
or terminated orally but only by an instrument in writing signed by the
Company and, except as provided in Section 14 hereof, the registered holder
hereof. All notices and other communications from the Company to the holder
of this Warrant shall be sent either by facsimile copy to such number and
to the attention of such person as the last holder of this Warrant shall
have furnished to the Company, or shall be mailed by first-class registered
or certified mail, postage prepaid , or sent by courier, to the address
furnished to the Company in writing by the last holder of this Warrant who
shall have furnished an address to the Company in writing.
-14-
<PAGE>
[Signature Page to Warrant]
ISSUED this 15th day of August, 1995.
MAGINET CORPORATION
By:_______________________________________
James A. Barth, Chief Financial Officer
-15-
<PAGE>
EXHIBIT D-1
-----------
FORM OF OPINION OF COUNSEL TO THE COMPANY
re: $30,000,000 Senior Secured Notes of
Pacific Pay Video Holdings (the "Company")
------------------------------------------
The opinion shall be addressed to each of the Purchasers, dated the
date of closing, and may contain such customary assumptions and indicate such
investigations as are deemed necessary and appropriate by special US counsel to
the Company and are acceptable to the Purchasers. The opinion shall state that
it may be relied upon by any transferee of Securities and by White & Case,
special counsel to Purchasers, in delivering their opinion.
The opinion shall express a favorable opinion as to:
1. The due organization, valid existence and good standing of the
Company;
2. The fact that the Company has the corporate power and authority (i)
to enter into and perform its obligations under each of the Note Documents to
which it is a party and (ii) to own its properties and carry on its business;
3. The due authorization by all requisite corporate action, execution
and delivery of each of the Note Documents to which it is a party by the
Company, and that each such Note Document constitutes a valid and binding
agreement of the Company enforceable in accordance with its terms;
4. The issuance, sale and delivery of the Securities and the
execution, delivery and performance by the Company of the Note Agreement, each
Pledge Agreement and the Shareholders Agreement do not conflict with, nor result
in any breach of, nor constitute a default under, nor result in the creation of
any Lien upon any of the properties or assets of the Company pursuant to (a) the
charter documents of the Company, (b) any statute, law, rule or regulation of
the United States or the State of California, (c) any judgement, decree, writ,
injunction, order or award of any arbitrator, court or governmental authority
applicable to the Company or (d) any material agreement or other instrument to
which the Company is a party or by which the Company may be bound;
5. The determination that no approval, consent or withholding of
objection on the part of, or filing, registration or qualification with, any
governmental body or regulatory authority or agency is necessary in the United
States in connection with the issuance, sale and
<PAGE>
delivery of the Securities or the execution and delivery by the Company of the
Note Agreement, each Pledge Agreement and the Shareholders Agreement;
6. The fact that the Company has the corporate power to submit to the
jurisdiction of any court of the State of New York sitting in New York City and
the federal courts of the United States sitting in New York City in respect of
any legal action or proceeding relating to the Note Agreement or the Notes;
7. The enforceability in the State of California of a judgment
rendered in any court of the State of New York sitting in New York City or in
the federal courts of the United States sitting in New York City against the
Company on the Note Agreement, any Pledge Agreement or the Securities without a
substantive relitigation of the relevant issues;
8. The determination that a court in sitting in California will
accept, and give effect to, the choice of New York law as the governing law of
the Note Agreement and the Notes;
9. The absence of any material litigation pending or, to the knowledge
of such counsel, threatened against the Company;
10. It is not necessary in connection with the offering, issuance, sale
and delivery of the Securities under the circumstances contemplated by the Note
Agreements to register the Notes or the Warrants under the Securities Act of
1933, as amended, or to qualify an indenture in respect of the Notes under the
Trust Indenture Act of 1939, as amended; and
11. The extension of the credit represented by the Notes does not
violate Regulation G of the Board of Governors of the Federal Reserve System;
12. The Company is not an "investment company" within the meaning of
the Investment Company Act of 1940.
<PAGE>
EXHIBIT D-2
-----------
(Form of opinion of counsel to the Agent)
<PAGE>
[LETTERHEAD OF WHITE & CASE APPEARS HERE]
JMD:MAC:ES August 15, 1995
re MagiNet Senior Secured Notes Due 2000 with Warrants
---------------------------------------------------
To the Parties Listed on
the Attached Schedule I
Dear Ladies and Gentlemen:
We have acted as counsel for The Chase Manhattan Bank, N.A. (the
"Collateral Agent") in connection with each of the Pledge Agreements dated as of
August 15, 1995 by and between the Collateral Agent and MagiNet corporation, as
Pledgor, the Collateral Assignment Agreement, dated as of August 15, 1995 by and
between Pacific Pay Video Limited and The Chase Manhattan Bank, N.A. as
assignee, (the "Assignee"), and the Appointment Agreement dated an of August 15,
1995 by and among MagiNet Corporation, the Purchasers listed therein, and The
Chase Manhattan Bank, N.A. as Collateral Agent (the "Agent"). The Chase
Manhattan Bank, N.A., whether acting as Agent, Collateral Agent or Assignee
shall be referred to herein as the "Agent." The documents referenced immediately
above shall be referred to herein as the "Agent Documents."
In this connection, we have examined such certificates of public
officials, such certificates of officers of the Agent, and copies certified to
our satisfaction of such corporate documents and records of the
<PAGE>
To the Parties Listed on
the Attached Schedule I -2
Agent, and of such other papers, as we have deemed relevant and necessary for
our opinion hereinafter set forth. We have relied upon such certificates of
public officials and of officers of the Agent with respect to the accuracy of
material factual matters contained therein which were not independently
established. In rendering the opinion expressed below, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals and the conformity to authentic original documents of all documents
submitted to us as certified, conformed or photostatic copies.
Based upon the foregoing, it is our opinion that:
l. The Agent has been duly incorporated and is validly existing as a
national banking association under the laws of the United States of America and
has the power and authority to enter into, and to take all action required of it
under, the Agent Documents.
2. The Agent Documents been duly authorized, executed and delivered
by the Agent and constitute valid and binding obligations of the Agent
enforceable against the Agent in accordance with their terms, except as the
enforceability thereof may be limited by (i) bankruptcy, insolvency,
reorganization, or other similar laws affecting the enforcement of creditors'
rights generally, as such laws would apply in the event of a bankruptcy,
insolvency or reorganization or similar occurrence affecting the Agent, and (ii)
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
3. The execution and delivery of the Agent Documents by the Agent
and the performance by the Agent of their terms do not conflict with or result
in a violation of (A) any law or regulation of the United States of America or
the State of New York governing the banking or trust powers of the Agent or (B)
the By-laws of the Agent.
4. No approval authorization or other action by, or filing with, any
governmental authority of the United States of America or the State of New York
having jurisdiction over the banking or trust powers of the Agent is required in
connection with the execution and delivery
<PAGE>
To the Parties Listed on
the Attached Schedule 1 -3
of the Agent Documents or the performance by the Agent of the terms of the Agent
Documents.
We express no opinion as to matters governed by any law other than the
law of the State of New York and the Federal law of the United States.
Very truly yours,
/s/ White & Case
<PAGE>
EXHIBIT D-3
-----------
FORM OF OPINION OF COUNSEL TO EACH SUBSIDIARY
re: US$30,000,000 Senior Secured Notes of
Pacific Pay Video Holdings (the "Company")
------------------------------------------
Each opinion with respect to a Subsidiary whose shares are pledged
pursuant to a Pledge Agreement shall be addressed to the Purchasers, dated the
date of closing, and may contain such customary assumptions and indicate such
investigations as are deemed necessary and appropriate by the counsel to such
Subsidiary and are acceptable to such Purchasers. The opinion shall state that
it may be relied upon and by White & Case, special counsel to the Purchasers, in
delivering their opinion, and by any transferee of a Note.
The opinion shall express a favorable opinion as to:
1. The due organization and valid existence of such Subsidiary.
2. The taking of all requisite action by such Subsidiary to perfect
the interest of the Trustee in the shares of such Subsidiary pledged under the
Pledge Agreement.
3. The fact that such Subsidiary (i) has the corporate power and
authority to own its properties and carry on its business and (ii) is duly
qualified to do business and is, if applicable, in good standing, in each
jurisdiction in which the character of the properties owned or held under lease
by it or the nature of the business transacted by it requires such
qualification.
4. The absence of any requirement to register the Pledge Agreement
under the laws of the relevant jurisdictions.
5. The determination that no approval consent or withholding of
objection on the part of, or filing, registration or qualification with, any
governmental body is necessary in the jurisdiction of such Subsidiary in
connection with the execution and delivery of the Pledge Agreement.
6. The determination that no stamp or stamp duty reserve tax will be
payable in the jurisdiction of such Subsidiary in respect of the execution and
delivery of the Pledge Agreement.
<PAGE>
7. The enforceability in the jurisdiction in which such Subsidiary is
established of a New York judgment rendered in any court of the State of New
York sitting in New York City or in the federal courts sitting in New York City
against the Collateral in the Pledge Agreement without a substantive
relitigation of the relevant issues.
8. In the case of a Pledge Agreement governed by New York law, the
determination that a court in the jurisdiction in which such Subsidiary is
established will accept, and give effect to, the choice of New York law as the
governing law of the Pledge Agreement.
9. The absence of withholding or similar taxes imposed by the
jurisdiction in which such Subsidiary is established or any taxing jurisdiction
thereof on payments under the Pledge Agreement.
10. With respect to such Subsidiary, the execution and delivery of the
Pledge Agreement and fulfillment of and compliance with the respective
provisions of the Pledge Agreement do not conflict with, or result in a breach
of the terms, conditions or provisions of, or constitute a default under, or
result in any violation of, or result in the creation of any Lien upon any of
the properties or assets of such Subsidiary pursuant to, the charter or by-laws
of such Subsidiary, any applicable law (including any securities laws), statute,
rule or regulation or (insofar as is known to us after having made due inquiry
with respect thereto) any agreement (including, without limitation, any
agreement listed in Exhibit C to the Note Agreement), instrument, order,
judgment or decree to which such Subsidiary is a party or otherwise subject.
2
<PAGE>
EXHIBIT E
TO NOTE AGREEMENT
COLLATERAL ASSIGNMENT AGREEMENT
-------------------------------
THIS COLLATERAL ASSIGNMENT AGREEMENT (this "Agreement") dated as of
August 15, 1995, between PACIFIC PAY VIDEO LIMITED, a corporation organized
under the laws of the State of California, as assignor (the "Assignor"), and THE
--------
CHASE MANHATTAN BANK, N.A., as collateral agent (the "Assignee") for the benefit
--------
of the Noteholders. Unless otherwise defined herein, capitalized terms used
herein shall have the meanings provided in the Note Agreement, as defined below.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, MagiNet Corporation (the "Company") has entered into the Note
Agreement dated as of August 15, 1995 with certain U.S. financial institutions,
providing for the issuance and sale of up to $30,000,000 aggregate principal
amount of its 10.5% Senior Secured Notes and the issuance of warrants (the "Note
Agreement");
WHEREAS, the Company, the Assignee and the Purchasers have entered
into the Appointment Agreement dated as of August 15, 1995 (the "Appointment
Agreement") providing for the appointment of The Chase Manhattan Bank, N.A. to
act as collateral agent for the benefit of the Noteholders under the Security
Documents (including this Agreement);
WHEREAS, it is a condition precedent under the Note Agreement to each
Purchaser's obligation to purchase and pay for the Notes and to accept the
Warrants to be issued under the Note Agreement that the Assignor shall have
executed and delivered to the Assignee this Agreement;
WHEREAS, the Assignor desires to execute this Agreement to satisfy the
conditions described in the preceding paragraphs and to induce the Purchasers to
enter into the Note Agreement and to purchase and pay for the Notes and the
Warrants (and to induce any future Noteholders so to do);
NOW, THEREFORE, in consideration of the benefits accruing to the
Assignor and the Company, the receipt and sufficiency of which are hereby
acknowledged, the Assignor hereby makes the following representations and
warranties to the Assignee and hereby covenants and agrees with the Assignee as
follows:
1. Grant of Security Interest. Assignor hereby grants to Assignee a
--------------------------
security interest in the contract and related items described in Paragraph 2
below (the "Collateral") for the benefit of the Assignee as collateral trustee
for the Noteholders to secure (i) the payment due of the principal of and
interest in respect of the Notes and payment of all other obligations and
liabilities
<PAGE>
(including without limitation indemnities, premium, if any, fees and interest
thereon) of the Company, now existing or hereafter incurred under, arising out
of or in connection with the Note Agreement, each Note or any other Note
Document (other than the Warrants) and (ii) the due performance and compliance
with the terms of the Note Documents (other than the Warrant) by the Company
(all such principal, interest, obligations and liabilities, collectively, the
"Secured Obligations"). In no event solely as a consequence of the grant of
-------------------
this security interest shall the Assignee be liable for any obligations and/or
amounts owing to On Command Video Corporation pursuant to the terms of the
Technology License Agreement; provided that nothing in this sentence shall
diminish the obligation of a transferee of the rights under the Technology
License Agreement pursuant to Section 6 of this Agreement to pay royalties
thereunder.
2. Collateral. The Collateral shall consist of all right and interest of
----------
Assignor in and to (A) all of Assignor's right and interest in the Technology
License Agreement as now or hereafter amended, modified or supplemented, in
accordance with the terms hereof and the Note Agreement and (B) all proceeds of
the foregoing collateral, including whatever is receivable or received when the
foregoing collateral is sold, collected, assigned, exchanged or otherwise
disposed of, whether such disposition is voluntary or involuntary.
3. Representations and Warranties. Assignor hereby represents and warrants
------------------------------
that: (i) except as disclosed in Annex A, Assignor has a valid interest in the
Collateral and that no other person has any right, title, claim or interest (by
way of security interest or other lien or charge or otherwise) in, against or to
the Collateral, (ii) it has full power, authority and legal right to assign its
right and interest in the Collateral pursuant to this Agreement; and (iii) other
than registrations or filings described in Annex B hereto (all of which have
been made prior to the date hereof or will be made within the relevant statutory
period) no consent, filing, recording or registration is required to perfect the
Lien purported to be created by this Agreement.
4. Covenants of the Assignor. The Assignor covenants and agrees that (i)
-------------------------
it will defend the Assignee's right, title and Lien in and to the Collateral
against the claims and demands of all Persons, (ii) it will procure, execute and
deliver from time to time any endorsements, assignments, financing statements
and other writings deemed reasonably necessary or appropriate to perfect,
maintain and protect the Assignee's security interest hereunder and the priority
thereof (iii) except as otherwise permitted by Sections 8.1 and 8.8 of the Note
Agreement, it will not sell, encumber, or otherwise dispose of or transfer the
Collateral or right or interest therein except as hereinafter provided, and to
keep the Collateral free of all levies and security interests or other liens or
charges except those approved in writing by the Required Holders and Permitted
Liens, (iv) except as otherwise permitted by Section 8.11 of the Note Agreement,
it will not amend, modify or supplement the Technology License Agreement and (v)
it will duly fulfill all obligations on its part to be fulfilled under or in
connection with the Technology License Agreement and will do nothing to impair
the rights of the Assignor in respect of the Collateral.
5. Authorized Action by Assignee. Effective upon and during the
-----------------------------
continuance of an Event of Default, Assignor hereby irrevocably appoints
Assignee as its attorney-in-fact to do (but Assignee shall not be obligated to
and shall incur no liability to Assignor or any third party for failure so to
do) any act which Assignor is obligated by this Agreement to do, and to cure a
failure by Assignor to perform its obligations under the Technology License
Agreement and, after an Event of Default and upon acceleration of the Notes in
accordance with the terms of the Note
<PAGE>
Agreement, to exercise such rights and powers as Assignor might exercise with
respect to the Collateral, including, without limitation, to the extent
permitted by law and the terms of the Technology License Agreement, the right to
(i) collect by legal proceedings or otherwise and endorse, receive and receipt
for proceeds and other sums and property now or hereafter payable on or on
account of the Collateral, (ii) enter into any extension or other agreement
pertaining to, or deposit, surrender, accept, hold or apply other property in
exchange for the Collateral, (iii) transfer the Collateral to its own or its
nominee's name, and (iv) make any compromise or settlement, and take any action
it deems advisable, with respect to the Collateral. Assignor agrees to reimburse
Assignee upon demand for any costs and expenses, including, without limitation,
attorneys' fees, Assignee may incur while acting as Assignor's attorney-in-fact
hereunder, all of which costs and expenses are included in the Secured
Obligations secured hereby. Assignee shall not be required to make any
presentment, demand or protest, or give any notice and need not take any action
to preserve any rights against any prior party or any other person in connection
with the Secured Obligations or with respect to the Collateral.
6. Default and Remedies. Assignor shall be deemed in default under this
--------------------
Agreement upon the occurrence of an Event of Default. Upon the occurrence and
continuance of an Event of Default, Assignee may, at its option, and without
notice to or demand on Assignor and in addition to all rights and remedies
available to Assignee under any guaranty, this Agreement or any agreement with
Assignor, or by law, do any one or more of the following: (i) enforce Assignee's
security interest in any manner permitted by law, or provided for in this
Agreement, (ii) sell, transfer, assign or otherwise dispose of any Collateral,
for cash or credit or future delivery, on such terms and in such manner as
Assignee may determine; and (iii) recover from Assignor all costs and expenses,
including, without limitation, reasonable attorneys' fees, incurred or paid by
Assignee in exercising any right, power or remedy provided by any guaranty, this
Agreement, any agreement with Assignor, or by law.
7. Termination; Release. Upon:
--------------------
(a) the receipt by the Assignee of a certificate, satisfactory to the
Assignee executed by each Noteholder certifying that the conditions set forth
in Section 5.3 of the Note Agreement to the release of the Collateral have been
satisfied; or
(b) the date on which the Secured Obligations have been discharged in
full;
this Agreement shall terminate, and the Assignee, at the written request and
expense of the Assignor, will promptly execute and deliver to the Assignor a
proper instrument or instruments acknowledging the satisfaction and termination
of this Agreement, and will duly assign, transfer and deliver to the Assignor,
without recourse and without any representation or warranty, such of the
Collateral as may be in the possession of the Assignee and has not theretofore
been sold or otherwise applied or released pursuant to this Agreement, together
with any moneys at the time held by the Assignee hereunder.
8. Cumulative Rights. The rights, powers and remedies of Assignee under
-----------------
this Agreement shall be in addition to all rights, powers and remedies given to
Assignee by virtue of any statute or rules of law, or any agreement, all of
which rights, powers and remedies shall be
<PAGE>
cumulative and may be exercised successively or concurrently without impairing
Assignee's security interest in the Collateral.
9. Amendment; Waiver. Any forbearance or failure or delay by Assignee in
-----------------
exercising any right, power or remedy shall not preclude the further exercise
thereof, and every right, power or remedy of Assignee shall continue in full
force and effect until such right, power or remedy is specifically waived in a
writing executed by Assignee. Assignor waives any right to require Assignee to
proceed against any person or to pursue any remedy in Assignee's power. This
Agreement may be changed, waived, discharged or terminated only by an instrument
in writing in accordance with Section 11.3 of the Note Agreement.
10. Binding Upon Successors. All rights of Assignee under this Agreement
-----------------------
shall inure to the benefit of its successors and (subject to the prior written
consent of On Command Video Corporation) assigns, and the Secured Obligations of
Assignor shall bind its heirs, executors, administrators, successors and
assigns; provided, however, that the Assignor may not, without the prior written
-------- -------
consent of the Assignee (acting on the instructions of all the Noteholders),
assign or transfer any of its rights or obligations under this Agreement. The
Assignee may transfer, assign or grant its rights hereunder in connection with
an assignment or transfer of all or any part of its interest in and rights under
this Agreement pursuant to the provisions of Section 11 of the Appointment
Agreement.
11. Severability. If any of the provisions of this Agreement shall be held
------------
invalid or unenforceable, this Agreement shall be construed as if not containing
those provisions and the rights and obligations of the parties hereto shall be
construed and enforced accordingly. If any agreement or obligation contained in
this Agreement shall be held to be in violation of law, then such agreement or
obligation shall be deemed to be the agreement or obligation of the party hereto
to the full extent permitted by law.
12. Choice of Law. This Agreement is a contract made under the laws of the
-------------
State of New York of the United States and shall for all purposes be construed
and enforced in accordance with, and the rights of parties shall be governed by,
the laws of such State and except as otherwise defined herein, terms used herein
shall have the meanings given them in the New York Uniform Commercial Code.
13. Notice. Any written notice, consent or other communication provided for
------
in this Agreement shall be delivered or sent in accordance with Section 11.10 of
the Note Agreement, provided that, for this purpose, the address of the Assignor
and the Assignee shall be as follows:
If to the Assignor:
405 Tasman Drive
Sunnyvale, California 94089
Attention: Chief Financial Officer
Facsimile: 408 734 1687
<PAGE>
With a copy to:
On Command Video Corporation
3301 Olcott
Santa Clara, California 95054
Facsimile: 408 496 0668
If to the Assignee:
The Chase Manhattan Bank, N.A.
Corporate Trust Administration
4 Chase Metro Tech Center
Third Floor
Brooklyn, New York 11245
Facsimile: 718 292 5885
or sent to the Assignee at such other address as it may designate for itself by
notice given in accordance with this Section 13.
14. Consent to Jurisdiction; Service of Process. For the purposes of
-------------------------------------------
assuring that the Assignee and the Noteholders may enforce their respective
rights under this Agreement, the Assignor for itself and its successors and
assigns, hereby irrevocably (i) agrees that any legal or equitable action, suit
or proceeding against the Assignor arising out of or relating to this Agreement
or the Note Documents or any transaction contemplated hereby or the subject
matter of any of the foregoing may be instituted in any state or Federal court
in the Borough of Manhattan in the State of New York, (ii) waives any objection
which it may now or hereafter have to the venue of any action, suit or
proceeding in the State of New York or any claim of forum non conveniens in the
--------------------
State of New York, and (iii) irrevocably submits itself to the non-exclusive
jurisdiction of any state or Federal court of competent jurisdiction in the
Borough of Manhattan in the State of New York for purposes of any such action,
suit or proceeding. Without limiting the foregoing, the Assignor hereby
appoints, in the case of any such action or proceeding brought in the courts of
or in the State of New York, CT Corporation System, with offices on the date
hereof at 1633 Broadway, New York, New York 10019, to receive, for it and on its
behalf, service of process in the State of New York with respect thereto,
provided the Assignor may appoint any other person, reasonably acceptable to the
Assignee (acting on the instructions of the Required Holder(s)), with offices in
the State of New York to replace such agent for service of process upon delivery
to the Noteholders of a reasonably acceptable agreement of such new agent
agreeing so to act. The Assignor agrees that service of process by means of
notice (as provided in Section 11.10 of the Note Agreement) of any such action,
suit or proceeding with respect to any matter as to which it has submitted to
jurisdiction as set forth in this Section 14 shall be taken and held to be valid
personal service upon it.
<PAGE>
15. Counterparts. This Agreement may be executed in one or more
------------
counterparts, and each of which when so executed and delivered shall be deemed
an original for all purposes but all of which together shall constitute but one
and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the Assignor and the Assignee have caused this
Collateral Assignment Agreement to be executed by their duly elected officers
duly authorized as of the date first above written.
PACIFIC PAY VIDEO LIMITED,
as Assignor
By
-------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, N.A.,
as Assignee
By
-------------------------
Name:
Title:
APPROVAL AND AGREEMENT
The undersigned, being the licensor under the Technology License Agreement
referred to in the foregoing Collateral Assignment Agreement, hereby approves
said Collateral Assignment Agreement and the assignment of the Technology
License Agreement thereunder for all purposes of said Collateral Assignment
Agreement subject to the terms and conditions of the Technology License
Agreement.
ON COMMAND VIDEO CORPORATION
By
-------------------------
Name:
Title:
<PAGE>
ANNEX A
TO
COLLATERAL ASSIGNMENT AGREEMENT
Assignor has sublicensed its territorial rights under the Technology License
Agreement to the territories of Central and South America and the republics of
the Former Soviet Union to Comsat Video Enterprises, Inc. ("Comsat") pursuant to
an Exclusive Sublicense Agreement, dated as of March 15, 1993, between Assignor
and Comsat.
<PAGE>
ANNEX B
TO
COLLATERAL ASSIGNMENT AGREEMENT
The filing of a UCC-1 financing statement naming Assignor as Debtor and Agent
as Secured party with the Secretary of State of California.
<PAGE>
EXHIBIT F
TO NOTE AGREEMENT
APPOINTMENT AGREEMENT
APPOINTMENT AGREEMENT (this "Agreement") dated as of August 15, 1995
among MAGINET CORPORATION, a corporation organized under the laws of the State
of California (the "Company"); each of the Purchasers set forth on the Purchaser
Schedule to the Note Agreement referred to below (herein, together with their
respective successors and assigns, the "Purchasers") of the senior secured notes
(herein called the "Notes") of the Company pursuant to the Note Agreement, dated
as of August 15, 1995 (herein, as the same may be supplemented or amended from
time to time, called the "Note Agreement") between the Company and the
Purchasers; and The Chase Manhattan Bank, N.A., a national association organized
under the laws of the United States, as collateral agent (the "Agent" which
expression shall include any successor agent or agents holding the security
constituted by the Security Documents hereinafter referred to). Capitalized
terms used herein but not otherwise defined herein shall have the meaning
assigned thereto in the Note Agreement.
W I T N E S S E T H :
WHEREAS, it is a condition precedent to the Purchasers purchasing the
Notes that the Purchasers, the Company and the Agent execute and deliver this
Agreement;
WHEREAS, any and all amounts owing to the Purchasers or the Agent
under the Note Agreement, the Notes and any other Note Document are to be
secured by the Security Documents;
NOW, THEREFORE, in consideration of the premises and of the
commitments made hereunder by the parties hereto, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, hereby agree as
follows:
Section 1. Appointment. The Purchasers hereby designate The Chase
Manhattan Bank, N.A. as Agent to act as specified herein and in the Security
Documents. Each Purchaser hereby authorizes the Agent to take such action on
its behalf under the provisions of this Agreement, the Note Agreement and the
Security Documents and to exercise such powers and to perform such duties
hereunder and thereunder as are specifically delegated to or required of the
Agent by the terms hereof and thereof and such other powers as are reasonably
incidental thereto. The Agent may perform any of its duties hereunder and
thereunder by or through its agents or employees. The Agent shall have no
duties except those expressly set forth in this Agreement, the Note Agreement
and the Security Documents. Neither the
<PAGE>
Agent nor any of its officers, directors, employees or agents shall be liable
for any action taken or omitted by it or any of them as such hereunder or in
connection herewith, unless caused by its or their gross negligence or wilful
misconduct.
Section 2. Authority to Execute Documents. The Purchasers hereby
authorize and direct the Agent to execute and deliver the Security Documents to
which the Agent is to be a party in the respective forms thereof in which
delivered from time to time by the Noteholders to the Agent for execution and
delivery and, subject to the terms hereof, to execute and deliver such other
agreements, instruments and documents, to exercise its rights and perform its
duties under each of the Security Documents to which it is a party as set forth
in such documents, and to take such further actions, not otherwise specified
herein, as may be necessary to consummate the transactions contemplated by this
Agreement, the Note Agreement and the Security Documents and perform the duties
and obligations of the Agent hereunder and under the Note Agreement and the
Security Documents to which the Agent is to be a party and to do all other
things which are incidental to the rights, powers, discretions, duties,
obligations and responsibilities given or imposed on the Agent by the Note
Agreement, the Security Documents or hereunder. The Purchasers hereby
irrevocably agree that so long as any obligation is owed to any Noteholder under
the Notes, the Note Agreement or any of the other Note Documents, the Agent
shall, subject as hereinafter provided, take any and all actions, and refrain
from taking any and all actions, pursuant to the written instructions of the
Required Holder(s), and shall be deemed irrevocably to be bound by any
limitations or restrictions expressly imposed on the rights of the Agent
pursuant to the terms of any such other Note Document to which the Agent may be
a party. The form of such other agreements, instruments and documents and the
nature of such further actions shall be reasonably acceptable to the Agent.
Section 3. Duties and Liabilities of the Agent Generally. The Agent,
prior to its receipt of a notice from the Required Holder(s) informing it of the
occurrence and continuance of a Default or an Event of Default, undertakes to
perform such duties and only such duties as are specifically set forth in this
Agreement, the Note Agreement and any other Security Document. In the event
that the Agent has been so notified of a Default or an Event of Default (which
has not been notified to the Agent as having been cured or waived), the Agent
shall exercise such of the rights and powers vested in it by this Agreement, the
Note Agreement and any other Security Document, and use the same degree of care
and skill in their exercise, required of an agent by law and otherwise as a
prudent person would exercise or use under the circumstances in the conduct of
his or her own affairs. If the Agent shall not have received written
instructions from the Required Holder(s) within twenty (20) days after receipt
of such notice of Default or Event of Default, the Agent, until instructed
otherwise by the Required Holder(s) may, but shall be under no duty to, take or
refrain from taking such action with respect to such Default or Event of
Default, as it shall deem advisable in the
EXHIBIT F
APPOINTMENT AGREEMENT
<PAGE>
best interests of the Noteholders.
No provision of this Agreement, the Note Agreement or any other
Security Document shall be construed to relieve the Agent from liability for its
own gross negligence or its own wilful misconduct, except that:
(i) No Implied Obligation; Reliance on Certificates and Opinions.
------------------------------------------------------------
(a) The duties and obligations of the Agent shall be determined solely by
the express provisions of this Agreement, the Note Agreement and the other
Security Documents, and the Agent shall not be liable except for the
performance of such duties and obligations as are specifically set forth in
this Agreement, the Note Agreement and the other Security Documents, and no
implied covenants or obligations shall be read into this Agreement, the
Note Agreement or any other Security Document against the Agent; and (b) in
the absence of bad faith on the part of the Agent, the Agent may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon any certificates or opinions furnished
to the Agent which conform on their face to the requirements of this
Agreement, the Note Agreement or the other Security Documents, but in the
case of any such certificates or opinions which by any provision hereof or
thereof are specifically required to be furnished to the Agent, the Agent
shall be under a duty to examine the same to determine whether or not they
conform on their face to the requirements of this Agreement, the Note
Agreement or the other Security Documents; provided, that the Agent shall
--------
be under no obligation to investigate any of the underlying facts or
circumstances recited in any such certificate or opinion;
(ii) Errors of Judgment. The Agent shall not be liable for any
------------------
error of judgment made in good faith by any responsible officer or
officers;
(iii) Actions in Accord with Direction. The Agent shall not be liable
--------------------------------
with respect to any action taken or omitted to be taken by it in good faith
in accordance with the direction of the Required Holder(s) (or such other
greater or lesser number of holders of the Notes as shall be expressly
provided for herein or in the Note Agreement) relating to the time, method
and place of conducting any proceeding for any remedy available to the
Agent or exercising any trust or power conferred upon the Agent under this
Agreement, the Note Agreement or any other Security Document; and
(iv) Validity and Perfection of Agreement. Notwithstanding anything
------------------------------------
to the contrary herein, the Agent shall have no responsibility as to the
validity or perfection of any Lien purported to be created hereunder or
under any other Security Document. The Agent shall have no duty to do,
cause to be done or advise with respect to any
EXHIBIT F
APPOINTMENT AGREEMENT
<PAGE>
filing or recording or to the maintenance of any such filing or recording
with any governmental agency or office or otherwise, unless and until it
shall have been in each case directed by the Required Holder(s) with
reasonable specificity to do so. At the expense of the Company, the Agent
shall have the right, from time to time, where reasonable to seek advice of
its own counsel in the United States and in each other jurisdiction in
which an entity listed on Schedule 1.2 as a Foreign Subsidiary is organized
regarding the recording, filing and registration of any Lien in connection
herewith.
None of the provisions of this Agreement, the Note Agreement or any other
Security Document shall require the Agent to expend or risk its own funds or
otherwise to incur any personal financial liability in the performance of any of
its duties or in the exercise of any of its rights or powers howsoever arising.
Section 4. Particular Duties and Liabilities of the Agent. Subject
to the provisions of Section 3:
(i) Reliance Generally. The Agent may rely and shall be protected
------------------
in acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, consent, order,
approval or other paper or document believed by it to be genuine and to
have been signed or presented by the proper party or parties, and the Agent
shall not be liable with respect to any action taken or omitted to be taken
by it in good faith and without gross negligence in accordance with such
resolution, certificate, statement, instrument, opinion, report, notice,
request, consent, order, approval or other paper or document;
(ii) Requests of the Company. Any request, direction, order or
-----------------------
demand of the Company mentioned herein or in any Security Document shall be
sufficiently evidenced (unless other evidence in respect thereof be herein
or therein specifically prescribed) by a certificate signed by a
Responsible Officer;
(iii) Reliance on Legal Advisers. The Agent may consult with legal
--------------------------
advisers (including without limitation in-house counsel for the Agent), and
any advice or written opinion of such legal advisers shall be full and
complete authorization and protection in respect of any action taken or
omitted by it hereunder in good faith and without gross negligence and in
accordance with such written advice;
(iv) Duty to Investigate. The Agent shall not be bound to make any
-------------------
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
consent, order, approval or other paper or document, unless requested in
writing to do so by the Required Holder(s). The Agent
EXHIBIT F
APPOINTMENT AGREEMENT
<PAGE>
may require indemnity against any such expense or liability as a condition
to proceeding in much manner;
(v) Action Through Agents or Attorneys. The Agent may execute any
----------------------------------
of the trusts or powers hereunder or under any other Security Document or
perform any duties hereunder or thereunder either directly or by or through
agents (including, without limitation, any affiliates of the Agent, and
prior to the occurrence of a Default or an Event of Default of which the
Agent has received notice as specified in Section 3, the Company and any of
its Affiliates) or attorneys appointed with due care;
(vi) Delegation of Duties. The Agent may execute any of the trusts
--------------------
or powers hereunder or perform any duties hereunder by or through any of
its affiliates;
(vii) Delay Awaiting Directions. The Agent shall not be liable for
-------------------------
any delay or failure to act unless and until the Agent shall have been
directed in writing to act in accordance with this Agreement;
(viii) Marshaling of Assets. The Agent (a) need not marshal in any
--------------------
particular order any particular part or piece of the Collateral held by the
Agent in its capacity as Agent hereunder or as the secured party under any
other document entered into in connection herewith or any of the funds or
assets that the Agent may be entitled to receive or have claim upon and (b)
may, but shall not be required, to vary, exchange, renew, modify, release,
refuse to complete or to enforce or to assign any judgments, guarantees or
other securities or instruments (negotiable or otherwise) held by it,
whether or not satisfied by payment; and
(ix) Right to Seek Direction. The Agent shall have the right to
-----------------------
request instructions from the Noteholders with respect to taking or
refraining from taking any action in connection with this Agreement, the
Note Agreement or any other Security Document and shall be entitled to act
or refrain from taking such action unless and until the Agent shall have
received written instructions from the Required Holder(s), and the Agent
shall not incur liability by reason of so refraining.
Section 5. Responsibility for Documents; Recitals in Documents. The
Agent is hereby directed by the Purchasers to execute and deliver each of the
other Security Documents as may be necessary or appropriate on the date hereof
and as may become so after the date hereof. The recitals contained in this
Agreement, the Note Agreement and the Security Documents shall be taken as the
statements of the Company, and the Agent assumes no responsibility for the
correctness of the same. The Agent shall have no responsibility with respect to
and shall have no obligation to
EXHIBIT F
APPOINTMENT AGREEMENT
<PAGE>
familiarize itself with any document other than this Agreement, the Note
Agreement and the other Security Documents to which it is a signatory and makes
no representation as to the validity or sufficiency of this Agreement or such
other documents.
Section 6. Segregation of Funds and Property; Interest. Subject to
the provisions of Sections 3 and 4, moneys and other property received by the
Agent shall, until used or applied as herein provided, be held in trust for the
purposes for which they were received, and shall be segregated from other funds.
The Agent shall not be under any liability for interest on any moneys received
by it hereunder.
Section 7. Compensation, Indemnification and Reimbursement of the
Agent. The Company covenants and agrees to pay to the Agent from time to time,
and the Agent shall be entitled to, reasonable compensation (which to the extent
permitted by law shall not be limited by any provision of law in regard to the
compensation of an agent of an express trust) for all services rendered by it,
and the Company will pay or reimburse the Agent upon its request for all
reasonable expenses, disbursements and advances incurred or made by the Agent in
accordance with any of the provisions of this Agreement, the Note Agreement or
any other Security Document (including the compensation and the expenses and
disbursements of its agents and counsel and of all Persons not regularly in its
employ).
The Company also covenants to indemnify the Agent (which for purposes
of this Section 7 shall include its directors, officers, employees and agents)
for, and to hold it harmless from and against, any and all loss, liability or
expense (including counsel fees and expenses) reasonably incurred without gross
negligence, wilful misconduct or bad faith on the part of the Agent, arising out
of or in connection with the acceptance or administration of this trust, the
exercise of any rights and remedies arising out of this Agreement, the Note
Agreement or any other Security Document, or the performance of any of its
duties, including the reasonable costs and expenses of defending itself against
any claim of liability and in enforcing any provision of this Agreement, the
Note Agreement or any other Security Document (except any liability incurred
with gross negligence, wilful misconduct or bad faith on the part of the Agent),
with interest thereon at a rate equal to that in the Agent's customary banking
practice with respect to overdrafts (including the imposition of interest,
funds, wage and administrative fees) from the date the same shall have been paid
until actually reimbursed.
The obligations of the Company under this Section 7 to compensate and
indemnify the Agent and to pay or reimburse the Agent for reasonable expenses,
disbursements and advances shall constitute additional indebtedness under the
Note Agreement and the Security Documents and shall survive the satisfaction,
discharge or other termination of this Agreement and the resignation or removal
of the Agent hereunder. The Company agrees to reimburse the Agent for any costs
or expenses reasonably and properly
EXHIBIT F
APPOINTMENT AGREEMENT
<PAGE>
incurred by the Agent in connection with this Agreement, the Note Agreement and
the other Security Documents.
To secure payment of such compensation, reimbursement and
indemnification, the Agent shall have a claim and Lien prior to that of any
party, which Lien and claim and Lien shall constitute obligations secured by
this Agreement and the Security Documents.
Section 8. Reliance on Certificate. Subject to the provisions of
Section 1, whenever in the administration of the provisions of this Agreement,
the Note Agreement or the Security Documents, the Agent shall deem it necessary
or desirable that a matter be proved or established prior to taking or suffering
any action to be taken hereunder, such matter (unless other evidence in respect
thereof be herein or therein specifically prescribed) may in the absence of
gross negligence, wilful misconduct or bad faith on the part of the Agent, be
deemed to be conclusively proved and established by a certificate signed by the
required Holder(s) delivered to the Agent, and such certificate, in the absence
of gross negligence, wilful misconduct or bad faith on the part of the Agent,
shall be full warrant to the Agent for any action taken, suffered or omitted by
it under the provisions of this Agreement the Note Agreement or the Security
Documents, upon the faith thereof.
Section 9. Qualification of the Agent. The Agent hereunder shall at
all times be a corporation or national association doing business under the laws
of the United States or any State thereof which is authorized under such laws to
exercise corporate trust powers and is subject to supervision or examination by
the Office of the Comptroller of the Currency and the Board of Governors of the
Federal Reserve System or the equivalent State authority, as the case may be.
In case at any time the Agent shall cease to be eligible in accordance with the
provisions of this Section 9, the Agent shall resign immediately in the manner
and with the effect specified in Section 10.
Section 10. Resignation; Removal. (i) Resignation of the Agent. The
------------------------
Agent, or any agent or agents hereafter appointed, may at any time resign by
giving not less than three months' written notice of resignation to the Company
and each Noteholder. Upon receiving such notice of resignation and evidence
satisfactory to them of the giving of such notice to all such holders of Notes,
the Required Holder(s) (after consultation with the Company unless a Default or
Event of Default has occurred and is continuing) shall promptly appoint a
successor agent, by written instrument, in triplicate, one copy of which
instrument shall be delivered to the Company, one copy to the resigning Agent
and one to the successor agent, and upon such appointment, the Agent is hereby
automatically, without any further act, released from its obligations hereunder
(other than any causes of action arising prior to such resignation). If no
successor agent shall have been so appointed and have accepted appointment
within forty five (45) days after the giving of
EXHIBIT F
APPOINTMENT AGREEMENT
<PAGE>
such notice of resignation, the resigning Agent may petition any court of
competent jurisdiction for the appointment of a successor agent, or any
Noteholder which has been a bona fide holder thereof for at least six (6) months
may, on behalf of itself and all others similarly situated, petition any such
court for appointment of a successor agent. Such court may thereupon, after such
notice, if any, as it may deem proper and as it may prescribe, appoint a
successor agent.
(ii) Removal of the Agent for Cause. In case at any time any of the
------------------------------
following shall occur:
(a) the Agent shall cease to be eligible in accordance with the
provisions of Section 9 and shall fail to resign after written request
therefor by the Required Holder(s);
(b) the Agent shall become incapable of acting, or shall be adjudged a
bankrupt or insolvent, or a receiver of the Agent or its property shall be
appointed, or any public officer shall take charge or control of the Agent
or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation; or
(c) any gross negligence or willful misconduct by the Agent in the
performance by it of its duties or the exercise of its power hereunder;
then the Required Holder(s) (after consultations with the Company, unless a
Default or an Event of Default has occurred and is continuing) may remove the
Agent and appoint a successor by written instrument, in triplicate, one copy of
which instrument shall be delivered to the Company, one copy to the Agent so
removed and one to the successor agent, or, failing such removal and appointment
within forty-five (45) days after delivery of the written instrument of removal,
any Noteholder which has been a bona fide holder thereof for at least six (6)
months may, on behalf of itself and all others similarly situated, petition any
court of competent jurisdiction for the removal of the Agent and the appointment
of a successor agent. Such court may thereupon, after such notice, if any, as
it may deem proper and as it may prescribe, remove the Agent and appoint a
successor agent.
(iii) Removal of Agent Without Cause. The Required Holder(s) may
(after consultations with the Company, unless a Default or an Event of Default
has occurred and is continuing) at any time remove the Agent and appoint a
successor agent by written notice of such action to the Company, the Agent and
the successor agent. If no successor agent shall have been so appointed and have
accepted appointment within forty-five (45) days after the giving of such notice
of removal, the Agent may petition any court of competent jurisdiction for the
appointment of a successor agent, or any Noteholder which has been a bona fide
holder thereof for at least six (6) months may, on behalf of itself and all
others similarly situated, petition any
EXHIBIT F
APPOINTMENT AGREEMENT
<PAGE>
such court for appointment of a successor agent. Such court may thereupon, after
such notice, if any, as it may deem proper and as it may prescribe, appoint a
successor agent.
(iv) Effective Date of Removal, Resignation and New Appointment. Any
----------------------------------------------------------
resignation or removal of the Agent and appointment of a successor agent
pursuant to any of the provisions of this Section 10 shall become effective upon
acceptance of appointment by the successor agent as provided in Section 11.
Section 11. Successor Agent. Any successor agent appointed as provided
in Section 10 shall execute, acknowledge and deliver to each Noteholder, the
Company and to its predecessor agent an instrument accepting such appointment
hereunder, and thereupon the resignation or removal of the predecessor agent
shall become effective and such successor agent, without any further act, deed
or conveyance, shall become vested with all the rights, powers, duties and
obligations of its predecessor hereunder, with like effect as if originally
named as Agent herein; but, nevertheless, on the written request of the Required
Holder(s) or of the successor agent, the agent ceasing to act shall, upon
payment of all amounts then due it pursuant to the provisions of Section 7,
execute and deliver an instrument or instruments transferring and assigning to
such successor agent all the rights and powers of the agent so ceasing to act.
Upon the request of any such successor agent, the Company shall execute any and
all instruments in writing in order more fully and certainly to vest in and
confirm to such successor agent all such rights and powers. Any agent ceasing to
act shall nevertheless have a prior claim and Lien to that of the Noteholders
upon all property or funds held or collected by such agent to the extent of all
amounts then due it pursuant to the provisions of Section 7.
Upon acceptance of appointment by a successor agent as provided in this
Section 11, the Company shall give notice of the succession of such agent
hereunder to the Noteholders and such other Persons as may be required by law or
desirable to protect perfection of Lien within 20 days. If the Company fails to
give such notice within such time, the successor agent shall give such notice in
the name and at the expense of the Company.
Section 12. Merger, Conversion or Consolidation of the Agent. Any
corporation into which the Agent may be merged or converted or with which it may
be consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Agent shall be a party, or any corporation succeeding
to the corporate trust business of the Agent, shall, if eligible hereunder, be
the successor of the Agent hereunder; provided, that such corporation shall be
--------
eligible under the provisions of Section 9 without the execution or filing of
any paper with any party hereto or any further act on the part of any of the
parties hereto except where an instrument of transfer or assignment is required
by law to effect such succession, anything herein to the contrary
notwithstanding.
EXHIBIT F
APPOINTMENT AGREEMENT
<PAGE>
Section 13. Appointment of Co-Agent. In case of any litigation under this
Agreement, the Note Agreement or any other Security Document, or in case of any
enforcement of remedies or exercise of rights upon the occurrence of a Default
or an Event of Default, or in case the Agent deems that, by reason of any
present or future law of any jurisdiction, it may not or may not effectively
exercise any of the powers, rights or remedies herein or in any Security
Document granted to it or hold title to the properties, in trust, as herein or
in any Security Document granted, or take any other action which may be
desirable or necessary in connection therewith, the Agent shall be entitled to
appoint, to the extent consistent with applicable law, one or more separate or
additional co-agents.
In the event that the Agent appoints an individual or institution as a
separate or additional co-agent, (i) any appointment of any such co-agent by the
Agent (other than an appointment, if consistent with applicable law in effect at
the time of such appointment, of a local affiliate of the Agent shall be made
only with the prior written consent of the Company and the Required Holder(s)
(except that, if the Agent shall have received written notice from any
Noteholder that a Default or an Event of Default has occurred and is continuing,
such consent shall be required only of the Required Holder(s)), which consent
shall not be unreasonably withheld or delayed, and (ii) each and every remedy,
power, right, title, interest, trust, duty and obligation expressed or intended
by this Agreement or by any Security Document to be exercised by or vested in,
conveyed to or imposed upon, the Agent with respect thereto shall be exercisable
by and vest in such separate or additional co-agent but only to the extent
necessary, appropriate or desirable to enable such separate or additional co-
agent to exercise or have vested in it such powers, rights, trusts, titles,
interests, duties and obligations and remedies, and every covenant and
obligation necessary, appropriate or desirable to the exercise thereof by such
separate or additional co-agent shall run to and be enforceable by either of
them.
The Agent shall have the right to terminate the appointment of any such
co-agent hereunder with the prior written consent of the Company and the
Required Holder(s) (except that, if the Agent shall have received written notice
from any Noteholder that a Default or an Event of Default has occurred and is
continuing, such consent shall be required only of the Required Holder(s)),
which consent shall not be unreasonably withheld or delayed. Should any
instrument in writing from the Company be required by the separate or additional
co-agent so appointed by the Agent to more fully and certainly vest in and
confirm to it such remedies, rights, powers, titles, interests, trusts, duties
and obligations, any and all such instruments in writing shall, on request, be
executed, acknowledged and delivered by the Company. In case any separate or
additional co-agent, or a successor to either, shall become incapable of acting,
resign or be removed, all the remedies, rights, powers, titles, interests,
trusts, duties and obligations of such separate or additional co-agent, so far
as permitted by law, shall vest in and be exercised by the Agent until the
appointment of a new agent or successor to such separate or
EXHIBIT F
APPOINTMENT AGREEMENT
<PAGE>
additional co-agent.
Section 14. New Noteholders. Any Transferee of all or any part of any
Note shall enter into an agreement acceding to the terms of this Agreement in
the form set out in Annex I whereby it agrees to be bound by the provisions of
this Agreement binding upon the Noteholders.
Section 15. Treatment of Noteholders. The Agent may deem and treat the
person registered as the holder of any Note in the register maintained by the
Company (the "Register") as the owner thereof for all purposes hereof. Any
request, authority or consent of any Person who, at the time of making such
request or giving such authority or consent, is the holder of any Note shall be
conclusive and binding on any subsequent holder, transferee, assignee or
indorsee, as the case may be, of such Note or any Note issued in exchange
therefor.
Section 16. Entire Agreement; Waivers. Each of the Agent, the Company
and the Noteholders party hereto hereby agrees that this instrument contains the
entire agreement between the parties and that there is and can be no other oral
or written agreement or understanding whereby the provisions of this instrument
have been or can be terminated, affected, varied, waived, amended or modified in
any manner, unless the same be set forth and consented to in writing by the
Required Holder(s).
Section 17. Successors and Assigns. This Agreement shall without
further consent of the Company or the Agent, pass to, and may be relied upon and
enforced by, any successor or assignee of any Noteholder and any transferee or
subsequent registered holder of any Note.
Section 18. Notices. All communications provided for hereunder shall be
in writing and in English and shall be sent by national overnight delivery
service (with charges prepaid) or by facsimile with confirmation sent by first
class mail and
(i) if to any Purchaser, addressed to such Purchaser at the address
specified for such communications in the Purchaser Schedule attached to the
Note Agreement, or at such other address as such Purchaser shall have
specified to the Company and the Agent in writing,
(ii) if to any other holder of a Note, addressed to such other holder at
such address as such other holder shall have specified to the Company and
the Agent in writing or, if any such other holder shall not have so
specified an address to the Company and the Agent, then addressed to such
other holder in care of the last holder of such Note which shall have so
specified an address to the Company and the Agent, and
(iii) if to the Agent, addressed to the Agent at The Chase Manhattan
EXHIBIT F
APPOINTMENT AGREEMENT
<PAGE>
Bank, N.A., 4 MetroTech Center, 3rd Floor, Brooklyn, New York 11245;
Facsimile: (718) 242-5885 or 5886 or (718) 242-3529, and
(iv) if to the Company, addressed to the Company at the address specified
for such communications in the Note Agreement.
Section 19. Governing Law, etc. This Agreement shall be construed and
enforced in accordance with, and the rights of the parties shall be governed by,
the internal laws of the State of New York, without regard to conflicts of law.
Section 20. No Waiver. No delay on the part of any holder of a Note,
the Company or the Agent in exercising any rights hereunder or failure to
exercise the same shall operate as a waiver of such rights; and no notice to or
demand on the Agent shall be deemed to be a waiver of the obligation of the
Agent or of the rights of any holder of a Note to take further action without
notice or demand as provided herein.
Section 21. Headings. The descriptive headings of the several Sections
of this Agreement are inserted for convenience only and do not constitute a part
of this Agreement.
Section 22. Counterparts. This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an original, and it
shall not be necessary in making proof of this Agreement to produce or account
for more than one such counterpart.
EXHIBIT F
APPOINTMENT AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Appointment
Agreement to be duly executed and delivered by their duly authorized officers on
the day and year first above written.
MAGINET CORPORATION
By:
-------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, N.A.
By:
-------------------------------
Name:
Title:
NEW YORK LIFE INSURANCE COMPANY
By:
-------------------------------
Name:
Title:
THE MUTUAL LIFE INSURANCE
COMPANY OF NEW YORK
By:
-------------------------------
Name:
Title:
WASLIC COMPANY II
By:
-------------------------------
Name:
Title:
NAMTOR BVC LP
By:
-------------------------------
Name:
Title:
EXHIBIT F
APPOINTMENT AGREEMENT
<PAGE>
<PAGE>
ANNEX 1
-------
INSTRUMENT OF ACCESSION
-----------------------
INSTRUMENT OF ACCESSION dated ________, _____, made by [New Noteholder], a
----------------
company organized under the laws of __________ (the "Acceding Noteholder") in
respect of the Appointment Agreement dated August 15, 1995 (the "Appointment
Agreement") among The Chase Manhattan Bank, N.A., as collateral agent (the
"Agent"), each of the Purchasers set forth on the Purchaser Schedule to the Note
Agreement referred to below of the senior secured notes of MagiNet Corporation
(the "Company") pursuant to the Note Agreement, dated as of August 15, 1995 (as
the same may be supplemented or amended from time to time, herein called the
"Note Agreement") among the Purchasers, the Company and the Agent. This
Instrument of Accession is entered into pursuant to Section 11.5 of the Note
Agreement and Section 14 of the Appointment Agreement. Capitalized terms used
herein without definition shall have the meanings assigned to such terms in the
Note Agreement.
1. Assumption. The Acceding Noteholder hereby expressly assumes and
----------
agrees, with effect from and after the date hereof, to perform and observe each
and every one of the covenants, conditions, obligations, duties and liabilities
applicable to a "Noteholder" under the Appointment Agreement, jointly and
severally with all other Noteholders under the Appointment Agreement, as if the
Acceding Noteholder had been an original party thereto. All references to any
Noteholder in any Note Document or any document, instrument or agreement
executed and delivered or furnished in connection therewith shall be deemed to
be and include references to the Acceding Noteholder.
2. Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with, and the rights of the parties shall be governed by, the law of
the State of New York.
IN WITNESS WHEREOF, the a Acceding Noteholder has caused this Agreement to
be duly executed and delivered as a deed as of the day and year first above
written.
[ACCEDING NOTEHOLDER]
By
-----------------------
Title:
EXHIBIT F
APPOINTMENT AGREEMENT
<PAGE>
EXHIBIT F
APPOINTMENT AGREEMENT
<PAGE>
SECOND AMENDMENT
TO SHAREHOLDERS' AGREEMENT
This SECOND AMENDMENT dated as of August 15, 1995, (the "Second Amendment")
----------------
to the Shareholders' Agreement dated as of September 29, 1994, (the
"Shareholders' Agreement"), as amended by the First Amendment dated May 16,
-----------------------
1995, attached hereto as Exhibit A, is entered into among MagiNet Corporation, a
California corporation (the "Company") (formerly known as Pacific Pay Video
-------
Limited), the Holders of the Registration Rights pursuant to the Company's
Shareholders' Agreement (individually, an "Existing Rights Holder", and
----------------------
collectively, the "Existing Rights Holders") and the holders of Common Stock
-----------------------
Warrants listed on Exhibit B attached hereto (the "the New Rights Holders").
----------------------
The Company and the Existing Rights Holders have, pursuant to Section 1.12
of the Shareholders' Agreement, agreed to amend the Shareholders' Agreement as
set forth herein.
SECTION 1. ADDITIONAL SHAREHOLDERS.
-----------------------
In consideration of the purchase by the New Rights Holders of the Company's
Senior Secured Notes due 2000 (the "Notes") in the aggregate principal amount of
-----
up to $30,000,000 and the issue of such Notes pursuant to the Note Agreement
(the "Note Agreement") dated as of August 15, 1995 by and between the New
--------------
Rights Holders and the Company, the Company, the Existing Rights Holders and the
New Rights Holders agree that:
(a) The New Rights Holders shall be considered Holders under the
Shareholders' Agreement for all purposes, to the same extent as if they had been
one of the original parties to the Shareholders' Agreement and the New Rights
Holders accept the terms, conditions, rights and obligations of the
Shareholders' Agreement; provided, however, that the New Rights Holders shall
not be considered "Shareholders" for purposes of the Shareholders' Agreement.
(b) The definition of "Common Warrants" shall be added to Section 1.1 of
the Shareholders' Agreement as follows:
""Common Warrants" means those warrants to purchase shares of
---------------
Common stock of the Company granted to certain investors in
connection with the purchase and sale of the Company's Senior Secured
Notes due 2000 in the aggregate principal amount of up to $30,000,000
pursuant to the Note Agreement dated August 15, 1995."
<PAGE>
(c) The definition of "Holder" in Section 1.1 of the Shareholders'
Agreement is restated as follows:
""Holder" means any holder of outstanding Registrable Securities;
------
provided, however, that for all purposes under this Section, a holder
of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, the COMSAT Warrant, the Original Warrants (as
defined below), the First Bridge Warrants, the SVB\H&Q Warrants, the
Second Bridge Warrants, Series C Warrants, the SVB Warrants, or the
Common Warrants shall be deemed to be a Holder of the Registrable
Securities into which such shares are then convertible or for which
such warrants are then exercisable."
(d) The definition of "Registrable Securities," in Section 1.1 of the
Shareholders' Agreement is restated as follows:
""Registrable Securities" means (i) the shares of Common Stock
----------------------
issuable upon conversion of the Company's Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock (the
"Conversion Stock"), (ii) the shares of Common Stock issuable upon
exercise of the warrants issued pursuant to the Second Series B
Agreement (the "Original Warrants"), the COMSAT Warrant, the First
Bridge Warrants, the SVB\H&Q Warrants, the Second Bridge Warrants,
the SVB Warrants, the Common Warrants, or the Common Stock issuable
upon conversion of the Series C Preferred Stock issuable upon
exercise of the Series C Warrants (collectively, the "Warrant
Shares"), (iii) the shares of Common Stock currently outstanding and
not issued pursuant to the exercise of options or warrants (the
"Founders' Stock"), and (iv) any shares of Common Stock of the
Company issued or issuable, directly or indirectly, in respect of the
stock described in (i), (ii) and (iii) upon any stock split, stock
dividend, recapitalization, or similar event, or any shares of Common
Stock otherwise issued or issuable with respect to such stock;
provided, however, that Registrable Securities shall not include
shares of Common Stock that have been sold to or through a broker or
dealer or underwriter in a public distribution or a public securities
transaction, sold in a transaction exempt from the registration and
prospectus delivery requirements of the Securities Act under Section
4(1) thereof so that all transfer restrictions, and restrictive
legends with respect thereto, if any, are removed upon the
consummation of such sale, or Registrable Securities sold by a person
in a transaction in which rights under this Section 1 are not
assigned."
(e) The definition of "Registration Expenses" in Section 1.1 of the
Shareholders' Agreement is restated as follows:
""Registration Expenses" means all expenses incurred by the
---------------------
Company in complying with Sections 1.2, 1.3, and 1.4, including,
without limitation, all registration, qualification and filing fees,
printing expenses, escrow fees, fees and disbursements of counsel for
the Company, blue sky fees and expenses, and the expense of any
special audits incident to or required by any such registration (but
excluding the compensation
-2-
<PAGE>
of regular employees of the Company which shall be paid in any event
by the Company). Registration Expenses shall not include expenses of
the holders of Registrable Securities to the extent limited or
precluded in applicable blue sky laws. Registration Expenses shall
include the fees or expenses of one legal counsel to the Holders and
one legal counsel to the New Rights Holders. Registration Expenses
shall not include selling commissions, discounts or other
compensation paid to underwriters or other agents or brokers to
effect the sale, or the fees or expenses of any additional legal
counsel retained by any Holder or Holders."
(f) The definition of "Restricted Securities" in Section 1.1 of the
Shareholders' Agreement is restated as follows:
""Restricted Securities" means the Company's currently
---------------------
outstanding Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock, the Conversion Stock, the Founders' Stock,
the Original Warrants, the COMSAT Warrant, the First Bridge Warrants,
the SVB\H&Q Warrants, the Second Bridge Warrants, the Series C
Warrants, the SVB Warrants, the Common Warrants and the Warrant
Shares, and any other securities issued in respect thereof upon any
stock split, stock dividend, recapitalization, merger, consolidation
or similar event."
(g) Section 1.3(b) of the Shareholders' Agreement is restated as follows:
"(b) Underwriting. The right of any Holder to registration pursuant
------------
to Section 1.3 shall be conditioned upon the participation by such
Holder in such underwriting, if any, and the inclusion of the
Registrable Securities of such Holder in the underwriting to the
extent provided herein. All Holders proposing to distribute their
securities through such underwriting shall (together with the Company
and the other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form
with the managing underwriter selected for such underwriting by the
Company. Notwithstanding any other provision of this Section 1.3, if
the managing underwriter determines that marketing factors require a
limitation of the number of shares to be underwritten, the managing
underwriter may limit the Registrable Securities held by Holders. If
a limitation of the number of shares to be included in such
registration is required, then the Company shall so advise all
Holders, and the number of shares of Registrable Securities and other
securities that may be included in the registration and underwriting
shall be allocated among all Holders and other holders of securities
thereof: first, among all Holders of the Common Warrants in
proportion as nearly as practicable, to the respective amounts of
securities entitled to inclusion (determined without regard to any
requirement of a request to be included in such registration) in such
registration held by all such Holders at the time of filing the
registration statement; second, should the underwriter's limitation
permit inclusion of any additional securities, among all remaining
Holders and other holders in proportion, as nearly as practicable, to
the respective amounts of securities, other than Founders Shares,
entitled to inclusion (determined without regard to any requirement
of a request to be included in such
-3-
<PAGE>
registration)in such registration held by all such remaining Holders
and other holders at the time of filing the registration statement;
and third, should the underwriter's limitation permit inclusion of
any additional securities, among all Holders in proportion, as nearly
as practicable, to the respective amounts of Founders Shares entitled
to inclusion (determined without regard to any requirement of a
request to be included in such registration) in such registration
held by all such Holders at the time of filing the registration
statement; provided, however, that the number of Registrable
Securities entitled to inclusion in any such registration, except for
the registration of the initial public offering of the Company's
securities, shall be no less than twenty percent (20%) of the total
number of shares covered by such registration. To facilitate the
allocation of shares in accordance with the above provisions, the
Company may round the number of shares allocated to any Holder to the
nearest 100 shares. If any Holder or other holder disapproves of the
terms of any such underwriting, he may elect to withdraw therefrom by
written notice to the Company and the managing underwriter. Any
securities excluded or withdrawn from such underwriting shall be
withdrawn from such registration."
(h) Section 1.7(b) of the Shareholders' Agreement is restated as follows:
"(b) Each Holder will, if Registrable Securities held by such Holder
are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company,
each of its directors and officers and its legal counsel and
independent accountants, each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who
controls the Company or such underwriter within the meaning of
Section 15 of the Securities Act, and each other such Holder, each of
its officers and directors and each person controlling such Holder
within the meaning of Section 15 of the Securities Act, against all
claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such
registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company,
such Holders, such directors, officers, persons, underwriters or
control persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other
document in reliance upon and in conformity with written information
(which information shall be limited to a brief description of the
Holder, its holdings of the Registrable Securities to be sold, and
its plan of distribution therefor) furnished to the Company by an
instrument duly executed by such Holder and stated to be specifically
for use therein; provided, however, that the obligations of each
Holder hereunder shall be limited to an amount equal to the net
proceeds to each such Holder of Registrable Securities sold pursuant
to such registration statement."
-4-
<PAGE>
(i) Section 1.7(d) of the Shareholders' Agreement is amended to add the
following proviso to the end of such section:
"provided, however, that the obligations of each Holder to make
contributions shall be limited to an amount equal to the net proceeds
received by each such Holder of Registerable Securities sold pursuant
to such registration statement."
(j) Section 1.7 of the Shareholders' Agreement is amended by adding the
following Section 1.7(e) thereto:
"(e) The indemnity and contribution provided by each Holder of
Registrable Securities under this Section 1.7 shall be provided
severally and not either jointly or jointly and severally with any
other Holder."
(k) Section 1.12 of the Shareholders' Agreement is restated as follows:
"1.12 Amendment of Registration Rights. The registration rights
--------------------------------
provided in this Section may be amended or waived with the written
consent of the Company and the holders of a majority of the
Registrable Securities except (i) the rights of Holders of the
Registrable Securities issuable upon exercise of the Common Warrants
may only be amended or waived with the written consent of the Company
and Holders of Common Warrants exercisable into shares of common
stock which in the aggregate amount to at least seventy percent (70%)
of the aggregate number of shares of common stock into which all the
Common Warrants are exercisable, to the extent such rights are
adversely affected by such amendment or waiver in a manner different
from other Holders, and (ii) the rights provided in Section 1.3 may
not be amended or waived, so as to adversely affect the holders of
Founders Shares in a manner different from other Holders, without the
written consent of the holders of a majority of the Founders Shares."
(l) Section 3.3(a) of the Shareholders' Agreement is restated as follows:
"(a) Common Stock issuable upon conversion of Preferred Stock or
exercise of common stock warrants (to the extent such common stock
warrants are outstanding as of the closing of the transactions
contemplated by the Note Agreement) or upon conversion of the Series
C Preferred Stock issuable upon exercise of the Series C Warrants."
SECTION 2. CONDITIONS OF EFFECTIVENESS.
---------------------------
This Second Amendment shall become effective as of the date hereof only
upon satisfaction in full of the following conditions precedent (the date upon
which all such conditions have been satisfied being herein called the "Effective
---------
Date"):
- ----
(a) The closing of the transaction set forth in the Note Agreement shall
have occurred.
-5-
<PAGE>
(b) The New Rights Holders, the Company and the holders of a majority in
interest of the Existing Rights Holders shall have executed this Second
Amendment, and counterparts hereof bearing the signature of such parties shall
have been delivered to the Company.
SECTION 3. APPLICABLE LAW.
--------------
This Second Amendment shall be governed by and construed in accordance with
the laws of the State of California.
SECTION 4. COUNTERPARTS.
------------
This Second Amendment may be executed in two or more counterparts, each of
which shall constitute an original, but all of which when taken together shall
constitute but one instrument.
SECTION 5. AGREEMENT; TERMS.
----------------
Except as expressly amended or waived hereby, the Shareholders' Agreement,
as amended by the First Amendment, shall continue in full force and effect in
accordance with the provisions thereof on the date hereof. Capitalized terms
used and not defined herein shall have the meanings assigned to such terms in
the Shareholders' Agreement, as amended.
SECTION 6. HEADINGS.
--------
The headings of this Second Amendment are for reference only and shall not
limit or otherwise affect the meaning hereof.
-6-
<PAGE>
[Signature Page to Second Amendment to Shareholders' Agreement]
IN WITNESS WHEREOF, the parties have caused this Second Amendment to be
duly executed by their duly authorized officers, all as of the date first above
written.
COMPANY:
MAGINET CORPORATION
By:_________________________________________
Name:_______________________________________
Title:______________________________________
-7-
<PAGE>
[Signature Page to Second Amendment to Shareholders' Agreement]
EXISTING RIGHTS HOLDERS:
____________________________________________
ROBERT R. CREAGER
SUNSET PARTNERS, L.P.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
SUNSET PARTNERS II, L.P.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
SUNSET PARTNERS III, L.P.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
-8-
<PAGE>
[Signature Page to Second Amendment to Shareholders' Agreement]
NEW RIGHTS HOLDER:
By:_________________________________________
Name:_______________________________________
Title:______________________________________
-9-
<PAGE>
PACIFIC PAY VIDEO LIMITED
SHAREHOLDERS' AGREEMENT
This Shareholders' Agreement (the "Shareholders' Agreement") is made as of
September 29, 1994 by and among PACIFIC PAY VIDEO LIMITED, a California
corporation (the "Company"), and the persons and entities listed on Exhibit A
---------
attached hereto (the "Shareholders").
R E C I T A L S
A. On July 23, 1992, the Company and certain securityholders of the
Company entered into a Series A Preferred Stock Purchase Agreement (the "Series
A Agreement"), which, among other things, conferred upon certain securityholders
of the Company rights regarding the registration of shares of the Company's
Common Stock, certain covenant rights, and rights of first refusal upon the sale
of securities by any Purchasers (as those terms are defined in the Series A
Agreement).
B. On August 31, 1992, the Company and certain securityholders of the
Company entered into a Series B Preferred Stock Purchase Agreement (the "Series
B Agreement"), which, among other things, conferred upon certain securityholders
of the Company certain covenant rights and rights regarding the registration of
shares of the Company's Common Stock which superseded the registration rights
granted in the Series A Agreement.
C. On March 17, 1993, the Company and certain securityholders of the
Company entered into a Series B Preferred Stock and Warrant Purchase Agreement
(the "Second Series B Agreement"), which, among other things, conferred upon
certain securityholders of the Company certain covenant rights, rights of first
refusal, and rights regarding the registration of shares of the Company's Common
Stock which superseded the registration rights granted in the Series B
Agreement.
D. On September 29, 1993, the Company granted to COMSAT Video
Enterprises a warrant to purchase up to 1,575,000 shares of the Company's Common
Stock (the "COMSAT Warrant") and in connection therewith, the Company and
certain other parties to the Second Series B Agreement entered into an Amendment
No. 1 to the Second Series B Agreement (the "Series B Amendment"), which
provided that the shares of Common Stock issuable upon exercise of the COMSAT
Warrant would be deemed "Registrable Securities" under Section 8 of the Series B
Agreement.
E. On March 10, 1994, in connection with the Note and Warrant Purchase
Agreement, the Company issued Warrants to purchase Common Stock (the "First
Bridge Warrants"); and the Company and certain parties to the Second Series B
Agreement, as amended, entered into a new agreement (the "Registration Rights
Agreement"), which superseded Section 8 of the Second Series B Agreement, as
amended by the Series B Amendment, in its entirety, contained provisions
<PAGE>
substantially similar to those of Section 8 of the Second Series B Agreement, as
amended by the Series B Amendment, and granted such rights to the holders of
First Bridge Warrants.
F. On June 20, 1994, the Company granted to Silicon Valley Bank ("SVB")
and Hambrecht & Quist Guaranty Finance ("H&Q") warrants to purchase Common Stock
of the Company (the "SVB/H&Q Warrants"), and in connection therewith, the
Company and certain other parties to the Registration Rights Agreement entered
into the First Amendment to Registration Rights Agreement (the "First
Amendment"), which provided that the shares of Common Stock issuable upon
exercise of the SVB/H&Q Warrants would be deemed "Registrable Securities" under
the Registration Rights Agreement.
G. On September 12, 1994, in connection with the Second Note and
Warrant Purchase Agreement, the Company agreed to issue certain warrants to
purchase Common Stock (the "Second Bridge Warrants"); and the Company and
certain parties to the Registration Rights Agreement, as amended, entered into
the Second Amendment to Registration Rights Agreement (the "Second Amendment"),
which provided that the shares of Common Stock issuable upon exercise of the
Second Bridge Warrants would be deemed "Registrable Securities" under the
Registration Rights Agreement, as amended.
H. In connection with the issuance of Series C Preferred Stock (the
"Series C Preferred") and warrants to purchase Series C Preferred Stock (the
"Series C Warrants") pursuant to the Series C Preferred Stock Purchase Agreement
(the "Series C Agreement"), the Shareholders constituting the holders of a
majority of the Registrable Securities (as that term is defined in the
Registration Rights Agreement, as amended) desire to enter into a new agreement
which will restate and supersede the Registration Rights Agreement, in its
entirety, and which will grant such registration rights to the holders of the
Series C Preferred and Series C Warrants. In addition, the Shareholders desire
to provide for certain rights and restrictions as to the securities held by
certain Shareholders as provided herein.
The parties hereto agree as follows:
SECTION 1
REGISTRATION RIGHTS
-------------------
1.1 Certain Definitions. As used in this Shareholders' Agreement, the
-------------------
following definitions shall apply:
"Commission" means the Securities and Exchange Commission or any
----------
other federal agency at the time administering the Securities Act.
-2-
<PAGE>
"Holder" means any holder of outstanding Registrable Securities;
------
provided, however, that for all purposes under this Section, a holder of Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, the
COMSAT Warrant, the Original Warrants (as defined below), the First Bridge
Warrants, the SVB\H&Q Warrants, the Second Bridge Warrants, or the Series C
Warrants shall be deemed to be a Holder of the Registrable Securities into which
such shares are then convertible or for which such warrants are then
exercisable.
"Initiating Holders" means Holders of not less than 40% of the
------------------
Registrable Securities.
"Registrable Securities" means (i) the shares of Common Stock
----------------------
issuable upon conversion of the Company's Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock (the "Conversion Stock"), (ii) the
shares of Common Stock issuable upon exercise of the warrants issued pursuant to
the Second Series B Agreement (the "Original Warrants"), the COMSAT Warrant, the
First Bridge Warrants, the SVB\H&Q Warrants, the Second Bridge Warrants, or the
Common Stock issuable upon conversion of the Series C Preferred Stock issuable
upon exercise of the Series C Warrants (collectively, the "Warrant Shares"),
(iii) the shares of Common Stock currently outstanding and not issued pursuant
to the exercise of options or warrants (the "Founders' Stock"), and (iv) any
shares of Common Stock of the Company issued or issuable, directly or
indirectly, in respect of the stock described in (i), (ii) and (iii) upon any
stock split, stock dividend, recapitalization, or similar event, or any shares
of Common Stock otherwise issued or issuable with respect to such stock;
provided, however, that Registrable Securities shall not include shares of
- -------- -------
Common Stock that have been sold to or through a broker or dealer or underwriter
in a public distribution or a public securities transaction, sold in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act under Section 4(1) thereof so that all transfer restrictions,
and restrictive legends with respect thereto, if any, are removed upon the
consummation of such sale, or Registrable Securities sold by a person in a
transaction in which rights under this Section 1 are not assigned.
"Registration Expenses" means all expenses incurred by the Company
---------------------
in complying with Sections 1.2, 1.3 and 1.4, including, without limitation, all
registration, qualification and filing fees, printing expenses, escrow fees,
fees and disbursements of counsel for the Company, blue sky fees and expenses,
and the expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the Company
which shall be paid in any event by the Company). Registration Expenses shall
not include expenses of the holders of Registrable Securities to the extent
limited or precluded in applicable blue sky laws. Registration Expenses shall
not include selling commissions, discounts or other compensation paid to
underwriters or other agents or brokers to effect the sale. Registration
Expenses shall include the fees or expenses of one legal counsel to the Holders.
-3-
<PAGE>
"Restricted Securities" means the Company's currently outstanding
---------------------
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock,
the Conversion Stock, the Founders' Stock, the Original Warrants, the COMSAT
Warrant, the First Bridge Warrants, the SVB\H&Q Warrants, the Second Bridge
Warrants, the Series C Warrants, and the Warrant Shares, and any other
securities issued in respect thereof upon any stock split, stock dividend,
recapitalization, merger, consolidation or similar event.
"Securities Act" means the United States Securities Act of 1933, as
--------------
amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, as shall be in effect at the time.
The terms "register", "registered" and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the Securities Act (and any post-effective amendments filed or
required to be filed), and the declaration or ordering of the effectiveness of
such registration statement; provided, however, that the foregoing terms shall
also include a registration in a foreign jurisdiction to the extent set forth in
Section 1.18.
1.2 Requested Registration.
----------------------
(a) Request for Registration. In case the Company shall receive
------------------------
from Initiating Holders a written request six (6) months after the effective
date of the initial registration of the Company's securities, that the Company
effect any underwritten registration, qualification, or compliance with respect
to Registrable Securities held by such Initiating Holders, then the Company
shall:
(i) promptly give written notice of the proposed
registration, qualification, or compliance to all other Holders; and
(ii) as soon as practicable, use its most diligent efforts
to effect all such registration, qualification, or compliance (including,
without limitation, the execution of an undertaking to file post-effective
amendments, appropriate qualification under applicable blue sky or other state
securities laws, and appropriate compliance with applicable regulations issued
under the Securities Act and any other governmental requirements or regulations)
as may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any Holders joining in such request as are specified in a written
request received by the Company within 20 days after the date the Company mails
such written notice;
Provided, however, that the Company shall not be obligated to
take any action to effect any such registration, qualification, or compliance
pursuant to this Section 1.2:
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<PAGE>
(A) In any jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting such
registration, qualification, or compliance unless the Company is already subject
to service in such jurisdiction and except as may be required by the Securities
Act;
(B) During the period starting with the date sixty
days prior to the Company's estimated date of filing of, and ending on the date
six months immediately following the effective date of any registration
statement pertaining to equity securities of the Company (other than a
registration of securities in a Rule 145 transaction or with respect to an
employee benefit plan or initiated by security holders);
(C) Unless the registration will be requested for at
least ten percent (10%) of the Registrable Securities; or
(D) At any time during which the Company is qualified
to use Form S-3 for registration of the Registrable Securities held by the
Holders.
Subject to the foregoing clauses (A) through (D), the Company
shall file a registration statement covering the Registrable Securities so
requested to be registered as soon as practicable, and in any event within 90
days, after receipt of the request or requests of the Initiating Holders;
provided, however, that if the Company shall furnish to Holders requesting a
registration statement under this Section 1.2, a certificate signed by the
President of the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company and
its shareholders for such registration statement to be filed and it is therefore
essential to defer the filing of such registration statement, the Company shall
have the right to defer such filing for a period of not more than ninety (90)
days after receipt of the request of the Initiating Holders; provided further,
that the Company may not utilize this right more than once in any twelve month
period.
(b) Underwriting. The right of any Holder to registration
------------
pursuant to this Section 1.2 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent requested (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders
and such Holder) and to the extent provided herein.
The Company shall (together with all Holders and holders of
other securities proposing to distribute their securities through such
underwriting) enter into an underwriting agree ment in customary form with the
managing underwriter selected for such underwriting by a majority in interest of
the Initiating Holders. Notwithstanding any other provision of this Section 1.2,
if the managing underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the securities of the Company entitled to be included in such
registration which are not Registrable Securities shall be
-5-
<PAGE>
excluded from such registration to the extent required by such limitation. If a
limitation of the number of shares is still required, then the Company shall so
advise all Holders, and the number of shares of Registrable Securities that may
be included in the registration and underwriting shall first be allocated among
Holders thereof in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities, other than Founders Shares, entitled to
inclusion (determined without regard to any requirement of a request to be
included in such registration) in such registration held by all such Holders at
the time of filing the registration statement and, second, should the
underwriter's limitation permit inclusion of any additional securities, among
all Holders in proportion, as nearly as practicable, to the respective amounts
of Founders Shares entitled to inclusion (determined without regard to any
requirement of a request to be included in such registration) in such
registration held by all such Holders at the time of filing the registration
statement. No Registrable Securities or other securities excluded from the
underwriting by reason of the underwriter's marketing limitation shall be
included in such registration. To facilitate the allocation of shares in
accordance with the above provisions, the Company or the underwriters may round
the number of shares allocated to any Holder to the nearest 100 shares.
If any Holder of Registrable Securities disapproves of the
terms of the underwriting, such person may elect to withdraw therefrom by
written notice to the Company, the managing underwriter and the Initiating
Holders. The Registrable Securities and/or other securities so withdrawn shall
also be withdrawn from registration, and such Registrable Securities shall not
be transferred in a public distribution prior to 90 days after the effective
date of such registration, or such other shorter period of time as the
underwriters may require. If by the withdrawal of such Registrable Securities a
greater number of Registrable Securities held by other Holders may be included
in such registration (up to the maximum of any limitation imposed by the
underwriters), then the Company shall offer to all Holders who have included
Registrable Securities in the registration the right to include additional
Registrable Securities in the same proportion and manner used in determining the
underwriter limitation in this Section 1.2(b).
If the managing underwriter has not limited the number of
Registrable Securities to be underwritten, the Company may include securities
for its own account or for the account of others in such registration if the
underwriter so agrees and if the number of Registrable Securities which would
otherwise have been included in such registration and underwriting will not
thereby be limited.
-6-
<PAGE>
1.3 Company Registration.
--------------------
(a) Notice of Registration. If at any time or from time to time,
----------------------
the Company shall determine to register any of its securities, either for its
own account or the account of a security holder or holders exercising their
respective demand registration rights, other than (i) a registration relating
solely to employee benefit plans, or (ii) a registration relating solely to a
Rule 145 transaction, the Company shall:
(i) promptly give to each Holder written notice thereof; and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
by each Holder received by the Company within 15 days after the Company mails
such written notice, subject to the provisions below.
(b) Underwriting. The right of any Holder to registration
------------
pursuant to Section 1.3 shall be conditioned upon the participation by such
Holder in such underwriting, if any, and the inclu sion of the Registrable
Securities of such Holder in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company and the other holders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the managing underwriter selected for such underwriting by the
Company. Notwithstanding any other provision of this Section 1.3, if the
managing underwriter determines that marketing factors require a limitation of
the number of shares to be underwritten, the managing underwriter may limit the
Registrable Securities held by Holders. If a limitation of the number of shares
to be included in such registration is required, then the Company shall so
advise all Holders, and the number of shares of Registrable Securities and other
securities that may be included in the registration and underwriting shall be
allocated among all Holders and other holders of securities thereof first among
all Holders and other holders in proportion, as nearly as prac ticable, to the
respective amounts of securities, other than Founders Shares, entitled to
inclusion (determined without regard to any requirement of a request to be
included in such registration) in such registration held by all such Holders and
other holders at the time of filing the registration statement and, second,
should the underwriter's limitation permit inclusion of any additional
securities, among all Holders in proportion, as nearly as practicable, to the
respective amounts of Founders Shares entitled to inclusion (determined without
regard to any requirement of a request to be included in such registration) in
such registration held by all such Holders at the time of filing the
registration statement; provided, however, that the number of Registrable
Securities entitled to inclusion in any such registration, except for the
registration of the initial public offering of the Company's securities, shall
be no less than twenty percent (20%) of the total number of shares covered by
such registration. To facilitate the allocation of shares in accordance with the
above provisions, the Company may round the number of shares allocated to any
Holder to the nearest 100 shares. If any Holder or other holder disapproves of
the terms of any such underwriting, he may elect to
-7-
<PAGE>
withdraw therefrom by written notice to the Company and the managing
underwriter. Any securities excluded or withdrawn from such underwriting shall
be withdrawn from such registration.
(c) Right to Terminate Registration. The Company shall have the
-------------------------------
right to terminate or withdraw any registration initiated by it under this
Section 1.3 prior to the effectiveness of such registration whether or not any
Holder has elected to include securities in such registration.
1.4 Form S-3 Registration. In case the Company shall receive from a
---------------------
Holder or Holders a written request that the Company effect a registration on
Form S-3 and any related qualification or compliance with respect to an amount
of the Registrable Securities owned by such Holder or Holders for which the
anticipated aggregate offering price would be at least $500,000, the Company
shall:
(a) promptly give written notice of the proposed registration, and
any related qualification or compliance to all other Holders; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given within 20
days after receipt of such written notice from the Company; provided, however,
that the Company shall not be obligated to effect any such registration,
qualification, or compliance pursuant to this Section 1.4: (1) if Form S-3 is
not available for such offering by the Holders; (2) if the Company shall furnish
to the Holders a certificate signed by the president of the Company stating that
in the good faith judgment of the board of directors of the Company, it would be
seriously detrimental to the Company and its shareholders for such Form S-3
Registration to be effected at such time, in which event the Company shall have
the right to defer the filing of the Form S-3 registration statement for a
period of not more than 90 days after receipt of the initiating request of the
Holder or Holders under this Section 1.4; provided, however, that the Company
shall not utilize this right more than twice in any twelve month period; (3) if
the Company has, within the 12 month period preceding the date of such request,
already effected one (1) registration on Form S-3 for the Holders pursuant to
this Section 1.4; or (4) in any jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting such
registration, qualification or compliance unless the Company is already subject
to service in such jurisdiction and except as may be required by the Securities
Act.
Subject to the foregoing, the Company shall effect such
registration, qualification, or compliance (including, without limitation, the
execution of an undertaking to file post-effective amendments, appropriate
qualification under applicable blue sky or other state
-8-
<PAGE>
securities laws and appropriate compliance with applicable regulations issued
under the Securities Act and any other governmental requirements or regulations)
covering the Registrable Securities and other securities so requested to be
registered as soon as practicable after receipt of the request or requests of
the Holders. Registrations effected pursuant to this Section 1.4 shall not be
counted as demands for registration or registrations effected pursuant to
Sections 1.2 or 1.3.
If the registration to be effected pursuant to this Section 1.4
is to be an underwritten public offering, it shall be managed by an underwriter
or underwriters acceptable to the Company selected by a majority in interest of
the Holders requesting registration. In such event, the right of any Holder to
registration pursuant to Section 1.4 shall be conditioned upon the participation
by such Holder in such underwriting and the inclusion of the Registrable
Securities of such Holder in the underwriting to the extent provided herein. If
the managing underwriter so selected determines that marketing factors require a
limitation of the number of shares to be underwritten, the managing underwriter
may limit the Registrable Securities held by such Holders to be included in such
registration. The Company shall so advise such Holders, and the number of shares
of Registrable Securities that may be included in the registration shall be
allocated among such Holders in propor tion to the respective amounts of
Registrable Securities which would be held by each of such Holders at the time
of filing of the registration statement. Any Registrable Securities that are so
excluded from the underwriting shall be excluded from the registration. As used
throughout this Section the term "Form S-3" shall be deemed to include any
equivalent successor form for registration pursuant to the Act.
1.5 Expenses of Registration.
------------------------
All Registration Expenses incurred in connection with the
registration, qualification or compliance pursuant to Sections 1.2, 1.3, and 1.4
shall be borne by the Company; provided, however, that the Company shall not be
required to pay for expenses of (i) any registrations requested pursuant to
Section 1.2 after the Company has effected three (3) such registrations pursuant
to Section 1.2 or 1.4 and such registrations have been declared or ordered
effective, and (ii) any registration proceeding begun pursuant to Section 1.2,
the request of which has been subsequently withdrawn by the Initiating Holders,
in which case such expenses shall be borne by the Holders of securities
(including Registrable Securities) pro rata in accordance with the number of
shares initially sought to be registered requesting or causing such withdrawal,
unless the Holders shall agree that such withdrawn registration shall be counted
as a registration for purposes of Section 1.2(a)(ii)(D). Notwithstanding the
foregoing, if such withdrawal is occasioned by the disclosure to the Initiating
Holders of a material adverse fact regarding the Company not known by the
Initiating Holders at the time of their request for registration then the
Company will bear such Registration Expenses and the Holders will retain their
rights under Section 1.2 hereof.
1.6 Registration Procedures. If and whenever the Company is required by
-----------------------
the provisions of this Section to use its most diligent efforts to effect
promptly the registration of Registrable Securi ties, the Company shall:
-9-
<PAGE>
(a) Prepare and file with the Commission a registration statement
with respect to such Registrable Securities and use its most diligent efforts to
cause such registration statement to become and remain effective as provided
herein.
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
current and to comply with the provisions of the Securities Act with respect to
the sale or other disposition of all Registrable Securities covered by such
registration statement, including such amendments and supplements as may be
necessary to reflect the intended method of disposition of the prospective
seller or sellers of such Registrable Securities, but for no longer than one
hundred twenty (120) days subsequent to the effective date of such registration
in the case of a registration statement on Form S-1 (or any similar form of
registration statement required to set forth substantially identical
information) and for no longer than 90 days in the case of a registration
statement on Form S-3.
(c) Furnish to each prospective seller of Registrable Securities
such number of copies of a prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other
documents, as such seller may reasonably request in order to facilitate the
public sale or other disposition of the Registrable Securities of such seller.
1.7 Indemnification. In the event any of the Registrable Securities are
---------------
included in a registration statement under this Section:
(a) The Company will indemnify each Holder, each of its officers
and directors and partners and such Holder's separate legal counsel and
independent accountants, and each person con trolling such Holder within the
meaning of Section 15 of the Securities Act, and each underwriter, if any, and
each person who controls any underwriter within the meaning of Section 15 of the
Securities Act, against all expenses, claims, losses, damages or liabilities (or
actions in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened, arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, prospectus, offering circular or other
document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading, or any violation by the Company of any rule or
regulation promulgated under the Securities Act applicable to the Company in
connection with any such registration, qualification or compliance, and the
Company will reimburse each such Holder, each of its officers and directors and
partners and such Holders' separate legal counsel and independent accountants
and each person con trolling such Holder, each such underwriter and each person
who controls any such underwriter, for any legal and any other expenses
reasonably incurred in connection with investigating, preparing or defending any
such claim, loss, damage, liability or action, provided that the Company will
not be liable in any such
-10-
<PAGE>
case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission or alleged untrue
statement or omission, made in reliance upon and in conformity with written
information furnished to the Company by an instrument duly executed by such
Holder or underwriter and stated to be specifically for use therein.
(b) Each Holder will, if Registrable Securities held by such Holder
are included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers and its legal counsel and independent accountants, each underwriter, if
any, of the Company's securities covered by such a registration statement, each
person who controls the Company or such underwriter within the meaning of
Section 15 of the Securities Act, and each other such Holder, each of its
officers and directors and each person con trolling such Holder within the
meaning of Section 15 of the Securities Act, against all claims, losses, damages
and liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company, such Holders, such directors,
officers, persons, underwriters or control persons for any legal or any other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder and stated to be specifically for use therein;
provided, however, that the obligations of each Holder hereunder shall be
limited to an amount equal to the proceeds to each such Holder of Registrable
Securities sold as contemplated herein.
(c) Each party entitled to indemnification under this Section (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
(d) If the indemnification provided for in this Section is held by
a court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any loss, liability,
-11-
<PAGE>
claim, damage or expense referred to herein, then the Indemnifying Party, in
lieu of indemnifying the Indemnified Party, shall contribute to the amount paid
or payable by such Indemnified Party with respect to such loss, liability,
claim, damage or expense in the proportion that is appropriate to reflect the
relative fault of the Indemnifying Party and the Indemnified Party in connection
with the state ments or omissions that resulted in such loss, liability, claim,
damage or expense, as well as any other relevant equitable considerations. The
relative fault of the Indemnifying Party and the Indemnified Party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of material fact or the omission to state a material fact
relates to information supplied by the Indemnifying Party or by the Indemnified
Party, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
1.8 Information by Holder. The Holder or Holders of Registrable
---------------------
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders and the distribution proposed by
such Holder or Holders as the Company may request in writing and as shall be
required in connection with any registration, qualification or compliance
referred to in this Section.
1.9 Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission which may at any time permit the
sale of the Restricted Securities to the public without registration, after such
time as a public market exists for the Common Stock of the Company and until
five years from the date hereof, the Company shall use its best efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, beginning 90 days
after (i) the effective date of the first registration statement filed by the
Company for an offering of its securities to the general public, (ii) the
Company registers a class of securities under Section 12 of the Securities
Exchange Act of 1934, as amended, or (iii) the Company issues an offering
circular meeting the requirements of Regulation A under the Securities Act;
(b) File with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Securities Exchange Act of 1934, as amended (at any time after it has become
subject to such reporting requirements);
(c) Furnish to any Holder promptly upon request a written statement
as to its compliance with the reporting requirements of Rule 144 (at any time
after 90 days after the effective date of the first registration statement filed
by the Company for an offering of its securities to the general public), and of
the Securities Act and the Securities Exchange Act of 1934 (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
of the Company and other information in the possession of or reasonably
obtainable by the Company as a Holder
-12-
<PAGE>
may reasonably request in availing itself of any rule or regulation of the
Commission allowing a Holder to sell any such securities without registration.
1.10 Assignment of Registration Rights. The rights to cause the
---------------------------------
Company to register securities granted under this Section may be assigned to a
transferee or assignee in connection with the transfer or assignment of
Registrable Securities only if such shares represent at least 1% of the
outstanding shares of the Company's capital stock (assuming conversion of all
Preferred Stock to Common Stock, exercise of all warrants for Common Stock and
the conversion of all Series C Preferred Stock issuable upon the exercise of the
Series C Warrants) on the date of such assignment.
1.11 Limitations on Subsequent Registration Rights. From and after the
---------------------------------------------
date of this Shareholders' Agreement, the Company shall not, without the prior
written consent of the Holders of a majority of the outstanding Registrable
Securities, enter into any agreement with any holder or prospective holder of
any securities of the Company which would allow such holder or prospective
holder (a) to include such securities in any registration filed under Section
1.2 hereof, unless under the terms of such agreement, such holder or prospective
holder may include such securities in any such registration only to the extent
that the inclusion of his securities will not reduce the amount of the
Registrable Securities of the Holders which is included or (b) to make a demand
registration which could result in such registration statement being declared
effective prior to the earlier of either of the dates set forth in subsection
1.2(a) or within 120 days of the effective date of any registration effected
pursuant to Section 1.2.
1.12 Amendment of Registration Rights. The registration rights provided
--------------------------------
in this Section may be amended or waived with the written consent of the Company
and the holders of a majority of the Registrable Securities except that the
rights provided in Section 1.3 may not be amended or waived, so as to adversely
affect the holders of Founders Shares in a manner different from other Holders,
without the written consent of the holders of a majority of the Founders Shares.
1.13 Termination of Registration Rights. No Holder shall be entitled to
----------------------------------
exercise any right provided for in this Section 1 after five years following the
consummation of the sale of securities pursuant to a registration statement
filed by the Company under the Securities Act in connection with the initial
firm commitment underwritten offering of its securities to the general public or
at such time as all Registrable Securities held by such Holder may immediately
be sold under Rule 144 during any 90-day period.
1.14 Lock-Up Provision. If requested by the Company and an underwriter
-----------------
of securities of the Company, no Holder shall sell or otherwise transfer or
dispose of any Restricted Securities (other than those securities included in
the registration) during the up to 180-day period following the effective date
of a registration statement filed in connection with the public offering of the
Company's securities, provided that all officers and directors enter into
similar agreements. The obligations described in this Section 1.14 shall not
apply to a registration relating solely to
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<PAGE>
employee benefit plans on Form S-1 or Form S-8 or similar form that may be
promulgated in the future. The Company may impose stop-transfer instructions
with respect to the securities subject to the foregoing restriction until the
end of the one hundred eighty (180) day period.
1.15 Option to Conduct Foreign Registration. To the extent the Company
--------------------------------------
is obligated to register securities pursuant to this Section 1, such obligation
may be satisfied, at the Company's option, by effecting a registration in a
jurisdiction other than the United States, pursuant to the applicable securities
laws of such jurisdiction. In the event the Company effects a registration in a
foreign jurisdiction, provided that in the good faith judgment of the board of
directors of the Company registration in such jurisdiction is in the best
interests of the Company and its shareholders, and the Holders will not be
materially adversely affected by such choice of jurisdiction, (i) the rights of
holders of Registrable Securities pursuant to Section 1.3 hereof shall apply to
such registration, and (ii) references in this Section 1 to laws, rules, and
customary practices applicable to a registration under United States securities
laws shall be interpreted so as to reflect as nearly as possible the relevant
laws, rules, and customary practices related to a securities registration in the
jurisdiction in which such registration is made.
1.16 Coordination of Prior Rights. Certain of the Shareholders,
----------------------------
constituting a majority in interest of the Holders (as defined in the
Registration Rights Agreement, as amended) hereby agree that the execution and
delivery of this Shareholders' Agreement is an amendment of the Registration
Rights Agreement, as amended, and that the registration rights contained therein
shall be null and void as of the execution hereof and shall be superseded in
their entirety by the terms of this Shareholders' Agreement.
SECTION 2
VOTING
------
2.1 Voting of Shares. The Shareholders each agree to hold all shares of
----------------
voting capital stock of the Company registered in their respective names or
beneficially owned by them or any of their respective affiliates as of the date
hereof (and any and all other securities of the Company legally or beneficially
acquired by each such Shareholder after the date hereof) (hereinafter
collectively referred to as the "Shares") subject to, and to vote the Shares in
accordance with, the provisions of this Section 2.
2.2 Election of Directors. Each time the Shareholders shall meet, or
---------------------
act by written consent in lieu of acting at a meeting, for the purpose of
electing one or more directors of the Company, each Shareholder agrees to vote
its Shares for the election of (i) three (3) representatives of Sunset Partners
(hereinafter defined as Sunset Partners, L.P., Sunset Partners II, L.P., and
Sunset Partners III, L.P. collectively), and (ii) one (1) representative of
Pomona Capital and its affiliated partnerships; provided, however, that each
-------- -------
Shareholder also agrees to vote its
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<PAGE>
shares for the election of two representatives of the holders of Series C
Preferred Stock as two additional directors (resulting in a board of nine
directors) if the Company fails to meet any one or more of the following three
criteria for the period (the "Relevant Period") commencing on the date hereof
and ending December 31, 1996:
(a) average gross revenues per room of not less than $30 per month for the
Relevant Period,
(b) at least 100,000 rooms installed by the end of the Relevant Period,
and
(c) a capital cost per room (including the cost of interactive shopping,
but excluding the cost of televisions) of not more than $600 based on rooms
added during the Relevant Period.
The obligation assumed by each Shareholder hereunder to vote its Shares as set
forth above shall be deemed to be a right coupled with an interest in favor of
each other Shareholder, and each other Shareholder may, by acting through a
person designated by Shareholders holding a majority of the Shares subject to
this provision, vote such Shareholder's Shares by proxy. The parties to this
Agreement shall vote their Shares to maintain a board of seven directors, unless
one or more of the foregoing three criteria are not met during the Relevant
Period. In which case, the parties hereto shall vote their Shares to increase
the board to nine directors with the additional two directors nominated and
elected as set forth above.
2.3 Successors; Directors. In the event that any of the individuals or
---------------------
entities identified in Section 2.2 is unable or unwilling to serve on the Board
of Directors of the Company, his successor shall be chosen by the person or
entity (or persons or entities) whom that director is representing. With respect
to the representatives of holders of the Series C Preferred Stock, the
representatives shall be selected by a majority of the Series C Preferred Stock.
2.4 Effectiveness; Termination. This Section 2 shall become effective
--------------------------
on the date hereof. This Section 2 shall terminate upon the closing of the
Company's first offering of voting equity securities to the public pursuant to a
registration statement filed with the Securities and Exchange Commission. If
Sunset Partners holds less than 50% of the shares of Series C Preferred Stock it
holds on the effective date of this Shareholders' Agreement, then each
Shareholder agrees to vote its shares for the election of two (2)
representatives of Sunset Partners. If Sunset Partners holds less than 25% of
the shares of Series C Preferred Stock it holds on the effective date of this
Shareholders' Agreement, then each Shareholder agrees to vote its shares for the
election of one (1) representative of Sunset Partners. With respect to Sunset
Partners, the provisions of this Section 2 shall terminate when Sunset Partners
holds less than 10% of the shares of Series C Preferred Stock it holds on the
effective date of this Shareholders' Agreement. With respect to Pomona Capital,
the provisions of this Section 2 shall terminate when Pomona Capital and its
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<PAGE>
affiliated partnerships hold less than 50% of the shares of Series C Preferred
Stock such entities hold on the effective date of this Shareholders' Agreement.
2.5 Representations. Each Shareholder represents and warrants to the
---------------
other Shareholders that (a) it now owns (or, upon the distribution thereof, will
own) the Shares, free and clear of liens or encumbrances, and has not, prior to
the date of this Agreement, executed or delivered any proxy or entered into any
other voting agreement or similar arrangement with respect to the Shares other
than one which has expired or terminated prior to the date hereof, and (b) such
Shareholder has full power and capacity to execute, deliver and perform this
Agreement, which has been duly executed and delivered by, and evidences the
valid and binding obligation of, such Shareholder enforceable in accordance with
its terms.
SECTION 3
RIGHT OF FIRST REFUSAL
----------------------
3.1 The Right. The Company hereby grants to ((a) each holder of
---------
Series C Preferred Stock of the Company and (b) holders of more than five
percent (5%) of the voting capital of the Company prior to the issuance of the
Series C Preferred Stock (collectively the Right Holders and each a "Right
Holder"), the right to purchase such Right Holder's Pro Rata Share (as defined
below) of any New Securities (as defined below) which the Company may, from time
to time, proposed to sell and issue, on the same terms and conditions and for
the same price as set forth in the notice described in Subsection 3.2 hereof.
Each Right Holder's "Pro Rata Share" for purposes of this right of first refusal
is the ratio of (i) the total number of shares of Common Stock held by
Shareholder as of the date of the notice, assuming the conversion of all
Preferred Stock, to (ii) the total aggregate shares of Common Stock outstanding
assuming the conversion of all Preferred Stock.
3.2 Notice. The Company shall give to such Right Holder written notice
------
of the proposed offer to sell and issue any of the new Securities, which written
notice shall contain the terms of such proposed sale in reasonable detail and
shall be delivered to such Right Holder not less than twenty (20) days prior to
the date such securities are proposed to be sold and issued. Such Right Holder
shall have the right to exercise the option granted pursuant to Subsection 3.1
above by giving written notice thereof to the Company prior to the expiration of
such twenty (20) day period, specifying the amount of securities which such
Right Holder desires to purchase. In the event such Right Holder does not give
such notice, then the Company shall be free to sell and issue such New
Securities to other parties, but only on the same terms as set forth in said
written notice. If the Company does not sell and issue such New Securities on
such terms within 180 days of the expiration of the Right Holder's right of
first refusal hereunder, then such New Securities shall once again be subject to
the right of first refusal set forth in this Section 3.
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<PAGE>
3.3 New Securities. The term "New Securities" as used in this Section 3
--------------
shall mean any shares of the Company's Common Stock or Preferred Stock, rights,
options or warrants to purchase such shares of Common Stock or Preferred Stock,
Convertible Securities, and securities of any type whatsoever that are, or may
become, convertible into such shares of Common Stock or Preferred Stock;
provided that "New Securities" does not include:
(a) Common Stock issuable upon conversion of the Preferred Stock or
exercise of the Common Warrants or upon conversion of the Series C Preferred
Stock issuable upon exercise of the Series C Warrants;
(b) securities issued in an underwritten public offering, pursuant
to an effective registration statement under the Securities Act of 1933, as
amended;
(c) securities issued pursuant to the acquisition of another
corporation by merger, purchase of all or substantially all of the assets, or
other reorganization;
(d) securities issued to employees, officers, or directors of, or
consultants to, the corporation, pursuant to stock option, purchase or bonus
plans or agreements on terms approved by the Board of Directors;
(e) securities issued to dealers, trade vendors, sales
representatives, equipment lessors, commercial lenders (or their guarantors) or
joint venturers of the Company on terms approved by the Board of Directors; and
(f) securities issued to effect any stock split or stock dividend
by the Company.
3.4 Termination. The rights granted by this Section 3 shall terminate
-----------
immediately prior to the closing of a public offering of the Company's equity
securities pursuant to registration statement filed under the Securities Act of
1933, as amended.
SECTION 4
TRANSFER RESTRICTIONS; RIGHTS OF FIRST OFFER
--------------------------------------------
4.1 Restrictions on Transfer. The Shareholders agree not to sell,
------------------------
assign, pledge, or in any other manner transfer any of the Company's securities
held by them, or any right or interest therein, whether voluntarily or by
operation of law, or otherwise, except (a) sales made in a registered public
offering or in an open market transaction, or (b) private sales for cash
consideration made subject to the rights of first offer specified in this
Section 4. The foregoing notwithstanding, no sale, assignment, pledge, or
transfer, of any of the Company's securities, or any right or interest therein,
whether voluntarily or by operation of law, or otherwise, may be
-17-
<PAGE>
made by any Shareholder (i) to an Adverse Person, as defined below, or (ii) that
would result in such transferee holding in excess of ten percent (10%) of voting
capital stock of the Company registered in their respective names or
beneficially owned by them or any of their respective affiliates as of the date
thereof.
4.2 Adverse Person. The term "Adverse Person" as used in this Section 4
--------------
shall mean any corporation or entity which at such time is a competitor of the
Company or any affiliate of such corporation or entity.
4.3 Right of First Offer. Pursuant to the restrictions set forth in
--------------------
Section 4.1 above:
(a) Prior to any transfer of the Company's securities, the
Transferring Shareholder (the "Transferring Shareholder") shall promptly notify
the Company and all holders of Series C Preferred Stock (not including the
Transferring Shareholder) (the "Remaining Series C Holders") of the terms and
conditions of such purchase offer (the "Purchase Offer"). Such notice shall set
forth (a) the Transferring Shareholder's bona fide intention to transfer such
securities; (b) the securities to be transferred; and (c) the cash price or, in
reasonable detail, other consideration, per share for which the Transferring
Shareholder proposes to transfer such securities.
(b) For twenty (20) days following receipt of such notice, the
Company shall have the option to purchase all or any portion of the securities
specified in the notice upon the terms specified in the Purchase Offer. If the
Company elects to purchase any of the securities specified in the notice, the
Company will deliver written notice to the Transferring Shareholder. Settlement
for the purchase of the securities shall be made as provided below.
(c) In the event the Company does not elect to acquire all of the
securities specified in the Purchase Offer, the Company shall so notify the
Remaining Series C Holders who at such time shall have the option to purchase
such securities on a pro rata basis determined by applying (i) the ratio of the
number of shares of Common Stock held by the Series C Holder as of the date of
the notice to the number of shares of Common Stock held by the Remaining Series
C Holders in aggregate, assuming the conversion of all Preferred Stock in both
cases, to (ii) the number of securities available through the Purchase Offer,
provided that the securities allocated to any remaining Series C Holder that
does not elect to acquire the securities shall be allocated pro rata to those
that do elect. If any Remaining Series C Holder elects to purchase any of the
remaining securities specified in the notice, such Remaining Series C Holder
shall deliver written notice to the Transferring Shareholder and the Company.
Settlement for the purchase of the securities shall be made as provided below.
(d) In the event the Remaining Series C Holders elect not to
purchase all of the remaining securities specified in the Transferring
Shareholder's notice, the Transferring Shareholder may sell to any transferee
(subject to Sections 4.1 and 4.2 above) on the terms of the
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Purchase Offer the remainder of the securities specified in the notice provided
that such sale closes within sixty (60) days of the expiration of the Remaining
Series C Holder's twenty (20) day notice period and that the sale is on terms
substantially similar to those specified in the Transferring Shareholder's
notice.
(e) Settlement for any or all of the securities elected to purchase
under this Section 4 shall be made in cash within five (5) business days after
the Transferring Shareholder receives the notice from the Company or the
Remaining Series C Holders that it is electing to purchase some or all of the
securities; provided, however, that if the terms of the Purchase Offer called
for payment other than in cash, the Company or the Remaining Series C Holders
shall pay for such securities on the same terms and conditions set forth in the
Transferring Shareholders' notice.
(f) Any sale or transfer, or purported sale or transfer, of the
Company's securities shall be null and void unless the terms, conditions and
provisions of this Section 4 are strictly observed and followed. The Company
will not be required (i) to transfer on its books any shares that have been
sold, gifted or otherwise transferred in violation of this Shareholders'
Agreement, or (ii) to treat as owner of such shares, or to accord the right to
vote or pay dividends to any purchaser, donee or other transferee to whom such
shares may have been so transferred.
(g) Each certificate representing securities now or hereafter owned
by the Shareholders or issued to any permitted transferee shall be endorsed with
the following legend or its substantial equivalent:
"THE SALE OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN RIGHT OF FIRST OFFER
COPIES OF WHICH MAY BE OBTAINED WITHOUT CHARGE UPON WRITTEN REQUEST TO THE
SECRETARY OF THE CORPORATION."
(h) The legend shall be removed and the right of first offer shall
terminate immediately prior to the closing of the sale of the Company's Common
Stock in a bona fide underwritten public offering registered under the Act.
4.4 Permitted Transfers. The transfer restrictions and rights of first
-------------------
offer of the Company and of the Series C Preferred Stock shall not pertain or
apply to (i) any transfer to the spouse or to a trust for the benefit of the
Transferring Shareholder or his or her spouse, brother(s), sister(s), ancestors,
descendants, in any combination, (ii) any sale of securities pursuant to any
exercise of registration rights as set forth in Section 1 of this Shareholders'
Agreement, (iii) any affiliates of the Transferring Shareholder, or (iv) any
distribution to the partners of a Transferring Shareholder which is a limited
partnership, which distribution is consistent with the terms of such limited
partnership agreement; provided that (A) the Transferring Shareholder shall
inform the
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Company and Remaining Series C Holders of such transfer prior to effecting it
and (B) except for Section 4.4(ii), the transferee (the "Permitted Transferee")
shall furnish the Company with a written agreement to be bound by and comply
with all provisions of this Shareholders' Agreement applicable to the
shareholder.
SECTION 5
COORDINATION OF PRIOR RIGHTS OF FIRST REFUSAL
---------------------------------------------
5.1 Second Series B Agreement Rights of First Refusal. Pursuant to
-------------------------------------------------
Section 10.4 ("Entire Agreement; Amendment and Waiver") of the Second Series B
Agreement, as amended, certain of the undersigned Shareholders, constituting a
majority in interest of the persons entitled to the right of first refusal set
forth in Section 9 ("Right of First Refusal") therein, hereby agree that the
execution and delivery of this Shareholders' Agreement is an amendment of the
Second Series B Agreement, as amended, and that the rights of first refusal
contained therein shall be null and void as of the execution hereof and shall be
superseded in their entirety by the terms of this Shareholders' Agreement.
5.2 Series A Agreement Rights of First Refusal. Pursuant to Section
------------------------------------------
10.4 ("Entire Agreement; Amendment and Waiver") of the Series A Agreement,
certain of the undersigned Shareholders, constituting a majority in interest of
the holders of Securities (as defined therein) and the Company hereby agree that
the execution and delivery of this Shareholders' Agreement is an amendment of
the Series A Agreement and that the rights of first refusal contained in Section
9 ("Right of First Refusal of Company and Purchasers") therein shall be null and
void as of the execution hereof and shall be superseded in their entirety by the
terms of this Shareholders' Agreement.
SECTION 6
COORDINATION OF PRIOR COVENANTS RIGHTS
--------------------------------------
6.1 Series B Agreement Covenants. Pursuant to Section 9.4 ("Entire
----------------------------
Agreement; Amendment and Waiver") of the Series B Agreement certain of the
undersigned Shareholders, constituting a majority in interest of the holders of
Securities (as defined therein) and the Company hereby agree that the execution
and delivery of this Shareholders' Agreement is an amendment of the Series B
Agreement, and that the covenant rights set forth in Section 7 ("Covenants of
the Company and the Purchaser") of the Series B Agreement shall be null and void
as of the execution hereof and shall be superseded in their entirety by the
terms of this Shareholders' Agreement.
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<PAGE>
6.2 Series A Agreement Covenants. Pursuant to Section 10.4 ("Entire
----------------------------
Agreement; Amendment and Waiver") of the Series A Agreement, certain of the
undersigned Shareholders, constituting a majority in interest of the holders of
Securities (as defined in the Series A Agreement) and the Company hereby agree
that the execution and delivery of this Shareholders' Agreement is an amendment
of the Series A Agreement and that the covenant rights set forth in Section 7
("Covenants of the Company and the Purchaser") shall be null and void as of the
execution hereof and shall be superseded in their entirety by the terms of this
Shareholders' Agreement.
6.3 Second Series B Agreement Covenants. Pursuant to Section 10.4
-----------------------------------
("Entire Agreement; Amendment and Waiver") of the Second Series B Agreement, as
amended, certain of the undersigned Shareholders constituting a majority in
interest of the holders of Securities (as defined therein) and the Company
hereby agree that the execution and delivery of this Shareholders' Agreement is
an amendment of the Second Series B Agreement, as amended, and that the covenant
rights set forth in Section 7 ("Covenants of the Company and Purchaser") shall
be null and void as of the execution hereof and shall be superseded in their
entirety by the terms of this Shareholders' Agreement.
SECTION 7
COORDINATION OF PRIOR CO-SALE AGREEMENT
---------------------------------------
Pursuant to Section 5.5 of the Amended and Restated Co-Sale Agreement dated
March 17, 1993, by and between Robert R. Creager, the Company, and certain
Securityholders of the Company (the "Restated Co-Sale Agreement'), certain of
the undersigned Shareholders, constituting the Major Shareholder and the
Preferred Shareholders holding a majority of the Preferred Shares (as those
terms are defined therein) and the Company hereby agree that the Restated Co-
Sale Agreement is null and void as of the execution hereof and that this
Shareholders' Agreement supersedes any and all rights contained therein.
SECTION 8
COORDINATION OF PRIOR VOTING AGREEMENT
--------------------------------------
Pursuant to Section 3.3 of the Voting Agreement (the "Voting Agreement")
dated as of October 15, 1992, by and among the Company and certain
Securityholders of the Company as amended by the Amendment and Agreement to be
Bound dated March 17, 1993, the undersigned Shareholder, constituting holders of
more than 50% of the Shares (as defined therein) subject to the Voting
Agreement, hereby agree that the execution and delivery of this Shareholders'
Agreement is an amendment of the Voting Agreement, and that the Voting
Agreement, as
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<PAGE>
amended, is null and void as of the execution hereof and that this Shareholders'
Agreement supersedes any and all rights contained therein.
SECTION 9
COORDINATION OF PRIOR RIGHT OF FIRST OFFER AGREEMENT
----------------------------------------------------
The Company and COMSAT Video Enterprises, Inc. hereby agree to renegotiate
the Right of First Offer Agreement dated as of March 15, 1993 in good faith
subsequent to the execution of this Shareholders' Agreement.
SECTION 10
GENERAL PROVISIONS
------------------
10.1 Necessary Actions. If and whenever the Shares are sold by a
-----------------
Shareholder or its representative, the Shareholder or its representative shall
do all things and execute and deliver all documents and make all transfers, and
cause any transferee of the Shares to do all things and execute and deliver all
documents, as may be necessary to consummate such sale consistent with this
Agreement.
10.2 Equitable Relief. The parties hereto declare that it is impossible
----------------
to measure in money the damages which will accrue to a party hereto or to their
heirs, personal representatives, or assigns by reason of a failure to perform
any of the obligations under this Agreement and agree that the terms of this
Agreement shall be specifically enforceable. If any party hereto or his heirs,
personal represen tatives, or assigns institutes any action or proceeding to
specifically enforce the provisions hereof, any person against whom such action
or proceeding is brought hereby waives the claim or defense therein that such
party or such personal representative has an adequate remedy at law, and such
person shall not offer in any such action or proceeding the claim or defense
that such remedy at law exists.
10.3 Reclassifications, etc. In the event that subsequent to the date of
----------------------
this Agreement any shares or other securities are issued on, or in exchange for,
any of the Shares held by the Shareholders by reason of any stock dividend,
stock split, consolidation of shares, reclassification, merger or consolidation
involving the Company, such shares or securities shall be deemed to be Shares
for purposes of this Agreement.
10.4 Further Assurances. Each Shareholder agrees to execute and deliver
------------------
such additional documents and take such additional actions as may be necessary
or reasonably desirable to carry out the intent of this Agreement.
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<PAGE>
10.5 Governing Law. This Shareholders' Agreement shall be governed by
-------------
and construed according to the laws of the State of California.
10.6 Survival. The representations, warranties, and covenants of the
--------
parties made herein shall survive the Closing.
10.7 Successors and Assigns. Except as otherwise expressly limited
----------------------
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto.
10.8 Entire Agreement; Amendment and Waiver. This Shareholders'
--------------------------------------
Agreement and the other documents delivered pursuant hereto constitute the full
and entire understanding and agreement between the parties with regard to the
subject matters hereof and thereof. Except as provided in Section 1.15, any term
of this Shareholders' Agreement may be amended and the observance of any term
hereof may be waived (either prospectively or retroactively and either generally
or in a particular instance) only with the written consent of a majority in
interest of the Holders and the written consent of the Company. Any amendment or
waiver effected in accordance with this Section 10.8 shall be binding upon each
Holder and the Company. In addition, the Company may waive performance of any
obligation owing to it, as to some or all of the Holders, or agree to accept
alternatives to such performance, without obtaining the consent of any Holder.
10.9 Rights of Holders. Each Holder shall have the absolute right to
-----------------
exercise or refrain from exercising any right or rights that such Holder may
have by reason of this Shareholders' Agree ment, including without limitation
the right to consent to the waiver of any obligation of the Company under this
Shareholders' Agreement and to enter into an agreement with the Company for the
purpose of modifying this Shareholders' Agreement or any agreement affecting any
such modification, and such Holder shall not incur any liability to any other
Holder or Holders with respect to exercising or refraining from exercising any
such right or rights.
10.10 Notices, etc. All notices and other communications required or
-------------
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand or by messenger,
addressed (i) if to a Holder, at the address such Holder shall have furnished to
the Company in writing, or (ii) if to the Company, one copy to its principal
executive offices addressed to the attention of the Corporate Secretary, or at
such other address as the Company shall have furnished to the Holders, and
another copy to the Company's legal counsel, Wilson, Sonsini, Goodrich & Rosati,
650 Page Mill Road, Palo Alto, California 94304-1050, to the attention of Thomas
C. DeFilipps, Esq.
10.11 Delays or Omissions. No delay or omission to exercise any right,
-------------------
power, or remedy accruing to any party upon any breach or default under this
Shareholders' Agreement, shall be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any
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<PAGE>
waiver, permit, consent, or approval of any kind or character on the part of any
party of any breach or default under this Shareholders' Agreement, or any waiver
on the part of any party of any provisions or conditions of this Shareholders'
Agreement, must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Shareholders' Agreement or by law or otherwise afforded to any of the parties,
shall be cumulative and not alternative.
10.12 References. Unless context otherwise requires, any reference to a
----------
"Section" refers to a section of this Shareholders' Agreement. Any reference to
"this Section" refers to the whole numbered section in which such reference is
contained.
10.13 Severability. If any provision of this Shareholders' Agreement is
------------
held to be unenforceable under applicable law, then such provision shall be
excluded from this Shareholders' Agreement and the balance of this Shareholders
Agreement shall be interpreted as if such provision were so excluded and shall
be enforceable in accordance with its terms. The court in its discretion may
substitute for the excluded provision an enforceable provision which in economic
substance reasonably approximates the excluded provision.
10.14 Counterparts. This Shareholders' Agreement may be executed in any
------------
number of counterparts, each of which shall be deemed an original and
enforceable against the parties actually executing such counterpart, and all of
which together shall constitute one instrument.
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<PAGE>
[Signature Page to Pacific Pay Video Limited Shareholders' Agreement]
IN WITNESS WHEREOF, this Shareholders' Agreement is executed effective as
of the date first set forth above.
THE COMPANY: PACIFIC PAY VIDEO LIMITED
By:_____________________________________
Title:__________________________________
SHAREHOLDERS:
________________________________________
ALLAN ASHMEAD
ASIA PACIFIC GROWTH FUND, L.P.
By: ASIA PACIFIC GROWTH
FUND, L.P.
By: H & Q ASIA PACIFIC, G.P.
GENERAL PARTNER OF ASIA
PACIFIC GROWTH FUND, L.P.
By: H & Q ASIA PACIFIC, LTD.
GENERAL PARTNER OF
H & Q ASIA PACIFIC, G.P.
By:_____________________________________
DANIEL A. CARROLL
SENIOR VICE PRESIDENT
H & Q ASIA PACIFIC, LTD.
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<PAGE>
[Signature Page to Pacific Pay Video Limited Shareholders' Agreement]
BANCORP HAWAII SMALL BUSINESS
INVESTMENT COMPANY, INC.
By:_____________________________________
Title:__________________________________
________________________________________
CORNELIUS BOND
CLARION CAPITAL CORPORATION
By:_____________________________________
Title:__________________________________
COMSAT VIDEO ENTERPRISES, INC.
By:_____________________________________
Title:__________________________________
________________________________________
ROBERT CREAGER
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<PAGE>
[Signature Page to Pacific Pay Video Limited Shareholders' Agreement]
CSK VENTURE CAPITAL CO., LTD.
AS INVESTMENT MANAGER FOR
CSK-1(A) INVESTMENT FUND
By:_____________________________________
Title:__________________________________
CSK VENTURE CAPITAL CO., LTD. AS
INVESTMENT MANAGER FOR CSK-1(B)
INVESTMENT FUND
By:_____________________________________
Title:__________________________________
DUNWOODIE FAMILY TRUST
By:_____________________________________
Title:__________________________________
REVOCABLE TRUST OF JAROLD A.
EVANS U/T/D APRIL 19, 1994
By:_____________________________________
Title:__________________________________
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<PAGE>
[Signature Page to Pacific Pay Video Limited Shareholders' Agreement]
FREIDENRICH FAMILY TRUST
By:_____________________________________
Title:__________________________________
HAKMAN CAPITAL CORPORATION
By:_____________________________________
Title:__________________________________
H & Q PPV INVESTORS, L.P.
By:_____________________________________
Title:__________________________________
________________________________________
ERIC HASS
________________________________________
JOSEPH S. HROUDA
J.F. SHEA CO., INC.
By:_____________________________________
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<PAGE>
[Signature Page to Pacific Pay Video Limited Shareholders' Agreement]
Title:__________________________________
________________________________________
WILLARD L. KAUFFMAN
THE WALTER LOEWENSTERN, JR.
SEPARATE PROPERTY TRUST U/D/T
DATED 2/12/90
By:_____________________________________
Title:__________________________________
________________________________________
W. PATRICK MCDOWELL
NIKKO CAPITAL CO., LTD
By:_____________________________________
Title:__________________________________
N.C. NO. 2, INVESTMENT PARTNERSHIP
By:_____________________________________
Title:__________________________________
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<PAGE>
[Signature Page to Pacific Pay Video Limited Shareholders' Agreement]
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<PAGE>
[Signature Page to Pacific Pay Video Limited Shareholders' Agreement]
O'ROURKE INVESTMENT CORPORATION
By:_____________________________________
Title:__________________________________
OSCCO III, L.P.
By:_____________________________________
Title:__________________________________
PARTECH INTERNATIONAL
By:_____________________________________
Title:__________________________________
POMONA CAPITAL, L.P.
By:_____________________________________
Title:__________________________________
ROGERS FAMILY TRUST
By:_____________________________________
Title:__________________________________
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<PAGE>
[Signature Page to Pacific Pay Video Limited Shareholders' Agreement]
R & W VENTURES II
By:_____________________________________
Title:__________________________________
SOF VENTURE CAPITAL, L.P.
By:_____________________________________
Title:__________________________________
SP VENTURE CAPITAL
By:_____________________________________
Title:__________________________________
SP OFFSHORE VENTURE CAPITAL, L.P.
By:_____________________________________
Title:__________________________________
SUNSET PARTNERS, L.P.
By:_____________________________________
Title:__________________________________
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<PAGE>
[Signature Page to Pacific Pay Video Limited Shareholders' Agreement]
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<PAGE>
[Signature Page to Pacific Pay Video Limited Shareholders' Agreement]
SUNSET PARTNERS II, L.P.
By:_____________________________________
Title:__________________________________
SUNSET PARTNERS III, L.P.
By:_____________________________________
Title:__________________________________
UNTERBERG HARRIS INTERACTIVE
MEDIA LIMITED PARTNERSHIP C.V.
By:_____________________________________
Title:__________________________________
________________________________________
GUNNAR WETLESEN
________________________________________
MICHAEL W. WILSEY
WS INVESTMENTS 94A
By:_____________________________________
-34-
<PAGE>
Title:__________________________________
Exhibit A
---------
Allan Ashmead
Asia Pacific Growth Fund, L.P.
Bancorp Hawaii Small Business Investment Company, Inc.
Cornelius Bond
Clarion Capital Corporation
Comsat Video Enterprises, Inc.
Robert Creager
CSK Venture Capital Co., Ltd. As Investment Manager For CSK-1(a) Investment Fund
CSK Venture Capital Co., Ltd. As Investment Manager for CSK-1(b) Investment Fund
Dunwoodie Family Trust
Revocable Trust of Jarold A. Evans U/T/D April 19, 1994
Freidenrich Family Trust
Hakman Capital Corporation
H & Q PPV Investors, L.P.
Eric Hass
Joseph S. Hrouda
J.F. Shea Co., Inc.
Willard L. Kauffman
The Walter Loewenstern, Jr. Separate Property Trust U/D/T dated 2/12/90
W. Patrick McDowell
Nikko Capital Co., Ltd
N.C. No. 2, Investment Partnership
O'Rourke Investment Corporation
OSCCO III, L.P.
Partech International
Pomona Capital, L.P.
Rogers Family Trust
R & W Ventures II
SOF Venture Capital, L.P.
SP Venture Capital
SP Offshore Venture Capital, L.P.
Sunset Partners, L.P.
Sunset Partners II, L.P.
Sunset Partners III, L.P.
Unterberg Harris Interactive Media Limited Partnership C.V.
Gunnar Wetlesen
Michael W. Wilsey
WS Investments 94A
-35-
<PAGE>
EXHIBIT H TO
NOTE AGREEMENT
PACIFIC PAY VIDEO LIMITED
GROSS REVENUE ANALYSIS
JUN-95
<TABLE>
<CAPTION>
---------------------
CALCULATED
-----------------------------------------------------------------------------------------------
ROOM ON-LINE GROSS $ GROSS HOTEL BUY ROOM REV
COUNT DATE BUYS PRICE REVENUES OCCUPANCY RATE PER MO
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Australia
[*]
Guam
[*]
Hong Kong
[*]
</TABLE>
*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
<PAGE>
<TABLE>
<CAPTION>
------------------------
CALCULATED
-----------------------------------------------------------------------------------------------------
ROOM ON-LINE GROSS $ GROSS HOTEL BUY ROOM
COUNT DATE BUYS PRICE REVENUES OCCUPANCY RATE REV
PER MO
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Isreal
[*]
Japan
[*]
New Zealand
[*]
Singapore
[*]
South Korea
[*]
Taiwan
[*]
</TABLE>
*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
<PAGE>
[PACIFIC PAY VIDEO LIMITED]
[GROSS REVENUE ANALYSIS]
[Jun-95]
[***]
Thailand
[***]
Grand Total
[***]
1995 Plan
*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
<PAGE>
EXHIBIT 10.11
MAGINET CORPORATION, ISSUER
---------------------------
FIRST AMENDMENT AGREEMENT
Dated as of May 15, 1996
to
Note Agreement
Dated August 15, 1995
---------------------------
Re: US$24,900,000
Senior Series A Secured Notes
Due August 15, 2000
<PAGE>
FIRST AMENDMENT TO NOTE AGREEMENT
THIS FIRST AMENDMENT dated as of May 15, 1996 (the "First Amendment")
to the Note Agreement dated August 15, 1995 is among MAGINET CORPORATION (the
"Company") and each of the institutions which is signatory to this First
Amendment (collectively, the "Noteholders").
RECITALS:
A. The Company and each of the Noteholders have heretofore entered into a Note
Agreement, dated August 15, 1995 (the "Note Agreement"). The Company has
heretofore issued the US$ 24,900,000 Senior Series A Secured Notes Due
August 15, 2000 dated August 15, 1995 (the "Notes") pursuant to the Note
Agreement. The Noteholders are the holders of 100% of the outstanding
principal amount of the Notes.
B. The Company and the Noteholders have agreed to amend certain provisions of
the Note Agreement in the respects, but only in the respects, hereinafter
set forth.
C. Capitalized terms used herein shall have the respective meanings ascribed
thereto in the Note Agreement unless herein defined or the context shall
otherwise require.
NOW, THEREFORE, upon the full and complete satisfaction of the
conditions precedent to the effectiveness of the First Amendment set forth in
Section 3.1 hereof and in consideration of good and valuable consideration the
receipt and sufficiency of which is hereby acknowledged, the Company and the
Noteholders do hereby agree as follows:
SECTION 1 AMENDMENTS
1.1 Section 1.1 of the Note Agreement and the Notes shall be and are hereby
amended such that the Notes shall bear interest from August 15, 1995
through December 31, 1995 at the rate of 10.5% per annum and from January
1, 1996 through and until June 30, 1997 at the rate of 11.5% per annum.
After June 30, 1997 the rate of interest payable on the Notes shall be
10.5% per annum (subject to adjustments pursuant to Sections 8.6 and 8.9 of
the Note Agreement).
1.2 The final sentence in Section 5.3 of the Note Agreement shall be and is
hereby amended to read in its entirety as follows:
For purposes of determining whether the requirements of clauses (i)
and (ii) have been met, such determination shall be made on a
quarterly basis as of each of March 31, June 30, September 30 and
December 31 of each year, beginning on June 30, 1997.
1.3 (a) Section 8.5 of the Note Agreement shall be and is hereby amended to
read in its entirety as follows:
<PAGE>
8.5 Total Debt to Historical EBITDA. The Company will not
permit the ratio of Total Debt to Historical EBITDA (x) at March 31,
1997, to exceed 7:1, (y) at June 30, September 30 and December 31,
1997, to exceed 4:1 and (z) at the end of any calendar quarter
following December 31, 1997 to and until the maturity of the Notes, to
exceed 3.5:1.
(b) The definition of Historical EBITDA in Section 10.1 of the Note
Agreement shall be and is hereby amended to read in its entirety as
follows:
"Historical EBITDA" shall mean as of the date of
determination the sum of all earnings before interest, taxes,
depreciation and amortization of the Company on a consolidated basis
during the immediately preceding four consecutive fiscal quarters, as
set forth in the books and financial records of the Company; provided,
that for purposes of Section 8.5 only, to the extent any Person has
become a Subsidiary of the Company (a "New Subsidiary") at any time
during such four consecutive fiscal quarters, each such New Subsidiary
shall be included on a pro forma basis as a member of the Group for
the entire such four consecutive fiscal quarters for purposes of
determining Historical EBITDA.
1.4 (a) Section 8.6 of the Note Agreement shall be and is hereby amended by
deleting the Projected EBITDA requirements for September 30, 1996 and
December 31, 1996 and by changing the Projected EBITDA for March 31, 1997
to $5,500,000.
1.5 Clause (iv) of Section 9.1 of the Note Agreement shall be and is hereby
amended to read in its entirety as follows:
(iv) any representation, warranty or other statement made by the
Company herein or in the First Amendment Agreement dated as of May 15,
1996 among the Company and the Noteholders, or by or on behalf of the
Company in any instrument furnished in compliance with or in reference
to this Agreement or such First Amendment shall be false or misleading
in any material respect or shall omit or fail to state information,
which omission or failure makes such representation, warranty or other
statement false or misleading in any material respect; or
SECTION 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY
2.1 To induce the Noteholders to execute and deliver this First Amendment, the
Company represents and warrants to the Noteholders (which representations
shall survive the execution and delivery of this First Amendment) that:
(a) Each of this First Amendment and the issuance of the warrants
substantially in the form of Exhibit A hereto (the "New Warrants") has
been duly authorized,
<PAGE>
executed and delivered by it and each of this First Amendment and
the New Warrants constitutes the legal, valid and binding obligation,
contract and agreement of it enforceable against it in accordance with
its terms, except as enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws or equitable
principles relating to or limiting creditors' rights generally.
(b) The Note Agreement, as amended by this First Amendment,
constitutes a legal, valid and binding obligation, contract and
agreement of it enforceable against it in accordance with its terms,
except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws or equitable principles
relating to or limiting creditors' rights generally.
(c) The execution, delivery and performance by it of the First
Amendment and of the New Warrants (i) has been duly authorized by all
requisite corporate action (ii) does not require the consent or
approval of any governmental or regulatory body or agency, and (iii)
will not (A) violate (1) any provision of law, statute, rule or
regulation or its certificate of incorporation or bylaws, (2) any
order of any court or any rule, regulation or order of any other
agency or government binding upon it, or (3) any provision of any
material indenture, agreement or other instrument to which it is a
party or by which its properties or assets are or may be bound, or (B)
result in a breach or constitute (alone or with due notice or lapse of
time or both) a default under any indenture, agreement or other
instrument referred to in clause (iii)(A)(3) of this Section 2.1(c).
(d) As of the date hereof and after giving effect to this First
Amendment, no Default or Event of Default has occurred which is
continuing.
(e) The representations and warranties contained in the first sentence
of Section 4.1, Sections 4.2, 4.4, 4.6, 4.11, 4.12, 4.16 and 4.20 are
hereby remade in their entirety with all references therein to the
Agreement and the Notes being deemed to include a reference to this
First Amendment, provided that references to Schedule 4.1 shall be to
Schedule 4.1 to this First Amendment.
(f) The Company has reserved and unissued shares of its Common Stock
at least equal to the shares of Common Stock issuable upon exercise of
both the New Warrants. The shares of Common Stock issuable upon
exercise of any of the New Warrants have been duly authorized, and
upon payment therefor in accordance with the terms of the New
Warrants, shall be validly issued, fully paid and nonassessable
shares, with no liability on the part of the exercising holder with
respect to obligations of the Company.
(g) Neither the Company nor any agent acting on its behalf has,
directly or indirectly, offered the New Warrants or any similar
security of the Company for
<PAGE>
sale to, or solicited any offers to buy the New Warrants or any
similar securities of the Company from, or otherwise approached or
negotiated with respect thereto with, any Person other than the
Noteholders and prospective purchasers of the Company's Series D
Preferred Stock and neither the Company nor any agent acting on its
behalf has taken or will take any action which would subject the
issuance or sale of the New Warrants to the provisions of section 5 of
the Securities Act or to the provisions of any securities or Blue Sky
law of any applicable jurisdiction.
SECTION 3 MISCELLANEOUS
3.1 This First Amendment shall become effective and binding upon the Company
and the Noteholders on the date (the "Effective Date") on which each of the
following conditions shall have been satisfied or waived in writing by all
the Noteholders:
(a) executed counterparts of this First Amendment, duly executed by
the Company and the Required Holder(s) shall have been delivered to
the Noteholders;
(b) the Noteholders shall have received a copy of an extract of the
resolutions of the Board of Directors of the Company authorizing the
execution, delivery and performance by the Company of this First
Amendment and the issuance of the New Warrants, certified by the
President or any Vice President or the Secretary;
(c) the representations and warranties of the Company set forth in
Section 2 hereof are true and correct on and with respect to the
Effective Date and the Noteholders shall have received an Officer's
Certificate to such effect;
(d) the Noteholders shall have received the favorable opinions of
counsel to the Company as to the matters set forth in Section 2.1(a),
2.1(b) and 2.1(c) hereof (other than matters set forth in clauses
(iii)(A)(2), (iii)(A)(3) and (iii)(B) of Section 2.1(c)), which
opinion shall be in form and substance satisfactory to Required
Holder(s);
(e) the Company shall have issued the New Warrants to the Noteholders;
(f) The Company shall have provided evidence in form and substance
satisfactory to the Noteholders that an investor acceptable to the
Noteholders shall be committed to make equity investments in the
Company on terms and conditions satisfactory to Noteholders in an
aggregate amount of at least $10,000,000 prior to May 18, 1996;
(g) Pacific Pay Video Limited shall have acknowledged the execution
and delivery of this Amendment and reaffirmed the Collateral
Assignment Agreement
<PAGE>
by executing and delivering an instrument substantially in the form of
Exhibit B hereto; and
(h) in consequence of the issuance of the New Warrants, the
Shareholders' Agreement shall be amended as provided in Exhibit C
hereto.
3.2 This First Amendment shall be construed in connection with and as part of
each of the Note Agreement and the Notes, and except as modified and
expressly amended by this First Amendment, all terms, conditions and
covenants contained in the Note Agreement and the Notes are hereby ratified
and shall remain in full force and effect.
3.3 Any and all notices, requests, certificates and other instruments executed
and delivered after the execution and delivery of this First Amendment may
refer to the Note Agreement and the Notes without making specific reference
to this First Amendment but nevertheless all such references shall include
this First Amendment unless the context otherwise requires.
3.4 The Company acknowledges their responsibility to pay the reasonable fees
and expenses of White & Case, counsel to the Noteholders, in connection
with the negotiation, preparation, approval, execution and delivery of this
First Amendment.
3.5 Simultaneous with the execution and delivery of this First Amendment and
upon receipt by the Noteholders of the New Warrants, the Noteholders shall
deliver to the Company for cancellation the original warrants dated August
15, 1995 to acquire the Company's Common Stock, which warrants were issued
in connection with the Note Agreement. The Noteholders agree that such
warrants shall thereafter be of no further force or effect.
3.6 The descriptive headings of the various Sections or parts of this First
Amendment are for convenience only and shall not affect the meaning or
construction of any of the provisions hereof.
3.7 This First Amendment shall be governed by and construed in accordance with
the laws of the State of New York.
<PAGE>
3.8 The execution hereof by you shall constitute a contract between us for the
uses and purposes hereinabove set forth, and this First Amendment may be
executed in any number of counterparts, each executed counterpart
constituting an original, but all together only one agreement.
MAGINET CORPORATION
By: /s/ Kenneth B. Hamlet
-------------------------------
Name: Kenneth B. Hamlet
Title: Ceo
The foregoing Agreement is
hereby accepted as of the
date first above written.
NEW YORK LIFE INSURANCE COMPANY
By: /s/ Himi Kittner
--------------------------------
Name: Himi Kittner
Title: Vice President
THE MUTUAL LIFE INSURANCE COMPANY
OF NEW YORK
By: /s/ Peter W. Oliver
--------------------------------
Name: Peter W. Oliver
Title: Managing Director
WASLIC COMPANY II
By: /s/ Daniel F. Lindley
--------------------------------
Name: Daniel F. Lindley
Title: President
NAMTOR BVC LP
By: /s/ Michael C. Rotham
--------------------------------
Name: Michael C. Rotham
Title: Partner
<PAGE>
Title:
<PAGE>
EXHIBIT A
THIS WARRANT AND ANY SHARES OF CAPITAL STOCK TO BE ACQUIRED UPON THE EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"). THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT
WITH A VIEW TO, OR IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THESE
SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED, OR TRANSFERRED UNLESS (I) A
REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO THESE SECURITIES OR (II)
THERE IS AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY, THAT AN
EXEMPTION THEREFROM IS AVAILABLE.
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
MAGINET CORPORATION
COMMON STOCK PURCHASE WARRANT
August 15, 1995
as amended May 15, 1996
VOID AFTER AUGUST 15, 2000
Recitals
WHEREAS, on August 15, 1995, MagiNet Corporation, a California
corporation (the "Company"), entered the Note Agreement dated August 15, 1995
(the "Note Agreement") among the Company and certain purchasers, including 1, of
the Company's 10.5% Senior Secured Notes due 2000 (the "Notes") and granted to
each of such purchasers a warrant to acquire shares of the Company's Common
Stock (the "August Warrant");
WHEREAS, in connection with the Company's sale and issuance of its
Series D Preferred Stock (the "Series D Preferred") to certain investors
pursuant to the Series D Preferred Stock Purchase Agreement dated May 15, 1996
among the Company and such investors (the "Series D Agreement"), and as an
inducement to such investors to purchase the Series D Preferred, 1 and certain
other holders of the Notes have agreed to waive certain financial covenants set
forth in the First Amendment of Note Agreement of even date herewith;
WHEREAS, as an inducement to such investors to grant such a waiver, the
Company has agreed to amend and restate the August Warrant as set forth herein.
NOW, THEREFORE, the Company hereby grants this warrant to acquire shares
of its Common Stock on the terms and subject to the conditions set forth herein.
1. Number and Price of Shares Subject to Warrant.
---------------------------------------------
a. Subject to the terms and conditions set forth herein, 1, or its
registered assigns, is entitled to acquire from the Company (i) at any
time after the date hereof and on or
<PAGE>
before the date of termination of this Warrant provided for in Section
3 hereof up to 2 shares (the "Base Shares") and (ii) simultaneously
with the closing of a Liquidity Event (as defined in Section 2), an
additional 3 shares (the "Additional Shares") (subject to adjustment
pursuant to clause 1(b) below) of duly authorized, validly issued,
fully paid, and non-assessable Common Stock of the Company, for a per
share Warrant Price (as defined below in Section 2). The Base Shares
and the Additional Shares are referred to collectively herein as the
"Warrant Stock." This Warrant is one of a series of warrants
(collectively, the "Warrants") such term to include all Warrants issued
in substitution therefor) having substantially similar terms and issued
in connection with the sale of the Notes, and as amended May 15, 1996
in connection with the First Amendment Agreement dated May 15, 1996.
b. Notwithstanding clause 1(a) above, in the event the value of "Z"
obtained as set forth below is greater than or equal to 100,000, then
no adjustment shall be made to the number of Additional Shares issuable
upon exercise of this Warrant. In the event the value of "Z" obtained
as set forth below is less than 100,000, the number of Additional
Shares issuable upon exercise of this Warrant shall be reduced by a
number equal to the product of (i) the difference between 100,000 and
"Z" and (ii) the number obtained by dividing 3 by 100,000, where "Z" is
calculated as follows:
Z = [(X-Y)/(P-W)] - S,
S = 1,522,857;
X = the product of $24,900,000 and (1+(.185/12))/n/, where
"n" equals the number of calendar months elapsed from
August 15, 1995 through the closing date of a
Liquidity Event.
Y = $24,900,000
P = the fair market value per share of the Company's
Common Stock as determined in the Liquidity Event;
W = the Warrant Price per share (as adjusted pursuant to
Sections 2 and 9).
2. Warrant Price. Subject to the adjustments set forth in Section 9, this
-------------
Warrant shall be exercisable at a per share purchase price (the "Warrant
Price") of $7.00; provided, however, that if no Liquidity Event (as defined
below) has occurred: (i) on or before June 30, 1998, the Warrant Price shall
be adjusted to $6.00 per share, (ii) on or before June 30, 1999, the Warrant
Price shall be adjusted to $5.00 per share, and (iii) on or before June 30,
2000, the Warrant Price shall be adjusted to $4.50 per share; and provided
further, that each of the per-share prices in (i), (ii), and (iii) of this
Section 2 shall be adjusted, as provided in Section 9, on the same basis as
the then applicable Warrant Price. A "Liquidity Event" for purposes of this
Warrant shall mean the closing of a firm commitment underwritten public
offering of the Common Stock of the Company pursuant to an effective
registration statement under the Act (provided that any such public offering
results in gross proceeds to the Company in excess of $10,000,000); the
exchange of the Company's Common Stock for securities of a corporation which
corporation has a pre-exchange market capitalization of at least $50,000,000
and whose shares are listed for trading on a national securities exchange or
automated quotation system; or any other merger,
-2-
<PAGE>
acquisition or similar transaction in which the holders of the Company's
Common Stock receive cash in exchange for such Common Stock, or receive a
combination of cash and such listed securities.
3. Termination. This Warrant (and the right to purchase securities upon
-----------
exercise hereof) shall terminate upon the earlier of (i) August 15, 2000 or
(ii) the closing of a firm commitment underwritten public offering of the
Common Stock of the Company pursuant to an effective registration statement
under the Act, which results in gross proceeds to the Company in excess of
$10,000,000; provided, that if the holder of this Warrant has exercised its
right to include the underlying Warrant Stock in such public offering, and
any such Warrant Stock is excluded from such underwriting by reason of the
underwriter's marketing limitation, then the holder shall have a period of
ten (10) Business Days (as defined in the Note Agreement dated August 15,
1995) to exercise its right pursuant to this Warrant to purchase such
Warrant Stock, or to effect an exchange described in Section 8(d) below, at
the then effective Warrant Price notwithstanding the termination provision
of this Warrant pursuant to either clause (i) or (ii) above. The Company
shall give the holder of this Warrant written notice of such public offering
at least twenty (20) and no more than ninety (90) days prior to the
effectiveness of such registration statement and shall deliver a copy of the
preliminary prospectus with respect to any such public offering to the
holder of this Warrant promptly after it becomes available.
4. No Adjustments. Except as provided in Section 9, no adjustment on account
--------------
of dividends or interest on Warrant Stock will be made upon the exercise
hereof.
5. No Fractional Shares. No fractional shares of Warrant Stock will be issued
--------------------
in connection with any subscription hereunder. In lieu of any fractional
shares which would otherwise be issuable, the Company shall pay cash equal
to the product of such fraction multiplied by the Fair Market Value (as
defined in Section 8) of one (1) share of Warrant Stock on the date of
exercise (minus the Warrant Price if unpaid).
6. No Stockholder Rights. This Warrant shall not entitle its holder to any of
---------------------
the rights of a shareholder of the Company; or impose any liabilities on
such holder to purchase any securities or as a shareholder of the Company,
whether such liabilities are asserted by the Company or by creditors or
shareholders of the Company or otherwise.
7. Reservation of Stock. The Company covenants that during the period this
--------------------
Warrant is exercisable, the Company will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the
issuance of Warrant Stock upon the exercise of this Warrant. The Company
agrees that its issuance of this Warrant shall constitute full authority to
its officers who are charged with the duty of executing stock certificates
to execute and issue the necessary certificates for shares of Warrant Stock
upon the exercise of this Warrant.
8. Exercise of Warrant.
-------------------
a. Procedure for Exercise of Base Shares. With respect to Base Shares, this
-------------------------------------
Warrant may be exercised by the registered holder or its registered
assigns, in whole or in part, by the surrender of this Warrant at the
principal office of the Company, accompanied by
-3-
<PAGE>
payment in full of the Warrant Price for the Base Shares being
purchased in cash or by check or by the cancellation of any present or
future indebtedness from the Company to the holder hereof, in
accordance with Section 8(c). Upon partial exercise hereof, a new
warrant or warrants containing the same date and provisions as this
Warrant shall be issued by the Company to the registered holder for the
number of shares of Warrant Stock with respect to which this Warrant
shall not have been exercised. A Warrant shall be deemed to have been
exercised with respect to Base Shares immediately prior to the close of
business on the date of its surrender for exercise as provided above,
and the person entitled to receive the shares of Warrant Stock issuable
upon such exercise shall be treated for all purposes as the holder of
such shares of record as of the close of business on such date. As
promptly as practicable on or after such date, and in any event within
ten (10) business days thereafter (unless such exercise shall be in
connection with an underwritten public offering, in which event three
(3) business days after such exercise), the Company at its expense
(including the payment by it of any applicable taxes payable by the
Company) will cause to be issued in the name of and delivered to the
holder hereof or, subject to Section 8, as such holder (upon payment by
such holder of any applicable transfer taxes) may direct, a certificate
or certificates for the number of full shares of Warrant Stock issuable
upon such exercise, together with cash in lieu of any fraction of a
share as provided above in Section 5.
b. Procedure for Exercise of Additional Shares. With respect to
-------------------------------------------
Additional Shares, this Warrant may be exercised in whole by the
registered holder or its registered assigns by the surrender of this
Warrant at the principal office of the Company not less than twenty-
four (24) hours before the closing of the Liquidity Event, accompanied
by payment in full of the Warrant Price for the Additional Shares being
purchased in cash or check or by the cancellation of any present or
future indebtedness from the Company to the holder hereof, in
accordance with Section 8(c). The Warrant shall be deemed to have been
exercised with respect to Additional Shares simultaneously with the
closing of the Liquidity Event, and the person entitled to receive the
Additional Shares issuable upon such exercise shall be treated for all
purposes as the holder of such shares of record as of such closing. As
promptly as practicable on or after such date, and in any event within
ten (10) business days thereafter (unless such exercise shall be in
connection with an underwritten public offering, in which event three
(3) business days after such exercise), the Company at its expense
(including the payment by it of any applicable taxes payable by the
Company) will cause to be issued in the name of and delivered to the
holder hereof or, subject to Section 8, as such holder (upon payment by
such holder of any applicable transfer taxes) may direct, a certificate
or certificates for the number of full shares of Warrant Stock issuable
upon such exercise, together with cash in lieu of any fraction of a
share as provided above in Section 5.
c. Payment with Notes. Upon any exercise of this Warrant, the holder
------------------
hereof may, at its option, instruct the Company to apply to the payment
required by Section 8(a) or Section 8(b) all or any part of the
principal amount then unpaid, the premium, if any, and the interest on
such principal amount then accrued on any one or more Notes at the time
held by such holder, in which case the Company will accept the
aggregate amount of principal and accrued interest on such principal in
satisfaction of a like amount of such
-4-
<PAGE>
payment. In case less than the entire unpaid principal amount of any
Note shall be so specified, the principal amount so specified shall be
credited, as of the date of such exercise, on a pro rata basis against
all future installments of principal of such Note. In the event that
the entire unpaid principal amount of any Note is applied to the
payment of the Warrant Price, such Note shall be promptly surrendered
and canceled and shall be deemed no longer outstanding for all purposes
of the Note Agreement, except as provided in Section 6.4 thereof. Any
interest on the principal amount applied as payment upon such exercise
shall be paid through the date of payment as the next interest payment
date under the Note Agreement. No premium shall be payable on principal
amounts utilized to pay Warrant Price under this Section 8(c).
d. Net Exercise Rights. Notwithstanding the payment provisions set forth
-------------------
in this Section 8, the holder may elect to receive shares of Warrant
Stock equal to the value (as determined below) of this Warrant by
surrender of this Warrant at the principal office of the Company
together with notice of such election, in which event the Company shall
issue to the holder the number of shares of Common Stock determined by
use of the following formula:
X = Y(A-B)
------
A
Where: X = the number of shares of Common Stock to be issued to
the holder, pursuant to this Section 8(d).
Y = the number of shares of Warrant Stock subject to this
Warrant.
A = the Fair Market Value (as defined below) of one (1)
share of Warrant Stock.
B = Warrant Price per share of Warrant Stock.
For purposes of this Section 8, Fair Market Value of a share as of a
particular date shall mean:
i. If the Company's registration statement under the Act, covering
its initial underwritten public offering of stock has been
declared effective by the Securities and Exchange Commission, then
the fair market value of a share shall be the closing price (the
last reported sales price, if not so reported, the average of the
last reported bid and asked prices) of the Company's stock as of
the last business day immediately prior to the exercise of this
Warrant.
ii. If such a registration statement has not been declared effective,
if it has been declared effective but the offering is not
consummated in accordance with the terms of the underwriting
agreement between the Company and its underwriters relating to
such registration statement, or if no such registration statement
has been filed or prepared, then as determined in good faith by
the Company's Board
-5-
<PAGE>
of Directors upon a review of relevant factors. If the
Required Holders disagree in writing with such determination,
then an investment banking firm mutually acceptable to the
Company and the Required Holders shall be retained to appraise
the Fair Market Value of the shares of Warrant Stock in
accordance with recognized appraisal standards and the
determination by such investment banking firm shall be final
and binding. If either (1) no such investment banking
appraisal has been performed within the prior six (6) months,
or (2) the appraised value of a share of Warrant Stock is more
than ten percent (10%) higher than the value determined by the
Board of Directors, then the cost of such appraisal shall be
paid by the Company; in all other circumstances, such cost
shall be paid pro rata by the holders of Warrant Stock
requesting such an appraisal.
e. In the event that the Company determines to effect a private sale of
its capital stock for cash or other consideration in an aggregate
amount equal to $1,000,000 or more, and either (x) the securities
held by other holder(s) of the Company's capital stock are included
in such sale or (y) the proceeds of any such sale are used to
repurchase the Company's outstanding securities, then the Company
shall promptly give the holder written notice thereof and include in
such sale (and any related qualification under blue sky laws or
other compliance), and in any placement involved therein, the
Warrant Stock specified in a written request by the holder received
by the Company within fifteen (15) days after the Company mails such
written notice.
9. Adjustment of Warrant Price and Number of Shares. The number and kind of
------------------------------------------------
securities issuable upon the exercise of this Warrant shall be subject to
adjustment from time to time and the Company agrees to provide written
notice to each holder promptly upon the happening of certain events as
follows:
a. Adjustment for Dividends in Stock. In case at any time or from time
---------------------------------
to time during the term of this Warrant the holders of the Common
Stock of the Company (or any shares of stock or other securities at
the time receivable upon the exercise of this Warrant) shall have
received, or, on or after the record date fixed for the
determination of eligible shareholders, shall have become entitled
to receive, without payment therefor, other or additional securities
or other property of the Company by way of dividend or distribution,
then and in each case, the holder of this Warrant shall, upon the
exercise hereof, be entitled to receive, in addition to the number
of shares of Common Stock receivable thereupon, and without payment
of any additional consideration therefor, the amount of such other
or additional securities or other property of the Company which such
holder would hold on the date of such exercise had it been the
holder of record of such Common Stock on the date hereof and had
thereafter, during the period from the date hereof to and including
the date of such exercise, retained such shares and/or all other
additional securities or other property receivable by it as
aforesaid during such period, giving effect to all adjustments
called for during such period by this Section 9.
b. Adjustment for Reclassification or Reorganization. In case of any
-------------------------------------------------
reclassification or change of the outstanding Common Stock of the
Company or of any reorganization of the Company during the term of
this Warrant (other than a merger of the Company with
-6-
<PAGE>
and into another corporation), then and in each such case the
Company shall give the holder of this Warrant at least twenty (20)
days notice of the proposed effective date of such transaction, and
the holder of this Warrant, upon the exercise hereof at any time
after the consummation of such reclassification, change or
reorganization, shall be entitled to receive, in lieu of the stock
or other securities and property receivable upon the exercise hereof
prior to such consummation, the stock or other securities or
property to which such holder would have been entitled upon such
consummation if such holder had exercised this Warrant immediately
prior thereto, all subject to further adjustment as provided in this
Section 9. The terms of this Section 9 shall similarly apply to
successive reclassifications, changes or reorganizations.
c. Stock Splits and Reverse Stock Splits. If at any time during the
-------------------------------------
term of this Warrant the Company shall subdivide its outstanding
shares of Common Stock into a greater number of shares, the Warrant
Price in effect immediately prior to such subdivision shall thereby
be proportionately reduced and the number of shares receivable upon
exercise of the Warrant shall thereby be proportionately increased;
and, conversely, if at any time on or after the date hereof the
outstanding number of shares of Common Stock shall be combined into
a smaller number of shares, the Warrant Price in effect immediately
prior to such combination shall thereby be proportionately increased
and the number of shares receivable upon exercise of this Warrant
shall thereby be proportionately decreased.
d. Adjustments with Respect to Certain Diluting Issuances. The Warrant
------------------------------------------------------
Price shall be subject to adjustment from time to time as follows:
i. Warrant Price Adjustment.
(1) If the Company shall issue any Additional Stock (as defined
hereafter) without consideration or for a consideration per
share less than the Warrant Price in effect immediately
prior to the issuance of such Additional Stock, then such
Warrant Price in effect immediately prior to each such
issuance shall (except as otherwise provided in this
Section 9(d)) be adjusted to the Warrant Price determined
by dividing (X) an amount equal to the sum of (a) the
product derived by multiplying the Warrant Price in effect
immediately prior to such issue by the number of shares of
Common Stock (including shares of Common Stock issued or
issuable upon conversion of the outstanding Preferred
Stock, upon exercise of outstanding stock options and
warrants or otherwise under Section 9(d)(i)(5)) outstanding
immediately prior to such issue, plus (b) the
consideration, if any, received by or deemed to have been
received by the Company upon such issuance, by (Y) an
amount equal to the sum of (c) the number of shares of
Common Stock (including shares of Common Stock issued or
issuable upon conversion of the outstanding Preferred
Stock, upon exercise of outstanding stock options and
warrants or otherwise under Section 9(d)(i)(5)) outstanding
immediately prior to such issuance, plus (d) the number of
shares of Common Stock issued or deemed to have been issued
in such issuance;
-7-
<PAGE>
(2) No adjustment of the Warrant Price shall be made in an
amount less than one cent per share, provided that any
adjustment that is not required to be made by reason of
this sentence shall be carried forward and taken into
account in any subsequent adjustment. Except to the limited
extent provided for in Sections 9(d)(i)(5)(c) and
9(d)(i)(5)(d), no readjustment of the Warrant Price shall
have the effect of increasing the Warrant Price above the
Warrant Price in effect immediately prior to such
adjustment.
(3) In the case of the issuance of Additional Stock for cash,
the consideration shall be deemed to be the amount of cash
paid therefor before deducting any reasonable discounts,
commissions or other expenses allowed, paid or incurred by
the Company for any underwriting or otherwise in connection
with the issuance and sale thereof.
(4) In the case of the issuance of Additional Stock for a
consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the
fair value thereof as determined in good faith by the Board
of Directors. If the Required Holders disagree in writing
with such determination, then (A) if such consideration
other than cash is not securities, an appraisal firm
experienced in valuing property of such type which is
mutually acceptable to the Company and the Required Holders
shall be retained to appraise the fair market value of such
consideration in accordance with recognized appraisal
standards, and the determination by such appraisal firm
shall be final and binding, and (B) if such consideration
other than cash consists of securities, then an investment
banking firm mutually acceptable to the Company and the
Required Holders shall be retained to appraise the fair
market value of the securities in accordance with
recognized appraisal standards, and the determination by
such investment banking firm shall be final and binding. If
either (1) no such appraisal has been performed within the
prior six (6) months with respect to the same property or
securities, or (2) the appraised value of the consideration
is more than ten percent (10%) higher than the value
determined by the Board of Directors, then the cost of such
appraisal shall be paid by the Company; in all other
circumstances, such cost shall be paid pro rata by the
holders of Warrant Stock requesting such an appraisal
(5) In the case of the issuance of options to purchase or
rights to subscribe for Common Stock, securities by their
terms convertible into or exchangeable for Common Stock or
options to purchase or rights to subscribe for such
convertible or exchangeable securities (where the shares of
Common Stock issuable upon exercise of such options or
rights or upon conversion or exchange of such securities
are not excluded from the definition of Additional Stock),
the following provisions shall apply:
(a) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options to purchase
or rights to
-8-
<PAGE>
subscribe for Common Stock shall be deemed to have
been issued at the time such options or rights were
issued and for a consideration equal to the
consideration (determined in the manner provided in
Sections 9(d)(i)(3) and 9(d)(i)(4)), if any, received
by the Company upon the issuance of such options or
rights plus the minimum purchase price provided in
such options or rights for the Common Stock covered
thereby;
(b) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any
such convertible or exchangeable securities or upon
the exercise of options to purchase or rights to
subscribe for such convertible or exchangeable
securities and subsequent conversion or exchange
thereof shall be deemed to have been issued at the
time such securities were issued or such options or
rights were issued and for a consideration equal to
the consideration, if any, received by the Company for
any such securities and related options or rights
(excluding any cash received on account of accrued
interest or accrued dividends), plus the additional
consideration, if any, to be received by the Company
upon the conversion or exchange of such securities or
the exercise of any related options or rights (the
consideration in each case to be determined in the
manner provided in Sections 9(d)(i)(3) and
9(d)(i)(4));
(c) in the event of any change in the number of shares of
Common Stock deliverable upon exercise of such options
or rights or upon conversion of or in exchange for
such convertible or exchangeable securities,
including, but not limited to, a change resulting from
the anti-dilution provisions thereof, the Warrant
Price in effect at the time shall forthwith be
readjusted to such Warrant Price as would have applied
had the adjustment that was made upon the issuance of
such options, rights or securities not converted prior
to such change or the options or rights related to
such securities not converted prior to such change
been made upon the basis of such change, but no
further adjustment shall be made for the actual
issuance of Common Stock upon the exercise of any such
options or rights or the conversion or exchange of
such securities; and
(d) upon the expiration of any such options or rights, the
termination of any such rights to convert or exchange
or the expiration of any options or rights related to
such convertible or exchangeable securities (or upon
purchase by the Company and cancellation or retirement
of any such options or rights not exercised or of any
such convertible securities, the rights of conversion
or exchange under which shall not have been
exercised), the Warrant Price
-9-
<PAGE>
shall forthwith be readjusted to such Warrant Price as
would have applied had the adjustment which was made
upon the issuance of such options, rights or
securities or options or rights related to such
securities been made upon the basis of the issuance of
only the number of shares of Common Stock actually
issued upon the exercise of such options or rights,
upon the conversion or exchange of such securities or
upon the exercise of the options or rights related to
such securities.
ii. "Effective Date" means the date of the first sale by the
Company of the Notes.
iii. "Additional Stock" shall mean any shares of Common Stock
issued (or deemed to have been issued pursuant to Section
9(d)(i)(5)) by the Company after the Effective Date other
than:
(1) Common Stock issued in a transaction deemed to be a
"liquidation" within the meaning of the Company's
Articles of Incorporation in effect as of the
Effective Date.
(2) Common Stock issued or issuable to employees,
officers, or directors of, or consultants to the
Company approved by the Board.
(3) Common Stock issued pursuant to the acquisition of
another corporation by merger, purchase of all or
substantially all of the assets, or other
reorganization.
(4) Common Stock issued or issuable upon conversion of the
shares of Series A, Series B and Series C Preferred
Stock.
(5) Common Stock issued or issuable pursuant to the
exercise of warrants granted in connection with any
lease, loan, or other financing transaction, approved
by the Board.
10. Certificate of Adjustment. Whenever the Warrant Price or the number or
-------------------------
type of securities issuable upon exercise of this Warrant is adjusted or
readjusted, as herein provided, the Company at its expense shall promptly
deliver to the record holder of this Warrant a certificate of an officer of
the Company setting forth such adjustment or readjustment and showing in
reasonable detail the facts upon which such adjustment or readjustment is
based, including without limitation a statement of (a) the consideration
received or to be received by the Company for any Additional Stock issued
or sold or deemed to have been issued, (b) the number of shares of Common
Stock outstanding or deemed to be outstanding, and (c) the Warrant Price in
effect immediately prior to such issue or sale and as adjusted and
readjusted (if required by Section 9) on account thereof.
-10-
<PAGE>
11. No Dilution or Impairment. The Company covenants that it shall not, by
-------------------------
amendment of its Articles of Incorporation or through any reorganization,
consolidation, merger, transfer of assets, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but shall at
all times in good faith assist in carrying out all those terms and in
taking all actions necessary or appropriate to protect the rights of the
holder of this Warrant against dilution or other impairment. Without
limiting the generality of the above provision, the Company (a) will not
take any action which results in any adjustment of the Warrant Price then
in effect if the total number of shares of Common Stock (or other
securities) issuable after the action upon the exercise of all of the
Warrants would exceed the total number of shares of Common Stock (or other
securities) then authorized by the Company's Articles of Incorporation and
available for the purpose of issue upon such exercise, and (b) will take
all necessary or appropriate action in order that the Company may validly
and legally issue fully paid and nonassessable shares upon the exercise of
this Warrant.
12. Transfer of Warrant. The rights and obligations of the Company and the
-------------------
holders of this Warrant shall be binding upon and benefit the successors,
assignors, heirs, administrators and transferees of the parties. Any
transferee hereof agrees to be bound by the restrictions set forth herein
and in the Note Agreement.
13. Compliance with Securities Laws. This Warrant or the Warrant Stock may not
-------------------------------
be transferred or assigned, in whole or in part, by the holder hereof
(except to any affiliate hereof) without compliance with applicable federal
and state securities laws. The holder represents and agrees that this
Warrant is being acquired only for investment, for holder's own account,
and not with a view to or for sale in connection with any distribution
thereof within the meaning of the Act, and the holder acknowledges and
agrees that, at any time that it exercises its Warrant, it will represent,
among other things, to the Company that the Warrant Stock that it acquires
through exercise of the Warrant is being acquired by it for its own account
and not with a view to or for sale in connection with any distribution
thereof within the meaning of the Act; provided, that in any case, the
disposition of its property shall at all times be and remain within its
control. The holder of this Warrant acknowledges and agrees that this
Warrant and the Shares have not been registered under the Securities Act
and accordingly will not be transferable except as permitted under the
various exemptions contained in the Securities Act, or upon satisfaction of
the registration and prospectus delivery requirements of the Securities
Act. Therefore, the Warrant and the Warrant Stock must be held indefinitely
unless they are subsequently registered under the Securities Act or an
exemption from such registration is available. The holder understands that
the certificate evidencing the Warrant Stock will be imprinted with a
legend which prohibits the transfer of the Warrant Stock unless they are
registered or unless the Company receives an opinion of counsel (which may
be an opinion of in-house counsel) reasonably satisfactory to the Company
that such registration is not required. The holder is aware of the adoption
of Rule 144 by the Securities and Exchange Commission and that Company is
not now and, at the time it wishes to sell the Warrant Stock, may not be
satisfying the current public information requirements of Rule 144 and, in
such case, holder would be precluded from selling the securities under Rule
144. The holder understands that a stop-transfer instruction will be in
effect with respect to transfer of the Warrant and the Warrant Stock
consistent with the requirements of the securities laws.
-11-
<PAGE>
14. Waiver and Amendment. Any provision of this Warrant may be amended or
--------------------
waived upon the written consent of the Company and the Required Holders,
and any such amendment or waiver shall be binding upon the remaining
holders of Warrants, except that, without the written consent of the holder
of each Warrant, no amendment or waiver to this Warrant that increases the
Warrant Price, changes the Termination Date, changes the number of shares
purchasable hereunder, changes the method set forth in Sections 8 and 9 for
calculating adjustments thereto, amends this Section 14, or reduces the
percentage required for modification, may be made. All holders of Warrants,
by acceptance hereof, specifically consent to the binding effect of a
written consent authorized by this Section 14. No failure or delay by any
party in exercising any right or remedy hereunder shall operate as a waiver
thereof, and a waiver of a particular right or remedy on one occasion shall
not be deemed a waiver of any other right or remedy or a waiver of the same
right or remedy on any subsequent occasion.
15. Miscellaneous. This Warrant shall be governed by the laws of the State of
-------------
New York. The headings in this Warrant are for purposes of convenience and
reference only, and shall not be deemed to constitute a part hereof.
Neither this Warrant nor any term hereof may be changed, waived, discharged
or terminated orally but only by an instrument in writing signed by the
Company and, except as provided in Section 14 hereof, the registered holder
hereof. All notices and other communications from the Company to the holder
of this Warrant shall be sent either by facsimile copy to such number and
to the attention of such person as the last holder of this Warrant shall
have furnished to the Company, or shall be mailed by first-class registered
or certified mail, postage prepaid , or sent by courier, to the address
furnished to the Company in writing by the last holder of this Warrant who
shall have furnished an address to the Company in writing.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]
-12-
<PAGE>
ISSUED this 15th day of May 1996.
MAGINET CORPORATION
By:
----------------------------------------
James A. Barth, Chief Financial Officer
[SIGNATURE PAGE TO COMMON STOCK PURCHASE WARRANT]
[AS AMENDED MAY 15, 1996]
-13-
<PAGE>
Exhibit B
---------
[date]
To the Noteholders Named
in the First Amendment
Agreement Referred to Below
Ladies and Gentlemen:
Reference is made to the First Amendment Agreement dated as of May 15,
1996 (the First Amendment"), among Maginet Corporation, a California corporation
(the "Company"), and each of the holders (the "Noteholders") of the Company's
10.5% Senior Series A Secured Notes due 2000 and to the Collateral Assignment
Agreement dated as of August 15, 1995, between ourselves and The Chase Manhattan
Bank, N.A., as collateral agent for the Noteholders (the "Collateral
Assignment").
We hereby acknowledge receipt of a copy of the First Amendment and
agree that the execution, delivery and performance of the First Amendment by the
parties thereto does not adversely affect our obligations under the Collateral
Assignment, which obligations we hereby reaffirm. We understand that the
Noteholders are relying on this letter and that they would not enter into the
First Amendment in the absence of this letter.
PACIFIC PAY VIDEO LIMITED
By
---------------------------
Title:
<PAGE>
EXHIBIT 10.12
PACIFIC PAY VIDEO (HK) LIMITED
INSTALLATION AGREEMENT
This Agreement, between Pacific Pay Video (HK) Limited, a Company duly
incorporated in Hong Kong and having its principal place of business at 1428
Prince's Building, Central, Hong Kong ("PPV") and Shangri-La Hotel & Resorts,
15/F Nat West Tower Times Square, I Matheson Street, Causeway Bay, Hong Kong
("Hotel Group") sets forth the terms for installation and operation by PPV of
on-demand video systems and related services in the Hotel Group's individual
Hotel Properties ("Hotel").
WHEREAS:
(A) The Hotel operates a Hotel for the lodging of guests in separate,
private rooms and suites which are customarily available for overnight sleeping
accommodations ("Rooms").
(B) The Hotel wish to enhance the guest's stay by giving them the
opportunity to view prerecorded entertainment programs and movies ("Programs")
and standard off-air broadcast or cable television channels available to the
Hotel without special equipment ("Channels"), conveniently in the privacy of
their own Rooms using a system provided by PPV.
Now, therefore, the parties do hereby agree as follows:
1. ON COMMAND VIDEO SYSTEM
(a) System. PPV will design, construct and provide to the Hotel a
------
System for operation in all Rooms of the Hotel. "System" will mean PPV's video
entertainment and interactive services system which allows guests at the Hotel
to access, at will from their individual Rooms, Programs and Channels for
display on television receiving sets ("TVs") in the Rooms. The System includes
(i) Programs, (ii) a remote control unit for each television set linked to the
System plus ten (10) spare units, (iii) an adequate number of video playback
devices, (iv) a front-desk personal computer and printer, and (v) all necessary
electronic, computer and switching equipment. The System does not include
necessary power, wiring, connections, or cooling facilities, which are to be
provided by the Hotel.
(b) Television Sets. At the Hotel's option, PPV will provide the
---------------
Hotel with 21" TV's, fully installed. Those TV's will remain the property of PPV
and will be included within the definition of "System." Should the hotel
require, PPV will take possession of the Hotel's existing TVs. and dispose of
them. Should PPV be responsible for disposing of existing TVs, any salvage value
will belong to PPV. PPV will be responsible for maintaining the new television
sets. Such an option will require a change to the term of Agreement and changes
in other terms and conditions, to be attached to this agreement.
2. TERM OF THE AGREEMENT
The term of this Agreement will begin on the Term Commencement Date as
defined in Section 3(b) below and will continue for a period of five (5) years
(the "Term"). Thereafter the Term automatically will be renewed annually,
subject to the right of either party to terminate this agreement upon written
notice to the other given not less than one hundred eighty (180) days prior to
the date of such annual renewal. If Tvs are provided to the hotel, then the
Term will be extended to a period of seven (7) years.
3. INSTALLATION
(a) System Computer. At the Hotel's request and in lieu of the
---------------
front-desk personal computer and printer included in the System for printing
vouchers for each rental of a movie by a guest, PPV will interface the System
computer to the Hotel' property management system ("PMS"). The interface will
permit the System to
[***] Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
<PAGE>
automatically post Rental Fees (as defined in Section 5) to each individual
guest's bill or Room account and will permit the addition of any optional
services specified in Section 8. Hotel will supply PPV with necessary interface
information and/or ask its PMS vendor to cooperate with PPV. Any interface
protocol installation or maintenance charges imposed by the PMS software vendor
will be paid for by the Hotel.
(b) Access. The Hotel will provide such access as PPV may reasonably
------
request to enable PPV to complete installation of the System, including without
limitation providing all the Hotel Facilities set forth in Attachment A and in
------------
reasonable time to allow PPV to complete installation. The Hotel will allow PPV
to have access (escorted or unescorted) to guest rooms for the purpose of
equipment installation at a rate of at least one hundred (100) rooms per day.
Failure to permit access at such rate will result in Hotel forfeiting to PPV the
first month's total commission as calculated pursuant to Section 5(d).
(c) Term Commencement Date. PPV will test the System to ensure
----------------------
functionality and upon the successful conclusion of such test PPV will deliver
to the Hotel a written statement acknowledging that the installation is complete
and the System is functional. Such statement will be attached hereto when
completed, and the "Term Commencement Date" will be the date of such statement.
(d) Revenue Date. The Hotel will begin the process of billing guests
------------
and generating revenue upon the installation of at least ten (10) guest rooms.
(e) Hotel's MATV System. PPV will pay up to US [***] for any
-------------------
necessary upgrades to the Hotel's Master Antenna TV("MATV") system which PPV
specifies as required for proper operation of the System. The Hotel will pay for
any additional cost above US[***]. wazzu PPV agrees that at Hotel's request
PPV will finance any such upgrades in excess of US[***] for Hotel by paying
for the upgrade and receiving Hotel's share of System Revenue until the full
cost is recovered. PPV will arrange for its installation contractor to deliver a
quotation to the Hotel for such upgrade work. Should the upgrade cost exceed
US[***] the Hotel may cancel choose to be excluded from Installation. PPV
guarantees that the installation of the System will not degrade the Hotel' MATV
system or impair the ordinary reception of broadcast programs or other services
on the MATV system. PPV will not remove from the installation site any MATV
hardware and equipment owned by Hotel which has been disconnected as a result of
the installation. Hotel will be responsible for storing or retaining such
hardware or equipment for future reinstatement of the original MATV system if
required.
4. MAINTENANCE
(a) PPV Maintenance. PPV will promptly provide all maintenance,
---------------
repairs and replacement of materials and equipment necessary to ensure
satisfactory operation of the System, including satisfactory signal quality.
Such maintenance and technical assistance will be provided free of charge except
as provided in Section 4(e) or if occasioned by a breach by the Hotel of any of
its obligations as set out in this Agreement.
(b) Notification by Hotel. The Hotel will, at the Hotel's expense,
---------------------
use reasonable efforts to notify PPV by telephone of any failure of the System
or the System's functions in any given Room or as to any given Program. The
Hotel will notify PPV as soon as is reasonably possible and upon the Hotel'
actual notice of any unauthorized use, access, theft, damage or malfunction of
or to the System or any other equipment of PPV.
(c) Access for Maintenance. The Hotel will allow authorized
----------------------
personnel of PPV or its independent contractor(s) to have access to the System
at all times in order to conduct routine maintenance, to observe and monitor the
System, to ensure suitable operating conditions, to implement improvements in
the System, to conduct repairs, and to otherwise carry out PPV's obligations set
out in this Agreement.
(d) Response Time. PPV or its independent contractor(s) will respond
-------------
as follows after being notified of a System failure: within four(4) hours during
normal working hours on weekdays, within eight (8) hours at other times. If the
Hotel does not provide PPV or its independent contractor(s) prompt access to the
System to correct System failures once PPV or its independent contractor(s) have
been notified by the Hotel of such System failures, PPV will not be liable for
any delays so incurred and the Hotel will be liable for all charges related to
such service requests.
(e) Negligent or Willful Damage. Any repairs or replacements to any
---------------------------
equipment supplied by PPV made necessary by any negligent or willful act by the
Hotel or any of its employees, contractors, servants, agents or others
authorized by the Hotel, will be undertaken by PPV at the Hotel's expense.
*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
<PAGE>
(f) Repair by Hotel. The Hotel will not permit any person to tamper
---------------
with or attempt to make repairs to any equipment supplied by PPV. In
emergencies, the Hotel may carry out repairs in accordance with instructions
given by PPV by telephone.
(g) Remote Control Units. Hotel will be responsible for paying for
--------------------
replacement infrared remote control units in the event of theft, loss or damage.
Initial replacement cost is as set forth on Attachment B plus shipping, duties
------------
and taxes and is subject to change upon written notice from PPV to Hotel, with
an effective date at least thirty (30) days in advance of a change.
5. FEE AND PAYMENT TERMS
(a) Rental Fee. The Hotel will charge Hotel guests for access to
----------
Programs an amount set by PPV in consultation with the Hotel (the "Rental Fee").
The initial Rental Fee will be as set forth on Attachment B for each occasion a
------------
guest accesses a Program. From time to time, PPV may revise the Rental Fee after
consultation with the Hotel. PPV will notify Hotel in writing of the new Rental
Fee and the effective date at least thirty (30) days in advance of a revision.
(b) Denials. In the event any Hotel guest disputes the amount of
-------
rental Fees in a situation in which Hotel personnel are otherwise unaware of any
System malfunction (herein referred to as a "Denial"), the Hotel may in its sole
discretion credit the disputed amount to the guest's account provided it
provides PPV with a copy of the credit voucher showing room number, date, time
of day, and reason for the disputed charge. For denials that amount to 5% or
less of total purchases, there will be no charge to Hotel. For denials in excess
of 5 % of total purchases, 50% of the denial amount will be deducted from the
Hotel's commission described in Section 5(d) hereof. This formula will be
applied on a monthly basis.
(c) Taxes or other Charges. In addition to the Rental Fee, the Hotel
----------------------
will collect from guests any applicable taxes or applicable charges levied
thereon and will pay those taxes or charges to the appropriate government
agencies or other authorities.
(d) Hotel Commission. The Hotel will retain for the Hotel's services
----------------
a commission in an amount calculated as set forth in Attachment B. The remaining
------------
amount of Rental Fees ("Net Rental Fees") will be paid to PPV within fourteen
(14) days following the end of the month in which the fees were charged, subject
to exchange control restrictions. The payment will specify the occupancy rate
for the month and the corresponding commission rate. Net Rental Fees due to PPV
will be subject to the appropriate witholding tax or other taxes imposed by the
government of the country or any local authority.
(e) Late Charges. Net Rental Fees due but not remitted to PPV by the
-----------
due date will bear a penalty charge at the rate of 1 1/2% per month (or the
maximum amount allowed by law, whichever is lower) until paid.
(f) Inspection-Right. The Hotel will keep current, complete and
----------------
records of occupancy rates and all Rental Fees and other amounts due to PPV
pursuant to this Agreement, in accordance with generally accepted accounting
principles applied on a consistent basis. Throughout the duration of this
Agreement, the books and records of the Hotel pertinent to the Rental Fee for
any month will be open to inspection and reproduction by PPV and, if necessary,
to an audit by a certified public accountant as an authorized representative of
PPV upon reasonable advance written notice to the Hotel. PPV's right to inspect
and audit the books and records of Hotel will not extend beyond one year from
the expiry of each calendar year for the duration of this agreement. If any
audit by PPV discloses any non-payment or underpayment of any amount payable to
PPV pursuant to this Agreement, the Hotel will immediately pay to PPV any
deficiency, plus the interest charges as provided in Section 5(e) above. If the
deficiency is in excess of 10% of the actual amount payable to PPV for the
period for which the deficiency occurred, the Hotel will reimburse PPV for all
costs incurred by PPV in conducting the audit.
(g) Access Record. The System will generate an accurate record (the
-------------
"Access Record") of the access to the System by any guests, including a record
of the access charges for each individual guest's bill or Room account. PPV will
be responsible for all costs associated with programming the System to enable it
to provide the aforesaid data. The Hotel and PPV agree that the Access Record
will be the sole property of PPV and will be held in strictest confidence by the
personnel of the Hotel; and that such personnel will be entitled to review
<PAGE>
the information only to the extent necessary to ensure proper billing of guests.
PPV may review and use the Access Record for such purposes as PPV may reasonably
deem appropriate.
6. PROGRAM TITLES
(a) Program Selection. Program titles to be made available on the
-----------------
System will be selected by PPV in consultation with the Hotel.
(b) Royalty to Program Suppliers. PPV will be responsible for any
------------------
royalty payable to Program suppliers for Program titles made available on the
System.
(c) Proper Use of Programs. The Hotel will be responsible for
----------------------
ensuring that access to the System "head-end" is restricted to persons
authorized by PPV. The Hotel will not permit copying of any Programs. The Hotel
warrants that Programs will be exhibited in the Rooms only, and not in the
public rooms and public areas (including lobbies, hallways, restaurants, bars,
meeting rooms, etc.) of Hotel; and that Programs will not be exhibited other
than in accordance with this Agreement or by any other means of transmission of
any kind whatsoever. The Hotel will use reasonable efforts to insure that only
registered guests of the Hotel and their invitees may view the Programs.
(d) Cassettes and Proper Use. The Hotel warrants that any media such
------------------------
as cassettes that contain the Programs ("Cassettes") will be kept in a secure
and locked area and will not be accessible to Hotel staff without PPV's prior
written consent. The Hotel will prevent unauthorized use, exhibition or viewing
of any Cassette by any person other than on the System on the terms set forth
herein. The Hotel will not permit any person to duplicate or make alterations of
any kind to Cassettes. The Hotel will promptly report to PPV any unauthorized
use of the Cassettes as soon as the Hotel becomes aware of any such use. If the
Hotel makes videocassette recorders available to its guests, the Hotel agrees
that PPV may disable the "record" function during installation of the System.
7. OPTIONAL SERVICES
At the Hotel's option during the term of the Agreement, additional
guest programming services will be provided by PPV ("Optional Services"). Such
programming and services, costs or commissions are described in Attachment C.
------------
8. OWNERSHIP OF THE SYSTEM
(a) Property of PPV. The parties agree that the System and all
---------------
equipment, materials and engineering related thereto provided by PPV are the
sole and exclusive property of PPV. The Hotel will ensure the safety and
security of the System and all related property of PPV at all times while the
System is installed in the Hotel, and will be liable for any damage to the
System resulting from negligence on the part of the Hotel's employees or third
parties to which the Hotel permits access to the System. The Hotel will use
reasonable efforts to prevent any theft of, or damage or vandalism to any of the
equipment supplied by PPV.
(b) Liens or Other Claims. The Hotel will not allow any lien,
---------------------
encumbrance, mortgage, claim or security interest to be attached to or be made
against the System.
(c) Placards. The Hotel will maintain all PPV notices or plaques,
--------
affixed to the System or related equipment, stating that the System and all
equipment, materials and engineering related thereto are the sole and exclusive
property of PPV.
(d) Filings. If PPV elects to file documents with governmental
-------
agencies for the purpose of notifying potential creditors of Hotel that the
System is the property of PPV, Hotel will assist with such filing, if requested
to do so by PPV.
(e) Removal of Equipment. Equipment comprising part of the System
--------------------
will not be removed from the Hotel for any purpose whatsoever other than by PPV,
except in the case of an emergency where such removal is necessary to ensure
safety of such equipment and the Hotel uses reasonable efforts to notify PPV of
such removal by telephone.
<PAGE>
(f) Removal by PPV. In the event the safety of the System is
---------------
threatened due to earthquake, flood, fire, strike, civil disruption or similar
causes, PPV will be entitled to enter upon the Hotel premises and to remove the
System from danger upon reasonable notice to the Hotel.
(g) Removal upon Termination. Upon termination of this Agreement,
------------------------
the Hotel the will allow PPV to remove the System. PPV will undertake to remove
the System within thirty (30) days after such termination and will return the
premises where the System was installed to their original condition, normal wear
and tear excepted, at no cost to the Hotel, and will do so with minimal
disruption to MATV services.
9. INSURANCE
PPV will provide general business risk insurance coverage on the
System during the term of this Agreement.
10. REPRESENTATIONS AND COVENANTS OF HOTEL
The Hotel represents, undertakes and covenants with PPV that
throughout the duration of this Agreement:
(a) Authority. The Hotel warrants and represents that it is the sole
---------
operator of the Hotel, that it has full legal power and authority to enter into
this Agreement and to perform all of its obligations hereunder and that this
Agreement is within the Hotel's authority as operator of the Hotel. If the
Hotel is a corporation, the Hotel further warrants and represents that all
necessary corporate action has been taken to authorize the Hotel to enter into
this Agreement and perform its obligations hereunder.
(b) Compliance. The Hotel will comply, and will ensure that
----------
performance of its obligations hereunder complies, with all Applicable laws,
ordinances, rules, regulations, orders, licenses, permits or other requirements
now or hereafter in effect, of any governmental authority. Without limiting the
generality of the foregoing, to the extent any filing with, or any license,
approval or other agreement of, any applicable authority is required for
performance of any of the Hotel's obligations, the Hotel will file the
appropriate documents and will maintain such documents on file, which PPV may
inspect upon demand.
11. REPRESENTATIONS AND COVENANTS OF PPV
PPV represents, undertakes and covenants with Hotel that throughout
the duration of this Agreement:
(a) Authority. PPV warrants and represents that it has full legal
---------
power and authority to enter into this Agreement and to perform all of its
obligations hereunder. PPV further warrants and represents that all necessary
corporate action has been taken to authorize it to enter into this Agreement and
perform its obligations hereunder.
(b) Compliance. PPV has all necessary licenses, permits, approval or
----------
agreements to enable it to provide the Programs and access to the Channels in
accordance with this Agreement.
(c) No Infringement. PPV warrants that the publication or
---------------
dissemination by the System of the Programs and Channels will not infringe any
copyright or other intellectual property rights of any person and that Hotel
will not be obliged to pay as a result of the operation of the System any
license fees, royalties or other payments over and above the Rental Fees payable
to PPV. PPV will hold the Hotel harmless against any claims for infringement.
(d) Hotel Satisfaction. That the System will operate to Hotel's
------------------
reasonable satisfaction throughout the Term and that signal quality will be to a
reasonable commercial standard.
12. PUBLICITY REGARDING THE SYSTEM
The Hotel will adequately publicize the existence of the System and
access to the Programs for use by guests. The Hotel and its employees will use
best efforts to encourage guests' use and enjoyment of the System.
<PAGE>
If the Hotel prepares any publicity or other materials relating to the System,
the Hotel will forward such materials to PPV for approval prior to publication
and dissemination of the same. The Hotel will ensure that its employees will not
make any representations with regard to the System other than as set out in the
materials which PPV has approved.
13. TRAINING AND CONSULTATION
To enable the Hotel to generate suitable promotional material related
to the use of the System by the Hotel and to enable personnel of the Hotel to
advise and encourage guests regarding their use of the System, PPV will provide
a training course on the use and operation of the System for as many employees
of the Hotel as it deems desirable. Personnel of PPV or its independent
contractor(s) will be reasonably available for telephone consultation to provide
further assistance to Hotel personnel regarding use and operation of the System
at no charge.
14. ACCOMMODATIONS
During the installation process, the Hotel will provide PPV with two
complementary double rooms for the accommodation of the PPV installation team.
In addition the Hotel agrees to provide to PPV ten (10) complimentary room
nights per year on a space available basis for the accommodation of visiting
staff during the term of the Agreement. Any additional room nights will be
provided at the Hotel's lowest rate offered to its most favored customers.
15. CONFIDENTIALITY
The parties agree that the functions and components of the System,
facts regarding the equipment and materials related thereto, the manner of
operation thereof and the terms of this Agreement, including without limitation
Rental Fees and Hotel Commission schedule, all constitute proprietary
information of PPV ("confidential information"). The Hotel will not use or
disclose the Confidential Information to any third party or permit any third
party to have access to the System and the Confidential Information, other than
the Hotel's personnel as may be reasonably necessary for performance of its
obligations under this Agreement.
16. EXCLUSIVE VIDEO ENTERTAINMENT SYSTEM
As part of the consideration to PPV for installation of the System,
the Hotel agrees that the System will be the sole and exclusive video
entertainment and information services system provided or permitted to be
provided by the Hotel to its guests during the Term. In addition,
notwithstanding any other provision contained herein no pay-per-view
entertainment will be provided by Hotel other than such as is delivered by way
of the System, but PPV will not unreasonably deny access through the System by
outside video services not competitive with PPV, provided such service providers
agree to pay a reasonable access fee. Hotel will not either directly or
indirectly solicit or permit the installation of any video system which might in
any way directly or indirectly compete with the System or, so far as Hotel is
able to do so, permit any guest or other person using Hotel or its facilities
for any purpose to bring upon or use any such competing system on the premise of
Hotel.
17. DEFAULT
(a) The remedies set out in Section 17(b) below will apply if either
the Hotel or PPV should: (i) breach or become in default of performance of any
material term or condition contained in this Agreement, and should fail to cure,
correct or remedy such breach or default within sixty (60) days after receipt of
a written notice thereof from the other party, (ii) be adjudicated bankrupt or
petition for relief under any bankruptcy, reorganization receivership,
liquidation, compromise arrangement or moratorium statute, (iii) make an
assignment for the benefit of its creditors, or (iv) petition for the
appointment of a receiver, liquidator, trustee or custodian for all or part of
its asset.
(b) If any of the events set out in Section 17(a) above will occur,
the party not in default may exercise any or all of the following remedies: (i)
cancel and terminate this Agreement and require removal or repossession of the
System and all components thereof, (ii) obtain injunctive and other equitable
relief, and (iii) obtain such damages and other rights and remedies as the party
not in default may have at law.
<PAGE>
(c) Should Hotel inform PPV in writing of a new feature offered by a
competitor in an installed system in the Hotel's local market which if
incorporated in the System would be reasonably expected to materially enhance
Hotel revenue, PPV will install a similar or better feature within 180 days of
written notice by Hotel to PPV, or Hotel will have the right to terminate this
Agreement.
18. FORCE MAJEURE
(a) Where a party is unable, wholly or in part, by reason of Force
Majeure, to carry out any obligations under this Agreement and that party: (i)
gives the other party prompt notice of that Force Majeure with reasonably full
particulars and, insofar as known, the probable extent to which it will be
unable to perform or be delayed in performing that obligation; and (ii) uses all
reasonable efforts to remove that Force Majeure as quickly as possible; then
that obligation is suspended insofar as it is affected by the continuance of
that Force Majeure provided that this Section 18(a) will not operate to relieve
any party of an obligation to pay money.
(b) For the purposes of this Agreement, "Force Majeure" means: (i) an
act of God, strike, lockout or other interference, (ii) war declared or
undeclared, blockade, disturbance, lightning, fire, earthquake, storm, flood, or
explosion, (iii) governmental or quasi-governmental restraint, expropriation,
prohibition, intervention, direction or embargo (iv) unavailability or delay in
availability of equipment or transport not due to any action or inaction on
behalf of either party, (v) unavailability or delay in obtaining governmental or
quasi-governmental approvals, consents, permits, licenses, authorities or
allocations and (vi) any other cause whether of the kind specifically enumerated
in this Section 18(b) or otherwise which is not reasonably within the control of
the party affected; and "all reasonable efforts" does not require the settlement
of strikes, lockouts or other labor disputes, or claims or demands by any
government or quasi-government authority on terms contrary to the reasonable
business judgment of the party affected.
(c) In the event any Force Majeure prevents performance under this
Agreement by either party which continues in existence for more than thirty (30)
days, the parties will meet in good faith to discuss the situation and to make
all reasonable efforts to achieve a mutually satisfactory resolution of the
problem.
(d) In the event performance by either party is prevented due to
Force Majeure for a period not to exceed one hundred and twenty (120) days
during any twelve (12) month period, such failure of performance will not be
deemed default hereunder; provided, however, that in the event of such failure
of performance by Hotel, PPV will be entitled to remove the System until
performance is no longer prevented by Force Majeure.
19. WARRANTIES; REMEDIES
PPV makes no representation or warranty, either express or implied,
with regard to the System, including implied warranties of merchantibility or
fitness for a particular purpose. The obligations of PPV under Section 4
constitutes Hotel's sole and exclusive remedies for any claim which Hotel may
have arising out of or in connection with the System.
20. LIMITATION OF LIABILITY
In no event will PPV be liable for costs of procurement of substitute
goods by Hotel. In no event will PPV be liable for any special, consequential,
incidental or indirect damages (including without limitation loss of profit)
whether or not PPV has been advised of the possibility of such loss, however
caused and on any theory of liability (including but not limited to negligence
or strict liability) arising out of the Agreement. This exclusion includes any
liability that may arise out of third-party claims against Hotel. These
limitations will apply notwithstanding any failure of essential purpose of any
limited remedy.
21. GENERAL TERMS
(a) This Agreement will be governed by the laws of Hong Kong.
(b) Except as otherwise set forth herein, the provisions hereof will
be binding upon, and will inure to the benefit of, the respective successors and
assigns of the parties hereto; provided that no assignment of this Agreement
will be made by Hotel without the express prior written consent of PPV, such
consent not to be unreasonably withheld.
<PAGE>
(c) This Agreement may be modified or amended only by a written
agreement signed by both parties. No waiver by either party of any breach or
default hereunder will be construed as a waiver of any precedent or subsequent
breach or default.
(d) This Agreement sets forth the entire agreement and understanding
of the parties relating to the subject matter hereof, and merges and supersedes
all prior discussions and understanding between the parties related thereto,
whether written or oral.
(e) Any dispute, controversy or claim arising out of or in relation
to this Agreement, or the breach, termination or invalidity thereof which the
parties are unable to mutually resolve within ninety (90) days, will be settled
by arbitration in Hong Kong in accordance with the then-current rules of the
International Chamber of Commerce. The appointing authority will be the
President of the Law Society of Hong Kong.
22. CHANGED CIRCUMSTANCES
Hotel covenants with PPV that in the event Hotel sells or assigns the
assets or the leasehold of the land upon which the Hotel is erected to a third
party, it will use its best efforts to induce the incoming owner and/or operator
to accept assignment of this agreement or enter into an agreement with PPV on
the same terms as this Agreement for the balance of the unexpired portion of the
Term.
IN WITNESS WHEREOF, this Agreement is entered into by the parties
hereto this ________ day of ______, 19___.
PACIFIC PAY VIDEO(HK) LIMITED HOTEL SHANGRI-LA INTERNATIONAL
HOTEL MANAGEMENT LIMITED
By: /s/ Alison J. Thorpe By: /s/ J. David Hayden
Alison J. Thorpe J. David Hayden
Title: Regional Manager Title: Managing Director
<PAGE>
ATTACHMENT A
------------
FACILITIES TO BE PROVIDED BY THE HOTEL FOR INSTALLATION
1. The Hotel MATV system must be able to handle the bandwidth 7 MHz
to 456 MHz, including bi-directional communications at 7 MHz. For countries
adhering to the PAL standard, all channels between 279 MHz and 478 MHz must be
reserved for the System. For countries adhering to the NTSC standard, all
channels between 330 MHz and 456 MHz must be reserved for the System.
2. An as-built drawing of the hotels MATV design must be provided to
PPV as soon as possible after signature of Agreement.
3. The room in which the System is to be located must be secure from
unauthorized access and the location intended for the system must measure at
least 2.5 meters by 2.5 meters. Adequate access must be available for rolling
the System from the delivery truck to the installation room. A table or desk
will be provided of at least 0.6 meter by 0.8 meter for use by staff during the
installation process.
4. Electrical service of at least 10 amps (220-240 VAC) must be
provided; unless only 100-200 VAC is available in which event 20 amp electrical
service is required.
5. The Hotel must provide cooling capability of at least 6800 BTUs
in the System room. The required ambient temperature range is 22 degrees C, +/-
1 degree (72 degrees F, +/-2 degrees).
6. The Hotel must provide two dedicated telephone lines for
connection to the System, equipped with RJ-11 jacks, One is for modem use and
the other is for voice use. The Hotel will be obligated to pay for line
installation and rental but not for usage charges.
7. For the purpose of staging and configuring room interface units,
the Hotel must provide the installation team with use of a secure space for five
days. The space must be at least three meters on a side, and be equipped with
electrical service. A guest room is preferable, near the service lifts.
8. The Hotel must coordinate access by the installation team to
blocks of rooms for equipment installation, which will proceed at approximately
100 rooms per day. If the Hotel wishes the installation team to be escorted
while in rooms it must provide Hotel personnel for that purpose.
<PAGE>
ATTACHMENT B
------------
Initial Rental Fee: [***] for each access of a Program [***]
- ------------------
Hotel Commission & Bonus:
- ------------------------
FLOOR COMMISSION [***] available room/month
(Guaranteed to each Hotel)
COMMISSION % [***]
(Based on Revenue less denial)
INITIAL BONUS THRESHOLD [***]
(Net Revenue after denials/available room/day)
This would be computed on an annual basis. For all incremental movie sales above
the [***] threshold, the Commission Rate above Threshold would apply. This
threshold will automatically increase by [***].
COMMISSION RATE ABOVE THRESHOLD [***]
Remote Control
Replacement Cost: [***] for each replacement unit
- ----------------
*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
<PAGE>
ATTACHMENT C
OPTIONAL SERVICES
Guest services include guest messaging, folio review, remote check
--------------
out, breakfast ordering, video survey, housekeeping status and minibar posting
at no charge to the Hotel.
Free to Guest Scheduled Movie Programming includes one channel with
-----------------------------------------
four rotating movies, at a cost of-,
[***] per available room per day
or
[***] per occupied room per day.
Whichever is the lower per month.
The Hotel agrees to continue to include Free to Guest programming for
the entire term of the contract.
Retail Shopping Services include product advertisement and delivery
------------------------
services for guest selected shopping, with a commission equal to the movie
commission on PPV operating income generated from shopping purchases. Payable to
the Hotel monthly.
Video Games available for guests in the room, with a commission equal
-----------
to the Movie commission. Payable to the Hotel monthly.
*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
<PAGE>
ADDENDUM TO INSTALLATION AGREEMENT
BETWEEN PACIFIC PAY VIDEO & SHANGRI-LA HOTELS & RESORTS
Both parties do hereby agree on the following additional terms and
conditions:
* After consultation, either party may determine whether an individual hotel
property (listed in Attachment A) may be excluded from installation.
* Should more than 20% of the hotel properties, (as listed in Attachment A)
choose to be excluded from the Installment Agreement, as of December 31,
1996, the group terms & conditions will be re-evaluated fro the remaining
contract period.
* Should an individual hotel property choose not to include Free to guest
programming, the terms & conditions of the individual hotel property will
change as follows:
HOTEL IN UNCENSORED MARKET HOTEL IN CENSORED MARKET
-------------------------- ------------------------
COMMISSION %(BASED ON [***] [***]
REVENUE LESS DENIALS)
COMMISSION RATE ABOVE [***] [***]
THRESHOLD
APPROVED AND AGREED BY:
SHANGRI-LA HOTELS & RESORTS Pacific Pay Video
By /s/ authorized signature By /s/ authorized signature
Title Title President
Date 20 January 95 Date 20 January 95
*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
<PAGE>
EXHIBIT 10.13
P * P * V
PACIFIC PAY VIDEO (HK) LTD
1428 PRINCE'S BUILDING, CENTRAL, HONG KONG
TEL (852) 525 0788 FAX (852) 522 7872
7 September, 1994
Mr. Madhu Rao
Group Financial Controller
Shangri-La Hotels & Resorts
15/F, Nat West Tower
Times Square
1 Matheson Street
Causeway Bay
Dear Madhu:
Please find enclosed our revised standard installation agreement applying to all
Shangri-La Hotels & Resorts.
Below are additional agreed terms and conditions between Pacific Pay Video &
Shangri-La Hotels which are to be attached to the contract:
* PPV will install On Command Video in all Shangri-La Hotels within the Asia
Pacific Region listed in Exhibit A, s(1) and will endeavour to promote the
On Command Video System to the hotels listed in Exhibit A, S(2). Any
future properties developed or acquired by Shangri-La Hotels will also be
able to apply the standard installation agreement to the property at a time
mutually agreed by the two parties.
* Installation in all properties will take place according to the
Installation Schedule listed in Attachment A, s(1) & s(2).
* PPV agree to offer individual Hotel properties 21" TV's fully installed as
part of the system. Such an option would require a change to the term of
the Agreement and changes in other terms and conditions.
* PPV will supply approximately 30-40 on-demand titles in hotels of less than
350 rooms and 50-60 on-demand titles in hotels with above 350 rooms (based
on the appropriate number of movie titles in our junior and senior
systems.)
* PPV agree to supply one Free to Guest Channel, playing four rotating
movies. The individual hotel property has the option of paying on
Available or Occupied rooms, whichever is the lower on a monthly basis.
The charge for the Free to Guest Channel is [***] per available room per
day or [***] per occupied room per day. Shangri-La Hotels & Resorts
agree to continue to include Free to Guest programming for the entire term
of the contract.
*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
<PAGE>
* The On Command Video user interface features easy-to-use, interactive
graphics. PPV will provide a choice of up to three languages, including
English (determined by each hotel separately) for the "menu" screens that
guide the guest through the selection process.
* PPV agree that should any system-wide technology enhancements be made (e.g.
improving existing guest services modules), PPV will agree to supply these
to the Shangri-La within a mutually agreed time frame at no charge.
* PPV agree that should functionality that would substantially improve the
guest amenity or revenue potential be installed by a competitor in any
country in which PPV has an installation, PPV will agree to implement
equivalent or better functionality in a mutually agreed time frame at a
mutually agreed cost.
* PPV agree to supply Video Games to the hotels as and when available. The
hotel would receive a commission equal to the movie commission.
* PPV agree to supply Interactive Shopping to the hotels as and when
available. The hotel would receive a commission equal to the movie
commission on PPV's operating income generated from shopping sales.
* Contract term is five years from Installation. PPV will during the term be
the exclusive supplier of on demand video entertainment.
* The Hotels will receive their commission and bonus according to the
following schedule:
FLOOR COMMISSION [***] available room/month
(Guaranteed to each hotel)
COMMISSION % [***]
(Based on Revenue less denials)
INITIAL BONUS THRESHOLD [***]
(Net Revenue after denials/available
room/day)
This would be computed on an annual basis for the individual property for all
incremental movie sales above the [***] threshold, the Commission Rate above
Threshold would apply. This threshold will automatically increase by [***].
COMMISSION RATE ABOVE THRESHOLD [***]
. The Price of Movies to the guest will be the local equivalent to
approximately [***].
. PPV agree to invest up to [***] per property for any necessary upgrades
to the Master Antenna TV System which may be required for proper operation
of the system. Should an individual property require less than [***]
for upgrades the balance remaining may be re-allocated to another
properties upgrade. This will be jointly coordinated by PPV and Shangri-La
Hotels & Resorts. PPV will submit an upgrade
*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
<PAGE>
proposal for each individual hotel property prior to any alterations or
modifications to the existing system. Should any necessary upgrades in any
individual property exceed [***], at the hotel's request, PPV will arrange
to pay providing that the hotel agrees that PPV will receive the hotel's share
of system revenue until the full cost is recovered. It is agreed that should the
upgrade cost exceed [***] on any individual property, such a property may be
excluded from the Installation Agreement at no penalty to Shangri-La Hotel
Group.
* PPV agree to provide an additional reserve of [***] to be allocated
towards upgrade costs for hotel MATV systems at individual properties that
go above the US [***] fund. This can be distributed as the Shangri-La
Hotel Group sees fit.
* PPV's System and the Hotels' Property Management System will be interfaced.
Shangri-La Hotels & Resorts is responsible for any interface protocol
installation or maintenance charges imposed by the PMS software vendor.
* PPV will supply Guest Services including automatic posting,, guest
messaging, folio review/checkout, breakfast ordering, video surveys,
housekeeping & minibar posting at no charge to the hotel.
If you are in agreement to the following terms and conditions discussed above
and included in the standard Installation Agreement, please so indicate by
signing in the space provided below, initial all pages of the Installation
Agreement and sign in the space provided on the Installation Agreement.
I look forward to your reply. If you have any questions, please do not hesitate
to contact me.
Sincerely,
/s/ Alison J. Thorpe
Alison J Thorpe
Regional Manager
- ----------------
Pacific Pay Video (HK) Ltd.
cc: Mr. David Hayden - Managing Director/CEO
Ms. Inge Krieg - Group Director of Rooms
Bob Creager, PPV
Eric Sternberg, PPV
APPROVED AND AGREED TO:
SHANGRI-LA HOTELS & RESORTS
By ________________________
Title _____________________
Date ______________________
*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
<PAGE>
EXHIBIT A
SHANGRI-LA IMPLEMENTATION SCHEDULE
The dates that follow indicate the earliest possible dates on which Pacific Pay
Video commits to installation.
1. INSTALLATION SCHEDULE - CONFIRMED BY SHANGRI-LA HOTELS & RESORTS
<TABLE>
<CAPTION>
Hotel Installation
- ----- ------------
<S> <C>
[***] [***]
</TABLE>
2. INSTALLATION SCHEDULE - TO BE PROMOTED TO INDIVIDUAL PROPERTIES
<TABLE>
<CAPTION>
Hotel Installation
- ----- ------------
<S> <C>
[***] [***]
</TABLE>
[***] Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
<PAGE>
EXHIBIT 10.14
PACIFIC PAY VIDEO PTY LTD
31 Albion Street, Surry Hills, NSW 2010
Tel 61 2 281 5822 Fax 61 2 281 5877
ACN 059 748 588
GUEST VIDEO SERVICES AGREEMENT
This Agreement serves as the Master Agreement (the "AGREEMENT") with Southern
Pacific Hotel Corporation Limited ACN 008 413 367 ("SPHC") for the exclusive
supply and installation by Pacific Pay Video Pty Limited ACN 059 748 588 ("PPV")
of in-house video information management systems ("In-House Systems") and the
exclusive supply of associated interactive services ("SERVICES") to Hotels
managed by SPHC.
1. RECOMMENDATION BY SPHC
1.1 EXISTING SPHC HOTELS
SPHC shall use its best efforts to procure that each of its existing Hotels
("EXISTING ") enters into an agreement ("HOTEL AGREEMENT") with PPV for the
supply and installation of a PPV In-House System and the supply of the
associated Services, which includes terms and conditions substantially in
the form set out in section 2 below, provided it is able to demonstrate to
the Owner of the respective Hotel that installation of the PPV in-house
System is best for the Hotel.
1.2 NEW SPHC HOTELS
SPHC shall use its best efforts to procure that each new Hotel ("NEW
HOTELS") enters into an agreement ("HOTEL AGREEMENT") with PPV for the
supply and installation of a PPV In-House system and the supply of the
associated services, which includes terms and conditions substantially in
the form set out in section 2 below, provided it is able to demonstrate to
the Owner of the respective Hotel that installation of the PPV in-house
System is best for the Hotel.
2. AGREEMENT BETWEEN PPV AND SPHC HOTELS
PPV agrees to contract with each existing Hotel and the new Hotels (together
"the Hotels") and to use its best efforts to sign individual Agreements, which
includes conditions substantially in the form of the Installation Agreement
attached hereafter.
*** Confidential treatment requested prusuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
<PAGE>
3. CONFIDENTIALITY
All information exchanged during the negotiations preceding the signing of this
letter and all information exchanged pursuant to this letter is confidential and
it is agreed that such confidential information shall not be disclosed to any
person except to employees, legal advisers and consultants of PPV or SPHC
requiring the information for the purposes of entering into the Agreement or the
Hotel Agreement.
IN WITNESS WHEREOF, this Agreement is entered into by the parties hereto this
Sixth day of September, 1995.
Executed under seal on behalf of Executed under seal on behalf of
PACIFIC PAY VIDEO PTY LIMITED SOUTHERN PACIFIC HOTEL CORPORATION LIMITED
by two of its duly authorised by two of its duly authorised
officers in the presence of: officers in the presence of:
/s/ Authorized Signature
Signed Signed
/s/ Authorized Signature Authorized Signature
Signed Signed
/s/ Authorized Signature
Witness Witness
[image of seal omitted] [image of seal omitted]
<PAGE>
DATED: ,1995
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BETWEEN:
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PACIFIC PAY VIDEO PTY LIMITED
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OR
--
PACIFIC PAY VIDEO (NZ) LIMITED
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AND:
----
THE HOTEL NAME
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INSTALLATION AGREEMENT
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INSTALLATION AGREEMENT
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This Agreement between Pacific Pay Video Pty Limited (ACN 059 748 588), of 31
Albion Street, Sydney, a Company duly incorporated in the State of New South
Wales (hereinafter called "PPV") and "the Hotel's Name" (ACN of "the Hotels)
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Address" in the State of "the Hotel's State ("the Hotel") sets forth the
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terms for installation and operation by PPV of an on-demand video system and all
related services in the Hotel.
WHEREAS:
The Hotel operates a hotel for the lodging of guests in separate, private rooms
and suites which are customarily available for overnight sleeping accommodation
("Rooms")
The Hotel wishes to enhance the guest's stay by giving them the opportunity to
view pre-record entertainment programs and movies ("Programs") and standard off-
air broadcast or cable television channels available to the Hotel without
special equipment ("Channels"), conveniently in the privacy of their own Rooms
using a system provided by PPV.
Now, therefore, the parties do hereby agree as follows:
1. THE VIDEO SYSTEM
PPV will design, construct and provide to the Hotel a System ("the System") for
operation in all rooms of the Hotel. The System will mean PPV's fully operating
and fully functional in-house video information management system which allows
guests at the hotel to access, at will from their individual Rooms, Programs and
Channels for display on television receiving sets ("TVs") in the Rooms. The
System includes (i) Programs, (ii) a remote control unit for each television set
liked to the System plus ten (10) spare units, (iii) an adequate number of video
playback devices, (iv) a front-desk personal computer and printer, and (v) all
necessary electronic computer and switching equipment. The System does not
include necessary power, wiring, connections, or cooling facilities, which are
to be provided by the Hotel.
2. TERM OF THE AGREEMENT
The term of this Agreement will begin on the Term Commencement Date as defined
in Section 3(c) below and will continue for a period of five (5) years (the
"Term"). Thereafter the Term automatically will be renewed annually. subject to
the right of either party to terminate this agreement upon written notice to the
other given not less than ninety (90) days prior to the date of such annual
renewal.
3. INSTALLATION
(a) System Computer
---------------
At the Hotel's request and in lieu of the front-desk personal computer
and printer included in the System for printing vouchers for each
rental of a movie by a guest. PPV will interface the System computer
to the hotel's property management systems ("PMS"). The interface will
permit the System to automatically post Rental Fees (as defined in
Section 5) to each individual guest's bill or Room account and will
permit the addition of any optional services specified in section 7.
The Hotel will use its best endeavours to supply PPV with the
necessary interface information and/or ask its PMS vendor to cooperate
with PPV. Any interface protocol and/or interface installation charges
imposed by the PMS software vendor will be paid for by PPV, and PPV
must ensure that its interface to the PMS does not affect its
functionality. PPV must commence installation of the system in
accordance with the schedule agreed between the parties for
installation of the System ("Schedule"), and when the Hotel :
a. grants access to the rooms of the Hotel: and
b. makes available the facilities specified in Attachment A.
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(b) Access.
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The Hotel wi11 provide such access as PPV may reasonably request to
enable PPV to complete installation of the System, including without
limitation providing all the Hotel Facilities set forth in Attachment
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A and in reasonable time to allow PPV to complete the installation.
-
The Hotel will use its best efforts to enable PPV personnel to have
access (escorted or unescorted) to guest room for the purpose of
equipment installation at a rate in accordance with the Schedule.
(c) Term Commencement Date.
-----------------------
PPV will test the system to ensure functiona1ity and upon the
successful conclusion of such test PPV will deliver to the hotel a
written statement acknowledging that the installation is completed and
the System is functional. Such statement will be attached hereto when
completed, and the "Term Commencement Date" will be the date of such
statement.
(d) Revenue Date.
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The Hotel will begin the process of billing guests and generating
revenue upon the installation of at least ten (10) guest rooms,
provided that the Hotel is reasonably satisfied that the System is
functioning according to PPV's specification.
(e) Hotel's MATV System
-------------------
PPV will pay for any necessary upgrade to the Hotel's Master Antenna
TV system ("MATV") system which PPV specifies as required for proper
operation of the System including the supply and installation of trunk
amplifiers, taps and splitters, all such upgrades become the property
of the Hotel. PPV will not remove from the installation site any MATV
hardware and equipment owned by the Hotel which has been disconnected
as a result of the installation. The Hotel will be responsible for
storing or retaining such hardware or equipment for future re-
instatement of the original MATV system if required.
(f) Faulty Equipment.
----------------
The agreements contained paragraph 3(e)Hotel's MATV system, do not
include -------------------
the supply by PPV of any equipment and or services required to replace
or re-install faulty or sub-standard cabling existing headend
equipment and or guest room wallplates, where same are proved to
impact negatively on the performance of the Hotel's MATV system. In
such circumstance, PPV agrees to provide to the Hotel a competitive
price for the replacement of such equipment and to replace or re-
install faulty or such-standard equipment at the Hotel's cost during
the course of the work contemplated by paragraph 3(e) Hotel's MATV
System. ------------
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4. MAINTENANCE
(a) PPV Maintenance.
---------------
PPV will promptly provide all maintenance, repairs and replacement of
materials and equipment necessary to ensure satisfactory operation of
the System, including satisfactory signal quality. Such maintenance
and technical assistance will be provided free of charge except as
provided in Section 4(b) or if oocasioned by a breach by the Hotel of
any of its obligations as set out in this Agreement. PPV in providing
maintenance, repairs and replacement will not interfere with the
Hotel's other systems and if it does so, will be responsible for the
costs of re-instating such systems to the condition prior to the
interference.
(b) Notification by Hotel.
---------------------
The Hotel Will, at the Hotel's expense, use reasonable efforts to
notify PPV by telephone of any failure of the System or the System's
functions in any given room or as to any given Program. The Hotel
will notify PPV as soon it is reasonably possible and upon the Hotel's
actual notice of any unauthorised use, access, theft, damage or
malfunction of or to the System or any other equipment of PPV.
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(c) Access for Maintenance.
----------------------
Except in the case of an emergency or upon notification by the Hotel
to PPV of a breakdown, the Hotel will allow authorised personnel of
PPV or its independent contractor(s) to have access to the System upon
reasonable prior notice in order to conduct routine maintenance, to
observe and monitor the System, to ensure suitable operation
conditions, to implement improvements in the System, to conduct
repairs, and to otherwise carry out PPV's obligations set out in this
Agreement.
(d) Response Time.
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PPV or its independent contractor(s) will respond as follows after
being notified of a System failure; within 4 hours during normal
working hours on weekdays, within 8 hours at other times. The Hotel
shall use its best endeavours to provide PPV or its independent
contractor(s) prompt access to the System to correct System failures
once PPV or its independent contractor(s) have been notified by the
Hotel of such System failures.
(e) Negligent or Wilful Damage.
--------------------------
Any repairs or replacements to any equipment supplied try PPV made
necessary by any negligent of wilful act by the Hotel or any of its
employees, contractors, servants, agents or others authorised by the
Hotel, will be undertaken by PPV at the Hotel's expense.
(f) Repair by Hotel.
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The Hotel will not permit any person to tamper with or attempt to make
repairs to any equipment supplied by PPV. In emergencies and as
directed by PPV Engineers, the Hotel may carry out repairs in
accordance with such instructions given by PPV Engineers via the
telephone.
(g) Remote Control Units.
--------------------
The Hotel will be responsible for paying for the replacement of
infrared remote control units in the event of theft, loss or damage in
excess of the spare remote units. The initial replacement cost is as
set forth on Attachment B plus shipping, duties and taxes and is
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written notice from PPV to hotel with an effective date at least
thirty (30) days in advance of a change, provided that the replacement
cost shall at all times be reasonable. The initial number of spare
remote control units should be ten percent (10%) of the total rooms
installed.
5. FEE AND PAYMENT TERMS
(a) Rental Fee.
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The Hotel will charge hotel guests for access to Programs, an amount
set by PPV in consultation with the Hotel (the "Rental Fee"). The
initial Rental Fee will be as set forth in Attachment B for each
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occasion a guest accesses a Program. From time to time, PPV may revise
the Rental Fee after consultation with the Hotel. PPV will notify the
Hotel in writing of the new Rental Fee and the effective date at least
thirty (30) days in advance of such revision .
(b) Denials.
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In the event any Hotel Guest disputes the amount of Rental Fees in a
situation in which Hotel personnel are otherwise unaware of any System
malfunction (herein referred to as a "Denial"), the Hotel may, in its
sole discretion, credit the disputed amount to the Guest's account
provided it supplies PPV with a copy of the credit voucher showing
room number, date, time of day, and reason for the disputed charge.
For denials that occur within six (6) months after commencement, there
will be HOTELS no charge to the Hotel. After that date, for denials
that amount to 5% or less of total purchases, there will be no charge
to the Hotel. For denials in excess or 5% of total purchases, 50% of
the denial amount will be deducted from the Hotel's commission
described in Section 5(d) hereof. This formula will be applied on a
monthly basis.
(c) Taxes or other Charges.
----------------------
In addition to the Rental Fee, the Hotel wi11 collect from guests any
applicable taxes or applicable charges levied thereon and will pay
those taxes or charges to the appropriate government agencies or other
authorities.
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(d) Hotel commission.
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The Hotel will retain for the Hotel's services a commission in an
amount calculated as set forth in Attachment B.
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The Hotel shall deduct from this amount any additional charges that
may be applicable. for use of PPV's optional services set forth in
Attachment B.
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The remaining amount of Rental Fees ("Net Rental Fees") will be paid
to PPV within fourteen (14) days following the end of We month in
which the fees were charged. The payment will specify the occupancy
rate for the month, available rooms and the corresponding commission
rate. Net Rental Fees due to PPV wi11 be paid free and clear of any
tax or other deduction or withholdings of any nature unless otherwise
agreed in writing with PPV
(e) Late Charges.
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Net Rental Fees due but not remitted to PPV by the due date will bear
a penalty charge at the rate of 1.25% per month (or the maximum amount
allowed by law, whichever is lower) until paid.
(f) Inspection Right.
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The Hotel will keep current, complete and accurate records of
occupancy rates and all Rental Fees and other amounts due to PPV
pursuant to this Agreement, in accordance with uniform system of
accounting principles applied on a consistent basis. Throughout the
duration of this Agreement, the books and records of the Hotel
pertinent to the Rental Fee for any month will be open to inspection
and reproduction by PPV and, if necessary, to an audit by a certified
public accountant an authorised representative of PPV upon reasonable
advance written notice to the Hotel.
PPV's right to inspect and audit the books and records of hotel will
not extend beyond one year from the expiration of this Agreement. If
any audit by PPV discloses any non-payment or underpayment of any
amount payable to PPV pursuant to this Agreement, the Hotel will
immediately pay to PPV any deficiency, plus the interest charges as
provided in Section 5(e) above. If the deficiency is in excess of 5%
of the actual amount payable to PPV for the period for which the
deficiency occurred, the Hotel will reimburse PPV for all costs
incurred by PPV in conducting the audit.
(g) Access Record.
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The System will generate an accurate record (the "Access Record") of
the access to the System by any guests including a record of the
access charges for each individual guest's bill or Room account. PPV
will be responsible for all costs associated with programming the
System to enable it to provide the aforesaid data. The Hotel and PPV
agree that the Access Record will be the sole property of PPV and will
be held in strictest confidence by the personnel of the Hotel; and
that such personnel will be entitled to review the information only to
the extent necessary to ensure proper billing of Hotel Guests. PPV may
review and use the Access Record for such purposes as PPV may
reasonably deem appropriate.
6. PROGRAM TITLES(a)
(a) Program Selection
-----------------
Program titles to be made available on the System will be selected by
PPV, provided that PPV will ensure that all program titles comply with
all applicable requirements of Australian law. PPV and the Hotel will
work together to maximise guest satisfaction and useage. Geographic
buy rate trends will be made available to the Hotel management upon
request.
(b) Royalty to Program Suppliers.
----------------------------
PPV will be responsible for any royalty payable to Program suppliers
for Program titles supplied by PPV and made available on the System.
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(c) Proper Use of programs.
----------------------
The Hotel will be responsible for ensuring that access to the System
"head-end" is restricted to persons authorised by PPV. The Hotel will
not permit copying of any Programs. The Hotel warrants that Programs
wi11 be exhibited in the Rooms only, and not in the public rooms and
public areas (including lobbies, hallways, restaurants, bars, meeting
rooms, etc.) of the Hotel; and the Programs will not be exhibited
other than in accordance with this Agreement or by any other means of
transmission of any kind whatsoever. The Hotel will use reasonable
efforts to insure that only registered guests of the hotel and their
invites may view the program.
(d) Cassettes and Proper Use.
------------------------
The Hotel warrants that any media such as cassettes that contain the
programs ("Cassettes") will be kept in a secure and locked area and
will not be accessible to hotel staff without PPV's prior written
consent. The Hotel will use its best efforts to prevent unauthorised
use, exhibition or viewing of any Cassette by any person other than on
the System on the terms set forth herein. The Hotel will not permit
any person to duplicate or make alterations of any kind to the
Cassettes. The Hotel will promptly report to PPV any unauthorised use
of the Cassettes as soon as the Hotel becomes au-are of any such use.
If the Hotel makes video cassette recorders available to its guests,
the Hotel agrees that PPV may disable the "record" function during
installation of the System.
7. OPTIONAL SERVICES
At the Hotel's option during the term of the Agreement, additional guest
programming services will be provided by PPV ("Optional Services"). Such
programming and services, costs or commissions where applicable, are
described in Attachment B.
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8. OWNERSHIP OF THE SYSTEM
(a) Property of PPV.
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The parties agree that the System and all equipment, materials and
engineering related thereto provided by PPV are the sole and exclusive
property of PPV. The Hotel will ensure the safety and security of the
System and all related property of PPV at all times while the System
is installed in the Hotel, and will be liable for any damage to the
System resulting from negligence on the part of the Hotel's employees
or third parties to which the Hotel permits access to the System. The
Hotel will use reasonable efforts to prevent any theft of, or damage
or vandalism to any of the equipment supplied by PPV.
(b) Liens or Other Claims.
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The Hotel will not allow any lien, encumbrance, mortgage claim or
security interest to be attached to or be made against the System.
(c) Placards.
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The Hotel will maintain all PPV notices or plaques, affixed to the
System or related equipment stating that the System and all equipment,
materials and engineering related thereto are the sole and exclusive
property of PPV.
(d) Filings.
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If PPV elects to file documents with governmental agencies for the
purpose of notifying potential creditors of the Hotel that the System
is the Property of PPV, the Hotel will assist at PPV's cost with such
filings if requested to do so by PPV.
(e) Removal of Equipment.
--------------------
Equipment comprising part of the System will not be removed from the
Hotel for any Purpose whatsoever other than by PPV, except in the case
of an emergency where such removal is necessary to ensure safety of
such equipment and the Hotel uses reasonable efforts to notify PPV of
such removal by telephone or other approved means.
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(f) Removal by PPV.
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In the event the safety of the System is threatened due to earthquake,
flood, fire, strike, civil disruption or similar causes, PPV will be
entitled to enter upon the hotel premises and to remove the System
from danger upon reasonable notice to the Hotel.
(g) Removal upon Termination.
------------------------
Upon termination of this Agreement, the Hotel will allow PPV to remove
the System. PPV will undertake to remove the System within thirty
(30) days after such termination and will return the premises where
the System was installed to its original condition, normal wear and
tear excepted, at no cost to the Hotel, and will do so with minimal
disruption to the Hotel's MATV services.
9. INSURANCE
PPV wi11 provide general business risk insurance coverage on the System during
the term of this Agreement.
10. REPRESENTATIONS AND COVENANTS OF HOTEL
The Hotel represents, undertakes and covenants with PPV that throughout the
duration of this Agreement:
(a) Authority.
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The Hotel warrants and represents that it is the sole operator of the
hotel, that it has full legal power and authority to enter into this
Agreement and to perform all of its obligations hereunder and that
this Agreement is within the Hotel's authority as operator of the
hotel. If the Hotel is a corporation, the Hotel further warrants and
represents that all necessary corporate action has ben taken to
authorise the Hotel to enter in this Agreement and perform its
obligation hereunder.
(b) Compliance.
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The Hotel will comply, and will ensure that performance of its
obligations hereunder complies, with all applicable laws, ordinances,
rules, regulations, orders, licenses, permits or other requirements
now or hereafter in effect, of any governmental authority. Without
limiting the generality of the forgoing, to the extent any filing
with, or nay license, approval or other agreement of, any applicable
authority is required for performance of any of the Hotel's
obligations, the Hotel will file the appropriate documents and will
maintain such documents on file, which PPV may inspect upon demand.
The exception is noted in 11b.
11. REPRESENTATIONS AND COVENANTS OF PPV
PPV represents, undertakes and covenants with Hotel that throughout the duration
of this Agreement:
(a) Authority.
---------
PPV warrants and represents that it has full legal power and authority
to enter into this Agreement and to perform all of its obligations
hereunder. PPV further warrants and represents that all necessary
corporate action has been taken to authorise it to enter into the
Agreement and perform its obligations hereunder.[(b)]
(b) Compliance.
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PPV has all necessary licenses, permits, approval or agreements to
enable it to provide the Programs and access to the Channels in
accordance with this Agreement.
(c) No Infringement.
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PPV warrants that the publication or dissemination by the System of
the Programs and Channels will not infringe any copyright or other
intellectual property rights of any person and that Hotel will not be
obliged to pay as a result of the operation of the System any license
fees, royalties or other payments over and above the Rental Fees
payable to PPV. PPV takes full responsibility for ensuring that all
movies are fully licensed for the uses contemplated in this Agreement
from movie studios, and will indemnify the Hotel for all loss, cost,
or damage caused by or resulting from PPV's breach of this clause.
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(d) Hotel Satisfaction.
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The System will fully operate within three (3) months of installation
to the standard represented by PPV to the Hotel and SPHC and in
accordance with the System's specifications. The System will continue
to operate to the Hotel's reasonable satisfaction throughout the Term
and the signal quality will be at a reasonable commercial standard.
12. PUBLICITY REGARDING THE SYSTEM
The Hotel will adequately publicise the existence of the System and Access to
the Programme for use by its Guests. The Hotel and its employees will use best
efforts to encourage Guests use and enjoyment of the System. If the Hotel
prepares any publicity or other materials relating to the System, the Hotel will
forward such materials to PPV for approval prior to publication and
dissemination of the same. The Hotel will ensure that its employees will not
make any representations with regard to the System other than as set out in the
materials which PPV has approved.
13. TRAINING AND CONSULTATION
To enable the Hotel to generate suitable promotional material related to the use
of the System by the Hotel and to enable personnel of the Hotel to advise and
encourage guests regarding their use of the System, PPV will provide a training
course on the use and operation of the System for as many employees of the Hotel
as deemed desirable. Personnel of PPV will be reasonably available for
telephone consultation to provide further assistance, to Hotel personnel
regarding use and operation of the System at not charge.
14. ACCOMMODATIONS
Where the Schedule provides for PPV employees or PPV contractors to work
extended hours or hours beyond normal business hours, the Hotel shall be
responsible for the supply of all necessary accommodation (one separate room per
employee), meals and non-alcoholic beverages for such persons for the period of
site related works for the purposes of installing the System on a space
available basis. In addition the Hotel agrees to provide to PPV the corporate
rate for the accommodation of visiting staff during the term of the Agreement.
15. CONFIDENTIALITY
The parties agree that the functions and components of the System, facts
regarding the equipment and materials related thereto, the manner of operation
thereof and the terms of this Agreements, including without limitation Rental
Fees and Hotel Commission schedule, all constitute proprietary information of
PPV ("confidential information"). The Hotel will not use or disclose the
Confidential Information to any third party or permit any third party to have
access to the System and the Confidential Information, other than the Hotel's
personnel, its legal and financial advisers or other persons or parties as may
be reasonably necessary for performance of its obligations under this Agreement.
16. EXCLUSIVE VIDEO ENTERTAINMENT SYSTEM
Except in respect of cable, satellite or over the air commercial channels, and
except in respect of optional free to guess service not elected to be provided
by PPV, as part of the consideration to PPV for installation of the System, the
Hotel agrees that the System wi11 be the sole and exclusive video entertainment
and information services system provided or permitted to be provided by the
Hotel to its guests during the Term. In addition, notwithstanding any other
provision contained herein no pay-per-view entertainment will be provided by the
Hotel other than such as is delivered by way of the System. PPV will not
unreasonably deny access through the System by outside video services and cable,
satellite or over the air commercial channels not competitive with that offered
by PPV, regardless of any revenue enhancement, provided such service providers
agree to pay a reasonable access fee.
The Hotel further agrees that it will not directly or indirectly solicit or
permit the installation of any video system which might in any way directly or
indirectly compete with the System or, so far as Hotel is able to do so, permit
any guest or other person using the Hotel or its facilities for any purpose to
bring upon or use any such competing system on the premises of the Hotel.
Should the Hotel inform PPV in writing of new technology, including interactive
services offered by a competing in-house movie programmer in an installed system
in either Australia or New Zealand which if incorporated in the System is likely
to materially enhance the System revenue, PPV will install a similar or better
technology or service within nine (9) months or the Hotel shall have the right
to receive such technology from an outside source.
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17. DEFAULT
(a) The remedies set out in Section 17(b) below will apply to either the
Hotel or PPV should: (i) breach or become in default of performance of
any material term or condition contained in this Agreement, and should
fail to cure, correct or remedy such breach or default within sixty
(60) days after receipt of a written notice thereof from the other
party, (ii) be adjudicated bankrupt or petition for relief under any
bankruptcy, reorganisation receivership, liquidation, compromise
arrangement or moratorium statute, (iii) make an assignment for the
benefit of its creditors, or (iv) petition for the appointment of a
receiver, liquidator, trustee or custodian for all or part of its
assets.
(b) If any of the events set out in Section 17(a) above will occur, the
party not in default may exercise any or all of the following
remedies: (i) cancel and terminate this Agreement and require removal
or repossession of the System and all components thereof, (ii) obtain
injunctive and other equitable relief. and (iii) obtain such damages
and other rights and remedies as the party not in default my have at
law.
18. FORCE MAJEURE
(a) Where a party is unable, wholly or in part, by reason of Force
Majeure, to carry out any obligations under this Agreement and that
parties (i) gives the other party prompt notice of the force Majeure
with reasonable full particulars and, insofar as known, the probable
extent to which it will be unable to perform or be delayed in
performing that obligation, and (ii) uses all reasonable efforts to
remove that Force Majeure as quickly as possible, then that obligation
is suspended insofar as it is affected by the continuance of the Force
Majeure provided that this Section 18(a) will not operate to relieve
any part of an obligation to pay money.[b]
(b) For the purposes of this Agreement, "Force Majeure" means: (i) an act
of God, strike, lockout or other interference, (ii) war declared or
undeclared, blockade, disturbance, lightning, fire, earthquake, storm,
flood, or explosion, (iii) governmental or quasi-governmental
restraint, expropriation, prohibition, intervention, direction or
embargo (iv) unavailability or delay in availability of equipment or
transport not due to any action or inaction on behalf of either party,
(v) unavailability or delay in obtaining governmental or quasi-
governmental approvals, consents, permits, licenses, authorities or
allocations and (vi) any other cause whether of the kind specifically
enumerated in this Section 18(b) or otherwise which is not reasonably
within the control of the party affected; and "all reasonable efforts"
does not require the settlement of strikes, lockouts or other labor
disputes, or claims or demands by any government or quasi-government
authority on terms contrary to the reasonable business judgment of the
party affected.
(c) In the event any Force Majeure prevents performance under this
Agreement by either party which continues in existence for more than
thirty (30) days, the parties will meet in good faith to discuss the
situation and to make all reasonable efforts to achieve a mutually
satisfactory resolution of the problem.
(d) In the event performance by either party is prevented due to Force
Majeure for a period not to exceed one hundred and twenty 120 days
during any twelve (12) month period, such failure of performance will
not be deemed default hereunder, provided, however, that in the event
of such failure of performance by Hotel, PPV will be entitled to
remove the System until performance is no longer prevented by Force
Majeure.
19. WARRANTIES , REMEDIES
Except as provided in clause 11, PPV makes no representation or warranty, either
express or implied, with regard to the System, including implied warranties of
merchantability or fitness for a particular purpose. Except for damages caused
to the Hotel by PPV's negligent or intentional conduct, the obligations of PPV
under Section 4 constitutes Hotel's sole and exclusive remedies for any claim
which Hotel may have arising out of or in connection with the System.
Page 9
<PAGE>
20. LIMITATION OF LIABILITY
In no event will PPV be liable for costs of procurement of substitute goods by
the Hotel. In no event will PPV be liable for any special, consequential,
incidental or indirect damages (including without limitation loss of profit)
whether or not PPV has been advised of the possibility of such loss, however
caused and on any theory of liability (including but not limited to negligence
or strict liability) arising out of the Agreement. This exclusion includes any
liability that may arise out of third-party claims against Hotel. These
limitations will apply notwithstanding any failure of essential purpose of any
limited remedy.
21. GENERAL TERMS
(a) This Agreement will be governed by the laws of New South Wales
Australia.
(b) Except as otherwise set forth herein, the provisions hereof will be
binding upon, and will inure to the benefit of, the respective
successors and assigns of the parties hereto; provided that no
assignment of this Agreement will be made by the Hotel without the
express prior written consent of PPV, such consent not to be
unreasonably withheld.
(c) This Agreement may be modified or amended only by a written agreement
signed by both parties. No waiver by either party of any breach or
default hereunder will be construed as a waiver of any precedent or
subsequent breach or default.
(d) This Agreement sets forth the entire agreement and understanding of
the parties relating to the subject matter hereof, and merges and
supersedes all prior discussions and understanding between the parties
related thereto, whether written or oral.
(e) If a dispute arises out of or relates to this Agreement or the breach,
termination, validity or subject matter thereof or any matter
associated therewith the parties agree to endeavour to settle the
dispute by mediation administered by the Australian Commercial
Disputes Centre ("ACDC") before having recourse to litigation. Such
mediation shall be conducted in accordance with the ACDC mediation
guidelines which terms are hereby deemed to be incorporated. Each
party will do such acts, matters and things as may be reasonable in
the circumstances to enable such mediation to occur.
IN WITNESS WHEREOF, this Agreement is entered into by the parties hereto this
day of _________,1995.
EXECUTED BY PACIFIC )
- -------------------
PAY VIDEO PTY LIMITED )
- ---------------------
ACN 059 748 588 )
- ---------------
by a duly authorised officer )
in the presence of. )
Witness)
EXECUTED BY THE HOTEL )
- ---------------------
NAME ACN )
- ---------------------
by a duly authorised officer )
in the presense of: )
Witness)
Page 10
<PAGE>
ATTACHMENT A
-------------
FACILITIES TO BE PROVIDED BY THE HOTEL FOR INSTALLATION
1. The Hotel MATV system must be able to handle the bandwidth 7 MHz to 456
MHz, including bi-directional communications at 7 MHz. For countries
adhering to the PAL standard, all channels between 279 MHz and 478 MHz must
be reserved for the System. For countries adhering to the NTSC standards
all channels between 330 MHz and 456 MHz must be reserved for the System.
2. The Hotel shall use its best efforts to provide PPV with an as-built
drawing of the Hotel's MATV design as soon am possible after signature of
Agreement.
3. The room in which the System is to be located must be secure from
unauthorised access and the location intended for the system must measure
at least 2.5 meters by 2.5 meters. Adequate access must be available for
rolling the System from the delivery track to the installation room. A
table or desk will be provided of a least 0.6 meter by 0.8 meter for use by
staff during the installation process.
4. Electrical Service of at least 10 amps (220-240 VAC) must be provided;
unless only 100-2000 VAC is available in which event 20 amp electrical
service is required.
5. The Hotel must provide cooling capability of at least 3400 BTUs in the
System room. The required ambient temperature range is 22 degrees C, +/- 1
degree (72 degrees f, +/- 2 degrees).
6. The Hotel must provide two dedicated telephone lines for connection to the
System, equipped with RJ-11 jacks. One is for modem use and the other is
for voice use. The Hotel will be obligated to pay for line installation
and rental but not for usage charges.
7. For the purpose of staging and configuring room interface units, the Hotel
must provide the installation team with use of a secure space for the
duration of the installation period. The space must be at least three
meters on a side, and be equipped with electrical service outlets. A guest
room, located near the service lifts is acceptable for this purpose.
8. The Hotel shall use it best efforts to coordinate access by the
installation team to blocks of rooms for equipment installation, which will
proceed at approximately 50 rooms per day. If the Hotel wishes the
installation team to be escorted while in rooms it must provide Hotel
personnel for that purpose.
Page 11
<PAGE>
ATTACHMENT B
------------
1. INITIAL RENTAL FEE: [***] for each access of a programme
2. HOTEL COMMISSION:
----------------
The percentage of Net Rental Fees for the preceding month corresponding to the
SPHC rooms installed and operating with a Pacific Pay Video System for that
month shown in the following table;
<TABLE>
<CAPTION>
TOTAL SPHC ROOMS COMMISSION
---------------- ----------
CONTRACTED
----------
<S> <C>
[***] [***]
[***]
</TABLE>
3. REMOTE CONTROL REPLACEMENT COST: US [***] for each replacement unit
4. OPTIONAL SERVICES
(a) Guest services including video folio review and video message services will
--------------
be offered to participating Hotels at no charge.
(b) Additional services excluding those referred to in 4(a) Guest Services,
------------------- --------------
will be provided where possible, to participating Hotel's at a cost of
AUD [***] per month per service, including:
(i) video checkout;
(ii) interactive guest survey;
(iii) minibar inventory;
(iv) breakfast ordering;
(v) housekeeping status.
*** Confidential tratment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
Page 12
<PAGE>
EXHIBIT 10.15
MAGINET CORPORATION
405 Tasman Drive, Sunnyvale, CA 94089 USA
Tel (408) 752-1000 Fax (408) 734-1687
September 15, 1995
Hyatt International-Asia Pacific Limited
3rd Floor, Hyatt Regency Hong Kong
67 Nathan Road
Kowloon
Hong Kong
Hyatt Chain Services Limited
Suite 31 A, New Henry House
10 Ice House Street
Central Hong Kong
RE: GUEST VIDEO SERVICES AGREEMENT
Gentlemen:
This is written in reference to that certain Master Guest Video Services
Agreement (the "Master Agreement") dated August 11 1995, by and among Hyatt
International-Asia Pacific Limited ("Hi"), Hyatt Chain Services Limited ("Hyatt
Services"; collectively, with HI, being herein "Hyatt"), MagiNet International
Corporation ("MagiNet") and Guest Serve Development Group (GDG).
In order to induce HI and Hyatt Services to enter into the Master Agreement, we
hereby represent and warrant that our wholly-owned subsidiary, MagiNet, in its
exclusive license agreement with GDG for the GDG Technology, as defined in the
Master Agreement, will have both an escrow arrangement for GDG Technology source
code as well as rights to access GDG Technology source code without triggering
the escrow, as may be needed in order to insure that MagiNet will meet its
commitments to Hyatt under the Master Agreement should GDG fail to perform under
the Master Agreement. Accordingly, MagiNet will be in a position to ensure
Hyatt's use of GDG Technology as contemplated in the Master Agreement in the
event GDG should fail to perform thereunder prior to its expiration.
[***] Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
<PAGE>
September 15, 1995
Page Two
We acknowledge that, in the event that at any time in the future any of the
representations and warranties and statements above made should no longer be of
full force and effect, this would constitute an event of default pursuant to
Section 26.1 of the Master Agreement.
MagiNet Corporation
By: /s/ R.R. Creager
Name: R. R. Creager
Title: President
Acknowledgment:
We hereby confirm that the representations and warranties and statements
made by MagiNet Corporation in the foregoing letter are true and valid in all
respects, and that to the best of our knowledge, there are no facts or
circumstances likely to prevent or interfere with their continuing veracity
during the term of the Master Agreement.
Guest Serve Development Group
By: /s/ Philip S. Knudsen
Name: Philip S. Knudsen
Title: CFO/DIRECTOR
Date: 9/15/95
<PAGE>
MAGINET CORPORATION
405 Tasman Drive, Sunnyvale, CA 94089 USA
Tel (408) 752-1000 Fax (408) 734-1687
PERFORMANCE GUARANTEE
---------------------
By this Guarantee MagiNet Corporation (hereinafter the "Guarantor"), a
California corporation, the sole shareholder of MagiNet International
Corporation (hereinafter "MagiNet"), is held and firmly bound unto Hyatt
International-Asia Pacific Limited and Hyatt Chain Services Limited:
(hereinafter jointly called "Hyatt"), to guarantee unconditionally on written
notice as provided below, the full performance by MagiNet of its obligations
pursuant to that certain Master Guest Video Services Agreement dated August 11,
1995 (the "Contract") between and among Hyatt, MagiNet and Guest Serve
Development Group respecting the provision of guest video services and systems
to Hyatt hotels.
The condition of the above written guarantee is such that if MagiNet should,
duly perform and observe all terms, provisions, conditions and stipulations of
the said Contract according to the true purport, intent and meaning thereof, or
if on default by MagiNet the Guarantor shall satisfy and discharge the
obligations of MagiNet thereunder, then this obligation shall be null and void
but otherwise shall remain in full force and effect, but no alteration of the
terms of the said Contract or in the extent or nature of obligations of MagiNet
thereunder, and no allowance of time by Hyatt nor any forbearance or forgiveness
of or in respect of any matter or thing concerning the said Contract on the part
of Hyatt shall in any way release the Guarantor from any liability under the
above-written Guarantee, except insofar as MagiNet itself is released. Provided
always that the above obligation of Guarantor to satisfy and discharge the
obligations of MagiNet to Hyatt shall arise only on written notice from Hyatt
that MagiNet has failed fully to satisfy and comply with any obligations of the
said contract.
MagiNet Corporation
By: R. R. Creager
Title:. President
Date: 9/15/95
<PAGE>
MASTER GUEST VIDEO SERVICES AGREEMENT
-------------------------------------
This Master Guest Video Services Agreement (hereinafter referred to as this
"Agreement" or "Master Agreement"), is made this day of August, 1995
("Effective Date") by and among Hyatt International-Asia Pacific Limited, a Hong
Kong corporation ("Hyatt AP"), and Hyatt Chain Services Limited, a Hong Kong
corporation ("Hyatt Services") (collectively the "Hyatt Parties"), Guestserve
Development Group, a California corporation ("GDG"), and MagiNet International
Corporation, a California corporation ("MagiNet"), which is a wholly-owned
subsidiary of MagiNet Corporation (all such signatories herein being
individually a "Party" and collectively the "Parties").
WHEREAS, the Hyatt Parties wish to arrange, for all hotels for which Hyatt AP
has and will have responsibility during the term of this Agreement (the
"Hotels"), for the procurement from GDG and MagiNet of consistent, high quality
guest in-room video and audio content and all necessary hardware and software
that will permit the transmission to hotel rooms and remote guest selection of
such content (the "System," as further defined in Section 4. below) over each
Hotel's video and audio transmission and receiving systems, including antenna
systems (the "MATV," which includes all required wiring to the guest rooms);
WHEREAS, the Hyatt Parties wish to arrange for the updating, installation,
operation and maintenance and current and future design and development of the
System for and in the Hotels,, and the ongoing maintenance of the MATV
(collectively the "Activities");
WHEREAS, GDG owns or is licensed to provide software programs and related
hardware ("GDG Technology," as further described, represented and warranted in
sections 4.1. and 19.2. below) which GDG represents and warrants meets the
Technical Requirements (defined below) and will therefore permit GDG, MagiNet
and, to the extent desired and permitted hereunder, the Hyatt Parties and others
to perform the Activities;
WHEREAS, the Hyatt Parties and GDG recognize that GDG requires the assistance of
one or more other persons and entities located in the countries in which the
Hotels are or will be operated in undertaking the Activities;
WHEREAS, the System enables guests, in the privacy of the Hotels' guest rooms
(the "Rooms"), to obtain full audio and visual access to off-air broadcast,
satellite and cable television transmissions, on demand movies and televised
events, interactive games, advertising (including infomercials), informational
programs, product and services ordering systems, and other interactive
activities, services and programming as provided hereunder and as may be agreed
upon among the parties or between MagiNet and any Hotel (the"Content"), through
channels provided through the System (the "Channels") and transmitted to the
Rooms over the MATV, all in accordance with the specific requirements and
general guidelines of Exhibit A (the "Technical Requirements");
WHEREAS, MagiNet has been performing similar activities on similar systems,
providing Content in other hotels, and has represented that it is fully capable
of undertaking the Activities, and GDG has warranted that it has assessed
MagiNet's capabilities and believes MagiNet is fully capable of performing its
obligations as defined herein;
WHEREAS, GDG and MagiNet will continue to work throughout the term of this
Agreement
<PAGE>
August 22, 1995
for the Hyatt Parties in developing new technologies, services, enhancements,
hardware, software and Content for the Hyatt Parties, the Hotels and the System;
and
WHEREAS, MagiNet is willing to install, operate and maintain the System in the
Hotels, to upgrade and maintain the MATVs, and to procure movies, video games
and other Content, GDG is willing to provide all necessary technical support to
MagiNet to perform its obligations within respect to deployment of GDG
Technology hereunder, and the Hyatt Parties and the Hotels wish to accomplish
the same pursuant to this Master Agreement and separate individual agreements
("Individual Agreements") with each Hotel;
NOW, THEREFORE,, the Parties do hereby warrant, covenant and agree for good and
valuable consideration duly received as follows:
1. MASTER AGREEMENT
----------------
1.1. Consistent with the above recitals, which are incorporated herein as if set
forth fully below, the Parties have agreed as follows:
1.1.1. MagiNet will procure, install, operate and maintain, and undertake
current and future design and development of, the System, the
Content and the related MATV for and in the Hotels, with GDG's
assistance with respect to the Activities relating to GDG
Technology and with the participation and direction of the Hyatt
Parties, Hotels and others, all as further provided for in the
Technical Requirements and elsewhere in this Agreement. Except as
otherwise provided herein, MagiNet and GDG shall be solely
responsible for all capital and operating expenditures required to
fulfill their obligations hereunder;
1.1.2. GDG will provide all needed support on the GDG Technology to
MagiNet, the Hyatt Parties and the Hotels that is necessary to
accomplish the Activities;
1.1.3. GDG has licensed or will license the GDG Technology to MagiNet so
that the GDG Technology and any improvements thereon can be
provided to the Hyatt Parties, the Hotels and other Hyatt entities
according to the terms of this Agreement for as long as the Master
Agreement is in effect. GDG has retained sufficient rights in the
GDG Technology so that GDG can continue (i) to work on and improve
the GDG Technology and all other necessary parts of the System,
(ii) to select and work on the Content, and (iii) to provide
further and continuing assistance to the Hyatt Parties and through
MagiNet to the Hotels in connection with the System and the
Content;
1.1.4. The Hyatt Parties and the Hotels are hereby fully licensed as
provided herein by GDG and MagiNet for as long as the Master
Agreement is in effect to have and use the GDG Technology and any
improvements thereon made by GDG, MagiNet and/or any third party
acting under a license or contract from either party; and
-2-
<PAGE>
August 22, 1995
1.1.5. The Hyatt Parties are hereby fully licensed by GDG and MagiNet to
have and use a software development tool kit (the "Tool Kit") that
enables the Hyatt Parties to create their own Content for display
on the System through the GDG Technology (as described in Section
9.2 below). This license covers all uses in the Hotels by the Hyatt
Parties and any other entities affiliated with the Hyatt Parties
(the "Hyatt Affiliates") throughout the duration of this Master
Agreement and for such time thereafter as permitted by this
Agreement. Subject to GDG and MagiNet's consent, not to be
unreasonably withheld, the Tool Kit will permit changes to the
System required both to work on the Activities, System features and
the Hyatt Property (defined below). Any Party making changes to the
System will ensure that there is as little disruption of the
Hotels' and others operations as possible. Any third parties
selected by Hyatt Parties to be licensed to use the Tool Kit under
this provision will enter into appropriate licensing and
confidentiality agreements with GDG and MagiNet, such licenses to
be at no cost and restricted to Hyatt Content (defined below)
production only.
1.2. This Master Agreement governs the relationship of the Parties, and shall
take precedence over the terms in each Individual Agreement insofar as the
Parties' obligations are concerned unless all Parties hereto expressly
agree in writing that such term(s) do not apply.
1.3. The language in this Master Agreement shall take precedence in the event
of any inconsistency with language used in any exhibit or other attachment
to this Agreement.
1.4. The Parties have agreed to enter into agreements containing the same terms
as herein with respect to Hyatt International properties in Europe, Africa,
the Middle East and Latin America (the "Related Hyatt Agreements").
2. INDIVIDUAL AGREEMENTS
----------------------
2.1 The form that will be used for all Individual Agreements is attached as
Exhibit B. As soon as practicable and legally permissible, beginning
immediately with the signing of this Master Agreement, the Parties shall
undertake commercially reasonable efforts to ensure that MagiNet and the
Hotels have entered into Individual Agreements, and that GDG has entered
into any needed agreements directly with each Hotel, so that the purposes
of this Agreement can be achieved.
2.2. MagiNet may have distributors and subsidiaries act on its behalf insofar as
is necessary for the installation, operation and maintenance of the System
and the MATV at each Hotel. MagiNet and GDG hereby fully and directly
guarantee the performance of the GDG Technology at the Hotels. MagiNet
hereby fully and directly guarantees the performance of the System at the
Hotels and of all distributors and subsidiaries performing all or part of
any Individual Agreement. Subject to the dispute resolution provisions of
this Agreement and the Individual
-3-
<PAGE>
August 22, 1995
Agreements, MagiNet and GDG agree that they remain fully obligated under
the terms of this Agreement and all Individual Agreements for their
respective obligations, so that the Hyatt Parties and each Hotel shall have
full immediate and direct recourse against them for their respective
obligations without ever being required first to proceed against any
distributor, subsidiary or other third par,
2.3. The Hyatt Parties shall have no payment or any other obligations under any
Individual Agreement. Any payments to be paid by the Hotels are and shall
be the sole responsibility of the Hotels.
3. TERMS OF THE AGREEMENTS
-----------------------
3.1. The term of this Master Agreement will begin on the Effective Date and,
will terminate seven (7) years after this date (the "Initial Termination
Date"). This Master Agreement will continue thereafter for as long as any
single Individual Agreement remains in effect. Upon termination, the
Parties' obligations shall continue as to any required payments and audits
not completed, and specifically as to sections 1.1.5., 4.5 (with respect to
that portion of the manuals that deal with the tool kit), 9., 10., 15.7.,
15.8., 20., 21., 28., and 30. of this Agreement.
3.2. On or about the expiration of the fifth year of the Master Agreement, the
Parties will commence discussions regarding the possible extension of the
Master Agreement for an additional term. Should no agreement be reached
concerning such an extension prior to the Initial Termination Date, the
Master Agreement and all Individual Agreements will be automatically
extended after the Initial Termination Date to a date at least ninety (90)
days after MagiNet's receipt of written notice of the Hyatt Parties' and/or
a given Hotel's intent to terminate the particular agreement(s) involved.
3.3. Each Individual Agreement will continue to be effective at least until
the Initial Termination Date. Upon the expiration of one or more
Individual Agreements, or the refusal of MagiNet to install the System at a
Hotel as permitted under section 3.4 of this Agreement, other guest video
systems may be installed at those Hotels.
3.4. MagiNet will not be required to sign any Individual Agreement if there are
less than twenty-four (24) months remaining prior to the Initial
Termination Date. If there are less than twenty-four (24) months
remaining, MagiNet may, at its option exercised through written notice
within thirty (30) days of any installation request, refuse to sign an
Individual Agreement. If MagiNet determines not to go forward with any
installation, then the Hyatt Parties may seek another vendor to install the
guest video services system for any Hotel for which installation has been
refused.
3.5. The Parties agree that the System shall be installed in all existing Hotels
in accordance with the timetable attached hereto as Exhibit C, and they
shall take all commercially reasonable actions to achieve this goal. The
Parties warrant
-4-
<PAGE>
August 22, 1995
and agree that, except as set forth in Exhibit C, there are no known
existing contractual obligations or legal restrictions that would
prevent them or the Hotels from completing such installations within
two (2) years from the Effective Date.
3.6. MagiNet and GDG shall cooperate fully with any and all third party
vendors chosen by the Hyatt Parties and/or the Hotels, including those
hired as consultants, designers, advertising experts and programmers
to assist in developing Content and to provide advice concerning the
System, and the use of other vendors for another guest video services
system when such system(s) can be installed in accordance with this
Agreement.
4. THE SYSTEM
----------
4.1. The System shall include at least: (i) a module for each television
set that can remotely control on demand requests made by guests from
Rooms to central storage devices within the Hotel; (ii) a remote
control and appropriate spares for each television in the Hotel; (iii)
Content storage sufficient for the Content initially installed and a
reasonable amount of expansion capability for additional Content that
may be installed in the future; (iv) a front-desk personal computer,
monitor and printer; and (v) all necessary software, electronic,
computer and switching equipment, including GDG Technology to permit
the receipt, transmission, monitoring and on demand remotely
controlled interactive guest operated in-room display of the Content.
GDG Technology shall include all technologies developed by GDG and
currently available and, as further provided for herein, future
technology developed by GDG, provided to or usable by hotel customers.
4.2. MagiNet and GDG shall provide for use during the term of this
Agreement at no charge one, demonstration System, including the
updated Content except for the Movies, for Hyatt International
headquarters in Chicago, Illinois.
4.3. As part of the consideration to MagiNet for installation of the
Systems, in the absence of material breach by MagiNet, the Hyatt
Parties agree that they will undertake their best efforts to ensure
that the System will be the sole and exclusive in-room guest video
services system provided to their guests for each Hotel during the
term of its Individual Agreement (except as provided for herein,
including section 4.16 of this Agreement). The Hyatt Parties will not
either directly or indirectly solicit the installation of any video
system in Hotels which might directly compete or cause transmission
interference with the System. MagiNet will not be obligated to
install the System in any Hotel that will not agree to such
exclusivity.
4.4. MagiNet and/or GDG shall develop and install software, and MagiNet
shall repair, purchase, build and install all hardware required to
operate the System, including all needed upgrades to Hotel MATVs. All
installed and provided hardware and software shall be specified and
listed as an exhibit to the Individual Agreements, and their presence
shall be verified in each Individual
-5-
<PAGE>
August 22, 1995
Agreement.
4.5. MagiNet and GDG shall provide documentation to provide the reader with
sufficient information so that the System can be operated without further
consultation (the "System Manual"). Two (2) copies of each System Manual
shall be provided for each Hotel, with one copy to both Hyatt Parties.
4.6. Ten (10) copies of a manual that describes the Tool Kit sufficiently to
permit its use shall be provided to the Hyatt Parties (the "Tool Kit
Manual").
4.7. System Manuals and Tool Kit Manuals may be copied and printed in whole or
in part by Hyatt Parties and Hotels on an as needed basis. All Manuals
shall be marked and treated by all Parties as confidential. Notice of
copying of each Manual shall, with best efforts, be given to MagiNet
and/or GDG.
4.8. The System shall provide guests with the Content in as efficient and
effective a manner as is reasonably and technically possible at the time
the System is installed in each Hotel, and as further specified and
described in the Technical Requirements.
4.9. The System shall accommodate, and MagiNet and GDG shall ensure the
delivery of across the System and the MATVs., to the extent reasonable
and commercially possible, all Content that the Hyatt Parties determine
in the future would benefit Hotel guests or Hotel staffs and would be
economically viable to add to each Hotel's services.
4.10. The System will be multilingual, and shall permit displays and commands
in at least three separate languages in any given Hotel. The selected
languages have been preliminary designated in Exhibit A for the Hotels
identified, which designations can be modified at the Hyatt Parties'
and/or Hotel's option and at the Hotels or Hyatt Parties' expense for
Hyatt Content.
4.11. MagiNet and GDG shall at all times in the future ensure that the System
and all other computer,, reservations and information systems operated or
used by the Hyatt Parties and Hotels ("Hyatt Systems") are interoperable,
and each will ensure that it takes no action(s) that could jeopardize
such interoperability provided that Hyatt Parties will ensure standard
-------------
industry interfaces are provided by such Hyatt Systems for interface with
GDG Technology. If such interoperability of the System and Hyatt Systems
were threatened, then the Hyatt Parties and/or the Hotel(s) affected can
immediately seek any assistance deemed necessary by the Hyatt Parties
and/or those Hotel(s) to disconnect the System from the point of
interface to such Hyatt System to avoid, prevent and/or cure any such
threat or defect. In the event that any Hyatt Systems are modified after
the System is installed, MagiNet and GDG shall be required, if necessary
in order for the System to function with the Hyatt Systems, to use their
best efforts to modify the System so that it operates in accordance with
the requirements of this Agreement and any Individual Agreement that
exists with the Hotel(s) involved. If such modifications are feasible,
then MagiNet and GDG shall
-6-
<PAGE>
August 22, 1995
provide the Hotel(s) affected with an estimate of what is required to
undertake the modifications. The estimate shall be binding upon MagiNet
and GDG, but the affected Hotel(s) may seek other quotes for the work
required, and are not bound by the estimate unless it indicates in
writing that it agrees with the estimate.
4.12. MagiNet and GDG understand and agree that the System must meet or exceed
all Technical Requirements. MagiNet shall provide sufficient spare
equipment to minimize the effect of component failure on guest services
and to enable rapid repair and replacement of defective components,
including spare converters and remote controls to enable Hotel staff to
meet the short term needs of its guests if repair and/or replacement of
components are required as further referenced in Section 12.8.
4.13. The development and use of the System shall not interfere with the
operations of the Hyatt Parties or any Hotel, including any interference
with the continued operation of the Hotels during the period of
installation except as may reasonably be required to effectuate the
installation.
4.14. Each Hotel will ensure the safety and security of the System and all
related property of MagiNet at all times while the System is installed in
the Hotel, and will be liable for any loss or damage to the System
resulting from negligence on the part of Hotel's employees or third
parties (excepting MagiNet and GDG and their associated entities) to
which Hotel permits access to the System.
4.15. The System shall not contain any undocumented features. MagiNet, GDG, the
Hyatt Parties, the Hotels or any other person shall not adversely or
improperly affect or alter either the Content or other materials being
transmitted over the System and/or Hyatt Systems. MagiNet and GDG are
specifically prohibited from knowingly including, and agree not to
include, any virus, timer, clock, or limitations in design or routine
designed to adversely affect or alter the Content or components of the
System and/or Hyatt Systems, in particular any devices that destroy or
otherwise make data inaccessible.
4.16. Nothing in this Master Agreement nor any Individual Agreement shall be
deemed to affect in any way, and/or preclude: (i) the Technical
Requirements;(ii) the Hyatt Parties or the Hotels from entering into
agreements in order to obtain other vendors as otherwise permitted by
this Agreement; (iii) the complete and unfettered right and ability of
the Hyatt Parties and the Hotels to install video devices, cd players and
other devices, including telefax machines, computers and computer lines
(collectively the "Devices"), in Hotels for guest or others' use provided
that content made available by Hyatt Parties and the Hotels for such
Devices does not compete with content provided via the System; (iv) the
Hyatt Parties' and Hotels' rights and ability to connect other
communications devices that will be able to communicate with guests
through the guests' televisions and other forms of monitors; (v) the
Hyatt Parties' and Hotels' rights to continue to broadcast the Hyatt
Content after termination of this Agreement or any Individual Agreements;
and (vi) guests' rights to have and use
-7-
<PAGE>
August 22, 1995
their own Devices with their own content in the Rooms. Any
installation or use of Devices by Hotels and guests may not interfere
with delivery, reception or use of Content anywhere else in the Hotel
by any other guest, or violate any copyright restrictions of any
other Content.
5. ADVISORY BOARD
--------------
5.1. An Advisory Board (the "Advisory Board") shall be formed for the
purpose of assisting in the administration of the relationships
between the Parties contemplated by this Agreement.
5.2. The Advisory Board shall be comprised of at least three (3), not to
exceed (4), voting persons, at least one of whom shall be designated
by each of the two Hyatt Parties, MagiNet and GDG. Such number of
Board members shall in no event be reduced below three, Each party
shall be entitled to have as many nonvoting persons attend Advisory
Board meetings as they desire.
5.3. The Hyatt Parties representative(s) shall be entitled to cast a total
of two (2) votes on any issue. MagiNet and GDG shall be entitled to
cast one (1) vote each. No action voted upon and approved by a
majority of the Advisory Board's votes shall be acted upon without
subsequent written approval of the chief executive officer of each
party or his or her designee.
5.4. Meetings of the Advisory Board shall be held not less than four times
per year. A meeting of the Advisory Board may be called by any
Advisory Board member by telephonic or written notice to all Advisory
Board members at least ten (10) days prior to such meeting of the
time, place and general purpose of such meeting. The meeting may be
held telephonically.
5.5. The Advisory Board shall have specific authority to discuss and vote
on the following matters:
5.5.1. Advertising Rates - The Advisory Board shall discuss
standard advertising rates for local, regional and global
advertising.
5.5.2. System And New Technology Development and Implementation
- The Advisory Board shall serve in an advisory role in
evaluating System and new technology development and
implementation alternatives and schedules, and confirming the
eligibility of development expenditures for reimbursement from
revenue obtained from any approved new services revenue or
otherwise.
5.5.3. Dispute Resolution - The Advisory Board shall consider
all disputes that arise during the day-to-day conduct of the
relationship, including the key account status of certain
accounts.
5.5.4. General Oversight - The Advisory Board will generally
oversee the relationships and activities contemplated by this
Agreement, and will provide executive commitment and direction
to such relationships and
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activities. Such oversight shall include, but not be limited
to, considering issues arising concerning compliance by the
Parties with the terms of this Agreement.
5.6. Each party shall designate a senior executive of their respective
organizations to serve as a senior executive affected by a particular
issue ("Senior Executive"). The Senior Executives shall jointly hear
appeals of issues which are submitted by the Advisory Board.
5.7. An affirmative vote is required from the Hyatt representative(s) in
order for any vote to be binding.
6. HYATT INTERFACES AND CONTENT
----------------------------
6.1. The Hyatt Parties will have the exclusive right to develop, design,
and implement, and obtain and retain full ownership rights of: (i)
the design elements, including the color scheme used, for all Hyatt
Content other than that covered by third party copyrights and
approved by the Hyatt Parties, including all screens and displays;
(ii) all materials and designs created for or by the Hyatt Parties
for the System; and (iii) all Hyatt Parties' Intellectual Property
that relates to these elements, including all those that are subject
to trademark and trade dress ownership under United States or any
local laws. All such elements shall be known as the "Hyatt
Interfaces."
6.2. The Hyatt Interfaces may be changed by the Hyatt Parties at any time.
Such changes shall be implemented within a reasonable time after the
Hyatt Parties' written request to do so, and in any event no later
than ninety (90) days after written notice thereof unless additional
time is reasonably necessary and approved by the Parties.
6.3. The Hyatt Parties shall have the right and complete control to
utilize the Hyatt designated System capacity in Hotels to display
infomercials, programs on other hotels and resorts, and similar
advertising and merchandising of hospitality industry products and
services MM by Hyatt or Hyatt Affiliates ("Hyatt Products"),
including Hyatt Interactive Services (see Section 7. below) and Hotel
Services (see Section 8. below) (collectively, "Hyatt Content").
6.4. The Hyatt Parties may use the Tool Kit to develop, design and
implement the Hyatt Interfaces and Hyatt Content. If the Hyatt
Parties choose to do so, the Hyatt Parties may pay GDG and/or MagiNet
their standard rates to undertake such development, design and
implementation. Nothing herein shall relieve GDG and MagiNet from
their obligation to install, operate and maintain the System and the
MATVs, and to implement Hyatt Interfaces and Hyatt Content in
accordance with this Agreement. All persons who work on such
implementation shall sign all necessary documents to ensure that all
ownership rights to Hyatt Interfaces and Hyatt Content vest fully and
completely in the Hyatt Parties.
6.5. Hyatt Content shall not be directly competitive with any then
currently available
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Content.
6.6. Except as specifically otherwise provided herein, all Content other
than Movies must First be approved by the Hyatt Parties and the
Hotels prior to installation on the System.
7. HYATT INTERACTIVE SERVICES
--------------------------
7.1. "Hyatt Interactive Services" shall mean those Interactive Services
that relate to Hyatt Products that are developed for or by one or
more of the Hyatt Parties or Hyatt Affiliates. Hyatt Interactive
Services may be offered to guests and others through the System.
7.2. Any person or entity working for or related to any Hyatt Party or
Hyatt Affiliate may develop Hyatt Interactive Services. Nothing in
this Agreement shall be read to prohibit such independent
development.
7.3. All specialized hardware and software not covered by this Agreement
for the provision of or constituting Hyatt Interactive Services shall
be paid for by and deemed to be the property of one of the Hyatt
Parties or its designee or assignee.
7.4. MagiNet and GDG shall cooperate fully in providing and fully
implementing, all interfaces and operating procedures required so
that any Hyatt Interactive Services may be used on the System.
8. HOTEL SERVICES
--------------
8.1. "Hotel Services" shall mean those guest information and other
services available now and in the future from Hyatt Parties, Hyatt
Affiliates and Hotels, including the development, storage and
transmission of information about: (1) guest billings status, (2)
minibar consumption and other charges, (3) hotel, transportation, and
restaurant reservations, (4) guest marketing information for or on
behalf or third parties, and (5) guest messaging systems and
services.
8.2. MagiNet shall ensure that Hotel Services are available through the
System, and can be accessed with no more delay than may be
experienced in order to obtain Interactive Services from MagiNet,
including such assistance as may be needed for each Hotel so that all
technical requirements are met for the transmission of Hotel Services
through the System.
8.3. If any of the Hyatt Parties or any individual Hotel requires MagiNet
or GDG to provide services requiring the modification of hardware or
software interfaces other than those on the System in order to
implement Hotel Services, then the party making such a request shall
be solely responsible for such costs. If MagiNet or GDG satisfies
such requirements, then any direct costs for the alteration of
existing interfaces solely for the purpose of providing Hotel
Services, and approved by the Hyatt Parties and one or more Hotels,
shall be paid by the approving entity. The Hyatt Parties' own costs
of development and
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transmission of Hotel Services shall be borne by Hyatt AP or any
specific Hotel or group of Hotels responsible for approving such
costs.
9. OWNERSHIP RIGHTS
----------------
9.1. "Hyatt Systems" shall mean those hardware and software systems other
than the System used by Hyatt Parties and the Hotels to deliver
Content to guests in their rooms, including any transmitting devices
and equipment, wiring, televisions, and cable or master antennae
transmission systems, as well as all software and hardware used for
each Hotel's PMS and MATV.
9.2. The Hyatt Interactive Services, Hyatt Interfaces, Hyatt Content,
Hyatt Systems, all signal boosters, wiring and faceplates, and any
portions of the System that are permanently installed, or installed
in such a way that the removal of that part would cause more than
incidental wear and tear to the premises, and all other property at
the Hotels and with the Hyatt Parties apart from the System, shall be
considered by the Parties to be the sole and exclusive property of
the Hyatt Parties and/or the Hotels (the "Hyatt Property"). All Hyatt
Property shall be considered by the Parties to be the property of the
Hyatt Parties and/or the Hotels, irrespective of whether such
information, materials, hardware and software systems are used on or
developed by MagiNet and/or GDG and/or any affiliated entities or
third parties.
9.3. The System and Content provided by MagiNet and/or GDG that is not
Hyatt Property shall be either the property of MagiNet or GDG or
property licensed to MagiNet or GDG by a third party.
9.4. Hotels will not allow any lien, encumbrance, mortgage, claim or
security interest to be attached to or be made against those portions
of the System owned by MagiNet and/or GDG. MagiNet and GDG and those
working for these Parties shall not allow any lien, encumbrance,
mortgage, claim or security interest to be attached to or be made
against Hyatt Property.
9.5. Hotels will maintain all MagiNet notices or plaques affixed to the
System's equipment, stating that all such equipment is the sole and
exclusive property of MagiNet. If MagiNet elects to file documents
with governmental agencies for the purpose of notifying potential
creditors of' Hotels that the equipment is the property of MagiNet,
Hotels will assist with such filing at no expense to the Hotels, if
requested to do so by MagiNet. Nothing herein shall require the
expenditure of any time or resources by any Hotels beyond
administrative assistance on any legally required and appropriate
documents, which shall first be reviewed and approved by the Hyatt
Parties for form and content relative to their own ownership
interests.
9.6. Equipment comprising part of the System and owned by MagiNet will not
be removed from Hotels for any purpose whatsoever during the. term of
the Individual Agreements except for purposes of repair, and when
otherwise permitted hereunder.
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August 22, 1995
9.7. In the event the safety of the System is threatened due to
earthquake, flood, fire, strike, civil disruption or similar force
majeure causes, MagiNet will be entitled to enter upon Hotel premises
and to remove the System from danger upon reasonable notice to Hotel.
This provision shall not entitle MagiNet to disrupt normal guest
services, nor to intrude on or violate the privacy of the Hotels'
guests.
9.8. Upon termination of its Individual Agreement, each Hotel will allow
MagiNet to remove that portion of the Systems owned by MagiNet.
MagiNet will undertake to remove the System from the premises within
thirty (30) days after such termination, and, at Hotel's option, will
return the premises affected by the installation and or removal of
the System to their original condition, normal wear and tear
excepted, at no cost to Hotel and with minimal disruption to the
provision of Content to Rooms and other Hyatt Property. MagiNet also
hereby agrees that if a new vendor is installing a system in the
Rooms, that MagiNet will remove those portions of the System owned by
MagiNet in a timely and efficient manner.
10. INTELLECTUAL PROPERTY
---------------------
10.1. "Intellectual Property" shall mean all trademarks, service marks,
trade names, trade dress, patents, copyrights, trade secrets, and
other proprietary rights recognized under the laws of any nation.
10.2. Subject to the provisions of this Agreement, all Intellectual
Property owned by Hyatt Parties, the Hotels and any related entities
shall be and remain the property of those entities. MagiNet and GDG
and any related entities shall be provided the limited right to use
and practice such Intellectual Property solely for the purpose of
ensuring that they can perform the Activities.
10.3. Subject to the provisions of this Agreement, all Intellectual
Property of MagiNet and GDG and any related entities shall be and
remain the property of those entities. Hyatt AP, Hyatt Services, the
Hotels and any related entities shall be provided the limited right
to use and practice such Intellectual Property solely for the
purposes described in this Agreement and the Individual Agreements.
10.4. The Parties recognize and agree that it is necessary Or each party to
use certain Intellectual Property of the other in their activities
contemplated under this Agreement. The Parties shall protect the
other parties' Intellectual Property to the same degree as they
protect their own Intellectual Property, but in any event reasonable
steps shall be taken to ensure its protection, including steps to
prevent any reverse engineering of software, hardware, or other
proprietary technology.
10.5. Nothing herein shall be interpreted to transfer, convey or license
any rights whatsoever in any party's Intellectual Property unless
provision therefore is specifically provided for herein. No party
shall have the right to use any trademarks or service marks in the
absence of the owning party's specific
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written agreement to permit such use.
11. INSTALLATION
-----------
11.1. MagiNet shall apply for and obtain all licenses, permits and other
government approvals required to do work on each Hotel's premises,
and shall at all times comply with the applicable legal and
regulatory requirements for such work. It shall be MagiNet's
responsibility to handle all such requirements, and also its
responsibility to pay for any legal expenses and fines incurred due
to MagiNet's failure to comply with such requirements.
11.2. MagiNet and its subsidiaries and distributors shall carry and
maintain for each installation, and any later work at the Hotels,
worker's compensation insurance, or such other insurance as is
required and or needed to pay for any actions of MagiNet's personnel
and all such other personnel, in the amount of at least $1,000,000
combined single limit comprehensive general contractual liability
insurance, and at least $1,000,000 combined single limit vehicle
liability insurance. Copies of all applicable policies and
certificates of insurance shall be provided to the Hyatt Parties and
the relevant Hotel prior to commencement of any work on the premises
of any Hotel. All such policies and other contracts and certificates
of insurance shall include the following provision, or wording with
the same legal effect:
"Hyatt International - Asia Pacific Limited, its affiliates and
subsidiaries and the owners of Hyatt hotels are named as
additional insureds under these policies; such insurance shall be
primary to and not contributory with these entities' and persons'
own insurance."
11.3. An interface with each Hotel's PMS shall be completed by MagiNet and
GDG during installation of the System. A front-desk personal computer
and printer will be included as a part of the System for printing
charges for each guest purchase or rental in case such interface
fails at any time. MagiNet and GDG will ensure that the System will
fully interface and integrate with the PMS. As a part of such
integration, guest usage charges shall be automatically posted to
each individual guest's bill, counts of access shall be available to
the Hotel and centrally consolidated for all Hotels, and other
reporting will be permitted. Each Hotel will cooperate with MagiNet
and GDG for the purpose of successfully implementing the interface,
and shall undertake its best efforts to insure cooperation. between
MagiNet and GDG and each PMS software vendor used by the Hotel. All
interface protocol installation or maintenance charges asserted by
the PMS software vendor and agreed upon in advance by the Hotel will
be paid for by each Hotel.
11.4. Each Hotel will provide such access as may be reasonably requested by
authorized personnel to enable complete installation of the System in
the Hotel, including without limitation providing all Hotel
facilities set forth in Exhibit A within a reasonable time to permit
complete installation. Each Hotel will make reasonable efforts to
provide sufficient access to guest rooms for the purpose of
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equipment installation so that such installation is performed with a
minimum of delay. During the installation process, each Hotel will provide
complimentary or discounted rooms for out of town members of the
installation team consistent with its practices for other vendors.
11.5. Appropriate fully qualified personnel of MagiNet and GDG shall perform
MagiNet's and GDG's obligations hereunder in an efficient, courteous,
effective and timely manner and all such personnel shall be bonded,
trained and supervised in accordance with appropriate hospitality industry
practices consistent with local practice and custom. All actions of any
person acting for or on behalf of MagiNet and GDG shall be subject to the
same rules and regulations as are applicable to Hotel staff. All such
persons shall wear identification badger and shall be dressed in a proper
fashion.
11.6. Upon completion of the installation, MagiNet and GDG will test and ensure
that the System in each Hotel, and in all Rooms is fully functional
without material defects. Upon the successful conclusion of such testing,
MagiNet and GDG will each deliver to the Hotel and the Hyatt Parties a
written Certification (the "Certification") that the System is fully
functional and without material defects and meets all Technical
Requirements. Such Certifications will be attached to the Individual
Agreement and added to this Agreement as exhibits.
11.7. MagiNet shall visit each Hotel and shall train all employees deemed by a
Hotel to be appropriate in the use of the System at installation, as
specified in Section 23.3.
11.8. Each Hotel will begin the process of billing guests for and generating
revenue from the Content no later than the date of the Certification.
11.9. Each Hotel shall provide access to its MATV. MagiNet shall be responsible
for all work required to and all costs incurred in upgrading MATVs as
required for proper operation of the System, except that improvements
required for in-wall cable and its installation in excess of [***] shall
be paid by the Hotels. If these costs exceed [***] and MagiNet elects
not to pay for such excess, then the Movie commission rate payable to the
Hyatt Parties and/or the Hotels for the Movies shown at those Hotels shall
be increased by five percent [***] for a period of three years. Nothing
herein shall be deemed to allow or require either the Hyatt Parties or any
Hotel to submit any records beyond those showing the actual costs of the
purchase and installation.
11.10.The installation of the System and upgrading of MATVs shall not degrade
MATVs, or impair the ordinary reception of broadcast programs or other
services on the MATV. Any MATV hardware and equipment owned by Hotel which
has been disconnected as a result of the installation will be taken to
Hotel designated storage locations by the installation personnel.
11.11.Hyatt Parties shall exercise best efforts to ensure that new Hotels to be
added hereunder shall be constructed with MATV which comports with the
Technical
[***] Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
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Requirements.
12. MAINTENANCE
-----------
12.1. MagiNet will promptly provide all maintenance, repairs and
replacement of all software and hardware and other equipment
necessary to ensure proper operation of the System and the MATV in
each Hotel, including satisfactory signal quality and shall ensure
that a qualified person is available on a twenty-four (24) hour basis
to receive service requests. GDG will provide backup support to
MagiNet as necessary to ensure proper maintenance, repair and
replacement occurs. Such maintenance and technical assistance will be
provided free of charge, unless the maintenance is occasioned by a
breach by Hotel of any of its obligations as set forth in the
Individual Agreement, or by unauthorized use, access, theft,
negligence or damage caused by Hotel staff or third parties not under
contract to MagiNet or GDG. Hotels shall be trained so that they can
undertake routine maintenance as agreed upon by the Hotel and
MagiNet. MagiNet shall not have any obligations under Ws paragraph
for maintenance of hardware which the Hotel has contracted to other
parties.
12.2. Each Hotel will, at the Hotel's expense, notify a person designated
by MagiNet by telephone or by fax of any failure or degradation of
any part of the System anywhere within the Hotel, including in any
Room.
12.3. The Hotel will notify MagiNet as soon as is reasonably possible and
upon Hotel's actual notice of any unauthorized use, access, theft,
damage or malfunction of or to the System.
12.4. Each Hotel will allow authorized personnel of MagiNet and GDG to have
escorted access to the System at reasonable times in order to conduct
routine maintenance, to observe and to monitor the System, to ensure
suitable operating conditions, to implement improvements in the
System, to conduct repairs, and to otherwise carry out MagiNet's and
GDG's obligations set out in this Agreement or the Individual
Agreement.
12.5. In the event that any malfunction, nonconformity or other defect in
the System is believed to exist by Hotel or the Hyatt Parties, and
notice of such defect is given, MagiNet shall promptly undertake
their best efforts to have the defect corrected and in no event shall
there be more than a four (4) hour delay in MagiNet's response and
all repairs shall be made as quickly as possible. If Hotel does not
provide prompt access to the System to correct System failures once
MagiNet has been notified by Hotel of such System defects, MagiNet
will not be liable for any delays so incurred.
12.6. Any repairs or replacements to any equipment supplied by MagiNet made
necessary by any negligent or willful act by Hotel or any of its
guests, employees, contractors, servants, and agents, or force
majeure events, will be undertaken by MagiNet at Hotel's expense.
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August 22, 1995
12.7. Hotels shall not permit any person to tamper with or attempt to make
repairs to any equipment supplied by MagiNet, except for the
replacement of televisions and such other circumstances agreed upon
by the Hotels. In emergencies, Hotels may carry out repairs in
accordance with instructions given by MagiNet.
12.8. Each Hotel will be responsible for replacement of depleted batteries
and for paying for replacement infrared remote control units in the
event of theft, loss or damage in excess of twenty (20) units per
year. Initial replacement cost is as set forth on Exhibit D, plus
shipping, duties and taxes, and is subject to change upon written
notice from MagiNet to Hotel, with an effective date at least thirty
(30) days in advance of a change, in accordance with commercially
reasonable and customary practices.
13. MOVIES
------
13.1. It is understood and agreed that, except as otherwise provided below,
MagiNet shall have absolute control and discretion in the selection
of the movies it contracts for with the movie studios or their
distributors and provides to Hotels (the "Movies").
13.2. MagiNet shall provide a method whereby a guest will be able to
electronically restrict persons from viewing any adult selections
being offered in a Room.
13.3. When available from producing studios, the Content offered by MagiNet
shall include first run Movies offered to Hotels that shall be no
less current and offer no less variety of first run and other titles
than those available at competing hotels in the relevant country.
MagiNet shall consult with the Hotels on a regular basis to ensure
the provision of a selection of titles properly suited to each
Hotel's guest profile. Hotels and the Hyatt Parties may review the
movies and other video materials being offered by MagiNet, and may
object to Movies they feel violate the sensitivities of the guests at
a particular Hotel, and any unresolved disputes will be adjudicated
by the Advisory Board, pending which resolution the objectionable
Movies shall not be offered at the Hotel.
13.4. MagiNet will be solely responsible for any royalty payable to Movie
suppliers and any license fees for Movies made available on the
System.
13.5. Each Hotel will be responsible for ensuring that access to the
room(s) in which the central storage and transmission equipment for
the System is located is restricted to persons accompanied by persons
authorized by MagiNet to be present there except in cases of
emergency. MagiNet shall authorize a sufficient number of persons
employed by the Hotel for such purpose. Hotels will not authorize
copying of any Movies and will undertake their best efforts to ensure
that the Movies are exhibited in the Rooms only, and not in the
public rooms and public areas (including lobbies, hallways,
restaurants, bars, meeting rooms, etc.) of the Hotels. The Movies
will not be exhibited other than in accordance with this Agreement.
Each Hotel will use reasonable efforts to insure that only registered
guests of the Hotel and their invitees may view the Movies.
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August 22, 1995
13.6. Cassettes and other media that contain the Movies ("Cassettes") will
be kept in a secure and locked area. Hotels will prevent unauthorized
access to and use, exhibition or viewing of any Cassette by any
person other than as set forth herein. Hotels will not permit any
person to duplicate or make alterations of any kind to Cassettes.
Hotels will promptly report to MagiNet any unauthorized use of the
Cassettes as soon as a Hotel becomes aware of any such use. If a
Hotel has videocassette recorders installed in the Rooms, the Hotel
shall agree that MagiNet may, where required to do so as a result of
its licensing agreements, as directed by the Hotel, either (i)
disable the "record" function in such a way that does not permanently
damage the videocassette equipment, but only to the extent required
to comply with such restrictions, or (ii) disable the Movie function
for such Rooms.
13.7. MagiNet shall be responsible to ensure that any of the transmissions
on the System controlled by it do not violate any applicable laws,
including those of the country in which each Hotel is located,
including specifically any laws relating to copyright, pornography,
and censorship of information or materials.
14. NEW TECHNOLOGIES
----------------
14.1. MagiNet and GDG shall at all times offer to the Hyatt Parties and
each Hotel the most advanced guest video services and features (and
associated technologies) either of these Parties or its competitors
offers to any other hotel.
14.2. MagiNet and GDG shall provide the Hyatt Parties with written notice
of any new guest video services and features (and associated
technologies) within thirty (30) days of the party's first knowledge
of such development(s).
14.3. The Parties agree that the Advisory Board will periodically, and at
least quarterly hold a meeting to review the guest video services and
features (and associated technologies) currently available to hotel
chains and hotels competitive with the Hotels and the services and
features (and associated technologies) which may become available in
the industry, whether from MagiNet, GDG or otherwise.
14.4. Should Hyatt determine that it is commercially necessary in order to
maintain its competitive position in the marketplace for one or more
services or features (and associated technologies), or a more
advanced version of existing services or features (and associated
technologies), to be added to the System, then GDG and/or MagiNet
shall within nine (9) months of written notice from the Hyatt Parties
of such determination (which shall be six (6) months in cases where
such service or feature and associated technology is in use in the
marketplace), implement the service or feature and associated
technology in all future Hotel installations and in any Hotels then
subject to Individual Agreements. The failure of MagiNet or GDG to
comply with this provision shall be a default under this Agreement
and shall be subject to the remedies set forth in section 26.3.
hereof. The failure of MagiNet and/or GDG to comply with this
provision shall also permit Hyatt and or Hotels to obtain from a
third party those services
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or features (and associated technologies) not provided by MagiNet or GDG,
not withstanding the exclusivity provisions of section 4.3. hereof.
14.5. Should MagiNet or GDG add to the System a service or feature (and
associated technology) requested by Hyatt or otherwise, such service or
feature (and associated technology) will be implemented in such a way as
not to prevent Hyatt from providing consistent guest services throughout
its Hotels. The failure
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of MagiNet and GDG to comply with this provision shall also permit
Hyatt and/or Hotel to obtain any assistance from a third party
necessary to provide such consistent service, notwithstanding the
exclusivity provisions of section 4.3. hereof.
15. HOTEL FEES
----------
15.1. Each Hotel will charge hotel guests for access to Movies and other
pay per view or pay for service Content for which charges are
assessed (the "Rental Fees"). The amount to be charged for Movies
shall be set by MagiNet in consultation with and approved by each
Hotel at the time of the execution of the Individual Agreements or,
for other pay per view or pay for service Content, at the time the
Content is made available. To the extent that the Hotel and MagiNet
agree, such charges shall not commence until after a guest has been
allowed to review the selection for five (5) minutes. In addition to
the Rental Fee, each Hotel will collect from guests any taxes
applicable to such receipts, and will pay those taxes to the
appropriate government authorities.
15.2. From time to time, MagiNet may revise the Rental Fees after
consultation with Hotels. Rental Fees shall be charged which are
customary in each locale, and shall be increased annually in an
amount at least equal to the increase in the local cost of living.
MagiNet will notify each Hotel in writing of any new Rental Fee and
the effective date at least thirty (30) days in advance of a
revision.
15.3. In the event any Hotel guest disputes the amount of Rental Fees in a
situation in which Hotel personnel are otherwise unaware of any
System malfunction (herein referred to as a "Denial"), each Hotel may
in its sole discretion credit the disputed amount to the guest's
account provided it provides MagiNet's local representative with a
copy of the credit voucher showing room number, date, time of day,
and reason for the disputed charge. Hotel will use its best efforts
to limit Denials to not more than five percent (5%) of gross Rental
Fees per month from Rental Fee payments otherwise due for Denials
actually credited to guests. MagiNet will provide training and/or
materials to assist Hotels in these efforts, and the Advisory Board
will provide suitable guidelines to achieve this objective.
15.4. The System will generate an accurate record (the "Access Record") of
the access to the System by any guess, including a record of the
access charges for each individual guest's bill or Room account, the
types of access made, and any other reasonably recordable information
that may be requested. The Access Record will not retain the names of
guests. MagiNet and GDG will be responsible at their own cost for
programming the System to enable it to provide the aforesaid data.
The Access Record for each Hotel will be held in confidence by the
personnel of each Hotel. MagiNet and the Hyatt Parties may review and
use the Access Record for such purposes as they may reasonably deem
appropriate. Each party will indemnify the other against any and all
claims as a result of their improper use of such Access Record.
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15.5. Hotels will submit a report (via telefax) to MagiNet on the first day
of each month which details the previous month's gross Rental Fees
and itemizes deductions for all Denials allowed. MagiNet shall
invoice the Hotels for gross Rental Fees less Denials allowed, Hotel
commissions payable under Exhibit D, and unreimbursed tax payments
("Net Rental Fees"), all based upon guest usage as reported by the
relevant PMS accounting records during each calendar month, which
information shall be accessible and reviewable during the month by
MagiNet, the Hotels and the Hyatt Parties. Hotels shall hand post any
invoices printed in hard form as a result of PMS downtime to
accurately capture those buys in PMS records.- Both parties agree to
mutually and amicably resolve any variances between their respective
records of Rental Fees and Denials.
15.6. Each Hotel will pay to MagiNet or the designated subsidiary or
distributor or other designated party within a reasonable time as
established in the Individual Agreement the Net Rental Fees invoiced
by MagiNet as provided in Section 15.5. The payment transmission will
also specify the occupancy rate for the month.
15.7. Each Hotel will keep current, complete and accurate records of
occupancy rates and all Net Rental Fees and other amounts due to
MagiNet pursuant to this Agreement. Throughout the duration of this
Agreement, each Hotel's books and records pertinent to the Rental
Fees, Denials and Net Rental Fees for any month will be open to
inspection and reproduction by MagiNet and, if necessary, to an audit
by a mutually agreed upon certified public accountant as an
authorized representative of MagiNet upon reasonable advance written
notice to Hotel. No. such records need to be retained beyond one
year. MagiNet's right to inspect and audit the books and records of
Hotel will not extend beyond one year from the expiration of its
Individual Agreement. If any audit by MagiNet discloses any non-
payment or underpayment of any amount payable to MagiNet, the audited
Hotel will immediately pay to MagiNet any deficiency, plus the
interest charges established in the Individual Agreement. If the
deficiency is in excess of fifteen percent (15%) of the actual amount
payable to MagiNet for the period for which the deficiency occurred,
the audited Hotel will reimburse MagiNet for all costs incurred by
MagiNet in conducting the audit.
16. THIRD PARTY CONTENT
-------------------
16.1. The Parties intend to market advertising and merchandising system
capacity for the System to third parties. All such Content, apart
from that defined as Hyatt Content shall be known as "Third Party
Content". GDG, the Hyatt Parties and MagiNet may solicit and enter
into agreements to provide third parties with space for advertising
and merchandising through the System for all Hotels.
16.2. A "Key Account" is a third party advertiser or merchandiser that is
specifically reserved to Hyatt Parties, or which falls within an
identified category of entities and persons about whom no Content is
to be included on the System, or who are
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August 22, 1995
otherwise not appropriate for the System, all of which is to be
determined at the Hyatt Parties' sole discretion. Such Key Accounts
will be identified by the Advisory Board for a decision by the Hyatt
Parties.
16.3. The Parties shall develop guidelines for the marketing of advertising
and merchandising system capacity for the System through the Advisory
Board. The Hyatt Parties shall have exclusive right to accept or
reject any specific Third Party Content, and to control how and who
makes any contact with a prospective marketer of products or
services. Each prospective customer shall be identified prior to any
approach being made by either MagiNet or GDG by providing to the
Advisory Board: (i) the name of such customer, (ii) the name of the
contact person at such customer, (iii) the individual unit for which
the contact person has buying authority, and (iv) if applicable, an
indication that such customer constitutes a Key Account, or that a
determination with respect to Key Account status is pending.
16.4. GDG and its affiliates will offer to provide the production services
for Hyatt Content and for Third Party Content but the Hyatt Parties
and third parties are not obligated to use GDG's services. Any
production services provided to third parties shall be on
commercially reasonable terms to be mutually agreed upon between GDG
and such third party. Production services provided to the Hyatt
Parties shah be for the lowest fees offered to other customers of
similar services.
16.5. Each party shall fully cooperate with each other party hereto, and
any other person or entity involved in creating Third Party Content,
in providing format information useful in the production of Third
Party Content and in implementing any technical interfaces necessary
to enable display of Third Party Content on the System.
16.6. For any Third Party Content utilizing the System at a Hotel, the
Hyatt Parties and the Hotels shall be entitled to retain [***] and.
GDG and MagiNet shall be entitled to retain [***] of Net Content
Revenues actually paid to one of the Parties and the Hotels hereto
("Content Commission"). The precise methods by which such payments
are to be made, and the calculations of appropriate expenses to be
charged for soliciting and obtaining Third Party Content prior to any
distribution to the other parties, shall be determined by the
Advisory Board.
16.7. The Parties agree to make and maintain complete books, records and
accounts regarding sales of and expenses relating to Third Party
Content. Each of the Hyatt Parties, GDG and MagiNet shall have the
right to examine such books, records and accounts during the other
party's normal business hours once annually to verify the reports on
Content Commission payments due. If any such examination discloses a
shortfall or overpayment., the appropriate party shall promptly pay
the amount of such shortfall or refund such overpayment.
16.8. "Net Content Revenue" shall mean all revenues or other consideration
received
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portions have been filed separately with the Commission.
<PAGE>
August 22, 1995
by any of the Parties and the Hotels from advertisers, merchandisers,
hotel guests and others from the transmission of Third Party Content
over the System, less allowable Denials, applicable unreimbursed tax
payments, and any production costs, development costs, marketing
costs or other expenditures which have been approved for
reimbursement by the Advisory Board.
17. INTERACTIVE PRODUCTS AND SERVICES
---------------------------------
17.1. The Parties intend to develop and otherwise obtain interactive guest
video products and services including games ("Interactive Services").
17.2. The Parties shall develop and otherwise solicit and obtain
Interactive Services for the System through the Advisory Board. The
Hyatt Parties shall have exclusive right to accept or reject any
specific Interactive Services.
17.3. GDG and its affiliates will offer to provide the production services
for Hyatt Interactive Services and for Interactive Services but the
Hyatt Parties and third parties are not obligated to use GDG's
services. Any production services provided to third parties shall be
on commercially reasonable terms to be mutually agreed upon between
GDG and such third party. Production services provided to the Hyatt
Parties shall be for the lowest fees offered to other customers of
similar services.
17.4. Each party shall fully cooperate with each other party hereto, and
any other person or entity involved in creating Interactive Services,
in providing format information useful in the production of
Interactive Services and in implementing any technical interfaces
necessary to enable display of Interactive Services on the System.
17.5. For any Interactive Services utilizing the System at a Hotel, the
Hyatt Parties and the Hotels shall be entitled to retain [***] and
GDG and MagiNet shall be entitled to retain [***] of Net Interactive
Services Revenues actually paid to one of the Parties and the Hotels
hereto ("Interactive Commission"). The precise methods by which such
payments are to be made, and the calculations of appropriate expenses
to be charged for soliciting and obtaining and developing Interactive
Services prior to any distribution to the other parties, shall be
determined by the Advisory Board.
17.6. The Parties agree to make and maintain complete books, records and
accounts regarding sales of and expenses relating to Interactive
Services. Each of the Hyatt Parties, GDG and MagiNet shall have the
right to examine such books, records and accounts during the other
party's normal business hours once annually to verify the reports on
Interactive Commission payments due. If any such examination
discloses a shortfall or overpayment, the appropriate party shall
promptly pay the amount of such shortfall or refund such overpayment.
17.7. "Net Interactive Services Revenues" shall mean all revenues or other
consideration received by any of the Parties and the Hotels from
interactive
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August 22, 1995
services providers, hotel guests and others from the provision of
Interactive Services over the System, less allowable denials,
applicable unreimbursed tax payments, and any production costs,
development costs, marketing costs or other expenditures which have
been approved for reimbursement by the Advisory Board.
18. REPRESENTATIONS AND WARRANTIES OF HOTELS
----------------------------------------
18.1. Each Hotel shall represent and warrant as follows with MagiNet that
throughout the duration of its Individual Agreement:
18.1.1. The Hotel warrants and represents that it has full legal
power and authority to enter into the Individual Agreement
and to perform all of its obligations thereunder. The Hotel
shall further warrant and represent that all necessary
corporate action has been taken to authorize it to enter
into the Individual Agreement and perform its obligations
thereunder.
18.1.2. The Hotel will comply, and will ensure that performance of
its obligations under the Individual Agreement complies,
with all applicable laws, ordinances, rules, regulations,
orders, licenses, permits or other requirements now or
hereafter in effect, of any governmental authority. Without
limiting the generality of the foregoing, to the extent any
filing with, or any license, approval or other agreement of,
any applicable authority is required for performance of -any
of Hotel's obligations, Hotel will file the appropriate
documents and will maintain such documents on file, which
MagiNet may inspect upon demand.
19. REPRESENTATIONS AND WARRANTIES OF PARTIES
-----------------------------------------
19.1. Each of the Hyatt Parties, MagiNet and GDG represent and warrant to
each other party on a continuing basis that:
19.1.1. It has full legal power and authority to enter into this
Agreement and to perform all of its obligations hereunder
and all necessary corporate action has been taken to
authorize it to enter into this Agreement and perform its
obligations hereunder.
19.1.2. It will comply, and will ensure that performance of its
obligations hereunder complies, with all applicable laws,
ordinances, rules, regulations, orders, licenses, permits or
other requirements now or hereafter in effect, of any
governmental authority.
19.2. Each of MagiNet and GDG separately represents and warrants to the
Hyatt Parties on a continuing basis that:
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August 22, 1995
19.2.1. The GDG Technology was developed, and is owned or properly licensed,
exclusively by GDG, and will be owned or licensed exclusively by GDG
as long as the Master Agreement is in effect, except for licenses
granted to MagiNet and other licensees, or except as permitted under
Section 30.3. No person other than MagiNet, GDG or GDG's licensees or
GDG's licensers possesses any rights to any technology that has been
or would otherwise be considered GDG Technology, nor will have any
such rights as long as the Master Agreement is in effect.
19.2.2. The publication or dissemination over the System of Content other
than Hyatt Content which is supplied by MagiNet or GDG under this
Agreement will not infringe any copyright or other intellectual
property rights of any person and the Hyatt Parties will not be
obliged to pay as a result of the operation of the System under this
Agreement any license fees, royalties or other payments, nor will
Hotels be obligated to make such payments over and above the Rental
Fees payable by Hotels to MagiNet.
19.2.3. The value received under this Master Agreement is at least equivalent
to the best or better value provided to any similar customer under
similar terms and conditions.
19.2.4. The System and MATVs and all portions thereof shall be free of
material defects and operate in all material respects in conformance
with the Technical Requirements in Exhibit A.
19.2.5. MagiNet and/or GDG have full ownership or authority to provide all
hardware, software, transmissions and services contemplated by this
Agreement.
19.2.6. MagiNet has or can obtain all necessary licenses, government
approvals, and meet all other technical standards and legal
requirements in order to provide the hardware, software, transmissions
and services contemplated by this Agreement.
19.2.7. MagiNet and GDG have not and will not place any encumbrances on the
software and hardware being provided pursuant to this Agreement,
except in connection with an assignment permitted under Section 30.3.
19.2.8. MagiNet and GDG have full approval and support from their related
persons and entities so that MagiNet and GDG will obtain the full
cooperation of all necessary related parties and contracted third
parties to carry out the tasks contemplated in this Agreement.
19.2.9. There are no existing contracts to which either MagiNet or GDG,
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August 22, 1995
or any party related thereto, is a party that will be in conflict with
this Agreement.
20. CONFIDENTIAL INFORMATION
------------------------
20.1. The Parties recognize that they may come into contact with sensitive
business and proprietary information regarding each other and third
parties. By reason of certain provisions in the Agreement, the
Parties are required to provide each other with access to such
information, including information regarding software operation and
Hotel customer information.
20.2. The Parties agree to take such steps as are reasonably necessary in
order to protect Confidential Information from disclosure. Such
actions shall include (1) providing the information to personnel on a
need-to-know basis, and (2) the retention of all non-public
information regarding software on machines and in a repository to
which the general public does not have access.
20.3. The Parties will make reasonable efforts to identify the categories
of information considered potentially confidential. The
identification of such information is not deemed to be an admission
by either party that such information is in fact confidential.
20.4. The Parties shall make a reasonable effort to identify all
confidential information by marking the information as
"Confidential." However, failure to mark information "Confidential"
shall not preclude any party from asserting that the information is
confidential. All confidential information of a party shall 'be
returned to it upon termination of this Agreement.
20.5. Breach of confidentiality obligations shall permit the other party to
seek relief in the first instance before any court of competent
jurisdiction for the further protection of such information. This
provision shall not affect the requirement that the Parties engage in
arbitration of any dispute, and any court action taken shall be
considered in aid of arbitration and shall terminate upon the
designation of an arbitrator who may change any ruling made by a
court in this connection.
20.6. All information pertaining to specific guests, groups of guests or
all guests who use Hotels shall be treated as confidential.
21. INDEMNIFICATION: GUARANTY
-------------------------
21.1. (a) MagiNet agrees, at its own expense, to defend or at its option to
settle, any claim, suit or proceeding brought against Hyatt Parties
or Hotels including all affiliated companies of the foregoing
entities and their respective officers, directors, employees and
agents, for infringement of any third party's copyright, patents, or
other Intellectual Property rights arising from Hyatt Parties' or
Hotels use of the System as permitted in this Agreement,, and to
indemnify the foregoing persons and entities against any court
awarded damages and costs (including reasonable attorneys' fees) for
such infringement. MagiNet shall be relieved of the foregoing
obligations unless Hyatt Parties or the applicable Hotel
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August 22, 1995
notifies MagiNet promptly in writing of such claim, suit or proceeding and
gives MagiNet authority to proceed as contemplated herein, and, at
MagiNet's expense (except for the value of the time of Hyatt Parties or
Hotel employees), gives MagiNet proper and full information and reasonable
assistance to settle and/or defend any such claim, suite or proceeding.
MagiNet shall not be liable for any costs or expenses incurred without its
prior written authorization.
(b) In the event that the System is held, or in MagiNet's reasonable
opinion may be held, to constitute such an infringement, MagiNet at its
option and expense, may do one or more of the following: (i) obtain for
Hyatt Parties or Hotels, as applicable, the right to continue to use and
distribute the infringing material as contemplated herein, (ii) modify
such infringing material so that it becomes noninfringing, but without
materially altering the functionality of such material, and/or (iii)
replace the infringing material with functionally equivalent noninfringing
products.
(c) Notwithstanding the provisions of clauses (a) and (b) above, MagiNet
assumes no liability for infringement claims arising from. (i) Content not
developed by, MagiNet, (ii) the combination of the System with other
products not provided by MagiNet if such infringement would not have
occurred but for such combination, (iii) the modification of the System
unless such modification was made or authorized by MagiNet, when such
infringement would not have occurred but for such modifications, or (iv)
specifications, materials, products or Content provided solely by Hyatt
Parties, Hotels or GDG to MagiNet hereunder.
(d) The foregoing provisions of this Section 21.1 state the entire
liability and obligation of MagiNet and the exclusive remedy of Hyatt
Parties or Hotels with respect to any alleged or actual infringement of
patents, copyrights, trade secrets, or other Intellectual Property or
proprietary rights by the System.
21.2. (a) GDG agrees, at its own expense, to defend or at its option to settle,
any claim, suit or proceeding brought against Hyatt Parties or Hotels
including all affiliated companies of the foregoing entities and their
respective officers, directors employees and agents, for infringement of
any third party's copyright, patents or other Intellectual Property rights
arising from Hyatt Panics' or Hotels use of the GDG Technology as
permitted in this Agreement, and to indemnify the foregoing persons and
entities against any court awarded damages and costs (including reasonable
attorneys' fees) for such infringement. GDG shall be relieved of the
foregoing obligations unless Hyatt Parties or the applicable Hotel
notifies GDG promptly in writing of such claim, suit or proceeding and
gives GDG authority to proceed as contemplated herein, and, at GDG's
expense (except for the value of the time of Hyatt Parties or Hotel
employees), gives GDG proper and full information and reasonable
assistance to settle and/or defend any such claim, suit or proceeding. GDG
shall not be liable for any costs or expenses incurred without its prior
written authorization.
(b) In the event that any GDG Technology is held, or in GDG's reasonable
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August 22, 1995
opinion may be held, ton constitute such an infringement, GDG, at its
option and expense, may do one or more of the following: (i) obtain
for Hyatt Parties or Hotels, as applicable, the right to continue to
use and distribute the infringing material as contemplated herein,
(ii) modify such infringing material so that it becomes non-
infringing, but without materially altering the functionality of such
material, and/or (iii) replace the infringing material with
functionally equivalent non-infringing products.
(c) Notwithstanding the provisions of clauses (a) and (b) above, GDG
assumes no liability for infringement claims arising from (i)
combination of the GDG Technology with other products not provided by
GDG if such infringement would not have occurred but for such
combination, or (ii) the modification of such GDG Technology unless
such modification was made or authorized by GDG, when such
infringement would not have occurred but for such modifications, or
(iii) specifications, materials or products provided solely by Hyatt
Parties, Hotels or MagiNet to GDG hereunder.
(d) The foregoing provisions of this Section 21.2 state the entire
liability and obligation of GDG and the exclusive remedy of Hyatt
Parties or Hotels with respect to any alleged or actual infringement
of patents, copyrights, trade secrets, or other Intellectual Property
or proprietary rights by the GDG Technology.
21.3. MagiNet Corporation, the sole shareholder of MagiNet, shall provide a
full and completely binding guarantee of MagiNet's performance
hereunder together with a formal representation and warranty letter
acceptable to the Hyatt Parties respecting its license rights to the
GDG Technology and related source code (collectively, the "MagiNet
Guarantee").
22. MARKETING AND PROMOTION.
-----------------------
22.1. Any marketing and promotion that occurs with respect to the System in
connection with the Hyatt Parties or the Hotels shall be first
approved by the Hyatt Parties or their designee.
22.2. No party is or shall act as the agent for any other party, and no
statement may be made that can be attributable to a party, or any of
its affiliated or related companies or entities, or any Hotel,
without first obtaining such entity's permission for the statement.
22.3. The Parties agree to cooperate with each other to promote the use of
the System.
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August 22, 1995
22.4. Except as required by MagiNet and GDG licensing agreements with
others, nothing herein may be used by MagiNet and GDG to limit the
Hotels or the Hyatt Parties or any entity affiliated with the Hyatt
Parties in their promotion of any Content whatsoever, which promotion
shall be entirely within the Hyatt Parties and the Hotels' reasonable
discretion.
23. TRAINING AND CONSULTATION
-------------------------
23.1. MagiNet shall provide in each country at least one telephone number
that can be called to obtain immediate assistance on a twenty-four
(24) hour basis.
23.2. MagiNet shall designate at least one entity within each country that
shall be responsible for maintenance of the System, which maintenance
shall include periodic examinations (as advised by remote monitoring
procedures called for in Exhibit A) of the machines used to ensure
that they are all in proper working condition.
2 3.3 To enable each Hotel to generate suitable promotional material
related to the use of the System and to enable personnel of each
Hotel to advise and encourage guests regarding their use of the
System, MagiNet will provide a one-time training course on the use
and operation of the System for as many employees as each Hotel deems
desirable at no charge. GDG and MagiNet shall also, at no charge,
train up to ten (10) individuals from the Hyatt Parties once per year
in the use and operation of the System, and one person with each of
the Hyatt Parties in the use of the off-site monitoring technology
for the System. Such training shall take place within sixty (60) days
of the first installation done under this Agreement.
23.4. Hotels will provide accommodations for MagiNet training personnel at
the best rate offered to any customer, and shall offer discounted or
complimentary rooms if consistent with their policies. In addition,
MagiNet and GDG personnel will be reasonably available at no charge
for telephone consultation to personnel of Hotels to provide further
assistance regarding use and operation of the Systems.
24. ACCOMMODATIONS
--------------
24.1. Each Hotel shall agree to provide to visiting MagiNet and GDG
employees present for Hotel business during the term of the
Individual Agreement accommodations at the best rate offered to any
customer and shall offer discounted or complimentary rooms if
consistent with their policies.
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25. PIRACY PROTECTION
-----------------
25.1. Each Hotel shall be required insofar as is commercially reasonable to
notify MagiNet of any video recording and/or playback devices that
are provided by the Hotel to its guests.
26. SUSPENSION AND DEFAULT
----------------------
26.1. It shall be an event of default if (a) any-party or designated party
acting on their behalf (i) breaches performance of any material term,
condition, representation or warranty contained in this Agreement or
any Individual Agreement and/or any Related Hyatt Agreement, and
fails to cure, correct or remedy such breach or default within sixty
(60) days after receipt of a written notice thereof, (ii) is
adjudicated bankrupt or petitions for relief under any bankruptcy,
reorganization receivership, liquidation, compromise arrangement or
moratorium statute, (iii) makes an assignment for the benefit of its
creditors, or (iv) petitions for the appointment of a receiver,
liquidator, trustee or custodian for all or part of its assets; (b)
all or any portion of the MagiNet Guarantees are revoked or
terminated or otherwise fail to be of continuing force and effect; or
(c) if MagiNet Corporation is adjudicated bankrupt or petitions for
relief from or makes an assignment in favor of its creditors.
26.2. Some portion or all of this Agreement may be suspended by any entity
signatory to or bound by this Agreement that is a part of the Hyatt
Parties upon sending written notice of the destruction or renovation
of Hotels, or the occurrence of any force majeure events as set forth
in section 27. Any Individual Agreement may be suspended or
terminated in part or in whole, at the Hyatt Parties' or each Hotel's
sole option, due to any closure of any, portion of the Hotel(s)
involved, temporary cessation of business, termination of any other
agreement between the Hotel(s) and the Hyatt Parties, and any force
majeure events set forth in section 27 below. For any suspension that
extends beyond ninety (90) days, MagiNet may, at its option, remove
the System until the cause of the suspension is resolved.
26.3. If any of the events of default set out in section 26.1 above occur,
the harmed party not in default may exercise any or all of the
following remedies: (i) cancel and/or terminate any and all
Individual Agreements, (ii) cancel and/or terminate the Master
Agreement, (iii) undertake either steps (i) and/or (ii) while
retaining the System in place (subject to continuance of all other
material terms and conditions herein and until a replacement vendor
can be selected in an orderly transition to that vendor's
technology), (iv) obtain injunctive and other equitable
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relief, and (v) obtain such damages and other rights and remedies as
the party not in default may have at law, provided that this
-------------
provision shall not allow MagiNet or GDG to exercise such remedies
against the Hyatt Parties or the Hotels in the event of a default by
either MagiNet or GDG. The remaining nonbreaching Parties shall
negotiate in good faith to determine how to proceed absent the
terminated party.
27. FORCE MAJEURE
-------------
27.1. Where a party is unable, wholly or in part, by reason of Force
Majeure, to carry out any obligations under this Agreement and that
party: (i) gives the affected party prompt notice of that Force
Majeure with reasonably full particulars and, insofar as known, the
probable extent to which it will be unable to perform or be delayed
in performing that obligation; and (ii) uses all reasonable efforts
to remove that Force Majeure as quickly as possible; then that
obligation is suspended insofar as it is affected by the continuance
of that Force Majeure provided that this section will not operate to
relieve any party of an obligation to pay money.
27.2. For the purposes of this Agreement, "Force Majeure" means: (i) an act
of God, strike, lockout or other interference, (ii) war declared or
undeclared, blockade, disturbance, lightning, fire, earthquake,
storm, flood, or explosion, (iii) governmental or quasi-governmental
restraint, expropriation, prohibition, intervention, direction or
embargo (iv) unavailability or delay in availability of equipment or
transport not due to any action or inaction on behalf of the affected
party,) (v) unavailability or delay in obtaining governmental or
quasigovernmental approvals, consents, permits, licenses, authorities
or allocations and (vi) any other cause whether of the kind
specifically enumerated in this section or otherwise which is not
reasonably within the control of the party affected; and "all
reasonable efforts" does not require the settlement of strikes,
lockouts or other labor disputes, or claims or demands by any
government or quasi-government authority on terms contrary to the
reasonable business judgment of the party affected.
27.3. In the event any Force Majeure prevents performance under this
Agreement by either party which continues in existence for more than
thirty (30) days, the Parties will meet in good faith to discuss the
situation and to make all reasonable efforts to achieve a mutually
satisfactory resolution of the problem so that Force Majeure no
longer prevents performance under this Agreement, provided that the
Hyatt Parties shall have the option to terminate any Individual
Agreement for any Force Majeure event that lasts longer than one
hundred and eighty (180) days, and to terminate the Master Agreement
if such extended Force Majeure prevents performance at more than 25%
of the Hotels.
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August 22, 1995
27.4. In the event performance by any Hotel is prevented due to Force
Majeure for a period of one hundred and twenty (120) days or more
during any twelve (12) month period, MagiNet will be entitled to
remove the System from such Hotel until performance is no longer
prevented by Force Majeure, or earlier as permitted under Section
26.2.
28. DISPUTES
--------
28.1. The Parties hereby agree that any and all disputes arising under or
in any way connected or related to this Agreement, and any subject
matters covered by this Agreement, including the Intellectual
Property, shall be finally adjudicated and resolved through final and
binding arbitration.
28.2. The Packs shall provide each other with written notice of any dispute
that arises and is deemed to be one that one or more Parties wishes
to have resolved through arbitration.
28.3. The Packs shall wait for fifteen days subsequent to receipt of notice
to take any action, during which time the Parties shall meet together
in an effort to resolve the dispute.
28.4. Should no resolution be achieved within the fifteen day waiting
period, then either party may submit the matter to the American
Arbitration Association ("AAA") for arbitration in accordance with
the rules of commercial arbitration then in effect.
28.5. The arbitration shall be tried in Chicago, Illinois, before a panel
of three arbitrators, who shall be selected in accordance with the
AAA Commercial Rules if not picked by agreement of the Parties within
the fifteen days discussed above.
28.6. The arbitrators shall first decide if there exists a bona fide
dispute between the parties capable of resolution in arbitration.
28.7. Interim court relief may be sought at any time by any party, and any
request for interim relief shall not be considered a bar to
arbitration, nor limit the power of the arbitrator to change any
interim relief awarded during the course of the arbitration.
29. RECOGNITION OF AGENCY.
----------------------
29.1. MagiNet and GDG recognize that the Hyatt Parties act as agents for
the owners of the Hotels, and that any action that is to be
undertaken by the Hyatt Parties is one that is on behalf of such
owners. MagiNet and GDG recognize and agree that the Hyatt Parties'
actions with respect to any Hotel are therefore only as agent for
such owners.
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30. GENERAL TERMS
-------------
30.1. No person has, or as a result of the transactions contemplated hereby
will have, any right or valid claim against any of the Parties or the
System for any commission, fee or other compensation as a finder or
broker, or in any similar capacity, relating to the transactions
contemplated herein.
30.2. This Agreement will be governed by the laws of the State of
California without reference to its conflict of law principles. Each
Individual Agreement shall also be governed by the laws of the State
of California except to the extent that the laws of the country in
which the Hotel is located override such governing law provision.
30.3. Except as otherwise set forth herein, the provisions hereof will be
binding upon, and will inure to the benefit of, the respective
successors and assigns of the parties hereto. Each of the Hyatt
Parties shall have the right to assign this agreement to any of its
affiliates, subsidiaries or a parent company. MagiNet shall have the
right to assign this Agreement and any Individual Agreement to a bank
or other financial institution as collateral for a loan (provided
that such institutions agree to abide by the terms of this Agreement
and the Individual Agreements) and to assign this Agreement and any
Individual Agreement to an entity acquiring all or substantially all
of MagiNet's assets or voting securities. Notwithstanding any such
assignment by MagiNet, none of MagiNet's property installed in a
Hotel shall be removed therefrom prior to the Hyatt Parties' or
Hotel's uncured default or termination of this Agreement or the
Individual Agreement. GDG may assign this Agreement to an entity
acquiring all or substantially all of its assets or voting
securities.
30.4. This Agreement may be modified or amended only by a written agreement
signed by all Parties. No waiver by any party of any breach or
default hereunder will be construed as a waiver of any precedent or
subsequent breach or default.
30.5. This Agreement sets forth the entire agreement and understanding of
the Parties relating to the subject matter hereof, and merges and
supersedes all prior discussions and understanding between the
Parties related thereto, whether written or oral.
30.6. In the event that better value for the Activities contemplated herein
are offered by MagiNet or GDG to any similar hotel chain or hotel as
the Hyatt Parties and the Hotels, the Hyatt Parties and the Hotels
will be offered all the same terms and condition:; and any less
favorable payments made or receipts obtained subsequent to their,
being contracted with another customer but prior to the effective
date of the change in the terms in this Master Agreement and the
Individual Agreements shall be reimbursed to or for the Hyatt Parties
and the
-32-
<PAGE>
August 22, 1995
Hotels. For purposes of this paragraph "value" shall mean the value of (i)
all fees, allowances and commissions, (ii) A equipment, OH) all software,
software licenses and/or other Intellectual Property rights, (iv) 'all
services including installation, maintenance, repair and replacement and
(v) all cost savings or other benefits provided to the Hotels, their parent
companies or affiliates.
IN WITNESS WHEREOF, this Agreement is entered into by the Parties hereto this
15th day of September 1995.
MAGINET INTERNATIONAL CORP. HYATT INTERNATIONAL-ASIA
PACIFIC LIMITED
By: /s/ R. R. Craeger By: /s/ Authorized signature
Title: President Director
GUESTSERVE DEVELOPMENT HYATT CHAIN SERVICES LIMITED
GROUP
By: /s/ Philip S. Knudsen By: /s/ unreadable
Title: CFO/Director Title: DIRECTOR
-33-
<PAGE>
August 22, 1995
EXHIBIT A
TECHNICAL REQUIREMENT
---------------------
-34-
<PAGE>
Exhibit "A" - Technical Requirements
This exhibit describes the technical requirements for the hardware, software,
Content, and services to be provided under this Agreement.
1.0 MINIMUM QUALITY & PERFORMANCE STANDARDS
---------------------------------------
At installation, the System, WTV and televisions will meet the following
standards.
1.1 VIDEO QUALITY
Video images transmitted and displayed across the System, MATV, and a good
quality brand new twenty-five inch (25") television set(provided by the hotel
for quality testing) must be observed to be as good as the same images when the
image source is directly connected to the television set. The video image
source for quality tests shall be a full action, color movie on a new, unused
VHS tape provided by a major recording studio played back on a brand new VHS
tape player connected directly to the television with A/V connectors.
When compared to the same movie provided as part of the Content across the
System, MATV, and television set, there shall be no noticeable degradation in
resolution, discoloration, focus, or brightness, nor multiple Wages (ghosting),
artifacting, or other negative differences in image quality.
1.2 AUDIO QUALITY
Audio must meet the same quality and testing standard as for video images
described above, and must be clear, undistorted, and in perfect synchrony with
the video image. In addition, audio quality shall meet or exceed the following
standards:
1. Audio Signal Level-8dBmV
2. Output Impedance 600 ohm
3 Signal to Noise Ratio (weighted in SP Mode), more than 38 dB.
4. Wow and Flutter (audio on VHS in SP mode), less than 0.2 WRMS
5. Frequency Response (Ref to I Khz SP mode), 100 Hz - 15000 Hz (10 dB down)
6. Interactive programming shall be accompanied by CD quality audio and/or by
digitally synthesized voice software. Digitized voice is required to be 8
bit technology or greater to conform to highest standard prevailing at time
of installation. Audio Frequency range is required to be at least I 00 to
15000 Hz, without perceivable distortion at normal listening levels (less
than 1% THD).
Page 1 of 25
<PAGE>
Exhibit A Technical Requirements.
1.3 RESPONSE MINIMUM REQUIREMENTS
1. The maximum delay permitted between the guest executing a keystroke on the
remote control, and the System, MATV and television responding, shall be
five (5) seconds for Movies or Hotel Services, unless response time is
influenced by input from 3rd party interfaces.
2. The System, MATV, and televisions must allow simultaneous access by at
least 1.5% of available rooms at any time, and the minimum number of
interactive ports shall be 4.
3. At all times, all guests shall have access to the System, MATV, and
televisions within 60 seconds of selecting or interacting with any Content.
Guests denied immediate access shall be notified of the delay by a screen
message.
4. Response delays caused by equipment or Content not under the control of
Maginet and GDG lasting longer than five(5) seconds, will trigger an
appropriate intermediate screen message. It must be possible to place
text, graphics and sound on intermediate screens for notification purposes
or for advertising.
5 . The delay between a guest pressing the final key to make a video on demand
selection and the feature appearing on the screen shall not exceed 10
seconds.
6. The System, MATV, and televisions shall have imperceptible delays in
response to video game control devices controlling interactive video game
Content.
1.4 RELIABILITY
Equipment supplied under the Agreement shall have a mean time between failure of
not less than three (3) years.
1.5 MANUALS AND DOCUMENTATION
Manuals and Documentation supplied to each distributor at initial installation
shall consist of at minimum:
1. Manufacturers product documentation and written performance specifications
for each piece of equipment supplied under the Agreement.
2. Operating and Repair manuals for each component of the System, including
both hardware and software.
3. Trouble-shooting diagnostic programs and guides for each component of the
System, including both hardware and software.
Page 2 of 25
<PAGE>
Exhibit "A" Technical Requirements
4. A simple user manual describing the integrated operation of the System in
easily understood terms (the System Manual), will be provided for each
hotel.
5. A Tool Kit manual describing the operation of the Tool Kit will be provided
to designated Hyatt Parties.
6. A detailed interface protocol manual and source code examples of interfaces
already developed for the System. Interface protocols for both connections
to external systems, and interface protocols for intra-System connections
-------- ------------------------
(interactive controls) must be provided, to designated Hyatt Parties.
1.6 SYSTEM HARDWARE REQUIREMENTS
The System hardware at initial installation shall include at minimum the
following:
1. A Pentium 90 Mhz Interactive server with 32 MB RAM and I GB hard drive
shall be the minimum platform for the interactive server.
2. External magnetic storage and/or CDi and/or CD ROM or other system as
required to deliver Content.
3. A high speed modern connection to the System for remote diagnostic testing,
downloading of Content, etc.
4. A PC work station suitable for operation of the Graphics generator for the
exclusive use of the Hotel to update hotel related Content for use on the
System.
5. The above work station have a printer, and be connected to the System and
located at the Hotel's direction for the creation and printing of guest
charges for use of System Content in the event of failure of the PMS or
interfaces to the PMS.
6. Two-way communication protocol via MATV between Guest room Terminal and
interactive file server.
7. In room terminal, with standardized remote control and channel numbering
plan.
8. VHS tape players as required operating within the following performance
specifications:
a. Luminance Level: 1.0 +/- 30% Vp-p for machine to machine operation at
75ohm terminated composite video of 140 IRE units source
Paged 3 of 25
<PAGE>
Exhibit "A" Technical Requirements
b. Chrominance Level: 0.63 +/- 30% Vp-p for machine to machine operation
at 75ohm terminated composite video of 1.40 IRE units source
c. Horizontal resolution: More than 360 lines, or as required for
prevailing TV standards
d. Frequency Response 2 Mhz - 10 dB;
e. Signal to Noise Ratio (weighted) more than 43 dB in SP mode, more
than 41 dB in other modes, using Luminance by Rohde & Schwartz noise
meter
f. Tape transport Speed: SP mode 33.35 mm/s +/-0.5%
g. Rewind Speed: SP mode for 120 minute tape less than 7 min.
h. Tape load Speed: Less than 5 seconds
9. All other equipment as required to make up the complete System.
1.7 SYSTEM SOFTWARE REQUIREMENTS
The System software at initial installation shall include at minimum the
following:
1. A "Toolkit" consisting of GDG's software which when combined with
commercially available software applications operating in a windows
environment, and packaged with a set of instructions, appropriate
interfaces, help screens and telephone support. will be all that is
required for the Hyatt Parties, Hotels, and authorized third parties to
develop content from multimedia sources, and set up interactive sequences
for use on the system for generating revenue or obtaining information.
A sub-section of the Toolkit, called Graphics Generator shall be a desk
top broadcasting application, offering similar features and graphics
capability as a product called Catview. The application shall be provided
to hotels not using the full Toolkit to enable them to make minor
modifications to interactive programming, and to produce basic hotel
information screens that have similar text and graphics as the
interactive screens.
2. Interactive Component
This software shall enable guests to call up different screens from a
selection of screen options so that an interactive program results. This
interactive application and necessary programming will form the basis for
making video on demand selections accessing hotel services, shopping,
advertising, games and her revenue generating services defined within the
exhibit.
3. Appropriate communications software to support item 1.6.3.
Page 4 of 25
<PAGE>
Exhibit "A" Technical Requirements
4. A statistical information application sufficient to capture, manipulate,
and report on the following System usage and performance data.
a. Number of guests denied access to selected movies, including room
number, date, time, and the duration of the denial.
b. Number of guests denied access to Hotel Services, Hyatt Interactive
Content, or Interactive Content, including the room number, date,
time, and duration of the denial.
C. Room numbers where video on demand features were viewed, and the time
and duration of viewing session.
d. Room numbers of those rooms accessing the interactive guest services,
the time they spent browsing, and details of all selections made on
the system,
e. Exception reports, the content of which is to be developed; including
records of when the system was down, when dial up connections were
made, their duration and a list of individual rooms that were out of
order.
f. Guest survey results.
g. Viewing ratings of interactive content for marketing analysis
purposes by Hyatt and authorized parties using the system for such
purposes. The detailed requirements of these rating reports are to be
developed, but they shall include the number of guests viewing of
each interactive content package, the time each viewer browsed, and
any sales made as a result.
1.8 MATV REQUIREMENTS
The MATV in each existing Hotel or Hotel currently under construction and where
MATV has already been installed as of date of master agreement, shall be
upgraded to meet or exceed the following specifications. MATV systems will be
provided by the Hotel to meet the following specifications in all new Hotels (as
listed in Exhibit C). All equipment shall meet type and safety approvals and
radiation requirements. as required in each country. All installations shall be
made according to national and local electrical codes. Standard for -signal
strength measurement shall be a calibrated field strength meter.
The MATV shall be capable of concurrently carrying all Content over the MATV
network, and at minimum will meet the following channel capacities and broadcast
standards.
a. A minimum of 77 channels for NTSC and 60 channels for PAL/SECAM.
b. Operation in compliance with local broadcast standards (NTSC, PAL or
SECAM) and/or as required for the installed TV sets.
Page 5 of 25
<PAGE>
Exhibit "A" Technical Requirements
1.8.1 MATV REQUIREMENTS - HEAD-END
The MATV head-end shall meet or exceed the following specifications:
a. Single channel processors with AGC and aural carrier reduction will be
used to process each off-air signal. Pre-amplifiers will be used, where
necessary, to achieve an input carrier level of sufficient amplitude to
be within the range of the AGC in the channel processor.
i. The output of individual strip amplifiers, modulators, or channel
processors will be combined using a methodology which will provide a
minimum of twenty (20) dB isolation between individual carriers.
ii. Items providing less than twenty five (25) dB of isolation will not be
used in the head-end environment to combine signals,
b. A Broadband Amplifier having a band width of 5-550 MHZ, or greater, and
equipped with SubSplit Return will be used to amplify the combined
output. The amplifier will be designed for two-way compatibility using
sub-split return. The forward direction designed for 54 to 550 MHZ or
greater and the return designed for 5 to 30 MHZ. The forward direction is
to include both gain and tilt controls.
c. UHF to VHF converters and VHF to VHF converters will be completely solid-
state with a self-contained power supply. Input and output impedance
shall be 75ohms. The frequency of the output will be crystal controlled
and will be within + .005% of the desired output frequency for both
-
components.
d. All passive equipment shall not have less than 2OdB port-to-port
isolation and shall be capable of operating in a band width of 5-550 Mhz.
e. Antennas will be selected and installed so as to produce the best picture
obtainable. Any local government permits required for antenna
installation will be obtained prior to actual installations of the
antennas. Antennas and masts will be constructed and installed so as to
withstand 100 mph winds. All Antennas used will have an adapted impedance
of 75 ohms and weather boots will be used to protect all outdoor antenna
connections.
f. When antennas are providing the signal source for "off-the-air" channels.
Picture quality will be equal to or better than the picture quality
available from local cable TV sources, as appropriate or applicable. At
minimum, local VHF and UHF channels required by each hotel will be
available from the MATV. UHF channels must be converted to VHF. Closed
caption service at the TV must be provided for each of the three
principal network channels, given programming availability as provided by
network sources.
Page 6 of 25
<PAGE>
Exhibit "A" Technical Requirements
g. Metal Cabinets designed for 19" rack mounted equipment will be used to
enclose the head-end active equipment. Suitable AC power outlets be
installed in the cabinet for the equipment powering, including two
additional outlets for maintenance equipment.
h. Pads, cable and other miscellaneous equipment will be supplied and
installed to make an operating head-end that meets all of the
specifications as outlined. All cable used in the head-end equipment rack
will be of Tri or Quad Shield design and will provide a minimum of 100
percent shielding from radiation and signal ingress or such other cable
as to meet MATV standards of performance established herein.
i. Maximum output after combining shall not exceed:
i. 45dB Maximum highest frequency
ii. 40dB Minimum lowest frequency
iii. 6dB maximum amplifier tilt.
j. Cross modulation shall be less than minus 60dB.
k. Visual carrier to spurious signal response shall be greater than 50 db.
Cross modulation shall be greater than 51 db.
l. Visual/aural carrier ratio on any channel will be 15 dBmV to 17 dBmV
m. Carrier to noise shall be no less than 41db, 43dB optimum.
n. Visual carrier levels shall differ by no more than 12dB through the band
width (50-550 MHz).
o. Visual carrier level stability shall vary no more than 10dB over any 24
hour period.
p. Hum modulation shall be less than 2%.
q. Second Order (spurious beats) shall be 50dB below the visual carrier.
r. Frequency response shall be N/10+1.
s. Adjacent channel visual carrier shall differ by no more than 3 dB.
t. Amplitude response within any single TV channel (visual carrier to aural
carrier) will be flat (+/-2Bb)
Page 7 of 25
<PAGE>
Exhibit "A" Technical Requirements
1.8.2 MATV REQUIREMENTS- CABLE PLANT
The cable plant shall meet or exceed the following specifications:
a. Frequency Response of the system (excluding amplifiers) will pass 5 Mhz
to 550 Mhz. Amplitude response Or this spectrum will be + 4 dB with
-
respect to the line represented by normal cable tilt. The system will be
designed as two-way capable, i.e. sub-split return.
b. Visual Carrier Level in each room will be no less than 2 dBmV on any
single channel of the system.
i. The maximum allowable variance between any two adjacent channels will
be 2 dBmV.
ii. The maximum allowable variance between any two non- adjacent channels
will be 12 dBmV at 550 Mhz or 3 dB per 100 Mhz of band width.
c. Room to Room isolation will be greater than 20 dB. isolation values of
all devices separating any two given rooms will be used for the purpose
of this calculation, as well as the structural return loss of all
interconnecting cabling.
d. Visual carrier-to-noise ratio on any channel (3 MHz bandwidth) will be at
least 42 dB at any TV outlet for broadcast signal source of carrier to
noise ration better than 56 dB.
e. The visual carrier to coherent noise ratio (inter-modulation) will be
greater than 46 dB, for the same signal source as in d.
f. Reflections ingressing MATV distribution system, which may cause ghosts
and shadows within the system, will be more than 40 dB below the
respective picture carrier.
g. Taps, splitters, and other passive equipment will be of the totally
shielded type, using a sealed metal or aluminum case, so as to minimize
radiation and ingress. All connections will be "F" for NTSC, or EEC for
PAL type connectors.
i. Taps used will be designed to pass 5 MHz to 550 MHz, or greater.
ii: Splitters will be designed to pass 5 MHz to 550 MHz, or greater.
iii. Where the last tap on the riser is not a terminated tap, 75 ohm
terminations will be used to terminate the end of all riser lines
at the through port output.
h. Coaxial cable shall be of 75 ohm impedance with a return loss of 20 dB
minimum from 5mhZ to 550 MHz. Cable construction will be solid copper or
copper-clad steel center conductor and cellular polyethylene dielectric.
Cables will be provided with two shields. The first shield shall consist
of .002 inch double aluminum coated mylar or polypropylene tape with 1/8"
overlap,, bonded to the dielectric. The second shield shall be a minimum
of 60% coverage braid consisting of 34 AWG aluminum or tinned copper
wire. The jacket shall be non-contaminating low temperature polyvinyl
chloride cable having an effective shielding of 67% or greater will be
utilized outside of all conduits.
Page 8 of 25
<PAGE>
Exhibit "A" Technical Requirements
i. Cable sizes used in the system can be either RG-6 or RG-11. The RG-11
size is used for longer trunk lines and the RG-6 size is used for shorter
feeder lines. Where conservation amplifiers will have their maximum full
gain derated by a minimum of three dB. Further doubling of the cascade
will result in additional gain reductions of three dB, each time the
cascade is doubled.
j. Cross modulation shall not exceed minus 57dB from any distribution
amplifier with 77 channel loading.
k. All new distribution feeder cable shall be .500 or RG- 11 cable only.
l. No distribution (feeder) line shall feed in excess 550 television sets,
or per limitations imposed on the system by segmentation.
m. All distribution (feeder) lines shall begin at the head-end and end at a
central distribution location. No riser can be fed by a distribution
line.
n. All risers must originate at a central distribution location. If risers
must be extended, RG-56 cable with 90% shielding will be used from the
splice to the central distribution location.
o. All risers shall be identified to the rooms they feed.
p. All jumper cables from the wall plates to the televisions shall be
replaced as necessary with RG-6 or RG-59 foam cable, with ferrule type
connectors.
q. Sub-band return loss shall not exceed 40dB
1.8.3 MATV REQUIREMENTS - IN ROOM TAPS
a. For in room directional tap outlets, all signal levels shall be 5-15dB
(and typically at 5dB) from 40 to 550 MHz.
b. Cross modulation shall be less than minus 57dB.
C. Carrier to noise shall be 41 dB.
d. Adjacent channel visual carrier levels shall differ by no more than 3dB.
e. Visual carrier levels shall differ by no more than 12dB through the
bandwidth (50-550 MHz).
f. Visual carrier level stability shall vary no more than 10dB in any 24
hour period.
Page 9 of 25
<PAGE>
Exhibit "A" Technical Requirements
1.9 TELEVISION REQUIREMENTS
New Hotels (as listed in Exhibit B) will provide television sets meeting the
following specifications. Maginet and GDG will make best efforts to ensure that
the System, MATV, and television sets in existing Hotels or Hotels currently
under construction operate as though the television sets met these
specifications. Maginet and GDG will provide all required remote controls for
all Hotels.
a. 20 to 27 inch screens, at Hyatt's option.
b. "Smart Plug" compatibility to accommodate the requirements of the
interactive system
c. Closed caption capable
d. Stereo sound
e. Channel labeling
f. Sleep timer
g. Clone programming
h. Non-volatile memory
i. 100+ channel capacity
j. Remote interface connector
k. TV's will be capable of no fewer than 400 scan lines of resolution.
l. Teletext compatible
m. Multisystem where required or appropriate
n. All television sets will be provided with full function infra red remote
controls with the following minimum functions
1. Power on/off button
2. Pay TV button
3. Free TV button
4. Hotel Services & Information button
5. Interactive services button
6. Channel up and channel down buttons
Page 10 of 25
<PAGE>
Exhibit "A" Technical Requirements
7. Volume up and down buttons
8. Mute button
9. Numeric Channel control keyboard
1.10 SPACE REQUIREMENTS
Maginet, GDG, the Hotels, and the Hyatt parties shall work together to
coordinate the space requirements for installations in each Hotel prior to
beginning installation work in each hotel. Each Hotel shall provide the agreed
upon space requirements.
Each Hotel shall provide at minimum, sufficient space to house the equipment and
accommodate a minimum of two people in an appropriate working environment (the
"control room"). Typical space requirements will include the following:
a. One(1), line conditioned, dedicated, 30 amp AC circuit with provisions
for 6 duplex outlets (as determined by the computer rack locations).
b. Two standard 30 amp, AC circuits with provisions for 3 duplex outlets (as
determined by the work counter location).
c. The space shall have sufficient air conditioning to maintain a constant
temperature of between 68 degrees and 72 degrees fahrenheit at 40%
relative humidity.
d. The control room shall have sufficient telephone fines (both outside
direct and in-house) and telephone instruments.
e. Cable paths (ie: conduit, plenum, etc.) shall be provided from:
i. the control room to the head-end.
ii. the control room to the PMS.
iii. the control room to the PBX.
iv. the control room to the front desk.
v. if additional services are supplied, needed path must be
provided, ie: food & beverage.
Page 11 of 25
<PAGE>
Exhibit "A" Technical Requirements
2.0 CONTENT
-------
At installation, the Content will meet the following standards.
2.1 LANGUAGES
Maginet and DG shall provide Movie instructions/access, Hotel Services, and
Hyatt Interactive Content in at minimum the three(3) languages listed on Exhibit
"C" for each Hotel installation. Language requirements must be confirmed by the
hotel before final installation. All language options shall be ready for the
first installation requiring that language according to the installation dates
listed in Exhibit "C".
A guest's preferred language will be selected from a list of the available
options in the hotel property management system (PMS). Language choice will be
set by the front office clerk when a guest checks in, so that Hotel Services,
Hyatt Interactive Content and Movie selections will appear on the TV in the
guest's preferred language. On check-out, the default language shall be re-set
automatically to the default language selected by the Hotel.
2.2 FREE-TO-GUEST CONTENT
The System, MATV, and televisions shall deliver up to Twenty (20) free-to-guest
channels at the Hotels option, to include any combination of the sources fisted
below. Free-to-guest channel sources shall be selected and approved by the
Hotel at Hotel's expense from provider of choice, prior to final installation.
Free to guest programming shall be available at all public area and back of
house MATV points throughout the hotel. GDG and Maginet shall make best efforts
to optimize signals from free-to-guest sources, and program them according to
the standard channel numbering sequence. These sources and their processing
equipment will by provided by Hotel or Hotel's third party contractor.
Free-to-guest Sources
a. Satellite programming
b. Local Broadcast TV
c. Local Cable TV
d. In house Video programs
e. Guest-room background Music
Access free-to-guest channels must be possible using the remote control and on
screen menus. Channel numbering shall be standardized to the extent that is
practical throughout all of the Hotels.
Free to guest programming shall include wherever possible, CNN and other
international news and sport satellite and cable programming and a
representative selection of local broadcast TV.
In house video sources include VHS playback, live camera inputs, and desk top
broadcast programming
Page 12 of 25
<PAGE>
Exhibit "A" Technical Requirements
2.3 MOVIES
1. Quantity
The minimum number of movie selections simultaneously available from the System
at installation shall be as shown in the table below.
<TABLE>
<CAPTION>
Number of Guest- Video on Demand Scheduled Movies
rooms Movies
<S> <C> <C>
less than 250 24 3
250 to 550 36 3
Over 551 Additional 12 for 3
each 250 rooms
</TABLE>
2. Quality
Minimum requirements for movie programming to be provided by Maginet at each
hotel shall be defined by the following criteria:
a. Number of copies of each title and title selections shall be established
by Maginet based on the latest movie title release window provided by the
studios for the given regions. Hyatt International and the hotels will
review these selections for quality assurance purposes. The frequency of
such reviews shall be at quarterly intervals during the first year of
operation, and as required after that. The objective will be to maximize
revenue, maintain programming and system delivery quality standards and
keep up with the competition.
b. Maginet shall update titles such that at least four (4) "blockbuster"
selections arc available in every hotel. A blockbuster title is
considered to be a movie that is released within the same theatrical
release window or that immediately following those movies shown on the
major international airlines. Where the above criteria cannot be met
because of censorship, or limitations imposed by the recording studios,
each hotel must have at least four (4) of the latest release titles that
are available in that country at competing international hotels,
irrespective of which system they are using.
c. Other video program content shall be such that it remains generally
equivalent to those titles offered by competing hotels, regardless of
their supplier, providing their programming is legal. Foreign language
and ethnic programming are also required, where it is offered by
competing hotels and/or where it can increase the revenue generating
potential of the system.
Page 13 of 25
<PAGE>
Exhibit "A" Technical Requirements
2.4 HOTEL AND HYATT INTERACTIVE CONTENT
MagiNet and GDG shall develop and produce a standard if Hyatt User Interface
package for use by each Hotel as the basis for the Hotel Services Content
delivery in the Hotel. Each Hotel will be responsible For the development and
production of hotel specific elements of the Hyatt User Interface, and Maginet
and GDG will be responsible Or the coordination and incorporation of these hotel
specific elements into the Hyatt User Interface. Hotel Services Content at
initial installation shall include at minimum:
a. Guest Folio Review & Video Check-out
b. Guest-room compendium / hotel services directory minimum twenty screens
and/or images each.
c. Worldwide Hyatt Hotels Video Directory with capacity for at least five
interactive screens or images per property, callback prompt, and
reservations office notification.
d. Room Service Menu Ordering.
e. Food & Beverage outlet menu review.
f. Message Center Display (Notification on voice mail and display message
information on PMS).
g. Guest Welcome channel.
h. Interactive Guest Survey report format and delivery to appropriate
application interface and/or printer.
i. Interactive event information screens for groups, tours, meetings., etc.
j. Airline departure and arrival information for those airport hotel
locations identified in exhibit "C", where such database information is
available and provided by the hotel.
k. Standard formats and interactive tree/branches structures ready for
interactive content input.
Hyatt parties will be responsible for the development and production expense of
Hyatt Parties Content.
Page 14 of 25
<PAGE>
Exhibit "A" Technical Requirements
2.5 INTERACTIVE PRODUCTS AND SERVICES FOR THIRD PARTY USE
MagiNet and GDG shall develop and produce a standard interface package for use
on the System as the basis for the Interactive Services delivery in the Hotels.
The standard interface package shall be available at initial system
installation, and shall include standard means for authorized parties to
interact with the guest and the System in one or more of the following ways:
a. Receive notification from a guest requiring callback
b. Disseminate or collect information
c. Post charges for goods and services delivered
Interactive applications that must be supported by the system include Shopping,
Video Games, Advertising
2.6 INTERFACES
Maginet and GDG shall develop and implement interfaces between the System and
the following Hyatt systems.
<TABLE>
<CAPTION>
SYSTEM REQUIRED FUNCTIONALITY PRODUCTS
<S> <C> <C>
Property --Guest Preferred Language Fidelio, Maxial,
Management --Guest Folio Review/Check-out and CLS
System --Bill posting for movies and interactive
services
--Message Center screen, including information,
hard copy messages, voice and fax notification
--Other service required within PMS capabilities
Point of Sale --Room Service menu selection and bill Micros, Maxial,
System posting CLS and Squirrel
Voice Mail --On screen voice mail message waiting TMS VoiceLink,
System indication Nortel HVS
</TABLE>
Maginet and GDG are not responsible for limitations that result from
deficiencies in other systems but shall make their best efforts to minimize the
impact of such deficiencies.
Page 15 of 25
<PAGE>
Exhibit "A" Technical Requirements
3.0 OPERATING AND MAINTENANCE PERFORMANCE STANDARDS
-----------------------------------------------
The services specified below shall be provided as required:
3.1 INSTALLATION SERVICES
Maginet and GDG are required to design and supply and Maginet is required to
install and set up the complete system as described in this agreement as
required for the hotel without cost to the hotel . These services are to
include, as needed, upgrade to existing MATV system, and cabling where it
effects system segmentation.
3.2 ON LINE SERVICES
This network is required for, but not limited to, monitoring remote system and
equipment. performance, distributing media, collecting system usage statistics,
diagnosing system problems and providing on line support, assistance and repair.
The network shall allow two-way real time communication between systems and any
one of the locations Maginet's local office is required to dial in to the system
every 24 hours to verify defects.
3.3 CENTRAL TECHNICAL SUPPORT SERVICES
Maginet and GDG are required to maintain a qualified technician on call 24 hours
per day 365 days per year to provide second line support for the local offices
and the installed systems; and to distribute expedited content upgrade.
3.4 LOCAL FIELD SERVICES
Maginet are required to maintain local field services to provide first line
support to each site. The local field services shall be equipped with the
appropriate facilities (space, tools, equipment and expertise) to carry out all
service requirements for all systems located in the field service facility's
territory. Each Field Service Facility is required to maintain a technician on
24 hour call, who shall be provided with second he support via modem and phone
from the central technical support facility mentioned in 3.3. Maginet and GDG
will be responsible for maintaining hardware, software and training resources in
their field offices to the latest specification.
3.5 SYSTEM UPGRADE SERVICES
The System shall be upgraded by Maginet to meet the minimum criteria as defined
below:
1. In order to add more capacity to the system if the statistical
information application described in 1.7.4 indicates that the following
conditions have been reached:
i. Video on demand
The number of simultaneous video on demand channels shall be increased by a
minimum of 12 outputs when the daily requests for movies on demand exceed the
installed number of outputs by 12 or more, on 90 days out of a consecutive
period of 365 days.
Page 16 of 25
<PAGE>
Exhibit "A" Technical Requirements
ii Interactive services
The number of guests denied immediate access to the system, exceeds two percent
(2%) of the available rooms on 30 days within a consecutive period of 90 days.
Immediate access is access within 5 seconds of hitting the appropriate remote
control button.
2. To provide features and functionality that are offered at competing
hotels, to comply with section 14. of the master agreement and section 6
of this exhibit.
3. To add hardware and software enhancements in order to maintain all the
installed systems to the latest current standard. Such upgrades shall
take place on an annual basis, according to a software release schedule
to be posted by Maginet and GDG.
4. As required to rectify software problems.
3.6 CONTENT UPGRADE SERVICES
Maginet and GDG shall coordinate and deliver all content for use on the system
to meet the following requirements:
1. Bulk Content Update Service
Generally, System Content is required to be comprehensively updated every month,
according to a publicized schedule to be produced by Maginet and made available
to GDG, Hyatt parties and authorized parties. Deadlines no more than 7 days
prior to shipment must be established for content submissions. AU content
packages shall be installed in hotels by midnight on the publicized scheduled
day. Content update is to take place with minimum effect on Guest Access to the
system.
2. Interim Update Services
Interim content upgrade services must be provided to any or all hotels to cover
the following requirements:
a. On-line Interactive Content upgradeIt must be possible to download
interactive files from Toolkits to installed systems so that content
update can be completed and on line within 15 minutes, and without
taking the System off-line.
b. Defective Content ReplacementContent where the video quality
deteriorates below the standards established within this exhibit
shall be replaced, within the time limits set for unscheduled
maintenance services (standard service) within this section.
Page 17 of 25
<PAGE>
Exhibit "A" Technical Requirements
C. Incorrect Content Replacement
Where video content is incorrect, such that it effects the image of
Hyatt, or is misrepresentative, offensive, or effects revenue, or for
other reasons deemed important by authorized parties using the
system, the offering content shall be removed within the time limits
set for unscheduled maintenance services (critical component failure)
within this section.
3.7 SERVICE AND MAINTENANCE STANDARDS CRITERIA
Equipment manufacturers' repair manuals and specifications are to be furnished
as a reference to be used by all parties to establish standards for maintenance
practices and operating tolerances. Maginet and GDG shall repair or replace
components as needed to maintain consistency with the minimum criteria defined
in section 1.1.
Critical equipment no longer meeting manufacturers performance specifications,
or as required under the requirements to keep current with technology in the
master agreement, is to be replaced as part of the ongoing maintenance- and
upgrade procedure. Maginet and GDG shall be responsible for ensuring that field
services facilities are capable of carrying out work to the above standards.
3.8 PREVENTIVE MAINTENANCE SERVICES
Maginet and GDG shall develop a preventive maintenance program for use by field
offices, and this shall be provided to the hotels who will provide notification
of non compliance to Hyatt parties. This program is to include MATV system
performance monitoring on a twice annual basis, and as required to maintain
standards.
3.9 UNSCHEDULED MAINTENANCE
Field response time for replacement following critical component failure must be
within four hours. Standard service must be provided within 24 hours of a non
critical fault being reported. Emergency service must be provided 365 days per
year / 24 hour per day basis. Standard service must be provided on a five (or
six days where local working practices dictate) per week eight hours per day
basis. On line support as well as live first and second line phone support must
be guaranteed as available at each hotel. The local representative provides
first line support for the hotels, while the US office will provide second line
support.
3.10 PARTS REPLACEMENT SERVICE
1. On Site
-------
Maginet shall provide adequate spare parts on-site at each hotel to facilitate
change out of basic components by the hotel engineering staff, which includes in
room devices (begin with 5% stock) and other site replaceable items Computer
cables, connectors, etc.( begin with at least 2% stock).
Page 18 of 25
<PAGE>
Exhibit "A" Technical Requirements
2. At Field Services Facility.
--------------------------
Details of the minimum spare parts inventory must be provided to show that
inventory levels are being held at 2% of the installed levels in that location,
except where demand for parts is greater, in which case stock must be maintained
at five (5) percent of installed inventory.
Maginet shall adjust spare parts inventory to sustain the levels of service
identified throughout this section.
3.11 SERVICE HISTORY LOG
The local field services facility shall hold a detailed service history
containing all records pertaining to the system
3.12 LIMITATION OF TECHNICAL ASSISTANCE RENDERED BY THE HOTEL
The technical responsibility for the hotels shall be limited to the following
actions to be carried out by the engineering department and those hotel
employees monitoring the system:
1. Removing and replacing defective in-room components and handing them
over to Maginet and GDG's field staff during site visits
2. Reporting problems observed on the MATV system to Maginet's agents.
Hotel will not be responsible for any matters relating to other aspects of the
interactive services, but will cooperate fully with the vendors and his agent to
maximize system performance and revenue.
Page 19 of 25
<PAGE>
Exhibit "A" Technical Requirements
4.0 New Technology Performance and Development Standards
----------------------------------------------------
4.1 GENERAL REQUIREMENTS
1.Hardware
--------
The system and components are to be designed such that they can be
upgraded to adapt to developing technologies. As a minimum it must be
possible to retrofit to already installed systems those items listed
under section four of this exhibit to comply with the terms of the master
agreement.
2.Software
--------
Maginet and GDG will be responsible for keeping all sites in a region
current with the latest software release. These details will be agreed
between Hyatt International and Maginet and GDG. Generally software
upgrades shall be expected and installed in all sites on an annual basis,
except where required sooner to correct observed software problems that
adversely effect the system performance, Hyatt's Image and/or revenue
generating capacity.
3.Future Development
------------------
Hyatt International is committed to developing a global marketing
communications database. Maginet and GDG shall commit to establish and
maintain compatibility with these requirements and to cooperate with
Hyatt International, Regency Systems Solutions and other software vendors
and consultants on an ongoing basis to further develop this concept under
the terms of the master agreement.
4.2 SPECIFIC UPGRADE REQUIREMENTS
1. December 31, 1995 Release
-------------------------
The following items are not yet incorporated into the Maginet GDG platform at
this time, but already offered in some markets by the competition. It has
therefore been agreed that they will be incorporated into the installations to
be completed after January 1996, and provided as an upgrade to those
installations completed before that date, by January 1, 1997.
Installations shall be upgraded to incorporate the following by December 31
1995.
a. Access to nationally available teletext where available.
b. Video games from one of the market leaders in this field. The current
generation of products from either Sega, Nintendo, 3DO or approved
alternative are to be provided. It shall be possible to charge for games
on a unit time or number of plays basis.
c. In-room terminals that can be tuned from a central location, that they
bypass the TV tuning device where A/V outputs are provided in the TV
sets. They shall also be concealed with a sensor no larger that 30 mm
high x 50 mm long x 30 mm deep will be visible from the guest room.
Page 20 of 25
<PAGE>
Exhibit "A" Technical Requirements
d. Hotel information channels which can be set up for arid accessed by all
guests or by particular groups which can be individually addressed by the
hotel staff except as limited by the PMS
2. July 31, 1996 Release
---------------------
The following advanced interface requirements are already provided in some
markets and are required at the latest to be implemented in new installations by
July 31,1996 and retrofitted where required in existing hotels by July 31, 1997
Hyatt Parties will identify a preferred solution, or present a similar system
installed at a competing hotel and will make best efforts to obtain interface
protocol, for use by Maginet and/or GDG to develop the required interface.
Maginet & GDG shall deliver the required interface, to comply with section 14 of
the master agreement.
a. Advanced Interface Development Requirements that shall be installed by
Maginet/GDG are:
i. Interface to fax server -and in-room printer/scanner interfaces for the in
room terminal.
ii. Assistance in developing means to post minibar charges using MATV network.
iii. Interface to allow access to voicemail system features, via TV remote as
well as telephone.
iv. Interface to Screen format application for collecting data entered via
remote control, such as maintenance information and room status update and
similar applications.
v. Interface to remote printer or application associated with the Hyatt
Reservations network.
b. Other Screen captures will be developed according to requirements
Selected Internet screens, Public information system like teletext,
Minitel and Airline Information Systems on line hotel signage systems,
and similar applications will be required to be captured and displayed on
the hotel
Page 21 of 25
<PAGE>
Exhibit "A" Technical Requirements
5.0 TECHNOLOGY(FUTURE)
Below is an indication of technology that is known to be under development.
These are items that may be required as upgrades to installations to comply with
section 14 of the Master Agreement and section 6 of this exhibit. Upgrades may
also be required for services that may be offered at competing hotels, but that
are not yet identified at this time or listed below.
5.1 Movie & interactive content in compressed digital format, such as MPEG 2,
when use of such a format is made available. This may include head end
upgrade to incorporate digital MATV signal delivery to the guest rooms to
the extent permitted by the MATV systems in each hotel.
5.2 Satellite, frame relay, ISDN, ATM and/or other advanced networking
methods that would enable on line downloading of movie & Reactive
content, in those areas where it becomes the accepted norm
5.3 Increasing simultaneous access to pay video and interactive services as
demand for them increases and as technology facilitates increased
bandwidth.
5.4 Incorporation of newly developed broadcast and video standards as and
when adopted by the multimedia and television industries. examples
include but are not limited to HDTV, advanced digital video formats up to
and beyond MPEG 2, Studio movie master formats, such as Do, updated
operating systems such as Windows NT.
5.5 Upgrading System communication protocol to take advantage of Increased
bandwidth and the switching capability offered by advanced networks.
Examples include fast ethernet and ATM.
5.6 Provide full motion video for interactive services content.
5.7 Provision to accommodate increased number of viewing channels as MTV
technology updates dictate.
5.8 Use of the pay TV gateway to charge for programming provided by third
parties like satellite, and cable TV providers to increase revenue for
Maginet, GDG and the hotel for example.
5.9 Cooperative development of other interfaces on an as need basis, this is
to include full interface with the Hyatt Spirit Reservations system
including on screen reservations, using the interactive system.
5.10 Provide interface with hotel fax server software to enable faxes to be
displayed on screen; and the option to print them on a printer located in
the guest rooms. Print outs of coupons and folios will also be required.
5.11 To keep Hyatt International Technical Services abreast of the latest
industry trends to give them the opportunity to update MATV system
specifications in new projects, so as to be ready for the above.
5.12 Interface with and communication between on-line hotel and signage
systems, as any be installed in the hotels
5.13 Multi-media interface with voicemail system to duplicate phone and
voicemail capability via MATV system, for link to video-teleconferencing
facilities.
5.14 Upgrade head-end to provide Stereo Audio delivery
5.15 Development of more foreign Language Content, especially Malaysian,
Indonesian and other Asian languages.
Page 22 of 25
<PAGE>
Exhibit "A" Technical Requirements
6.0 Competitive Standards
----------------------
6.1 GENERAL STANDARDS
The master agreement requires that Maginet shall keep the system up to date to
ensure that installed systems have the features and functionality built in to
the latest Systems, or systems provided by a competitor.
6.2 KEY SYSTEM PERFORMANCE PARAMETERS
The following are key features and functions defined in the minimum technical
specification, that if improved upon by a competitor would render the System
inferior, whereby Maginet and GDG would be required to modify the system to
deliver the same or better features and functionality, under the terms of the
master agreement :
6.2.1 VIDEO & AUDIO QUALITY
In cases where competing hotels offer observably better video quality than VHS,
then the system video and audio shall be upgraded to match that level of
quality. In cases where it is difficult to quantify improvements to video
quality, the following criteria will be used to establish the acceptable minimum
quality:
Video images transmitted and displayed across the System, MATV, and a good
quality brand new twenty-five inch (25") television set must be observed to be
as good as the same images when the image source is directly connected to the
television set. The video image source for quality tests shall be a full
action, color movie on a new, unused S-VHS tape provided by a major recording
studio played back on a brand new S-VHS tape player connected directly to the
television with AV connectors.
When compared to the same movie provided as part of the Content across the
System, MATV, and television set, there shall be no noticeable degradation in
resolution, discoloration, focus, or brightness, nor multiple images (ghosting),
artifacting, or other negative differences in image quality.
6.2.2 ADDED SYSTEM FEATURES & FUNCTIONALITY
When a competing hotel offers features and functionality that it is determined
by the Advisory Board provide the competing hotel with a competitive advantage,
then Maginet and GDG shall implement equivalent or alternative technology to
ensure that the System delivers those additional features and functionality
enjoyed by the competing hotel; where those features and functionalities improve
revenue from the system or are perceived as an incentive for guests to stay at
the competing hotel.
Page 23 of 25
<PAGE>
Exhibit "A" Technical Requirements.
6.2.3 COMPETITIVE RATES
If a competing hotel is able to offer lower rates for movies and services of an
equivalent quality, Maginet and GDG shall take whatever steps necessary,
including employing new or alternative technologies to lower operating costs
such that Hyatt Parties can match such rates, without effecting Hyatt
Profitability.
6.2.4 GREATER CONTENT VARIETY.
If a competing hotel generates higher revenues by offering a greater variety of
interactive or video on demand content, of equivalent quality, Maginet shall
increase programming and system capacity to match the usage rates enjoyed by the
competing hotel.
6.2.5 GREATER SIMULTANEOUS SYSTEM ACCESS
If a competing hotel generates higher revenues by offering a greater number of
simultaneous outputs to deliver the content, Maginet shall increase programming
and system capacity to match the usage rates enjoyed by the competing hotel.
6.2.6 VENDOR PREFERENCE
If a competing hotel offers better revenues and/or improved features such that
the revenue generating potential of the system is greater, Maginet and GDG shall
employ similar or alternative technology, to ensure that the System remains
competitive in this sector of its revenue generating capability.
6.3 ALTERNATIVE TECHNOLOGY - SYSTEM OBSOLESCENCE
If a competing hotel offers alternative technology that substantially improves
revenue and/or offers features and benefits that are determined to be an
incentive for guests to stay at the competing hotel, then Maginet and GDG shall
provide similar or alternative technology so that System delivers features and
functions that would not be perceived as inferior or outdated by guests and
vendors using the system, when compared with the competition.
6.4 DIGITAL HARDWARE PERFORMANCE CRITERIA
In cases where such technology involves digital video delivery, the following
criteria is intended to set a minimum standard, in cases where it is not
possible to define the system used by the competition:
a. Movies will be delivered to the viewer at 400 lines of resolution or
better, with color clarity and definition superior to the current
vendor's VHS product.
b. Transmission of movie signals will be sufficient to provide "flicker
free" video images.
C. The units shall be capable of providing simultaneous access to any or
all of the available number of ports on the system.
d. It must be possible to pause and rewind for a total of 15 minutes of
the movie showing time, using the remote control (subject to studio
consent).
Page 24 of 25
<PAGE>
Exhibit "A Technical Requirements.
e. Additionally it shall meet or exceed other performance criteria
indicated below as applicable to video tape based systems, where not
specified under this section and as required to comply with the
requirements of the master agreement.
6.5 DELIVERY CRITERIA FOR SYSTEM UPDATE
To comply with the terms within the master agreement, Maginet shall deliver the
system upgrade within nine months of written notice from Hyatt Parties that the
competitor's advantage was determined to exist.
Page 25 of 25
<PAGE>
August 22, 1995
EXHIBIT B
FORM OF INDIVIDUAL AGREEMENT,
-----------------------------
-35-
<PAGE>
EXHIBIT B
---------
Additional System Equipment:
- ----------------------------
Provider will provide the hotel with a number of spare remote control units
equal to five percent (5%) of the total number of TVs in the Hotel linked to the
System. These units will remain the property of Provider and will be included
within the definition of "System."
Remote Control Replacement Cost:
- --------------------------------
The fee for remote control replacement units shall be U.S. $20 for each
replacement unit, plus applicable duties or fees.
Movie Rental Fee:
- -----------------
The Movie Rental Fee shall be for each access of a Program, subject to
adjustment as provided in Section 6.
Game Fee:
- ---------
The Came Fee shall be for each access of a Program; subject to adjustment
as provided in Section 6.
Hotel Commission:
- -----------------
[***], subject to increase as provided in Section 4 (i), on
Net Rental Fees from Movies and other pay video services, excepting Hyatt
Content, Interactive Services and Third Party Content, for which commission
rates shall be subsequently established by the Advisory Committee established
pursuant to the Master Agreement.
-20- (02/15/95)
[***] Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
<PAGE>
August 22, 1995
EXHIBIT C
LIST OF CURRENT HOTELS
----------------------
-36-
<PAGE>
List of hotels and installation schedule
[***]
[***] Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
<PAGE>
Exhibit C
[***]
[***] Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commmission. Omitted
portions have been filed separately with the Commission.
<PAGE>
August 22, 1995
EXHIBIT D
HOTEL FEES, COMMISSION, AND COST
--------------------------------
Initial Rental Fee: (to be established in Individual Agreements in each
country).
Hotel Commission: [***] on Net Rental Fees from Movies and other pay video
services, excepting Hyatt Content, Interactive Services and
Third Party Content, for which commission rates shall be
subsequently established.
Remote Control Replacement Cost: [***] for each replacement unit.
*Subject to increase as provided in Section 11.9 of the Master Agreement.
*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
-37-
<PAGE>
HOTEL GUEST SERVICES AGREEMENT
This Hotel Guest Services Agreement, ("Agreement") between ______________, a
Company duly incorporated in___________________,having its principal place
of business at____________,and a [wholly-owned subsidiary/licensed distributor]
of MagiNet International Corporation (hereinafter referred to as "Provider"),
and the Hyatt __________ Hotel, having its principal place of business
at_________ ("Hotel") , sets forth the terms for installation, operation and
maintenance by Provider of an on-demand guest video system and related services
in the Hotel.
WHEREAS:
(A) The Hotel operates a hotel for the lodging of guests in separate,
private rooms and suites which are customarily available for overnight sleeping
accommodations;
(B) The Hotel wishes to enhance the guests' stay by giving them the
opportunity to view pre-recorded entertainment programs and movies and standard
off-air broadcast or cable television channels available to the Hotel without
special equipment.. and other programming and interactive service offerings,
conveniently in the privacy of their own rooms using an on-demand video system
provided by MagiNet;
(C) Hyatt International-Asia Pacific Limited ("Hyatt International"),
Hyatt: Chain Services Limited ("Hyatt Chain"), Guestserve Development Group
("GDG"), and MagiNet International Corporation ("MagiNet") have entered into an
exclusive Master Guest Video Services Agreement dated August 1995, (the "Master
Agreement") whereby MagiNet, using on demand video and interactive services
technology (of GDG ("GDG Technology") , has agreed to provide on-demand video
services and interactive services pursuant to the terms therein and herein;
Now, therefore the parties do hereby agree as follows:
1. ON-DEMAND VIDEO SERVICES SYSTEM
(a) Provider shall, with the support of MagiNet and GDG, provide to
the Hotel through the System (defined below) and the Hotel's video and audio
transmission and receiving and antenna and wiring systems ("MATV") on-demand
video and interactive services pursuant to the terms and conditions set forth in
the Master Agreement and herein. All terms and provisions in the Master
Agreement applicable to the parties hereto, including obligations of MagiNet and
GDG to the Hotel thereunder, are hereby incorporated
(02/15/95)
<PAGE>
into this Agreement by reference and made a part hereof. In the event of any
conflicts between this Agreement and the Master Agreement, the Master Agreement
shall control.
(b) The Hotel is hereby fully licensed by Provider, GDG and MagiNet
for as long as this Agreement is in effect to have the use of the GDG
Technology, and any improvements thereon made by GDG, MagiNet and/or any third
party acting under a license or contract from either on the terms provided
herein.
(c) The Hotel is hereby fully licensed by Provider, GDG and MagiNet
to have and use a graphics generator (the "Graphics Generator") that enables the
Hotel to update its own Hotel Content for display on the System through. the GDG
Technology as provided in subsection (p) below. "Content" shall mean off-air
activities, services and programming as provided hereunder and as may be agreed
upon pursuant to the Master Agreement, This license covers all uses in the Hotel
by any entities affiliated with Hyatt international (the "Hyatt Affiliates")
throughout the duration of the Master Agreement and for such time thereafter as
permitted by this Agreement.
(d) "System" as referred to herein, shall include at least: (i) a
module for each television set that can remotely control on demand requests made
by guests from Hotel rooms ("Rooms") to central storage devices within the
Hotel; (ii) a remote control and appropriate spares for each television in the
Hotel; (iii) Content storage sufficient for the Content initially installed and
a reasonable amount of expansion capability for additional Content that may be
installed in the future; (iv) a front-desk personal computer monitor and
printer; and (v) all necessary software, electronic, computer and switching
equipment, including GDG Technology to permit the receipt, transmission,
monitoring and on demand remotely controlled interactive guest operated in-room
display of the Content.
(e) Subject to the right of Hotel and its guests to use other non-
competing video devices, cd players, computers, telefax machines, and similar
devices in the Rooms, the Hotel will ensure that the System will be the sole and
exclusive in-room pay per view guest video services system provided to their
guests during the term of this Agreement (except as otherwise provided for
herein, or in the Master Agreement). The Hotel will not either directly or
indirectly solicit the installation of any video system in the Hotel which might
directly compete with or cause transmission interference with the System.
(f) Subject to paragraph (j) following, Provider shall develop,
repair, purchase, build and install all hardware and software required to
operate the System at its sole cost, including any MAIN' upgrades required for
the System to perform according to specification, and shall install, operate and
maintain the System
-2- (02/15/95)
<PAGE>
and such MATV at the Hotel as provided herein. All required hardware and
software and other equipment and specifications for the System and the MATV are
specified and listed in Exhibit A hereto (the "Technical Requirements").
(g) Provider shall provide documentation to provide the reader with
sufficient information so that the System can be operated without further
consultation (the "System Manual"). Two (2) copies of each System Manual shall
be provided for the Hotel.
(h) One (1) copy of a manual that describes the Graphics Generator
sufficiently to permit its use shall be provided to the Hotel (the "Graphics
Generator Manual").
(i) System Manuals and Graphics Generator Manuals may be copied and
printed in whole or in part by Hotel on an as needed basis. All Manuals shall
be marked and treated by all parties as confidential. Notice of copying of each
Manual shall, with best efforts, be given to Provider.
(j) The System shall provide guests with the Content in as efficient
and effective a manner as is reasonably and technically possible at the time the
System is installed in each Hotel, and as further specified and described in the
Technical Requirements.
(k) The System shall accommodate, and Provider shall ensure the
delivery of across the System and the MATV, to the extent reasonably and
commercially possible, all Content that the Hotel determines in the future would
benefit Hotel guests or Hotel staffs and would be economically viable to add to
each Hotel's services.
(l) The System will be multilingual, and shall permit displays and
commando in at least three separate languages. The selected languages are
preliminarily designated in English, Japanese, and the primary local language
used in the country in which the Hotel is located. If Hotel desires a different
set of languages it shall designate its selections by written notice to MagiNet
on the date of execution of this Agreement and such notice shall become attached
hereto as an Exhibit. Subsequent changes or additions to such languages shall be
mutually agreed in accordance with Customer demand.
(m) Provider shall at all times in the future ensure that the System
and all other Hyatt International or Hyatt Chain contracted computer,
reservations and information systems operated or used by the Hotel are
interoperable, and will ensure that it takes no action(s) that could jeopardize
such interoperability.
(n) Provider understands and agrees that the System mustmeet or
exceed all applicable Technical Requirements described in
-3- (02/l5/95)
<PAGE>
Exhibit A. Provider shall provide sufficient spare equipment to minimize the
effect of component failure on guest services and to enable rapid repair and
replacement of defective components, including spare onverters and remote
controls to enable Hotel staff to meet the short term needs of its guests if
repair and/or replacement of components are required.
(o) Each Hotel will ensure the safety and security of the System and
all related property of Provider at all times while the System is installed in
the Hotel, and will be liable for any loss or damage to the System resulting
from willful misconduct on the part of Hotel's guests, employees or third
parties (excepting third parties associated with MagiNet or GDG).
(p) The Hotel shall have the right to utilize the System in the Hotel
to display informercials, programs on other hotels and resorts, and similar
advertising and merchandising of hospitality industry products and services
offered by Hyatt International or any Hyatt Affiliates ("Hyatt Products"),
including, Interactive Services (see below) and Hotel Services (see below)
(collectively, "Hotel Content"),
(q) Hotel Content shall not be directly competitive with any then
currently available Content.
(r) Except as specifically otherwise provided herein, all Content
other than movies must first be approved by the Hotel prior to installation on
the System,
(s) "Hotel Services" shall mean those guest information and other
services available now and in the future from the Hotels or Hyatt International
and Hyatt Affiliates, including the development, storage and transmission of
information about: (1) guest billings status, (2) minibar consumption and other
charges, (3) hotel, transportation, and restaurant reservations, (4) guest
marketing information for or on behalf or third parties, and (5) guest messaging
systems and services.
(t) Provider shall ensure that Hotel Services are available through
the System, and can be accessed with no more delay than may, be experienced in
order to obtain Interactive Services (defined below) from Provider, include such
assistance as may be needed for the Hotel so that all Technical Requirements are
met for the transmission of Hotel Services through the System.
(u) "Interactive Services" shall mean all. interactive guest video
products and services, including games, made available to the Hotel by Provider
pursuant to the Master Agreement.
(v) If Hotel requires Provider to provide services requiring the
modification of hardware or software interfaces other than those on the System
in order to implement future Hotel
-4- (02/15/95)
<PAGE>
Services, then the Hotel shall be solely responsible for such costs. If
Provider satisfies such requirements, then any direct costs for the alteration
of existing interfaces solely for the purpose of providing future Hotel
Services, and approved by the Hotel, shall be paid by Hotel.
(w) After execution of this Agreement, Provider will perform at its
expense a site evaluation at Hotel to determine whether any upgrading of the
Hotel master television antenna system ("MATV") will be required. If such
upgrading is required, this shall be provided and funded by MagiNet, as provided
in Section 4(i).
2 TERM OF AGREEMENT
(a) The term of this Agreement will begin on the Term Commencement
Date as defined in Section 2 (b) below and will continue until the expiration or
earlier termination of the Master Agreement (the "Term").
(b) Upon the installation of the System, Provider will test the
System to ensure functionality as provided in Section 4(f). Upon the successful
conclusion of such test, Provider and Hotel will sign a statement. acknowledging
that the System is functional. Such statement will be attached hereto when
completed as provided in Section 4(f), and the "Term Commencement Date" will be
the date of such statement.
3. HOTEL FACILITIES.
During the Term, Hotel shall provide a designated room for installation of the
System; signal wiring and connections; electrical power and sockets; cooling
facilities; and a secure location for all equipment comprising the System
(collectively, the "Hotel Facilities"); all in accordance with the Technical
Requirements.
4. INSTALLATION
(a) Installation shall commence within ________( )days following
execution of this Agreement.
(b) Provider shall apply for and obtain all licenses, permits and
other government approvals required to do work on Hotel's premises, and shall at
all times comply with the applicable legal and regulatory requirements for such
work. it shall be Provider's responsibility to handle all such requirements, and
also its responsibility to pay for any legal expenses and fines incurred due to
Provider's failure to comply with such requirements.
(c) An interface with Hotel's PMS shall be completed during
installation of the System. A front-desk personal computer
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<PAGE>
and printer will be included as a part of the System for printing charges for
each guest purchase or rental in case such interface fails at any time.
Provider will ensure that the System will fully interface and integrate with the
PMS. As a part of such integration, guest usage charges shall be automatically
posted to each individual guest's bill, counts of access shall be available to
the Hotel and other reporting will be permitted. Hotel will cooperate with
Provider for the purpose of successfully implementing the interface, and shall
undertake its best efforts to insure cooperation between Provider and each PMS
software vendor used by the Hotel. All interface protocol installation or
maintenance charges asserted by the PMS software vendor and agreed upon in
advance by the Hotel will be paid for by Hotel.
(d) Hotel will provide such access as may be reasonably requested by
authorized personnel to enable complete installation of the System in the Hotel,
including without limitation providing all Hotel Facilities, within a reasonable
time to permit complete installation. Hotel will make reasonable efforts to
provide Sufficient access to guest rooms for the purpose of equipment
installation so that such installation is performed with a minimum of delay.
During the installation process, Hotel will exercise best efforts to provide
complimentary rooms for out of town members of the installation team.
(e) Appropriate fully qualified personnel shall perform Provider's
obligations hereunder in an efficient, courteous, effective and timely manner
and all such personnel shall be bonded, trained and supervised in accordance
with appropriate hospitality industry practices consistent with local practice
and custom. All actions of any person acting for or on behalf of Provider shall
be subject to the same rules and regulations, which will be made known to
Provider, as are applicable to Hotel staff. All such persons shall wear
identification badges, and shall be dressed in a proper fashion.
(f) Upon completion of the installation, Provider will test and
ensure that the System in each Hotel, and in all Rooms is fully functional
without material defects and meets all applicable Technical Requirements. Upon
the successful conclusion of such testing, Provider will deliver to the Hotel
and the Hyatt Parties a written Certification (the "Certification"), that the
System is fully functional and without material defects and meets all applicable
Technical Requirements. Such Certifications will be attached to this Agreement
as an exhibit.
(g) At the time of installation, Provider shall train all employees
deemed by Hotel to be appropriate in the use of the System.
(h) Hotel will begin the process of billing guests for and generating
revenue from the Content no later than the date of
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<PAGE>
the Certification.
(i) Hotel shall provide access to its MATV. Provider shall be
responsible for all work required to and all costs incurred in upgrading the
MATV as required for proper operation of the System, except that improvements
required for in-wall cable and its installation in excess of $5,000 shall be
paid by the Hotel. If these costs exceed [***] and Provider elects not to pay
for such excess, then the Movie commission rate payable to the Hotel for the
Movies shown at Hotels shall be increased by [***] for a period of three years.
Nothing herein shall be deemed to allow or require Hotel to submit any records
beyond those showing the actual costs of the purchase and installation.
(j) The installation of the System and MATV upgrade shall not degrade
the MATV, or impair the ordinary reception of broadcast programs (or other
services on the MATV. Any MATV hardware and equipment owned by Hotel which has
been disconnected as a result of the installation will be taken to Hotel
designated storage locations by the installation personnel.
5. MAINTENANCE
(a) Provider will promptly provide all maintenance, repairs and
replacement of all software and hardware and other equipment necessary to ensure
proper operation of the System and the related MATV in the Hotel, including
satisfactory signal quality, and shall insure that a qualified person is
available on a twenty-four (24) hour basis to receive service requests. MagiNet
and GDG will provide backup support to Provider as necessary to ensure proper
maintenance, repair and replacement occurs. Such maintenance and technical
assistance will be provided free of charge, unless the maintenance is occasioned
by a breach by Hotel of any of its obligations as set forth in this Agreement,
or by unauthorized use, access, theft, negligence or damage caused by Hotel
staff or third parties not under contract to Provider, MagiNet or GDG. Hotel
staff shall be trained so that they can undertakeroutine maintenance as agreed
upon by the Hotel and Provider. Provider shall not be obligated to maintain
hardware already contracted by Hotel to a third party.
(b) Hotel will, at the Hotel's expense, notify a person designated by
Provider by telephone or by fax of any failure or degradation of any part of the
System anywhere within the Hotel, including in any Room.
(c) The Hotel will notify Provider as soon as is reasonably possible
and upon Hotel's actual notice of any unauthorized use, access, theft, damage or
malfunction of or to the System.
(d) Each Hotel will allow authorized personnel of
*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
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<PAGE>
Provider, MagiNet and GDG to have escorted access to the System at reasonable
times in order to conduct routine maintenance, to observe and to monitor the
System, to ensure suitable operating conditions, to implement improvements in
the System, to conduct repairs, and to otherwise carry out Provider, s, MagiNet
I s and GDG' s obligations set out in this Agreement and the Master Agreement.
(e) In the event that any malfunction, nonconformity or other defect
in the System is believed to exist by Hotel and notice of such defect is given,
Provider shall promptly undertake best efforts to have the defect corrected and
in no event shall there be more than a four (4) hour delay in Provider's
response and all repairs shall be made as quickly as possible. If Hotel does not
provide prompt access to the System to correct System failures once Provider has
been notified by Hotel of such. System defects, Provider will not be liable for
any delays so incurred.
(f) Any repairs or replacements to any equipment supplied by Provider
made necessary by any negligent or willful act by Hotel or any of its guests,
employees, contractors, servants, and agents, or force majeure events, will be
undertaken by Provider at Hotel's expense.
(g) Hotel shall not permit any person to tamper with or attempt to
make repairs to any equipment supplied by Provider. In emergencies, Hotel may
carry out repairs in accordance with instructions given by Provider.
(h) Each Hotel will be responsible for replacement of depleted
batteries and for paying for replacement infrared remote control units in the
event of theft, loss or damage in excess of twenty (20) units per year. Initial
replacement cost is as set forth on Exhibit B, plus shipping, duties and taxes,
and is subject to change upon written notice from Provider or MagiNet to Hotel,
with an effective date at least thirty (30) days in advance of a change, in
accordance with commercially reasonable and customary practices:
6. RENTAL FEE AND PAYMENT TERMS
(a) Hotel will charge hotel guests for access to Movies and other pay
per view and pay for service Content (collectively the "Programs") for which
charges are assessed (the "Rental Fees") The amount to be charged for Movies
shall be set by Provider in consultation. with and approved by Hotel at the time
of the execution of the Agreement or, for other pay per view and pay for service
Content, at the time the Content is made available. Such charges shall not
commence until after a guest has been allowed to review the selection for an
initial period to be mutually agreed by Hotel and Provider. In addition to the
Rental Fee, Hotel will collect from guests any taxes applicable to such
receipts, and will pay those taxes to the appropriate government authorities.
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<PAGE>
(b) From time to time, Provider may revise the Rental Fees after
consultation with Hotel. Rental Fees shall be charged which are customary in
each locale, and may be increased annually in an amount at least equal to the
increase in the local cost of living. Provider will notify each Hotel in writing
of any new Rental Fee and the effective date at least thirty (30) days in
advance of a revision.
(c) In the event any Hotel guest disputes the amount of Rental Fees
in a situation in which Hotel personnel are otherwise unaware of any System
malfunction (herein referred to as a "Denial"), Hotel may in its sole discretion
credit the disputed amount to the guest's account provided it provides Provider
with a copy of the credit voucher showing room number, date, time of day, and
reason for the disputed charge. Hotel will use its best efforts to limit Denials
to not more than five percent (5%) of gross Rental Fees per month.
(d) The System will generate an accurate record (the "Access Record")
of the access to the System by any guests, including a record of the access
charges for each individual guest's bill or Room account, the types of access
made, and any other reasonably recordable information that may be requested. The
Access Record will not retain the names of guests Provider will be responsible
at their own cost for programming the System to enable it to provide the
aforesaid data. The Access Record for Hotel will be held in confidence by the
personnel of Hotel. Provide and Hotel may review and use the Access Record for
such purposes as they may reasonably deem appropriate. Each party will indemnify
the other against any and all claims as a result of their improper use of such
Access Record.
(e) Hotel will submit a report (via telefax) to Provider on the first
day of each month which details the previous month's gross Rental Fees and
itemizes deductions for all Denials allowed. Provider shall invoice the Hotel
for gross Rental Fees less Denials allowed, Hotel commissions payable under
Exhibit B (which Exhibit shall be supplemented and amended from time to time as
new Programs are added to the System) and unreimbursed tax payments ("Net Rental
Fees"), all based upon guest usage as reported by the relevant PMS accounting
records during each calendar month which information shall be accessible and
reviewable during the month by Provider and Hotel. Hotel shall handpost any
invoices printed in hard form as a result of PMS downtime to accurately capture
those buys in PMS records. If Hotel's PMS report differs from the automatic
record kept by the System, both parties agree to mutually and amicably resolve
any variances between their respective records of Rental Fees and Denials.
(f) Hotel will pay to Provider or the designated subsidiary or
distributor or other designated party within ten (10) days, the Net Rental Fees
invoiced by Provider as provided in
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<PAGE>
paragraph (e) preceding. The payment transmission will also specify the
occupancy rate for the month.
(g) Hotel All keep current, complete and accurate records of
occupancy rates and all Net Rental Fees and other amounts due to Provider
pursuant to this Agreement. Throughout the duration of this Agreement, Hotel's
book and records pertinent to the Rental Fees, Denials and Net Rental Fees for
any month will be open to inspection and reproduction by Provider and, if
necessary, to an audit by a mutually agreed upon certified public accountant as
an authorized representative of Provider upon reasonable advance written notice
to Hotel. No such records need to be retained beyond one year, Provider's right.
to inspect and audit the books and records of Hotel will not extend beyond one
year from the expiration of the Agreement, If any audit by Provider discloses
any non-payment or underpayment of any amount payable to Provider, the Hotel
will immediately pay to Provider any deficiency, plus interest charges at the
rate of 1.5% per month or the maximum interest allowed by local law, whichever
is less. If the deficiency is in excess of fifteen percent (15%) of the actual
amount payable to Provider for the period for which the deficiency occurred, the
Hotel will reimburse Provider for all costs incurred by Provider in conducting
the audit.
7. PROGRAM TITLE SELECTIONS
(a) It is understood and agreed that, except as otherwise provided
below, Provider shall have absolute control and discretion in the selection of
the movies it contracts for with the movie studios or their distributors and
provides to Hotel (the "Movies").
(b) Provider shall provide a method whereby a guest will be able to
electronically restrict persons from viewing any adult selections being offered
in a Room.
(c) When available from producing studios, the Content offered by
Provider shall include first run Movies offered to Hotel that shall be no less
current and offer no less variety of first run and other titles than those
available at competing hotels in the country where the Hotel is located.
Provider shall consult with the Hotel on a regular basis to ensure the provision
of a selection of titles properly suited to each Hotel's guest profile. Hotels
may review the movies and other video materials being offered by Provider, and
may object to Movies it feels violate the sensitivities of the guests at a
particular Hotel, and any unresolved disputes will be adjudicated by the
Advisory Board established pursuant to the Master Agreement, pending which
resolution the objectionable Movies shall not be offered at the Hotel.
(d) Provider will be solely responsible for any royalty
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<PAGE>
payable to Movie suppliers and any license fees for Movies made available on the
System.
(e) Each Hotel will be responsible for ensuring that access to the
room(s) in which the central storage and transmission equipment for the System
is located is restricted to persons accompanied by persons authorized by
Provider to be present there except in cases of emergency. Provider shall
authorize a sufficient number of persons employed by the Hotel for such purpose,
Hotels will not authorize copying of any Movies and will undertake their best
efforts to ensure that the Movies are exhibited in the Rooms only, and not in
the public rooms and public areas (including lobbies, hallways, restaurants,
bars, meeting rooms, etc.) of the Hotel. The Movies will not be exhibited other
than in accordance with this Agreement. Hotel will use reasonable efforts to
insure that only registered guests of the Hotel and their invitees may view the
Movies.
(f) Cassettes and other media that contain the Movies ("Cassettes")
will be kept in a secure and locked area. Hotel will prevent unauthorized access
to and use, exhibition or viewing of any Cassette by any person other than as
set forth herein. Hotel will not permit any person to duplicate or make
alterations of any kind to Cassettes. Hotel will promptly report to Provider any
unauthorized use of the Cassettes as soon as a Hotel becomes aware of any such
use. If Hotel has videocassette recorders installed in the Rooms, the Hotel
shall agree that Provider may, where required to do so as a result-of its
licensing agreements, as directed by the Hotel, either (i) disable the "record"
function in such a way that does not permanently damage the videocassette
equipment, but only to the extent required to comply with such restrictions, or
(ii) disable the Movie function for such Rooms.
(g) Provider shall be responsible to ensure that any of the
transmissions on the System controlled by it do not violate any applicable laws,
including those of the country in which Hotel is located; including specifically
any laws relating to copyright, pornography, and censorship of information or
materials.
(h) Provider shall at all times offer to the Hotel the most advanced
guest video services and features (and associated technologies) it or its
competitors offers to any other hotel.
8. OWNERSHIP OF THE SYSTEM.
(a) The parties agree that the System and all equipment, materials
and engineering related thereto (excepting the MATO) and which are provided by
Provider are the sole and exclusive property of Provider.
(b) Hotel shall exercise best efforts to ensure the safety and
security of the System and all related property of
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<PAGE>
Provider at all times while the System is installed at the Hotel. Hotel will
use its reasonable efforts to prevent any vandalism, theft, or damage of (or to
any of the equipment supplied by Provider.
(c) Hotel shall not allow, any lien, encumbrance, mortgage, claim or
security interest to be attached to or be made against the System. The Hotel
shall allow Provider to affix a notice or plaque to the System stating that the
System is the sole and exclusive property of Provider and/or MagiNet.
(d) Hotel shall allow authorized personnel of Provider, MagiNet or
GDG, or their independent contractors to have access to the System at all times
in order to conduct routine maintenance, observation and monitoring of the
System, to ensure suitable operating conditions and to implement improvements in
the system. Upon termination of this Agreement, Hotel will take all reasonable
actions necessary to allow Provider to remove the System promptly and Provider
shall remove the System no later than thirty (30) days after such termination
and shall return the premises to their original condition, normal wear and tear
excepted at no cost to Hotel.
e) In the event the safety of the System is threatened due to
earthquake, flood, fire, strike, civil disruption or similar causes, Provider
shall be entitled to enter upon. the Hotel premises and to remove the System
from danger upon reasonable notice to Hotel.
(f) "Hotel Systems" shall mean those hardware and software systems
other than the System used by Hyatt International and Hyatt Affiliates and the
Hotel to deliver Content to guests in their rooms, including any transmitting
devices and equipment, wiring, televisions, and cable or master antennae
transmission systems, as well as all software and hardware used for Hotel's PMS
and MATV.
(g) Hotel Content, Hotel Systems, all signal boosters, wiring and
faceplates, and any portions of the System that are permanently installed, or
installed in such a way that the removal of that part would cause more than
incidental wear and tear to the premises, and all other property at the Hotels
apart from the System, shall be considered by the parties to be the sole and
exclusive property of the Hotel (the "Hotel Property") . All Hotel Property
shall be considered to be the property of the Hotel, irrespective of whether
such information, materials, hardware and software systems are used on or
developed by anyone related to MagiNet and/or GDG and/or any third parties.
(h) The System and Content provided by Provider, MagiNet and/or GDG
that is not Hotel Property shall be either the property of Provider, MagiNet or
GDG or properly licensed to Provider,
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<PAGE>
MagiNet or GDG by a third party.
(I) Equipment comprising part of the System and owned by Provider
will not be removed from Hotel for any purpose whatsoever during the term of the
Agreement except for purposes of repair, and when removal is necessary to ensure
safety of such equipment.
9. INSURANCE AND PROPERTY TAXES.
(a) Provider will maintain general business risk insurance on the
System at its expense.
(b) Provider shall carry and maintain for installation, and any later
work at the Hotel, worker's compensation insurance, or such other insurance as
is required and or needed to pay for any actions of Provider's personnel and all
such other personnel, in the amount of at least $1,000,000 combined single limit
comprehensive general contractual liability insurance, and. at least $1,000,000
combined single limit vehicle liability insurance. Copies of all applicable
policies and certificates of insurance shall be provided to the Hotel prior to
commencement of any work on the premises of any Hotel.
(c) Hotel shall include the System in any assessment of the real
estate or personal property of the Hotel and pay such taxes as are assessed, to
the extent required by law.
(d) To the extent permitted under its existing insurance policies,
Hotel shall include the System as part of its insured property and equipment.
10. PUBLICITY REGARDING THE SYSTEM.
Hotel and the staff and the employees of the Hotel shall adequately publicize
the existence of the System and access to the Programs 'for use by guests as
determined by Hotel in its sole discretion. Hotel hereby acknowledges that the
success of the System installed by Provider depends on the response of the
Hotel's employees to guests, inquiries in a proper manner to encourage guests'
use and enjoyment of the System. If Provider shall develop and provide to Hotel
in-room or other advertising materials to encourage use of the System by guests
of the Hotel, Hotel shall place such material in the Rooms or elsewhere at the
Hotel, provided that Hotel Provider finds such materials to be suitable to the
decorum of the Rooms.
11. TRAINING AND CONSULTATION.
(a) To enable each Hotel to generate suitable promotional material related
to the use of the System and to enable personnel of each Hotel to advise and
encourage guests regarding
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<PAGE>
their use of the System, Provider will provide a one-time training course on the
use and operation of the System for as many employees as Hotel deems desirable
at no charge. Such training shall take place within sixty (60) days of the
installation done under this Agreement.
(b) Hotel will exercise best efforts to provide complimentary
accommodations for Provider training personnel. In addition, Provider, MagiNet
and GDG personnel will be reasonably available at no charge for telephone
consultation to personnel of Hotels to provide further assistance regarding use
and operation' of the Systems, including an in-country telephone number staffed
on a twenty-four hour basis.
12. CONFIDENTIALITY
The parties agree that the functions and components of the System, facts
regarding the equipment and materials related thereto, the manner of operation
thereof and the terms of this Agreement, including without limitation Rental
Fees payable hereunder, all constitute proprietary information of Provider.
Hotel shall not permit any third party to have access to the System other than
such of the Hotel's maintenance personnel as may be reasonably necessary to
enable Hotel to provide the Hotel Facilities and otherwise as expressly
permitted by Provider in writing.
13 REPRESENTATIONS AND COVENANTS
The Parties represent, undertake and covenant with each other that
throughout the duration of this Agreement:
(a) Authority. The Parties warrant and represent that each has full legal
---------
power and authority to enter into this Agreement and to perform all of its
obligations hereunder and that this Agreement is within its authority and that
all necessary corporate action has been taken to authorize it to enter into this
Agreement and perform its obligations hereunder.
(b) Compliance. Each party will comply, and will ensure that performance
----------
of its obligations hereunder complies, with all applicable laws, ordinances,
rules, regulations, orders, licenses, permits or other requirements now or
hereafter in effect, of any governmental authority. Without limiting the
generality of the foregoing, to the extent any filing with, or any license,
approval or other agreement of, any applicable authority is required for
performance of any of the either party's obligations, such party will file the
appropriate documents and will maintain such documents on file, which Provider
may inspect upon demand.
14. DEFAULT
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<PAGE>
(a) Default. Either Hotel or Provider shall be in default under this
-------
Agreement if it (i) shall be adjudicated bankrupt or petition for relief under
any bankruptcy, reorganization receivership, liquidation, compromise arrangement
or moratorium statute, or (ii) shall petition for the appointment of a receiver,
liquidation, compromise arrangement or moratorium statute, or (iii) shall
petition for the appointment of a receiver, liquidator, trustee or custodian for
all or part of its assets.
(b) Notice of Non-performance. Hotel or Provider shall also be in default
-------------------------
under this Agreement if it (or any associated or affiliated entity so required)
should fail to perform or comply with any material obligation under this
Agreement or under the Master Agreement intended to benefit either party and
either (i) such failure is not remedied within sixty (60) days after receipt of
notice from the other party of such failure or (ii) if such default is of a
nature that it cannot, with due diligence and in good faith, be cured within
sixty (60) days, the non-performing party fails to proceed promptly and with due
diligence and in good faith to cure such failure of performance. In each
instance the non-performing party shall be informed in writing by the other
party of the circumstances of such non-performance.
(c) Remedies. If any of the events of default set out in Section 14(a) or
--------
(b) above should occur, the party not in default may exercise any or all of the
following remedies: (i) cancel and terminate this Agreement (which termination
for purposes of Section 6(b) shall become effective sixty (60) days after the
original notice to the defaulting party of the failure to perform or comply) ,
(A) obtain injunctive and other equitable relief, and (ii) obtain such damages
and other rights and remedies as the party not in default may have at law, and
(iv) undertake either step(s) (i) and/or (ii) while retaining the System in
place (subject to continuance of all other material terms and conditions herein
and until a replacement vendor can be selected in an orderly transition to that
vendor's technology).
(d) Master Agreement. In the event the Master Agreement is terminated for
----------------
any reason Hotel shall have the option, exercisable within thirty (30) days, to
terminate this Agreement, otherwise this Agreement shall continue in full force
and effect according to the terms herein. Default under or termination of this
Agreement shall not be considered a default for the purposes of the Master
Agreement except as specifically provided therein.
15. MARKETING AND PROMOTION.
(a) Any marketing and promotion that occurs with respect to the System in
connection with the Hotel shall be first approved by the Hotel.
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<PAGE>
(b) No party is or shall act as the agent for any other party, and no
statement may be made that can be attributable to a party, or any of its
affiliated or related companies or entities, without first obtaining such
entity's permission for the statement.
(c) The parties agree to cooperate with each other to promote the use of
the System.
16. GENERAL TERMS
(a) Provider shall indemnify and hold the Hotel, and all related entities
and persons, including their affiliates, agents, officers, directors and
employees, harmless from any and all actions, costs, losses, expenses and/or
damages resulting from Provider's activities and the activities of any entity
for which they have assumed responsibility hereunder, pursuant to or relating or
incidental to this Agreement. Such indemnification shall specifically include
any and all actions alleged to involve intellectual property and any other
action of any kind.
(b) Provider agrees to be fully responsible for all subcontractors who
may be chosen for actions to be taken under this Agreement, including full
indemnity for the actions of any subcontractor or any of the subcontractor's
employees.
(c) Hotel shall be required insofar as is commercially reasonable to
notify Provider of any video recording and/or playback devices and related
content that are provided by the Hotel to its guests.
(d) Except as required by Provider, MagiNet or GDG licensing agreements
with others, nothing herein may be used by Provider or MagiNet or GDG to limit
the Hotel in their promotion of any Content whatsoever, which promotion shall be
entirely within the Hotels' reasonable discretion.
(e) This Hotel Agreement will be governed by the laws of.........
(f) Except as otherwise set forth herein, the provisions hereof will be
binding upon, and will inure to the benefit of, the respective successors and
assigns of the parties hereto; provided that no assignment of this Agreement
will be made by Provider without the express prior written consent of Hotel,
such consent not to be unreasonably withheld. It is expressly understood that
Provider may assign this Agreement without consent, specifically including: (i)
an assignment by Provider to a creditor for debt financing purposes, provided
that such creditor has agreed in writing to abide by the terms of this
Agreement, and (ii) an assignment to a subsidiary or related entity of Provider,
so long as Provider remains primarily liable. Notwithstanding any
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<PAGE>
assignment, none of the System or other Provider property may be removed from
the Hotel prior to the Hotel's uncured default or termination of this Agreement,
free of any claims on the System.
(g) This Agreement may be modified or amended only by a written agreement
signed by both parties. No waiver by either party of any breach or default
hereunder will be construed as a waiver of any precedent or subsequent breach or
default.
(h) This Agreement sets forth the entire agreement and understanding of
the parties relating to the subject matter hereof, and merges and supersedes all
prior discussions and understanding between the parties related thereto, whether
written or oral.
(i) Where a party is unable, wholly or in part, by reason of Force
Majeure, to carry out any obligations under this Agreement and that party; (i)
gives the affected party prompt notice of that Force Majeure with reasonably
full particulars and, insofar as known, the probable extent to which it will be
unable to perform or be delayed in performing that obligation; and (ii) uses all
reasonable efforts to remove that Force Majeure as quickly as possible; then
that obligation is; suspended insofar as it is affected by the continuance of
that Force Majeure provided that this section will not operate to relieve any
party of any obligation to pay money. In the event any Force Majeure prevents
performance under this Agreement by either party which continues in existence
for more than thirty (30) days, the parties will meet in good faith to discuss
the situation and to make all reasonable efforts to achieve a mutually
satisfactory resolution of the problem so that Force Majeure no longer prevents
performance under this Agreement, provided that the Hotel shall have the option
to terminate the Agreement for any Force Majeure event that last longer than one
hundred and eighty (180) days.
(j) Any and all disputes arising under or in any way connected or related
to this Agreement, and any subject matters covered by this Agreement, shall be
finally adjudicated and resolved through final and binding arbitration in
_________, accordance with the Rules of Arbitration of the United Nations
Commission on international Trade Law (UNCITRAL). Interim court relief may be
sought at any time by any party, and any request for interim relief shall not be
considered a bar to arbitration, nor limit the power of the arbitrator to change
any interim relief awarded during the course of the arbitration.
(k) In the event that materially better terms than those stated herein
are offered by Provider to any similar hotel located in the same city as the
Hotel, the Hotel will be offered all the same terms and conditions, and any less
favorable payments made or receipts obtained subsequent to their being
contracted with another customer but prior to the effective date of the change
in the terms in this Agreement shall be reimbursed to or for the Hotel.
-17- (02/15/95)
<PAGE>
(l) Subject to the provisions of this Agreement, all Intellectual
Property owned by, the Hotel and any related entities shall be and remain the
property of those entities. Provider, MagiNet and GDG and any related entities
shall be provided the limited right to use and practice such Intellectual
Property solely for the purpose Of ensuring that they can perform under this
Agreement.
(m) Subject to the provisions of this Agreement, all Intellectual
Property of Provider, MagiNet and GDG and any related entities shall be and
remain the property of those entities. The Hotel and any related entities shall
be provided the limited right to use and practice such Intellectual Property
solely for the purposes described in this Agreement.
IN WITNESS WHEREOF, this Hotel Agreement is entered into by the parties hereto
this.....day of......., 19...
[PROVIDER) [HOTEL]
By: By:
Title: Title:
-18- (02/15/95)
<PAGE>
EXHIBIT 10.16
MEMORANDUM OF AGREEMENT
MagiNet PPV (Thailand) Co., Ltd. and Trinity Group hereby agree to co-operate
for the purpose of selling and displaying video advertising directories on all
MagiNet interactive video systems installed in hotels in Thailand. The
directory service shall be named "InfoLook".
The parties agree specifically as follows:
MagiNet will at its expense:
* Provide the hardware and software technology necessary to provide
InfoLook in its customer hotels.
* Install InfoLook in all MagiNet hotels in Thailand.
* Provide maintenance to the InfoLook as required.
* Provide training for the Trinity sales force.
Trinity will at its expense:
* Employ at least 200 sales persons to sell InfoLook advertising space.
* Provide such sales personnel with all necessary sales tools and
information.
* Provide accounting services to track sales, collect revenues and pay
expenses and partnership shares. Partnership shares shall be paid
within 30 days following receipt of funds by Trinity.
General:
* MagiNet shall have exclusive control over the type of ads permitted to
be included in InfoLook (i.e., no message parlors, etc.).
* The price for a one-page still photo ad for calendar 1997 shall be
[***]
* Prices shall be subject to change by mutual agreement, and will be
increased each year as appropriate to reflect the increased size of
viewing base. Multimedia ads will be priced higher in amounts to be
mutually agreed.
* Trinity shall receive [***] of gross InfoLook revenue as full
compensation for all services provided above by it or its affiliates.
* MagiNet shall receive [***] of gross InfoLook revenue as full
compensation for all services provided above by it or its affiliates.
* The term of this agreement shall be from the date of signature of this
Agreement until December 31, 2002, whereupon it shall automatically
renew for successive one-year terms until terminated by either party
by written notice delivered at least ninety (90) days prior to the end
of the relevant year.
[***] Confidential treatment requested pursuant to a request for confidential
treatment Filed with the securities and Exchange Commission. Omitted
portions have been Filed separately with the Commission.
<PAGE>
MagiNet PPV (Thailand) Co., Ltd./Trinity Group
Memorandum of Agreement
May 23, 1996
Page 2 of 2
* This Agreement specifically excludes any non-directory advertising
placed by MagiNet on its systems unless sold by Trinity, in which case
pricing for such ads will be separately determined by mutual
agreement. Examples are ads displayed on MagiNet menu or other
screens or displayed in connection with the provision of entertainment
or information services to guests.
Approved and agreed to:
MAGINET PPV (THAILAND) CO., LTD. TRINITY GROUP
/s/ Robert R. Creager /s/ Arun Churdboonchart
Robert R. Creager Arun Churdboonchart
22/5/96 22-5-96
Date Date
<PAGE>
EXHIBIT 10.17
AGREEMENT made with effect from the lst day of June 1996, but executed on
the 28th day of June 1996, BETWEEN UNITED INTERNATIONAL PICTURES of 45 Beadon
Road, London W6 OEG ("LICENSOR") and MAGNET CORPORATION of 405 Tasman Drive,
Sunnyvale, CA 94089, USA ("LICENSEE").
IT IS HEREBY AGREED as follows:
1. LICENSOR hereby grants to LICENSEE a limited non-exclusive license
under copyright or otherwise to distribute the PICTURES for Hotel Guest
Exhibition in the HOTELS in the Territory for their respective Exhibition
Periods.
2. In consideration for the license granted herein,:
(a) LICENSEE shall pay to LICENSOR in respect of those HOTELS in the
Territory engaged in Guest To Pay Exhibition (as defined below) a monthly
Royalty which shall be the greater of:
(i) [***] of the Guest To Pay Gross Receipts (as defined
below) derived from the Guest To Pay Exhibition of the PICTURES in such HOTELS
during that month PROVIDED THAT LICENSOR may, at the time of announcing
availability of PICTURES, at its reasonable discretion and upon consultation
with LICENSEE on a PICTURE-by-PICTURE basis, direct that such Royalty rate be
increased to any percentage up to [***] in respect of Gross Receipts attribu-
table to specified PICTURES; or
(ii) the Minimum Guarantee payable in respect of that month.
For the purpose of this Clause 2(a), the "Minimum Guarantee" payable each month
this Agreement remains in effect shall be calculated as follows:
- the sum of [***] per month; plus
- to the extent that the number of Rooms notified by
LICENSEE in accordance with Clause 3(c) of the General Terms and Conditions from
time to time falls within the following levels:
<TABLE>
<CAPTION>
NO. OF ROOMS ROOM RATE
--------------------- -----------------
<S> <C>
[***] [***]
[***] [***]
[***] [***]
</TABLE>
the applicable Room Rate multiplied by the number of Rooms within that level and
by the number of days in that month in which PICTURES are available for Hotel
Guest Exhibition at the HOTELS.
-------------------------------------------------------------------
[***] Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
<PAGE>
(b) LICENSEE shall pay a separate monthly Royalty to LICENSOR in
respect of LICENSEE's Guest to Pay Exhibition of the PICTURES at the Lotte Hotel
in Seoul, Korea by way of a traditional "pay per day" service (the "Pay Per Day
Service") over and above the separate Video On Demand service which shall
continue to be supplied by LICENSEE to that HOTEL and to other HOTELS pursuant
to Clause 2(a) above. The monthly Royalty payable in respect of the Pay Per Day
Service to the Lotte Hotel pursuant to this Clause 2(b) shall be separately
accounted for and payable in addition to the Royalty which shall continue to be
payable in respect of that Hotel pursuant to Clause 2(a) above. The separate
monthly Royalty due under this Clause 2(b) shall be the greater of:
(i) [***] of the Guest To Pay Gross Receipts derived from
the Pay Per Day Service during the month in question; and
(ii) a separate Minimum Guarantee applicable to the Pay Per
Day Service for that month equal to [***] for each Room to which that Service is
provided multiplied by the number days in that month in which PICTURES are
available on the Pay Day Service at the HOTEL in question.
Subject to prior written approval from LICENSOR in each instance (such approval
being at LICENSOR's absolute discretion), LICENSEE may include additional HOTELS
within the Pay Per Day Service subject to and on the terms set out in this
Clause 2(b).
(c) Subject again to written approval from LICENSOR in each instance
(such approval being at LICENSOR's absolute discretion), LICENSEE may supply a
separate Free to Guest Exhibition service to specified HOTELS separate from and
in addition to the Guest To Pay Exhibition service made available to the same
HOTELS pursuant to Clause 2(a) above. Separate from the Royalty payable in
respect of such HOTELS pursuant to Clause 2(a), LICENSEE shall pay a further
monthly Royalty in respect of the Free to Guest Exhibition permitted hereunder,
calculated at the rate of [***] for each Room at the HOTELS the subject of this
Clause 2(c) multiplied by the number of days in that month in which PICTURES are
available for such Free To Guest Exhibition.
(d) For the purpose of this Agreement.
(i) "Free To Guest Exhibition" shall mean Hotel Guest
Exhibition of the PICTURES for which no charge whatsoever is made to any guest
or resident of any Hotel in connection with the exhibition of the PICTURES in
that Hotel;
(ii) "Guest To Pay Exhibition" shall mean Hotel Guest
Exhibition of the PICTURES for which LICENSEE or the Hotel concerned shall make
a charge to any guest or resident of such Hotel in connection with the
exhibition of the PICTURES in that Hotel, and
(iii) "Guest To Pay Gross Receipts" shall mean any and all
sums which are charged or which (save as a result of legitimate guest complaints
fully documented in writing) should
-------------------------------------------------------------------
[***] Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
-2-
<PAGE>
be charged to Hotel guests or residents in connection with the Guest To Pay
Exhibition of the PICTURES, without any deductions of any kind whatsoever;
(e) Within sixty (60) days after the end of each month, LICENSEE
shall submit to LICENSOR a royalty return in the form set out in Schedule C
together with payment in full of the total Royalty due in aggregate pursuant to
Clauses 2(a)-(c) above.
(f) Save to the extent expressly agreed otherwise in respect of the
HOTELS specified at Clause 2(c) above, LICENSEE shall ensure that in no event
shall the PICTURES be exhibited in any HOTEL free of charge to any guest or
resident of the Hotel/s.
(g) All payments hereunder shall be made in United States Dollars by
wire transfer to the credit of LICENSOR's US$ account at:
Bank of America N.T. & S.A.
Assubel Building
Uitbreidingstraat 180, Box 6,
B-2600 Antwerp
BELGIUM
Account No.: 685.3658014.18
or such other account as LICENSOR may from time to time designate. Royalties
payable to LICENSOR shall be net of all income or other taxes, customs duties or
other levies or charges attributable in anyway to the supply and exhibition of
the PICTURES pursuant to this Agreement and LICENSEE shall make no deductions or
withholdings in this respect.
(h) In the event that payment of any amounts due to LICENSOR
hereunder shall be overdue then LICENSOR shall be entitled to charge interest at
the rate of two percent (2%) above the rate from time to time charged by
LICENSOR's principal bank as from the due date until cleared funds representing
full settlement of such amount is received by LICENSOR.
3. LICENSOR shall supply such number of PICTURES per annum (up to sixty
(60) subject to availability) and such number of Video Cassettes per PICTURE as
shall be determined by LICENSOR in its reasonable discretion upon consultation
with LICENSEE, which shall be delivered to LICENSEE in accordance with Clause
1(b) of the General Terms and Conditions attached hereto. At the end of each
year of this Agreement, at LICENSOR's sole option, LICENSEE shall erase, destroy
or return all Video Cassettes supplied during the previous year in accordance
with the procedures set out in Clause 5 of the General Terms and Conditions
attached hereto unless, upon request by LICENSEE, LICENSOR in its sole
discretion permits LICENSEE to retain some or all of such Video Cassettes for
Hotel Guest Exhibition for the succeeding year of this Agreement, such retained
cassettes to be deducted from the agreed number of Video Cassettes to be
supplied for that succeeding year. Payment for all PICTURES including retained
titles shall be made in accordance with Clause 2 of this Agreement.
-3-
<PAGE>
4. Subject at all times to the terms of Clause 13 of the General Terms
and Conditions attached hereto, this Agreement shall be for a period of thirteen
(13) months commencing on the effective date hereof and shall automatically
continue thereafter for successive periods of one (1) year unless and until
terminated by either party by giving written notice to that effect not less than
thirty (30) days prior to 30th June in each year.
5. (a) In each new Hotel notified to LICENSOR in accordance with Clause
3(c)(ii) of the General Terms and Conditions attached hereto, Hotel Guest
Exhibition shall not commence without the prior written approval of LICENSOR for
such Hotel, which approval LICENSOR shall not unreasonably withhold. Upon such
approval Schedule A shall be deemed amended accordingly.
(b) LICENSEE shall notify LICENSOR of any cancellation for any Hotel
in accordance with Clause 3(c)(iii) of the General Terms and Conditions attached
hereto.
6. The Territory licensed hereunder shall consist of Australia, Fiji,
France, Hong Kong, Israel, Japan, New Zealand, the Philippines, South Africa,
Singapore, South Korea, Taiwan, Thailand, the United Kingdom and such other
countries which may be added to this Agreement by letter of amendment from time
to time.
7. This Agreement shall be governed in accordance with the laws of
England and shall be subject to the non-exclusive jurisdiction of the English
courts.
8. Terms defined in the General Terms and Conditions shall have the same
meaning herein and those defined herein shall have the same meaning in the
General Terms and Conditions.
9. In all other respects the General Terms and Conditions attached hereto
shall govern. If this Agreement is inconsistent with the General Terms and
Conditions this Agreement shall govern.
10. This Agreement includes the General Terms and Conditions and Schedules
A, B, C and D attached hereto.
-4-
<PAGE>
IN WITNESS WHEREOF the parties have executed this Agreement the day and
year first above written.
UNITED INTERNATIONAL PICTURES
By: \s\ Brian F. Reilly
----------------------------------------
Typed Name: Brian F. Reilly
Typed Title: Director's Representative
MAGINET CORPORATION
By: \s\ Paul D. Coss
----------------------------------------
Typed Name: Paul D. Coss
Typed Title: Director of Program Acquisitions
and Development
-5-
<PAGE>
GENERAL TERMS AND CONDITIONS
----------------------------
Supplementing the special terms and conditions set forth in the Agreement
attached ("the Agreement") made between the LICENSOR and LICENSEE named in the
Agreement.
DEFINITIONS
- -----------
In the Agreement and in these Terms and Conditions, the following words
shall have the following meanings:
"Hotels": The Hotel(s) in the Territory listed by name and
location in Schedule A to the Agreement as
amended from time to time under Clause 3(c),
PROVIDED THAT all such Hotels shall be bona fide
hotel establishments; (i) whose rooms are made
available exclusively to overnight hotel guests
for the principal purpose of providing such
guests with short-term temporary accommodation;
and (ii) in which the exhibition of motion
pictures to guests in their rooms constitutes a
service which is merely ancillary to providing
accommodation to such guests.
"Rooms": The individual Hotel rooms or suites in each
Hotel which (i) are available for occupancy by
overnight hotel guests (regardless of actual
occupancy); and (ii) have equipment installed
for Hotel Guest Exhibition. The number of Rooms
in each Hotel is set out in Schedule A to the
Agreement as amended from time to time under
Clause 3(c).
"Commencement Date": For each Hotel the date on which Hotel Guest
Exhibition is to commence in such Hotel as set
out in Schedule A to the Agreement as amended
from time to time under Clause 3(c).
"Hotel Guest Exhibition": Exhibition solely in individual Hotel rooms or
suites, to which only overnight guests of the
Hotel have access, such exhibition being by
means of video cassettes on closed circuit
television systems. Hotel Guest Exhibition does
not include exhibition in any room or area to
which members of the general public (i.e.,
persons, including persons attending
conferences, who are not overnight guests of the
Hotel) have access nor does it include
exhibition by any means or media except as
specifically described above.
-6-
<PAGE>
"PICTURES": The feature length motion pictures identified in
Schedule B of the Agreement to the extent
available, or those feature length motion
pictures selected by LICENSOR in its sole
discretion.
"Video Cassettes": The video cassettes of the PICTURES in finished
form and an agreed format and standard delivered
by LICENSOR to LICENSEE (either directly or
through an approved laboratory as specified in
Clause 5(a)) for Hotel Guest Exhibition
hereunder.
"Availability Date": The date upon which LICENSOR is able to supply
the Video Cassettes of the PICTURE in the agreed
format to LICENSEE in the Territory for use
pursuant to the Agreement. Availability Dates
for each PICTURE are established by LICENSOR's
ultimate suppliers, in view of such suppliers'
own interests and rights, as well as by the
technical requirements of producing the
appropriate format, etc., and are not subject to
LICENSOR's control.
"Termination Date": The date upon which the Agreement is terminated
under Clause 4 of the special terms above or
Clause 13 below, whichever is earlier.
"Exhibition Period": For each PICTURE separately, the period during
which the exhibition pursuant to the Agreement
is allowed, such Exhibition Period to commence
from the earlier of the date of first Hotel
Guest Exhibition of that PICTURE or the expiry
of fifteen (15) days from the date of actual
delivery to LICENSEE and to continue for a
period of one (1) year subject to earlier
termination as at: (i) the Termination Date, or
(ii) any date on which LICENSOR's right to
license the PIC under the Agreement shall cease.
Any extension of the Exhibition Period shall be
subject to LICENSOR's prior consent and in
addition conditional upon prior clearance by
LICENSOR with its suppliers that such PICTURE is
not the subject of any previously agreed period
of exclusivity for Hotel pay-per-view exhibition
by any third party.
LICENSE
- -------
-7-
<PAGE>
1. (a) LICENSOR has granted to LICENSEE a limited non-exclusive
license under copyright or otherwise to distribute the PICTURES for Hotel Guest
Exhibition in the Hotels in the Territory for their respective Exhibition
Periods.
(b) LICENSOR will arrange for delivery of the Video Cassettes to
LICENSEE subject to the Availability Dates of the relevant PICTURES and to the
timely payment of Royalties and all other sums due under the Agreement. In no
event shall LICENSEE permit the exhibition of PICTURES or deliver Video
Cassettes of such PICTURES to the Hotels prior to their Availability Dates.
(c) LICENSEE undertakes to ensure the exhibition of the PICTURES
solely in the manner and location provided herein and solely during their
Exhibition Periods. LICENSEE further undertakes not to permit the exhibition of
any of LICENSOR's Pictures the exhibition rights of which have not been
specifically granted to LICENSEE hereunder.
(d) LICENSOR reserves all rights in and to each PICTURE except as
expressly licensed hereunder and LICENSOR may exercise any of its reserved
rights without limitation and regardless of the extent to which such exercise is
competitive with LICENSEE or the license hereunder granted.
(e) The Agreement shall expire on the Termination Date. All rights in
the PICTURES shall revert to LICENSOR upon the termination of their Exhibition
Periods or the Termination Date, whichever is earlier.
ACCOUNTING AND AUDIT
- --------------------
2. (a) LICENSEE shall keep complete and accurate books of account
and shall preserve all contracts and other records relative to the exhibition of
each of the PICTURES during the term of the Agreement and for a period of not
less than two (2) years thereafter. Should any dispute arise with reference to
any accounting item, the relevant books and records shall be preserved until the
dispute has been resolved and the two (2) year period shall be extended
accordingly.
(b) LICENSOR, by its auditors (whether external or internal), agents
(including any designated collection agent), representatives and/or employees
shall have the right to audit books of account and records of LICENSEE relative
to the PICTURES and make copies thereof and take excerpts therefrom at any time
during normal business hours during the term of the Agreement and for a period
of not less than two (2) years after the expiry of such term. All fees in
connection with such audit shall be paid by LICENSOR PROVIDED THAT in the event
such audit reveals cumulative under-reporting and under-payment to LICENSOR in
excess of One Thousand United States Dollars (US$1,000) (or its local currency
equivalent) then, in addition to immediate repayment of the amount concerned,
and without prejudice to any other rights available to LICENSOR in respect
thereof LICENSEE shall bear all the expenses incurred by LICENSOR in such audit
together with compound interest (at such commercial rate as LICENSOR may
specify) upon the understated amount from the date first due to LICENSOR.
-8-
<PAGE>
REPORTS
- -------
3. (a) LICENSEE shall render to LICENSOR royalty returns in the form
set out in Schedule C within sixty (60) days after the end of each calendar
month.
(b) LICENSEE shall provide as of June 30 of each year, or as of such
other time as is mutually agreed by the parties, an inventory in a format
satisfactory to LICENSOR stating the PICTURE title, type and location of all
Video Cassettes in the possession of LICENSEE. This inventory shall be sent to
LICENSOR no later than 30 July of each year. LICENSOR reserves the right to
spot-check the inventory at any time during the term of the Agreement during
normal business hours.
(c) At the same time as submitting royalty returns to LICENSOR in
accord with Clause 3(a), LICENSEE shall notify LICENSOR on a monthly basis of:
(i) any changes in the number of Rooms in a Hotel;
(ii) (subject at all times to the requirement for LICENSOR'S
prior approval being obtained pursuant to Clause 5(a) of the Agreement), new
Hotels due to have equipment installed for Hotel Guest Exhibition the following
month and the proposed Commencement Date for Hotel Guest Exhibition and Rooms in
each new Hotel; and
(iii) existing Hotels due for cancellation the following month.
Upon request by LICENSOR, LICENSEE agrees to provide LICENSOR with a letter from
a Hotel stating the number of Rooms in such Hotel and/or confirming the
effective commencement or cancellation dates of such Hotel.
TAXES
- -----
4. LICENSEE shall pay and bear the cost of all present and future
taxes (including, but not limited to, remittance taxes, withholding taxes and
value added taxes), customs duties, levies, censorship charges (including
interest and penalties on any such amount) connected with the licensing, rental,
delivery, import, export, exhibition, possession or use of the PICTURES or any
Video Cassettes or the payments made and received pursuant to the Agreement.
DELIVERY AND RETURN
- -------------------
5. (a) In respect of each PICTURE, LICENSOR shall deliver to
LICENSEE Video Cassettes in the quantity set out in the Agreement. Delivery
shall be made either directly by LICENSOR or subject to LICENSOR's prior written
consent by a laboratory approved by LICENSOR and the Motion Picture Association
(MPA), in LICENSOR' sole discretion. If delivery is to be made through an
approved laboratory, LICENSEE must give its purchase orders for Video
-9-
<PAGE>
Cassettes directly to LICENSOR who shall place such orders with such laboratory.
LICENSEE is not authorized to place orders directly with such laboratory.
(b) LICENSEE shall be entitled to use only the Video Cassettes, The
reproduction by LICENSEE of any Video Cassettes, in whole or in part, is
prohibited. Any cutting, re-editing, change of title or any other alteration of
Video Cassettes may take place only with the prior consent in writing, of
LICENSOR and shall be at LICENSEE's entire cost.
(c) LICENSEE shall bear all costs in connection with the production
of Video Cassettes and the shipping, handling and clearance charges for delivery
of Video Cassettes to LICENSEE, the cost of the manufacture, transportation and
copying and censorship of the Video Cassettes and the cost of making any further
Video Cassettes. All costs and fees incurred by such laboratory as is referred
to in Clause 5(a) above shall be invoiced by the laboratory directly to LICENSEE
or if LICENSOR supplies the Video Cassettes directly, LICENSOR as above to
LICENSEE, and LICENSEE undertakes to pay all such invoices promptly and in any
event within thirty (30) days of receipt of LICENSOR's invoice in respect
thereof. For the avoidance of doubt, the cost of manufacturing masters and the
cost of delivery thereof to the laboratory shall be borne by LICENSOR.
(d) Upon the termination of the Exhibition Period for each PICTURE or
on the Termination Date, whichever is earlier, LICENSEE shall erase or destroy
the relevant Video Cassettes as set out in Clause 5(e).
(e) If LICENSEE determines during the term of the Agreement or upon
its expiry for any reason that certain Video Cassettes should be erased or
destroyed it must obtain the prior written approval of LICENSOR for the erasure
or destruction of such Video Cassettes and for the proposed methods and
locations of such erasure or destruction. If such Video Cassettes are to be
erased then LICENSEE must ensure that the erasure process completely erases the
contents of the Video Cassettes. LICENSEE shall submit destruction certificates
to LICENSOR in a form to be agreed with LICENSOR for each Video Cassette erased
or destroyed. Notwithstanding Clause 6(a), after erasure LICENSEE is entitled
to retain all blank video cassettes.
(f) Any breach by LICENSEE of this Clause 5, including specifically
the use of video cassettes of the PICTURES other than the Video Cassettes, shall
constitute a material breach of the Agreement.
OWNERSHIP
- ---------
6. (a) All Video Cassettes delivered hereunder shall remain the
property of LICENSOR or its suppliers and title to the Video Cassettes shall
remain vested in LICENSOR or its suppliers at all times.
(b) LICENSEE shall not remove nor permit others to remove any
copyright notice or trademark from any of the Video Cassettes or advertising
material pertaining to the PICTURES.
-10-
<PAGE>
LICENSEE shall not exhibit or permit the exhibition of any Video Cassette
without a copyright warning notice in the form set out at Schedule D hereto or
as otherwise previously approved in writing by LICENSOR.
(c) LICENSEE shall have no right of its own to the trademarks of
LICENSOR and its suppliers and it shall not use the same except with reference
to the PICTURES.
(d) LICENSEE undertakes not to use the Video Cassettes of the
PICTURES or of any other motion picture the property of LICENSOR or its
suppliers for any purpose (including previews), other than as specified in the
Agreement without LICENSOR's prior written consent.
(e) LICENSEE shall take all possible steps to ensure that the Video
Cassettes supplied to the Hotels are not used by third parties for any purpose
other than as specified in the Agreement. LICENSEE further agrees that it will
secure from its customers undertaking that said customers will use their best
endeavours to protect the Video Cassettes from any unauthorised use,
distribution and/or commercialisation. LICENSEE confirms that it will refuse to
supply customers failing to comply with the above undertaking. LICENSEE shall
further use its best efforts to ensure that video cassette recorders and other
audio visual devices cannot be connected to television sets placed in the rooms
in the Hotels on which the closed circuit exhibition of the PICTURES is received
and that all video cassettes are stored and transported in the most secure way
possible to prevent theft, loss and/or damage.
(f) Should LICENSEE learn of any infringement of copyright or
trademark relative to the PICTURES or any trademarks used in connection with the
PICTURES, it shall promptly notify LICENSOR.
(g) Any breach by LICENSEE of this Clause 6 shall constitute a
material breach of the Agreement.
WARRANTIES
- ----------
7. (a) LICENSOR warrants that the exercise of the rights licensed
hereunder will require no further licenses and shall not infringe upon the
rights of any third party with the exception of public performance or mechanical
reproduction rights of copyrighted material contained in the PICTURES. However,
LICENSOR neither warrants nor makes any representation concerning the local laws
or regulations applicable to the exercise of any of the rights licensed
hereunder in any particular country, compliance with such laws and/or
regulations being the sole responsibility of LICENSEE, and LICENSEE further
hereby agrees to indemnify LICENSOR and hold LICENSOR harmless from any claims
which may arise concerning compliance under local laws and/or regulations.
(b) LICENSEE warrants that it has or will acquire all permits and
licenses that may be required for the importation, distribution and exhibition
of the PICTURES in the Hotels in
-11-
<PAGE>
the Territory during the Exhibition Period and for making all payments as
provided in the Agreement.
(c) LICENSEE further warrants that it has binding agreements with the
Hotels to exhibit the PICTURES beginning on the Commencement Dates set out in
Schedule A as amended from time to time under Clause 3(c) and warrants that at
no time during the term of the Agreement is it or will it be in default under
any such agreements.
INDEMNIFICATION
- ---------------
8. (a) LICENSOR agrees to indemnify and hold harmless LICENSEE against
and from any and all claims, damages, liabilities, costs and expenses, including
reasonable counsel fees arising out of the exercise of any rights granted herein
or out of any breach by LICENSOR of any representation, warrant or other
provision hereof. LICENSEE warrants that it will not exploit the PICTURE(S) in
excess of rights granted in this Agreement.
(b) LICENSEE agrees to indemnify and hold LICENSOR harmless from any
cost, liability, expense and/or damage, including reasonable loss of profit,
incurred by LICENSOR by virtue of the violation of the terms or conditions of
the Agreement by LICENSEE, the Hotels or any other person, natural or juridical,
acting on behalf of or pursuant to authorisation received from either LICENSEE
or an employee, officer or agent of LICENSEE.
(c) Save as otherwise provided herein, neither LICENSOR nor LICENSEE
shall be liable for any consequential, indirect, special or incidental damages
arising out of its performance under this Agreement.
INSURANCE
- ---------
9. (a) LICENSEE shall be responsible for insuring against theft, loss
and/or damage to all Video Cassettes.
(b) Should any Video Cassettes be stolen, damaged, lost or destroyed,
LICENSEE shall promptly supply LICENSOR with an affidavit setting forth the
facts in form satisfactory to LICENSOR.
EXHIBITION
- ----------
10. (a) The PICTURES shall be exhibited in original continuity of subject
in synchronization with recorded sound. No cuts or other changes, including
change of title, shall be made except as authorised pursuant to Clause 5(b).
(b) Without prejudice to sub-clause (a) above, the PICTURES are not
to be exhibited in conjunction with any advertisement other than those for hotel
services, without the prior written consent of LICENSOR. In no event shall the
continuity of any PICTURE be broken or
-12-
<PAGE>
affected in anyway by any advertisement, whether or not such advertising has
otherwise been approved by LICENSOR hereunder.
(c) LICENSEE shall pay or cause the Hotels to pay all royalties, fees
and taxes that may be required in connection with the diffusion and exhibition
in the Hotels of the PICTURES with recorded sound.
(d) LICENSOR shall have the right to review any room cards, display
material or other material promoting the PICTURES produced by LICENSOR and
utilised by LICENSEE.
(e) This subparagraph hereby authorises a preview of not more than
five (5) minutes as further described herein. LICENSOR hereby authorizes
LICENSEE to promote the PICTURES and LICENSEE or any of LICENSEE's Hotels may
exhibit the PICTURES on a Free to the Hotel "Preview" basis in order to induce
purchases of programming on a Guest Pay System basis by such Hotels, it being
understood that LICENSOR shall not be entitled to receive any compensation
therefor. No such Preview shall be more than five (5) minutes in duration.
NO AGENCY OR PARTNERSHIP
- ------------------------
11. LICENSEE is not an agent or representative of LICENSOR and the
Agreement does not constitute a partnership or a joint venture. LICENSOR shall
not be bound by any representation of LICENSEE nor shall LICENSOR be liable for
any act or omission of LICENSEE.
12. LICENSEE shall be entirely responsible for the payment of all the
costs and assumption of risks for the following:
(a) shipment of Video Cassettes to and within the Territory;
(b) adequate and safe storage of Video Cassettes within the
Territory;
(c) compliance with import procedures and fiscal controls imposed in
or with respect to the Territory;
(d) obtaining censorship clearance in the Territory and obtaining any
and all other clearances and permits that may be required in or with respect to
the Territory.
DEFAULT
- -------
13. (a) The following shall be "Events of Default" under the Agreement:
(i) if LICENSEE applies for or commits an act of bankruptcy,
applies for a moratorium on payments, or in the case of a company, a resolution
is passed or an order is made for the winding-up of the company;
-13-
<PAGE>
(ii) if LICENSEE commits any material breach, which includes
but is not limited to a breach of Clause 5 or Clause 6; or
(iii) if LICENSEE breaches any other provision hereof, which
breach is not ended and remedied within ten (10) days after notice thereof by
LICENSOR.
(b) Upon the occurrence of any Event of Default, LICENSOR may, in
addition to any other rights it may have, at its option, declare the Agreement
terminated and the balance of the Royalty for PICTURES which have been supplied
and other previously accrued amounts payable to LICENSOR hereunder shall become
immediately due and payable. In the event of such termination, LICENSEE shall
immediately return all Video Cassettes to LICENSOR without LICENSOR becoming
accountable for payments previously received from LICENSEE. LICENSOR has the
right to inform the Hotels about such termination. LICENSOR shall not be liable
for any loss or damage suffered by LICENSEE as a consequence of such
termination.
(c) The foregoing rights and remedies are in addition to any other
rights and remedies which LICENSOR may have by law or otherwise.
FORCE MAJEURE
- -------------
14. Notwithstanding any other provision of the Agreement, if either party
is unable to perform its obligations hereunder or is limited, delayed or
prevented in whole or in part by any reason whatsoever not reasonably within the
control of such party, including without limitation, fire, storm and tempest,
war, invasion, act of foreign enemy, hostilities (whether war be declared or
not), civil war, civil strike, strikes or industrial disputes or by any law,
rule, regulation, order or other action by any public authority, or
transportation delays, such party shall be excused, released and discharged
without penalty from performance of the Agreement to the extent that such
performance is so limited, delayed or prevented, PROVIDED THAT no part of the
Royalty shall be refundable, nor shall any other sums become due from LICENSOR
to LICENSEE as a result of LICENSEE's inability, from any cause beyond the
reasonable control of LICENSOR, to exhibit the PICTURES in the Hotels or
otherwise to fully realise LICENSEE's expectations regarding exhibition in the
Territory.
ETHICS
- ------
15. (a) LICENSEE agrees that no part of the consideration paid pursuant
to the Agreement shall be offered, paid or promised, directly or indirectly, to
any governmental official, any political party or official thereof, or any
candidate for political office, for the purpose of:
(i) influencing any act or decision of such person or party;
or
(ii) inducing such person or party to use his or its influence
to affect or influence any act or decision or any national, state or local
government or instrumentality thereof.
-14-
<PAGE>
For the purposes of this Clause, the term Governmental official" shall include
any officer or employee of a national, state or local government or any
department, agency or instrumentality thereof, or any person acting in an
official capacity for or on behalf or such government or department, agency or
instrumentality.
(b) LICENSEE shall comply with all applicable laws and regulations in
the Territory in performing its obligations hereunder and shall require its
employees, agents and any other persons with whom it contracts in furtherance of
its obligations hereunder to so comply, PROVIDED THAT non-compliance by
LICENSEE's agents and employees shall not relieve LICENSEE from its obligations
hereunder.
COMPLIANCE WITH MOTION PICTURE ASSOCIATION ("MPA")
- --------------------------------------------------
16. At the request of LICENSOR, LICENSEE shall comply with and shall adopt
and apply any regulations or resolutions relative to the Territory or any part
thereof that may be adopted by the MPA or any successor association representing
the interests of distributors of American motion pictures except if and to the
extent that such conduct would violate local law or prior contractual
obligations of LICENSEE.
GENERAL
- -------
17. (a) All notices hereunder must be in writing sent by personal
delivery or registered mail or telefax (provided the recipient's answerback code
appears at the beginning and end of the sender's copy) unless otherwise
specified. Such notice will be deemed served at the time of delivery for
personal delivery; on the seventh (7th) day after the date such notice is posted
by registered mail; or at the time of dispatch of such telefax.
(b) Waiver of any breach shall not be construed as a waiver of any
other breach.
(c) The Agreement may not be assigned in whole or in part by LICENSEE
without LICENSOR's prior written consent (not to be unreasonably withheld).
LICENSOR may not assign the Agreement in whole or in part to any company
affiliated with LICENSOR or in connection with a corresponding transfer of its
business to a third party without LICENSEE's prior written consent (not to be
unreasonably withheld).
(d) LICENSEE may not sub-license any of the rights granted by the
agreement nor use agents except if and to the extent LICENSOR agrees thereto in
writing which approval LICENSOR may withhold for any or no reason.
(e) The Agreement is the entire Agreement of the parties. All prior
understandings, oral or written, (including but not limited to the prior
agreement between LICENSOR and LICENSEE, under LICENSEE's previous name of
Pacific Pay Video Limited, effective July 1, 1995) for the exhibitions hereunder
have been merged herein, or if not merged, are
-15-
<PAGE>
hereby cancelled. No representations have been made by LICENSOR except those
expressly set forth herein.
(f) Any amendment or discharge of the Agreement must be in writing
and signed by both parties.
(g) LICENSOR's rights and/or payment due hereunder shall not be
subject to any claim of LICENSEE under any other agreement between LICENSEE and
LICENSOR.
(h) Paragraph titles are for identification only and shall have no
effect in the application or construction of the provisions hereof
(i) Reference to clause numbers are to clauses in these General
Terms and Conditions unless otherwise specified.
(j) If any of the Clauses or sub-clauses of the Agreement become
invalid or be so judged, the remaining Clauses or sub-clauses shall be deemed
severable and shall remain in full force and effect.
CONFIDENTIALITY
- ---------------
18. Neither LICENSOR nor LICENSEE shall disclose to any third party (other
than its respective employees, in their capacity as such) any information with
respect to the financial terms and provisions of this Agreement except: (i) to
the extent necessary to comply with law or the valid order of a court of
competent jurisdiction, in which event the party making such disclosure shall so
notify the other and shall seek confidential treatment of such information, (ii)
as part of the party's normal reporting or review procedure to its parent
companies, auditors and attorneys PROVIDED THAT such parent companies, auditors
and attorneys agree to be bound by the provisions of this Paragraph 18 or (iii)
in order to enforce the party's rights pursuant to this Agreement.
UNITED INTERNATIONAL PICTURES
By: \s\Brian F. Reilly
-------------------------------------------
Typed Name: Brian F. Reilly
Typed Title: Directors Representative
MAGINET CORPORATION
By: \s\ Paul D. Coss
-------------------------------------------
-16-
<PAGE>
Typed Name: Paul D. Coss
Typed Title: Director of Program Acquisitions
and Development
-17-
<PAGE>
SCHEDULE B
----------
PICTURES
- --------
-18-
<PAGE>
SCHEDULE C
----------
(TO BE AGREED)
-19-
<PAGE>
EXHIBIT 10.18
MAGINET CORPORATION
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of November
28, 1995, by and between MagiNet Corporation, a California corporation (the
"Company"), and Kenneth B. Hamlet (the "Executive").
WHEREAS, the Company desires to employ the Executive as of January 15,
1996, or such other date as the Executive shall first be employed by the Company
(the "Effective Date"), and the Executive desires to accept employment with the
Company on the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the foregoing recital and the
respective covenants and agreements of the parties contained in this document,
the Company and the Executive agree as follows:
1. EMPLOYMENT AND DUTIES. The Executive will serve as President and
---------------------
Chief Executive Officer of the Company. The duties and responsibilities of the
Executive shall include the duties and responsibilities for the Executive's
corporate offices and positions as set forth in the Company's Bylaws from time
to time in effect and such other duties and responsibilities as the board of
directors of the Company (the "Board of Directors") may from time to time
reasonably assign to the Executive, in all cases to be consistent with the
Executive's corporate offices and positions. The Executive shall perform
faithfully the executive duties assigned to him to the best of his ability. At
the next meeting of the Board of Directors, the Executive will be nominated to
serve as a director of the Company, and, when elected or appointed thereafter,
the Executive shall serve in such capacity without additional compensation.
2. EMPLOYMENT PERIOD.
-----------------
(a) BASIC RULE. The employment period shall begin upon the
----------
Effective Date and shall continue thereafter until terminated by the Company or
the Executive. The Executive acknowledges and agrees that his employment with
the Company is "at-will" and may be terminated by either party at any time,
subject only to the terms of this Agreement.
(b) EARLY TERMINATION. The Company may terminate the
-----------------
Executive's employment at any time. Except with respect to for-Cause
termination, the Company shall provide the Executive with thirty (30) days'
advance notice in writing of such termination. If the Company terminates the
Executive's employment for any reason other than Cause or Disability, each as
defined below, the provisions of paragraphs 13(a)(i), 13(b), and 13(c) shall
apply. The Executive may terminate his employment by giving the Company thirty
(30) days' advance written notice. If the Executive terminates his employment
with the Company, the provisions of paragraph 13(a)(ii) shall apply. Upon
termination of the Executive's employment with the Company, the Executive's
rights under any applicable benefit plans shall be determined under the
provisions of those plans. Any waiver of
<PAGE>
notice shall be valid only if it is made in writing and expressly refers to the
applicable notice requirement of this subparagraph 2(b).
(c) DEATH. The Executive's employment will terminate in the
-----
event of his death. The Company shall have no obligation to pay or provide any
compensation or benefits under this Agreement on account of the Executive's
death, or for periods following the Executive's death, provided that the
Company's obligations applicable under such circumstance under paragraphs
13(a)(ii) and 13(c) shall not be interrupted as a result of the Executive's
death. The Executive's rights under the benefit plans of the Company in the
event of the Executive's death will be determined under the provisions of those
plans.
(d) CAUSE. The Company may terminate the Executive's employment
-----
for cause by giving the Executive notice in writing. For all purposes under this
Agreement, "Cause" shall mean (i) willful failure by the Executive to perform
his duties hereunder, other than a failure resulting from the Executive's
complete or partial incapacity due to physical or mental illness or impairment,
(ii) a willful act by the Executive which constitutes gross misconduct and which
is injurious to the Company, (iii) a willful breach by the Executive of a
material provision of this Agreement, or (iv) a material and willful violation
of a federal or state law or regulation applicable to the business of the
Company. No act, or failure to act, by the Executive shall be considered
"willful" unless committed without good faith without a reasonable belief that
the act or omission was in the Company's best interest. No compensation or
benefits will be paid or provided to the Executive under this Agreement on
account of a termination for Cause or for periods following the date when such a
termination of employment is effective. The Executive's rights under the benefit
plans of the Company shall be determined under the provisions of those plans.
(e) DISABILITY. The Company may terminate the Executive's
----------
employment for Disability by giving the Executive thirty (30) days' advance
notice in writing. For all purposes under this Agreement, "Disability" shall
mean that the Executive, at the time notice is given, has been unable to
substantially perform his duties under this Agreement for a period of not less
than ninety (90) days due to physical or mental illness. The determination of
the Executive's Disability hereunder shall be made by a two-thirds (2/3)
majority of the then current members of the Company's Board of Directors
(excluding the Executive) and shall be based upon advice from such medical
professionals and upon such medical and other records as the Company's Board of
Directors may deem appropriate. In the event that the Executive resumes the
performance of substantially all of his duties hereunder before the termination
of his employment under this subparagraph (e) becomes effective, the notice of
termination shall automatically be deemed to have been revoked. No compensation
or benefits will be paid or provided to the Executive under this Agreement on
account of termination for Disability, or for periods following the date when
such a termination of employment is effective. The Executive's rights under the
benefit plans of the Company shall be determined under the provisions of those
plans.
3. PLACE OF EMPLOYMENT. The Executive's services shall be performed at
-------------------
the Company's principal executive offices in Sunnyvale, California. The parties
acknowledge, however, that
-2-
<PAGE>
substantial foreign and domestic travel may be required in connection with the
performance of the Executive's duties hereunder.
4. BASE SALARY. For all services to be rendered by the Executive
-----------
pursuant to this Agreement, the Company agrees to pay the Executive a base
salary (the "Base Salary") at an annual rate of not less than $250,000. During
the period of his employment by the Company, the Executive's annual base salary
shall not be less than $250,000. The Base Salary shall be paid in periodic
installments in accordance with the Company's regular payroll practices. The
Company agrees to review the Base Salary at least annually as of the payroll
payment date nearest each anniversary of the Effective Date (beginning in 1996)
and to make such increases therein as the Board of Directors may approve.
5. BONUS. Beginning with the Company's 1996 fiscal year, and for each
-----
fiscal year thereafter during the term of this Agreement, the Executive will be
eligible to receive an annual bonus (the "Bonus") based upon certain financial
criteria to be agreed upon by the Executive and the Board of Directors including
revenue and profitability targets and other organizational milestones. On or
before March 15, 1996, the Executive shall prepare and submit to the Board of
Directors for approval a management bonus program that will include the terms
and conditions of the Executive's Bonus opportunity. It is anticipated that the
Bonus plan established for the Executive for the year ending December 31, 1996
will provide for a cash portion of the Bonus equal to twenty-five percent (25%)
of the Executive's 1996 Base Salary, with a corresponding stock portion, should
the Company meet certain critical performance targets under its 1996 operating
plan. If the Company exceeds the critical preformance targets under such plan,
the Executive will be eligible to receive a substantially greater Bonus than
specified in the prior sentence.
The Bonus shall be paid part in cash and part in Common Stock of the
Company ("Common Stock"). The number of shares of Common Stock issuable in such
Bonus shall equal the quotient obtained by dividing (i) an amount equal to the
cash portion of the Bonus by (ii) $4.50 and rounding any fractional share to the
nearest whole share. The $4.50 divisor set forth in the prior sentence shall
apply to the Common Stock portion of the Bonus for each of the three (3) years
ending December 31, 1996, 1997, and 1998. Notwithstanding the foregoing, after
the earlier to occur of (i) the payment of the Common Stock portion of the Bonus
for the fiscal year ending December 31, 1998, or (ii) the closing of the sale of
the Company's Common Stock in an underwritten public offering registered under
the Securities Act of 1933, as amended, (the "Securities Act"), the divisor
shall be determined by negotiation between the parties. The Common Stock issued
in the Bonus shall be fully vested and shall be issued pursuant to an employee
stock incentive plan approved by the Board of Directors and shareholders of the
Company and such shares shall be exempt from the registration requirements of
the Securities Act. The Bonus shall be paid within thirty (30) days after the
applicable financial statements or other reports have been finally delivered to
the Board of Directors or as otherwise agreed by the Board of Directors and the
Executive.
6. STOCK OPTION.
------------
-3-
<PAGE>
(a) INITIAL OPTION. Effective as of the Company's next Board of
--------------
Director's meeting hereafter, the Company shall grant the Executive an option
(the "Executive Option") to purchase shares of the Company's Common Stock (the
"Executive Option Shares") at $2.00 per share. The number of shares subject to
the option shall be calculated to represent five percent (5%) of the sum of the
Company's outstanding shares plus the Company's outstanding securities
convertible into or exercisable for (regardless of vesting or similar
limitations on exercisability) any shares of the Company's capital stock (all on
an as-converted basis), including the Executive Option in such calculation as an
outstanding exercisable security. The Executive Option shall vest as described
in paragraph 6(b) below and shall be subject to such other terms and conditions
as are described in paragraph 6(c) below.
(b) VESTING. The Executive Option Shares shall vest and become
-------
exercisable monthly over a thirty-six- (36-) month period beginning on the
Effective Date and ending on the third (3rd) anniversary of the Effective Date.
In the event of a Change of Control (as defined below), the unvested portion of
the Executive Option shall automatically accelerate, and the Executive shall
have the right to exercise all or any portion of the Executive Option, in
addition to any portion of the Executive Option exercisable prior to such event.
For purposes of this Agreement, the term "Change of Control" shall mean the
occurrence of any of the following events subsequent to the Effective Date.
(i) Any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing
fifty percent (50%) or more of the total voting power represented by the
Company's then outstanding voting securities (except in a transaction or
transactions in which RRE Investors, LLC or its affiliates or successors
accumulates securities representing more than fifty percent (50%) of such voting
power;
(ii) A merger or consolidation of the Company with any other
corporation, other than a merger or consolidation that would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least fifty percent (50%) of
the total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation; or
(iii) the shareholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all the Company's assets.
(c) OPTION PROVISIONS. The Executive Option shall be granted
-----------------
under the Company's Key Personnel Stock Option Plan (the "Stock Plan") and,
except as expressly provided otherwise in this paragraph 6, shall be subject to
the terms and conditions of the Stock Plan and form of option agreement;
provided, however, that the Company's Board of Directors may, in its discretion,
grant the Executive Option outside of the Stock Plan, and any such option shall
include such other terms as the Board of Directors may specify that are not
inconsistent with the terms hereof.
-4-
<PAGE>
7. COMMON STOCK. The Company agrees to issue and sell to the Executive,
------------
no later than January 31, 1996, a combination of shares of Common Stock and the
Company's Series D Preferred Stock ("Series D Preferred") having an aggregate
purchase price of between $250,000 and $1,000,000, determined by the Executive,
and a weighted-average purchase price per share of $4.50. The Series D Preferred
will be issued and sold at a price per share and on the terms at which Series D
Preferred Stock is sold in the Company's current round of financing, and the
Common Stock will be issued and sold at a price per share of $2.00. The Series D
Preferred will be sold to the Executive pursuant to a Series D Preferred Stock
Purchase Agreement in substantially the same form as entered by the Company and
the investors in the Series D Preferred and will be subject to such registration
rights as granted to such investors. The Common Stock will be sold and issued to
the Executive pursuant an employee stock incentive plan approved by the Board of
Directors and will be fully vested upon issuance. The issuance of the Common
Stock shall be exempt from the registration requirements of the Securities Act
pursuant to Rule 701 promulgated thereunder.
8. EXPENSES. The Executive shall be entitled to reimbursement by the
--------
Company for all reasonable, ordinary, and necessary travel, entertainment, and
other expenses incurred by the Executive during the term of this Agreement (in
accordance with the policies and procedures established by the Company for its
senior executive officers) in the performance of his duties and responsibilities
under this Agreement; provided, however, that the Executive shall properly
account for such expenses in accordance with the Company's policies and
procedures.
9. OTHER BENEFITS; INSURANCE. The Executive shall be entitled to
-------------------------
participate in employee benefit plans or programs of the Company, if any, to the
extent that his position, tenure, salary, age, health, and other qualifications
make him eligible to participate, subject to the rules and regulations
applicable thereto. The Company agrees to evaluate and consider the advisability
of establishing a "split-dollar" insurance plan pursuant to which the Executive
would obtain life insurance benefits.
10. VACATIONS AND HOLIDAYS. The Executive shall be entitled to paid
----------------------
vacation time and Company holidays in accordance with the Company's policies in
effect from time to time for its senior executive officers.
11. MOVING EXPENSES. The Company agrees to reimburse the reasonable
---------------
moving expenses of Executive, not to exceed $50,000, associated with relocating
to accept employment with the Company. Such reimbursable expenses shall include,
but not be limited to, the costs of packing, shipping, and unpacking the
Executive's personal goods and the closing costs associated with the Executive's
purchase of a new home. The Company further agrees to reimburse the reasonable
temporary living expenses of Executive in the San Francisco Bay Area for a
period of four (4) months.
12. OTHER ACTIVITIES. The Executive shall devote substantially all of his
----------------
working time and efforts during the Company's normal business hours to the
business and affairs of the Company and its subsidiaries and to the diligent and
faithful performance of the duties and responsibilities duly assigned to him
pursuant to this Agreement, except for vacations, holidays, and sickness. The
Executive may, however, devote a reasonable amount of his time to civic,
community, or charitable activities and, with the prior written approval of the
Board of Directors, to serve as a director of other
-5-
<PAGE>
corporations and to other types of business or public activities not expressly
mentioned in this paragraph.
13. TERMINATION BENEFITS. In the event the Executive's employment
--------------------
terminates, then the Executive shall be entitled to receive severance and other
benefits as follows:
(a) SEVERANCE.
---------
(i) INVOLUNTARY TERMINATION. If the Company terminates the
-----------------------
Executive's employment other than for Disability or Cause, then in lieu of any
severance benefits to which the Executive may otherwise be entitled under any
Company severance plan or program, the Executive shall be entitled to payment of
his Base Salary on the normal pay periods of the Company for a period of
eighteen (18) months following such termination; provided, however, that the
Company's obligations hereunder shall cease upon a breach by the Executive of
his obligations under paragraphs 14 or 15 hereof.
(ii) OTHER TERMINATION. In the event the Executive's
-----------------
employment terminates for any reason other than as described in paragraph
13(a)(i) above, including by reason of the Executive's death or disability or
resignation, then the Executive shall be entitled to receive severance and any
other benefits only as may then be established under the Company's existing
severance and benefit plans and policies at the time of such termination.
(b) OPTIONS. In the event the Executive's employment is
-------
terminated Executive shall be deemed vested in the unvested portion of the
Executive Option as follows:
(i) In the event of such an involuntary termination within
twelve (12) months of the Effective Date, the Executive Option shall become
immediately exercisable for that number of shares of the Company's Common Stock
equal to the number for which the Executive Option would have been exercisable
had the Executive remained employed with the Company on the date six (6) months
after the date of such involuntary termination;
(ii) In the event of such an involuntary termination after the
date twelve (12) months following the Effective Date and prior to the date
twenty-four (24) months after the Effective Date, the Executive Option shall
become exercisable for that number of shares for which it would have been
exercisable had the Executive remained employed with the Company on the date
twelve (12) months after the date of such involuntary termination; and
(iii) In the event of such an involuntary termination after the
date twenty-four (24) months after the Effective Date, the Executive Option
shall be deemed exercisable for all the shares subject thereto.
(c) BONUSES. In the event the Executive's employment is
-------
terminated by the Company as described in paragraph 13(a)(i) above, then the
Executive shall be entitled to receive the
-6-
<PAGE>
Bonus described in paragraph 5 to the extent he would have been entitled to such
Bonus had he remained an employee of the Company through the end of the fiscal
year for which the target Bonus had been established. In the event the
Executive's employment terminates for any other reason (other than Cause or
resignation) during any fiscal year of the Company, then the Executive (or his
estate) shall be entitled to payment of a portion of the Bonus determined, after
the end of such fiscal year, by multiplying the amount of the Bonus which would
have become payable to the Executive had he remained employed until the end of
such fiscal year, by a fraction, the numerator of which will be the number of
days in which he was employed by the Company (or any of its subsidiaries) in
such fiscal year, and the denominator of which shall be the number of days in
such fiscal year. To the extent all or any portion of the Bonus is payable to
the Executive pursuant to the preceding sentence, such amount shall be paid in
accordance with paragraph 5. In the event the Executive's employment is
terminated by the Company for Cause or by the Executive's resignation, then the
Executive shall not be entitled to any Bonus which has not accrued as of such
date.
(d) REGISTRATION RIGHTS. The shares of Series D Preferred Stock
-------------------
issued pursuant hereto will be issued under an agreement which will provide the
Executive with certain piggyback and other registration rights. The shares of
Common Stock to be issued hereunder will be issued pursuant to a plan or
agreement satisfying the requirements of Rule 701 promulgated under the
Securities Act, and will thereby have the resale benefits available under Rule
701(c). If (i) the Executive's employment is terminated under Section 13(a)(i)
hereof and (ii) for any reason, the Series D Preferred registration rights or
the Rule 701 resale provisions are not available to Executive for the resale of
his shares of Common Stock at such time as a public market exists for the
Company's Common Stock, then the Executive shall be entitled to such piggyback
and similar registration rights as have been provided to the Founders of the
Company under the terms of the Company's existing Shareholders' Agreement.
14. PROPRIETARY INFORMATION. The Executive shall not, without the prior
-----------------------
written consent of the Board of Directors, disclose or use for any purpose
(except in the course of his employment under this Agreement and in furtherance
of the business of the Company or any of its affiliates or subsidiaries) any
confidential information or proprietary data of the Company. As an express
condition of the Executive's employment with the Company, the Executive agrees
to execute confidentiality agreements as requested by the Company, including but
not limited to the Company's standard form of Employee Proprietary Information
Agreement.
15. NON-SOLICIT. The Executive covenants and agrees with the Company that
-----------
during his employment with the Company and for a period expiring one (1) year
after the date of termination of such employment, he will not solicit any of the
Company's then-current employees to terminate their employment with the Company
or to become employed by any firm, Company, or other business enterprise with
which the Executive may then be connected.
16. RIGHT TO ADVICE OF COUNSEL. The Executive acknowledges that he has
--------------------------
consulted with counsel and is fully aware of his rights and obligations under
this Agreement.
-7-
<PAGE>
17. SUCCESSORS. The Company will require any successor (whether direct or
----------
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption agreement
prior to the effectiveness of any such succession shall entitle the Executive to
the benefits described in paragraphs 13(a)(i), 13(b) and 13(c) of this
Agreement, subject to the terms and conditions therein.
18. ARBITRATION. Any dispute or controversy arising under or in
-----------
connection with this Agreement shall be settled exclusively by arbitration in
San Jose, California, in accordance with the rules of the American Arbitration
Association then in effect by an arbitrator selected by both parties within ten
(10) days after either party has notified the other in writing that it desires a
dispute between them to be settled by arbitration. In the event the parties
cannot agree on such arbitrator within such ten- (10-) day period, each party
shall select an arbitrator and inform the other party in writing of such
arbitrator's name and address within five (5) days after the end of such
ten-(10-)day period and the two arbitrators so selected shall select a third
arbitrator within fifteen (15) days thereafter; provided, however, that in the
event of a failure by either party to select an arbitrator and notify the other
party of such selection within the time period provided above, the arbitrator
selected by the other party shall be the sole arbitrator of the dispute. Each
party shall pay its own expenses associated with such arbitration, including the
expense of any arbitrator selected by such party and the Company will pay the
expenses of the jointly selected arbitrator. The decision of the arbitrator or a
majority of the panel of arbitrators shall be binding upon the parties and
judgment in accordance with that decision may be entered in any court having
jurisdiction thereover. Punitive damages shall not be awarded.
19. ABSENCE OF CONFLICT. The Executive represents and warrants that his
-------------------
employment by the Company as described herein shall not conflict with and will
not be constrained by any prior employment or consulting agreement or
relationship.
20. ASSIGNMENT. This Agreement and all rights under this Agreement shall
----------
be binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective personal or legal representatives, executors,
administrators, heirs, distributees, devisees, legatees, successors and assigns.
This Agreement is personal in nature, and neither of the parties to this
Agreement shall, without the written consent of the other, assign or transfer
this Agreement or any right or obligation under this Agreement to any other
person or entity; except that the Company may assign this Agreement to any of
its affiliates or wholly-owned subsidiaries, provided, however that such
assignment will not relieve the Company of its obligations hereunder. If the
Executive should die while any amounts are still payable to the Executive
hereunder, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Executive's devisee, legatee,
or other designee or, if there be no such designee, to the Executive's estate.
21. NOTICES. For purposes of this Agreement, notices and other
-------
communications provided for in this Agreement shall be in writing and shall be
delivered personally or sent by United States certified mail, return receipt
requested, postage prepaid, addressed as follows:
-8-
<PAGE>
If to the Executive: Kenneth B. Hamlet
39 Aspen Ridge Road
P.O. Box 774140
Steamboat Springs, CO 80477
If to the Company: MagiNet Corporation
405 Tasman Drive
Sunnyvale, CA 94089
Attn: Chief Financial Officer
or to such other address or the attention of such other person as the recipient
party has previously furnished to the other party in writing in accordance with
this paragraph. Such notices or other communications shall be effective upon
delivery or, if earlier, three (3) days after they have been mailed as provided
above.
22. INTEGRATION. This Agreement and the Exhibit hereto represent the
-----------
entire agreement and understanding between the parties as to the subject matter
hereof and supersede all prior or contemporaneous agreements whether written or
oral. No waiver, alteration, or modification of any of the provisions of this
Agreement shall be binding unless in writing and signed by duly authorized
representatives of the parties hereto.
23. WAIVER. Failure or delay on the part of either party hereto to
------
enforce any right, power, or privilege hereunder shall not be deemed to
constitute a waiver thereof. Additionally, a waiver by either party or a breach
of any promise hereof by the other party shall not operate as or be construed to
constitute a waiver of any subsequent waiver by such other party.
24. SEVERABILITY. Whenever possible, each provision of this Agreement
------------
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal, or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality, or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed, and enforced in such jurisdiction as if such invalid,
illegal, or unenforceable provision had never been contained herein.
25. HEADINGS. The headings of the paragraphs contained in this Agreement
--------
are for reference purposes only and shall not in any way affect the meaning or
interpretation of any provision of this Agreement.
26. APPLICABLE LAW. This Agreement shall be governed by and construed in
--------------
accordance with the laws of the State of California as applied to agreements
between California residents entered and to be performed entirely within
California.
-9-
<PAGE>
27. COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, none of which need contain the signature of more than one party
hereto, and each of which shall be deemed to be an original, and all of which
together shall constitute a single agreement.
-10-
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by its duly authorized officer, as of the day and year first
above written.
"COMPANY" MAGINET CORPORATION
By: /s/ James A. Barth
-------------------------------------
Title: Executive Vice President & CEO
----------------------------------
/s/ Kenneth B. Hamlet
----------------------------------------
"EXECUTIVE" KENNETH B. HAMLET
[EMPLOYMENT AGREEMENT SIGNATURE PAGE]
-11-
<PAGE>
EXHIBIT 10.19
MAGINET CORPORATION
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into effective as of
September 22, 1995 (the "Effective Date") by and among MagiNet Corporation, a
California corporation (the "Company"), and Robert R. Creager (the "Employee").
WHEREAS, the Employee is currently employed as President and Chief
Executive Officer of the Company and currently serves as a member of the
Company's Board of Directors;
WHEREAS, the Company and the Employee have agreed that the Employee will
continue to serve as the Company's President and CEO until such time as a new
President and CEO (the "New CEO") can be identified, retained, and appointed;
WHEREAS, the Company believes that the Employee's continued participation
with the Company is important to achieve the Company's strategic and financial
objectives and, accordingly, following the appointment of the New CEO, the
Employee shall serve as an employee of the Company and as Chairman of the
Company's Board of Directors (the "Board of Directors");
WHEREAS, the Company and the Employee have agreed that this Agreement,
during its term, shall govern the Employee's employment with the Company from
the date of this Agreement and after the appointment of the New CEO.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Employee agree
as follows:
1. EMPLOYMENT AND DUTIES.
---------------------
(a) During the Interim Period (as defined in Section 2 below), the
Employee will serve as President and Chief Executive Officer of the Company.
The duties and responsibilities of the Employee shall include the duties and
responsibilities for such corporate offices and positions as are set forth in
the Company's bylaws from time to time in effect and such other duties and
responsibilities as the Board of Directors may from time to time reasonably
assign to the Employee, in all cases to be consistent with the Employee's
corporate offices and positions and including but not limited to assisting the
Company in the search for the New CEO and assisting the Company to negotiate and
implement the Company's relationship with GuestServe International and its
affiliates. The Employee shall perform faithfully all duties reasonably
assigned to him during the Interim Period to the best of his ability.
(b) During the Post-Appointment Period (as defined in Section 2
below), the Employee will serve the Company as an employee in such executive
capacity as the Board of Directors of the Company shall determine, and the
Employee shall perform faithfully and to the best of his ability
<PAGE>
all duties assigned to him in such capacity. At the meeting of the Board of
Directors at which the New CEO is appointed, the Employee will be nominated to
serve as Chairman of the Board of Directors, and, if elected, the Employee will
serve in such capacity without additional compensation until any successor is
elected. The Company agrees that the Employee may maintain his office and use
the services of his secretary at the Company for so long as he remains an
employee of the Company; provided, however, that the Board of Directors may in
its discretion determine that the Employee's maintaining such office interferes
with the efficient management of the Company's business, and the Employee shall,
upon request, comply with such determination.
2. EMPLOYMENT PERIOD.
-----------------
(a) Basic Rule. The employment period shall begin upon the
----------
Effective Date and shall expire on the first anniversary of the Effective Date
(the "Termination Date") unless sooner terminated pursuant to the provisions of
this Agreement. The period from the Effective Date until the date of appointment
of the New CEO is referred to herein as the "Interim Period." The period from
the date of the appointment of the New CEO until the Termination Date is
referred to herein as the "Post-Appointment Period." The Interim Period and the
Post-Appointment Period are referred to collectively herein as the "Employment
Period." Nothing in this Agreement shall preclude the Company from voluntarily
continuing Employee's employment relationship after the Termination Date.
(b) Early Termination. The Employee acknowledges that his
-----------------
employment with the Company during the Employment Period is "at-will." The
Company may terminate the Employee's employment at any time prior to the
Termination Date. If the Company terminates the Employee's employment prior to
the Termination Date other than for Cause or Disability, each as defined below,
the provisions of Sections 8(a)(i), 8(b), and 8(c) shall apply. The Employee may
terminate his employment prior to the end of the Employment Period by giving the
Company 30 days' advance written notice. If the Employee terminates his
employment prior to the end of the Employment Period for any reason, the
provisions of Section 8(a)(ii) shall apply. Upon termination of the Employee's
employment with the Company, the Employee's rights under any applicable benefit
plans shall be determined under the provisions of those plans. Any waiver of
notice shall be valid only if it is made in writing and expressly refers to the
applicable notice requirement of this Section 2(b).
(c) Death. The Employee's employment shall terminate in the event
-----
of his death. The Company shall have no obligation to pay or provide any
compensation or benefits under this Agreement on account of the Employee's
death. The Employee's rights under the benefit plans of the Company in the event
of the Employee's death shall be determined under the provisions of those plans.
(d) Cause. The Company may terminate the Employee's employment for
-----
cause without any advance written notice. For all purposes under this
Agreement, "Cause" shall mean (i) willful failure by the Employee to perform his
duties hereunder, (ii) a willful act by the Employee which constitutes gross
misconduct and which is injurious to the Company, (iii) a willful breach by the
Employee of a material provision of this Agreement, or (iv) a material violation
of a federal, state, or foreign law or regulation applicable to the business of
the Company. No act or failure to act by the
-2-
<PAGE>
Employee shall be considered "willful" unless committed without good faith
without a reasonable belief that the act or omission was in the Company's best
interest. Except as set forth in this Agreement, no compensation or benefits
will be paid or provided to the Employee on account of a termination for Cause
or for periods following the date when such a termination of employment is
effective. The Employee's rights under the benefit plans of the Company shall
be determined under the provisions of those plans.
(e) Disability. The Company may terminate the Employee's
----------
employment for Disability by giving the Employee 30 days' advance written
notice. For all purposes under this Agreement, "Disability" shall mean that the
Employee, at the time notice is given, has been unable to substantially perform
his duties under this Agreement for a period of not less than 30 days as the
result of his incapacity due to physical or mental illness, despite reasonable
accommodation by the Company. In the event that the Employee resumes the
performance of substantially all of his duties hereunder before the termination
of his employment under this subparagraph (e) becomes effective, the notice of
termination shall automatically be deemed to have been revoked. Except as set
forth in this Agreement or the Company's benefit plans (other than stock plans)
or as may be required by applicable law, no compensation or benefits will be
paid or provided to the Employee on account of termination for Disability or for
periods following the date when such a termination of employment is effective.
The Employee's rights under the benefit plans of the Company shall be determined
under the provisions of those plans.
3. COMPENSATION AND PLACE OF EMPLOYMENT.
------------------------------------
(a) Compensation. During the Employment Period, the Employee shall
------------
continue to receive the base annual salary currently in effect ($175,000), which
salary shall be paid as earned in accordance with the Company's standard payroll
periods and procedures as established from time to time. The Employee shall be
salaried and shall therefore receive no additional compensation for overtime
hours. The Employee shall receive vacation time in accordance with the Company's
standard vacation practices for employees of the Company. The Employee shall
continue to participate in the Company's Executive Bonus program, and the Board
of Directors shall continue in its sole discretion to determine Employee's bonus
achievement objectives and the weight of each such objective.
(b) Place of Employment. Except as otherwise required pursuant to
-------------------
Section 1(b) above, the Employee's services shall be performed at the Company's
principal Employee offices in Sunnyvale, California. The parties acknowledge,
however, that substantial travel may be required in connection with the
performance of the Employee's duties hereunder.
4. STOCK OPTION. The Company and the Employee agree that, as of the
------------
Effective Date, the number of shares issuable upon exercise of the Employee's
option to acquire 466,000 shares of the Company's Common Stock at a price per
share of $1.00 as granted by the Company's Board of Directors on January 30,
1995 (the "Employee Option") shall be reduced to 349,500. The vesting
commencement date of the shares issuable upon exercise of the Employee Option
shall be October 1, 1994, and such shares shall vest over three years. Of the
349,500 shares subject to the Employee Option, 116,500 shares shall be deemed
vested as of October 1, 1995. Assuming continued employment, the remaining
-3-
<PAGE>
shares subject to the Employee Option shall vest and become exercisable at the
rate of 1/24 of the remaining shares per month such that all the shares subject
to the Employee Option shall be deemed fully vested on October 1, 1997. Except
as set forth in this Section 4, the provisions of the Employee Option shall
remain in full force and effect.
5. EXPENSES. The Employee shall be entitled to reimbursement by the
--------
Company for all reasonable ordinary and necessary travel, entertainment, and
other expenses incurred by the Employee during the Employment Period (in
accordance with the policies and procedures established by the Company) in the
performance of his duties and responsibilities under this Agreement.
6. OTHER BENEFITS. During the Employment Period, the Employee shall be
--------------
entitled to participate in employee benefit plans or programs of the Company, if
any, to the extent that his position, tenure, salary, age, health and other
qualifications make him eligible to participate, subject to the rules and
regulations applicable thereto.
7. OTHER ACTIVITIES. The Employee shall devote substantially all of his
----------------
working time and efforts during the Company's normal business hours to the
business and affairs of the Company and its subsidiaries and to the diligent and
faithful performance of the duties and responsibilities duly assigned to him
pursuant to this Agreement, except for vacations, holidays, and sickness.
8. TERMINATION BENEFITS. In the event the Employee's employment
--------------------
terminates prior to the end of the Employment Period, then the Employee shall be
entitled to receive severance and other benefits as follows:
(a) Severance.
---------
(i) Involuntary Termination. Subject to Section 8(d)(i)
-----------------------
below, if the Company terminates the Employee's employment other than for
Disability or Cause, then until the later of (i) one year from the date of such
involuntary termination or (ii) six months from the Termination Date, the
Employee shall be entitled to payment of his then-current salary, payable in
accordance with the Company's standard payroll periods and procedures, and to
receipt of the Company's standard employee benefits to which the Employee was
entitled immediately prior to such involuntary termination. The Employee shall
also be entitled to receive (i) any other severance benefits (other than cash
compensation) as may then be established under the Company's existing severance
and benefit plans at the time of such termination and (ii) prepayment of the
reasonable charges of an out-placement consulting firm mutually-acceptable to
both the Employee and the Company for the period that the Employee's salary will
continue to be paid under this Section 8(a)(i).
(ii) Other Termination. Subject to Section 8(d)(i) below, in
the event the Employee's employment terminates for any reason other than as
described in Section 8(a)(i) above, including termination by the Company for
Cause, or by reason of the Employee's death, Disability, or resignation, then
the Employee shall be entitled to receive severance and any other benefits only
as may be required by applicable law.
-4-
<PAGE>
(b) Options. Subject to Section 8(d)(i) below, in the event the
-------
Employee's employment is terminated by the Company as described in Section
8(a)(i) above, then the Employee Option shall continue to vest in accordance
with its terms until the later of (i) one year from the date of such involuntary
termination or (ii) six months from the Termination Date.
(c) Bonuses. Subject to Section 8(d)(i) below, in the event the
-------
Employee's employment is terminated by the Company as described in Section
8(a)(i) above, then the Employee shall be entitled to receive any bonus
compensation to which the Employee would have been entitled had the Employee
remained employed with the Company until the later of (i) one year from the date
of such involuntary termination or (ii) six months from the Termination Date;
provided, however, that Employee shall only be entitled to bonuses based upon
the Executive Bonus program targets established prior to any actual termination
of employment; and provided further that Employee shall be entitled to bonus
payments to the extent of achievement of Company performance objectives and
Employee's personal (soft) performance objectives prior to actual termination of
employment and to the extent of achievement of only Company performance
objectives after actual termination of employment.
(d) Special Circumstances.
---------------------
(i) Failure to Obtain Financing. If the provision regarding
---------------------------
additional financing set forth in Section 1(b)(y) of the Common Stock Purchase
Warrants (the "Warrants") dated August 15, 1995 issued to certain purchasers of
the Company's 10.5% Senior Secured Notes Due 2000 is actually triggered such
that the number of shares of the Company's capital stock issuable upon exercise
of the Warrants is increased in accordance with Section (1)(b) thereof (the
"Default"), then the Company may terminate the Employee's employment with the
Company effective upon written notice delivered to the Employee within ten
working days of the date the Default shall have first occurred. The date of
such notice is referred to herein as the "Financing Termination Date."
Notwithstanding anything to the contrary in this Section 8, in the event the
Company terminates the Employee's employment with the Company pursuant to this
Section 8(d)(i), then the Employee shall be entitled as severance to payment of
an amount equal to 75% of his annual salary then in effect, payable in
accordance with the Company's standard payroll periods and practices, and to
receipt of the Company's standard employee benefits to which the Employee was
entitled immediately prior to such termination for a period of one year from the
Financing Termination Date. In addition, the Employee shall be permitted to
exercise that portion of the Employee Option vested as of the Financing
Termination Date as well as an additional 58,250 shares subject to the Employee
Option, which shall be deemed vested as of the Financing Termination Date.
(ii) Change of Control Transaction. Until the earlier of (i)
-----------------------------
five years from any termination of the Employee's employment with the Company
(except for a termination by the Company for "Cause") or (ii) the initial public
offering of the Company's securities pursuant to a registration statement filed
under the Securities Act of 1933, as amended, the Employee, whether or not
currently employed by the Company, shall be entitled to participate in any
arrangement designed to compensate or incentivize executives and made available
by the Company to such executives in connection with the consummation of a
Change of Control transaction. The Company agrees that the Employee and such
-5-
<PAGE>
executives shall participate in any such arrangement pro-rata based on the
number of shares of the Company's Common Stock (including shares of Common Stock
issuable upon conversion of convertible securities of the Company and Common
Stock subject to outstanding options or warrants) then held by each. For
purposes of this Agreement, the term "Change of Control" shall mean the
occurrence of any of the following events: (A) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing greater than 50% of the total voting power represented
by the Company's then outstanding voting securities (except in a transaction or
transactions in which RRE Investors, LLC or its affiliates or successors
accumulates securities representing more than 50% of such voting power); (B) a
merger or consolidation of the Company with any other corporation, other than a
merger or consolidation that would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 50% of the total voting power represented by the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation; or (C) the Company's
shareholders' approving an agreement for the sale or disposition by the Company
of all or substantially all of the Company's assets.
(e) No Duty to Mitigate. The Employee shall not be required to
mitigate the amount of any payment contemplated by this Agreement (whether by
seeking new employment or in any other manner).
9. PROPRIETARY INFORMATION. During the Employment Period and thereafter,
-----------------------
the Employee shall not, without the prior written consent of the Board of
Directors, disclose or use for any purpose (except in the course of his
employment under this Agreement and in furtherance of the business of the
Company or any of its affiliates or subsidiaries) any confidential information
or proprietary data of the Company. As an express condition of the Employee's
employment with the Company, the Employee agrees to execute confidentiality
agreements as requested by the Company.
10. DISPARAGEMENT. Each party agrees to refrain from any disparagement,
-------------
criticism, defamation, or slander of the other and from any tortious
interference with the contracts and relationships of the other.
11. NON-SOLICITATION. The Employee covenants and agrees with the Company
----------------
that during his employment with the Company and for a period expiring one year
after the date of termination of such employment, he will not solicit any of the
Company's then-current employees to terminate their employment with the Company
or to become employed by any firm, company, or other business enterprise with
which the Employee may then be connected.
12. REGISTRATION RIGHTS. The Company acknowledges and agrees that those
-------------------
shares of the Company's Common Stock constituting "Founder's Stock," as such
term is defined in the Shareholders' Agreement dated September 29, 1994 by and
among Pacific Pay Video Limited ("PPVL") and the persons and entities listed in
Exhibit A thereto (the "Shareholders' Agreement"), shall continue to
-6-
<PAGE>
constitute Founder's Stock for purposes of the Shareholders' Agreement, and the
obligations of PPVL under the Shareholders' Agreement to register the Founder's
Stock shall be obligations of the Company.
13. RELEASE OF CLAIMS. The Employee and the Company, on behalf of
-----------------
themselves, and their respective heirs, executors, officers, directors,
employees, investors, shareholders, administrators, predecessor and successor
corporations, and assigns, hereby fully and forever release each other and their
respective heirs, executors, officers, directors, employees, investors,
shareholders, administrators, predecessor and successor corporations, and
assigns, of and from any claim, duty, obligation, or cause of action relating to
any matters of any kind, whether presently known or unknown, suspected or
unsuspected, that any of them may possess arising from any omissions, acts, or
facts that have occurred up to and including the Effective Date including,
without limitation,
(a) any and all claims relating to or arising from Employee's
employment relationship with the Company and the Company's ability to terminate
that relationship;
(b) any and all claims relating to, or arising from, Employee's
right to purchase, or actual purchase of shares of stock of the Company;
(c) any and all claims for wrongful or constructive discharge of
employment; breach of contract, both express and implied; breach of a covenant
of good faith and fair dealing, both express and implied; negligent or
intentional infliction of emotional distress; negligent or intentional
misrepresentation; negligent or intentional interference with contract or
prospective economic advantage; and defamation;
(d) violation of any federal, state or municipal statute, including,
but not limited to, any and all claims for violation of Title VII of the Civil
Rights Act of 1964, any and all claims for violation of the Age Discrimination
in Employment Act of 1967, the Americans with Disabilities Act of 1990, and any
and all claims for violation of the California Fair Employment and Housing Act;
(e) any and all claims arising out of any other laws and regulations
relating to employment or employment discrimination; and
(f) any and all claims for attorneys' fees and costs.
The Company and Employee agree that the release set forth in this section shall
be and remain in effect in all respects as a complete general release as to the
matters released. This release does not extend to any obligations incurred
under this Agreement.
14. CIVIL CODE SECTION 1542. The Parties represent that they are not
-----------------------
aware of any claim by either of them other than the claims that are released by
this Agreement. Employee and the Company acknowledge that they have been
advised by legal counsel and are familiar with the provisions of California
Civil Code Section 1542, which provides as follows:
-7-
<PAGE>
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR.
Employee and the Company, being aware of said code section, agree to
expressly waive any rights they may have thereunder, as well as under any other
statute or common law principles of similar effect.
15. RIGHT TO ADVICE OF COUNSEL. The Employee acknowledges that he has
--------------------------
consulted with counsel and is fully aware of his rights and obligations under
this Agreement.
16. SUCCESSORS. The Company will require any successor (whether direct or
----------
indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place.
17. ABSENCE OF CONFLICT. The Employee represents and warrants that his
-------------------
employment by the Company as described herein shall not conflict with and will
not be constrained by any prior employment or consulting agreement or
relationship.
18. ASSIGNMENT. This Agreement and all rights under this Agreement shall
----------
be binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective personal or legal representatives, executors,
administrators, heirs, distributees, devisees, legatees, successors and assigns.
This Agreement is personal in nature, and neither of the parties to this
Agreement shall, without the written consent of the other, assign or transfer
this Agreement or any right or obligation under this Agreement to any other
person or entity; except that the Company may assign this Agreement to any of
its affiliates or wholly-owned subsidiaries. If the Employee should die while
any amounts are still payable to the Employee hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the Employee's devisee, legatee, or other designee or, if
there be no such designee, to the Employee's estate.
19. NOTICES. For purposes of this Agreement, notices and other
-------
communications provided for in this Agreement shall be in writing and shall be
delivered personally or sent by United States certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Employee: Robert R. Creager
54 Encina Avenue
Atherton, California 94027
If to the Company: MagiNet Corporation
405 Tasman Drive
Sunnyvale, California 94089
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<PAGE>
Attention: Chief Financial Officer
or to such other address or the attention of such other person as the recipient
party has previously furnished to the other party in writing in accordance with
this paragraph. Such notices or other communications shall be effective upon
delivery or, if earlier, three days after they have been mailed as provided
above.
20. INTEGRATION. This Agreement represents the entire agreement and
-----------
understanding between the parties as to the subject matter hereof and supersedes
all prior or contemporaneous agreements whether written or oral, except as
specifically set forth herein. No waiver, alteration, or modification of any of
the provisions of this Agreement shall be binding unless in writing and signed
by duly authorized representatives of the parties hereto. The Company and the
Employee acknowledge and agree that this Agreement shall have no effect on the
Indemnification Agreement dated June 23, 1994 between the Company and the
Employee or the Founder's Restricted Stock Purchase Agreement dated January 24,
1992 (as amended) between the Company and the Employee.
21. WAIVER. Failure or delay on the part of either party hereto to
------
enforce any right, power, or privilege hereunder shall not be deemed to
constitute a waiver thereof. Additionally, a waiver by either party or a breach
of any promise hereof by the other party shall not operate as or be construed to
constitute a waiver of any subsequent waiver by such other party.
22. SEVERABILITY. Whenever possible, each provision of this Agreement
------------
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
23. HEADINGS. The headings of the paragraphs contained in this Agreement
--------
are for reference purposes only and shall not in any way affect the meaning or
interpretation of any provision of this Agreement.
24. APPLICABLE LAW. This Agreement shall be governed by and construed in
--------------
accordance with the laws of the State of California as applied to agreements
between California residents entered and to be performed entirely within
California.
25. COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one instrument.
-9-
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this EMPLOYMENT
AGREEMENT to be executed as of the day and year first above written.
"COMPANY" MAGINET CORPORATION
By:/s/ James a. Barth
-----------------------------------------
Name: James A. Barth
---------------------------------------
Title: Executive Vice Presidnet & CFO
--------------------------------------
"EMPLOYEE" /s/ Robert R. Creager
--------------------------------------------
Robert R. Creager
[EMPLOYMENT AGREEMENT SIGNATURE PAGE]
-10-
<PAGE>
EXHIBIT 10.20
June 18, 1996
VIA FAX: 901-759-5828
Ned Druehl
6898 Tangleberry Cove
Memphis, TN 38119
Dear Mr. Druehl:
This is to confirm our understanding of an employment package with MagiNet
Corporation. Our desire is to work with a small team of highly qualified and
motivated individuals who are interested in applying their expertise and
dedication to drive MagiNet's rapid growth.
Your title will be Chief Operating Officer and you will report directly to Ken
Hamlet. You will be responsible for all Operations including, country
managers, materials, manufacturing, traffic, installations, customer support and
programming administration, and such other responsibilities as may be assigned
from time to time.
Your initial salary will be $12,917.00 per month, payable on the first and
fifteenth. In addition you will be eligible for a special 33% bonus of your
annual salary. Your bonus will be based on the performance objectives of your
job, to be mutually agreed upon within 30 days of your start date, and on
MagiNet's overall Corporate performance against the board approved 1996 plan.
You will be entitled to MagiNet's standard vacation, holiday, 401 (K), medical,
dental, LTD and life insurance programs.
The company will assist you in your actual relocation cost up to a maximum of
$30,000. All moving expenses are to be submitted via the normal expense
reimbursement forms. In addition, we agreed to pay for temporary housing for a
period up to 30 days.
MagiNet will pay for reasonable round trip airline tickets (up to 6) from
Memphis to the San Francisco Bay area.
Subject to approval of the Board of Directors of MagiNet, and in compliance with
all applicable federal and state securities laws, you will be granted an option
to purchase 150,000 shares of Common Stock at a per-share - price set by the
Board of Directors of MagiNet. Specific terms and conditions will be included
in a definitive stock option agreement and will include your right to purchase
your shares without risk of forfeiture according to a vesting schedule which
will provide for one-fourth of your option shares to vest 12 months after your
date of employment, and thereafter 1/48th of your option shares each month for
the next 36 months.
<PAGE>
You agree to execute the Company's Confidential Information and Inventions
Assignment Agreement providing for your protection of the Company's trade
secrets and proprietary information. You must also provide information regarding
your permanent right to work in the US according to federal government
regulations.
We are very excited to have you join our team. If you concur with this offer,
please confirm your acceptance by returning a signed copy of this letter to me
not later than June 20, 1996. We would like your start date to be no later
than July 15, 1996 and sooner if possible for you.
Sincerely,
/s/ Sheryle Harrah
Sheryle Harrah for
Kenneth B. Hamlet
Chief Executive Officer
and President
ACCEPTED:
/s/ Ned Druehl
- -----------------------
Ned Druehl
- -----------------------
Date
<PAGE>
EXHIBIT 10.21
Berg & Berg Developers
10050 Bandley Drive - Cupertino, California 95014
Phone (408) 725-0700
developers of business parks and industrial complexes in Palo Alto, Mountain
View, Sunnyvale, Cupertino & Santa Clara
PARTIES This LEASE, executed in duplicate at Cupertino, California,
this 16th day of February 1994 , by and between Berg Family
Partnership and Pacific Pay Video Limited, a California
Corporation hereinafter called respectively Lessor and Lessee,
without regard to number or gender.
USE WITNESSETH: That Lessor hereby leases to Lessee and Lessee
hires from Lessor, for the purpose of conducting therein office,
research and development, light manufacturing, and warehouse
activities, and any other legal activity.
and for no other purpose without obtaining the prior written
consent of Lessor, those certain premises with the appurtenances,
situated in the City of Sunnyvale, County of Santa Clara State of
California, and more particularly described as follows, to-wit:
PREMISES A multi purpose office, warehouse and industrial building
containing a 9,660 s.f. portion of a 25,967 s.f. building, more
or less and leasehold improvements. Located at 405 Tasman Drive,
and more particularly described in Exhibit "A" attached hereto
and incorporated herein by reference. Also, included are (38)
thirty-eight parking spaces.
TERM The term shall be for twenty-four (24) months commencing on the
1st day of March, 1994 and ending on the 29th day of February,
1996 , at the total rent sum of
RENTAL One Hundred Fifty-seven Thousand Six Hundred Fifty-one Dollars
and twenty cents ($157,651.20)
Dollars, payable in monthly installments of
Six Thousand Five Hundred Sixty-eight Dollars and eighty
cents
($6,568.80) Dollars on or before the first day of each calendar
month during the term hereof. Said rental shall be paid in lawful
money of the United States of America, without offset or
deduction, and shall be paid to Lessor at such place or places as
may be designated from time to time by Lessor. Rent for any
period less than a calendar month shall be a pro rata portion of
the monthly installment.
Concurrently with Lessee's execution of this Lease, Lessee shall
pay to Lessor the sum of
Six Thousand Five Hundred Sixty-eight Dollars and eighty
cents
($6,568.80) Dollars as prepaid rent for the period of March 1,
1994 to March 31, 1994 Concurrently with Lessee's execution of
this Lease, Lessee has deposited with Lessor the sum of
Six Thousand Five Hundred Sixty-eight Dollars and eighty
cents
SECURITY
DEPOSIT ($6,568.80) Dollars as a security deposit. If Lessee defaults
with respect to any provisions of this Lease, including but not
limited to the provisions relating to payment of rent or other
charges, Lessor may, to the extent reasonably necessary to remedy
Lessee's default, use all or any part of said deposit for the
payment of rent or other charges in default or the payment of any
other amount which Lessor may spend or become obligated to spend
by reason or Lessee's default or to compensate Lessor for any
other loss or damage which Lessor may suffer by reason of
Lessee's default. If any portion of said deposit is so used or
applied, Lessee shall, within ten (10) days after written demand
therefor, deposit cash with Lessor in an amount sufficient to
restore said deposit to the full amount hereinabove stated and
shall pay to Lessor such other sums as shall be necessary to
reimburse Lessor for any sums paid by Lessor. If Lessee shall
fully and faithfully perform every provision of this Lease to be
performed by it, said deposit shall be returned to Lessee within
five (5) days after the expiration of the term hereof. In the
event of termination of Lessor's interest in this Lease, Lessor
shall transfer said deposit to Lessor's successor in interest.
Page 1 of 5
<PAGE>
CHARGES Lessee hereby acknowledges that late payment by Lessee to Lessor
of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which
will be extremely difficult to ascertain. Such costs include, but
are not limited to processing and accounting charges, and late
charges, which may be imposed on Lessor by the terms of any
mortgage or trust deed covering the Premises. Accordingly, if any
installment of rent or any other sum due from Lessee shall not be
received by Lessor or Lessor's designee within ten (10) days
after such amount shall be due Lessee shall pay to Lessor a late
charge equal to five (5%) percent of such overdue amount. The
parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of
late payment by Lessee. Acceptance of such late charge by Lessor
shall in no event constitute a waiver of Lessee's default with
respect to such overdue amount, nor prevent Lessor from
exercising any of the other rights and remedies granted
hereunder.
IT IS FURTHER MUTUALLY AGREED BETWEEN THE PARTIES AS
FOLLOWS:
POSSESSION 1. If Lessor, for any reason whatsoever, cannot deliver
possession of the said premises to Lessee at the commencement of
the said term, as hereinbefore specified, this lease shall not be
void or voidable, nor shall Lessor be liable to Lessee for any
loss or damage resulting therefrom; but in that event the
commencement and termination dates of the lease and all other
dates affected thereby shall be revised to conform to the date of
Lessor's delivery of possession. The above is however,subject to
the provision that the period of delay of delivery of the
premises shall not exceed Seven (7) days from the commencement
date herein. If the period of delay of delivery exceeds the
foregoing, Lessee, at his or its option may cancel this Lease and
declare it null and void. Provided further, that if under this
Lease, Lessor is required to do any construction or remodeling
work, than the data on which the Lessee has the right to cancel
shall be extended to a later date by a number of working days
equal to the number of working days during which work necessary
to prepare the premises for occupancy is delayed by changes
requested by Lessee, strikes, boycott, shortage of materials,
governmental regulations affecting construction, acts of God,
inclement weather preventing construction, or other events of
like nature beyond the control and without the negligence of
Lessor. If under this Lease Lessor is required to do any
construction or remodeling work, then possession shall not be
deemed tendered and the term shall not start, nor shall any
rentals commence under this Lease, until the completion of Lessor
improvements.
<PAGE>
ACCEPTANCE
OF PREMISES
AND COVE-
NANTS TO
SURRENDER 2. By entry hereunder, Lessee accepts the premises as being in
good and sanitary order, condition and repair and accepts the
building and the other improvements in their present condition.
Any exceptions to the foregoing must be by written agreement
executed by Lessor and Lessee. The Lessee agrees on the last day
of the term hereof, or on the sooner termination of this lease,
to surrender the premises unto Lessor in good condition and
repair. The interior walls of all office and warehouse areas, the
floors of all office and warehouse areas, all suspended ceilings
and any carpeting are to be cleaned. Lessee also agrees to
surrender unto Lessor all alterations, additions, and
improvements whih may have been made in, to or on the premises by
Lessee, except that Lessee shall ascertain from Lessor within
thirty (30) days before the end of the term of this lease whether
Lessor desires to have the premises or any part or parts thereof
restored to their condition as of the commencement of this Lease,
excluding normal wear and tear, if Lessor shall so desire, then
Lessee shall restore said premises or such part or parts thereof
before the termination of this Lease at Lessee's sole cost and
expense. Lessee on or before the end of the term or sooner
termination of this Lease, shall remove his or its personal
property and trade fixtures from the premises, and all property
not so removed shall be deemed to be abandoned by Lessee. If the
premises be not surrendered at the end of the term or sooner
termination of this Lease, Lessee shall indemnify Lessor against
loss or liability resulting from delay by Lessee in so
surrendering the premises including, without limitation, any
claims made by any succeeding tenant founded on such delay. Not
withstanding the above, Lessor agrees to allow any reasonable
alterations and improvements and will notify Lessee at time of
approval if they are to be removed on expiration.
USES
PROHIBITED 3. Lessee shall not commit, or suffer to be committed, any waste
upon the said premises, or any nuisance, or other act or thing
which may disturb the quiet enjoyment of any other tenant in or
around the buildings in which the demised premises may be located
or allow any sale by auction upon the premises, or allow the
premises to be used for any improper, immoral, unlawful or
objectionable purpose, or place any loads upon the floor, walls,
or ceiling which endanger the structure, or use any machinery or
apparatus which will in any manner vibrate or shake the premises
or the building of which it is a part, or place any harmful
liquids in the drainage system of the building. No waste
materials or refuse shall be dumped upon or permitted to remain
upon any part of the leased premises outside of the building
proper. No materials, supplies, equipment, finished products or
semi-finished products, raw materials or articles of any nature
shall be stored upon or permitted to remain on any portion of the
leased premises outside of the buildings proper.
ALTERA-
TIONS AND
ADDITIONS 4. Lessee shall not make, or suffer to be made, any alteration or
addition to the said premises, or any part thereof, without the
written consent of Lessor first had and obtained by Lessee; any
addition or alteration to the said premises, except movable
furniture and trade fixtures, shall become at once a part of the
realty and belong to Lessor. Alterations and additions which are
not to be deemed as trade fixtures shall include heating,
lighting, electrical systems, air conditioning, partitioning,
carpeting, or any other installation which has become an integral
part or the leased premises, Lessee agrees that he or it will not
proceed to make such alterations or additions, after having
obtained consent from Lessor to do so, until three (3) days from
the receipt of such consent, in order that Lessor may post
appropriate notices to avoid any liability to contractors or
material suppliers for payment for Lessee's improvements. Lessee
will at all times permit such notices to be posted and to remain
posted until the completion of work.
Page 2 of 5
<PAGE>
HAZARD
INSURANCE 6. Lessee shall not use, or permit said premises, or any part
thereof, to be used, for tiny purpose other than that for which
the said premises are hereby based; and no use shall be made or
permitted to be made of the said premises, nor acts done, which
will cause a cancellation of any insurance policy covering said
building, or any part thereof, nor shall Lessee sell or permit to
be kept, used or sold, in or about said premises, any article
which may be prohibited by the standard form of fire insurance
policies. Lessee shall, at his sole cost and expense, comply with
any and all requirements, pertaining to said premises, of any
insurance organization or company, necessary for the maintenance
of reasonable fire and public liability insurance, covering said
building and appurtenances. The Lessor agrees to purchase and
keep in force fire, earthquake, and extended coverage insurance
covering the leased premises in amounts not to exceed the actual
insurable value of said premises as determined by Lessor's
insurance company's appraisers. The Lessee agrees to pay to the
Lessor as additional rent, on demand, the full cost of said
insurance as evidenced by insurance billings to the Lessor. If
said insurance billings cover the entire building, and this Lease
does not cover the entire building, the insurance premiums
allocated to the based premises shall be pro-rated on a square
footage or other equitable basis, as calculated by Lessor. It is
understood and agreed that Lessee's obligation under this
paragraph will be pro-rated to reflect the commencement and
termination dates of this Lease. Lessor and Lessee hereby waive
any rights each may have against the other on account of any loss
or damage occasioned to the Lessor or the Lessee as the case may
be, or to the Premises or its contents, and which may arise from
any risk generally covered by fire and extended coverage
insurance. The parties shall obtain from their respective
insurance companies insuring the property a waiver of any right
of subrogation which said insurance company may have against the
Lessor or the Lessen as the case may be.
ABANDON-
MENT 7. Lessee shall not vacate or abandon the premises at any time
during the process of law, or otherwise, any personal property
belonging to Lessee and left on the term; and if Lessee shall
abandon, vacate or surrender said premises, or be disposessed by
premises shall be deemed to be abandoned, at the option of
Lessor, except such property as may be mortgaged to Lessor.
FREE
FROM LIENS 8. Lessee shall keep the demised premises and the property in
which the demised premises are situated, free from any liens
arising out of any work performed, materials furnished, or
obligations incurred by Lessee.
<PAGE>
COMPLI-
ANCE WITH
GOVERN-
MENTAL
REGULA-
TIONS 9. Lessee shall, at his sole cost and expense, comply with all
of the requirements of all Municipal, State and Federal
authorities now in force, or which may hereafter be in force,
pertaining to the said premises, and shall faithfully observe in
the use of the premises all Municipal ordinanes and State and
Federal statutes now in force or which may hereafter be in force.
The judgement of any court of competent jurisdiction, or the
admission of Lessee in any action or proceeding against Lessen
whether Lessor be a party thereto or not, that Lessee has
violated any such ordinance or statute in the use of the
Premises, shall be conclusive of that fact as between Lessee, and
Lessee.
*Excluding any acts of negligence or willful misconduct on the
part of Lessor or Lessor's agent.
LIABILITY
AGENT
INSURANCE l0. Lessee, as a material part of the consideration to be
rendered to Lessor, hereby waives all claims against Lessor for
damages to good, wares and merchandise, and all other personal
property in, upon or about said premises and for injuries to
persons in a about said premises, Rom any cause arising at any
time. and Lessee will hold Lessor exempt and harmless from any
damage or injury to any person, or to the goods, wares and
merchandise and all other personal property of any person.
arising from the use of the premises by Lessee or from the
failure of Lessee to keep the premises in good condition and
repair, as herein provided, Lessee shall secure and keep in force
a public liability insurance and property damage policy covering
the based premises, including parking areas, insuring the Lessee
and naming Lessor as an additional insured. A copy of said policy
shall be delivered to Lessor and minimum limits of coverage
thereof shall be $ 2,000,000.00 for multiple injuries, and $
1,000,000. 00 property damage, and Lessee shall obtain a
written obligation on the part of the insurer to notify Lessor in
writing before any cancellation thereof.
ADVERTISE
MENTS AND
SIGNS 11. Lessee will not place or permit to be placed, in, upon or
about the said premises any unusual or extraordinary signs, or
any signs not approved by the city or other governing authority.
The Lessee will not place, or permit to be placed, upon the
premises, any signs, advertisements or notices without the
written consent of the Lessor, and such consent will not be
unreasonably withheld, Any sign so placed on the premises shall
be so placed upon the understanding and agreement that Lessee
will remove same at the termination of the tenancy herein
created, and repair any damage or injury to the premises caused
thereby, and if not so removed by Lessee then Lessor may have
same so removed at Lessee's expense.
UTILITIES 12. Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities supplied to the premises. If any
such services are not separately metered to Lessee, Lessee shall
pay a reasonable proportion of all charges which are jointly
metered, the determination to be made by Lessor and payment to be
made by Lessee within ten (10) days of receipt of a statement for
such charges. Any charges for sewer usage or related fees shall
be the obligation of Lessee and paid for by the Lessee.
ATTORNEY'S
FEES 13. In case suit should be brought for the possession of the
premises for the recovery of any sum due hereunder or because of
the breach of any other covenant herein, the losing party shall
pay to the prevailing party a reasonable attorney's fee which
shall be deemed to have accrued on the commencement of such
action and shall be enforceable whether, or not such action is
prosecuted to judgement.
DEFAULT 14.1 The occurrence of any of the following shall constitute a
material default and breach of his Lease by Lessee: a) Any
failure by Lessee to pay the rental or to make any other payment
required to be made by Lessee hereunder (where such failure
continued for ten (10) days after written notice thereof by
Lessor to Lessee; b) The abandonment or vacation of the Premises
by Lessee; c) A failure by Lessee to observe and perform any
other provision of this lease to be observed or performed by
Lessee, where such failure continues for thirty days after
written notice thereof by Lessor to Lessee; provided, however,
that if the nature of such default is such that the same cannot
reasonably be cured within such thirty (30) day period Lessee
shall not be deemed to be in default if Lessee shall within such
period commence such cure and thereafter diligently prosecute the
same to completion; d) The making by
<PAGE>
Lessee of any general assignment for the benefit of creditors;
the filing by or against Lessee of a petition to have Lessee
adjudged a bankrupt or of a petition for reorganization or
arrangement under any law relating to bankruptcy (unless, in the
case of a petition filed against Lessen the same is dismissed
within sixty (60) days); the appointment of a trustee or receiver
to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease,
where possession is not restored to Lessee within thirty (30)
days, or the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Promises or
of Lessee's interest in this Lease, where such seizure is not
discharged within thirty (30) days.
SURRENDER
OF LEASE 14.2 In the event of any such default by Lessee, then in addition
to any other remedies available to Lessor at law or in equity,
Lessor shall have the immediate option to terminate this Lease
and all rights of Lessee hereunder by giving written notice of
such intention to terminate. In the event that Lessor shall elect
to so terminate this Lease then Lessor may recover from Lessee;
a) the worth at the time of award of any unpaid rent which had
been earned at the time of such termination; plus b) the worth at
the time of award of the amount by which the unpaid rent would
have been earned after termination until the time of award
exceeds the amount of such rental loss Lessee proves could have
been reasonably avoided; plus c) the worth at the time of award
of the amount by which the unpaid rent for the balance of the
term after the time of award exceeds the amount of such rental
loss that Lessee proves could be reasonably avoided; plus d) any
other amount necessary to compensate Lessor for all the detriment
proximately caused by Lessee's failure to perform his obligations
under this Lease or which in the ordinary course of things would
be likely to result therefrom, and e) at Lessor's election, such
other amounts in addition to or in lieu of the foregoing as may
be permitted from time to time by applicable California law. The
term "rent", as used herein, shall be deemed to be and to mean
the minimum annual rental and all other sums required to be paid
by Lessee pursuant to the terms of this Lease. As used in (a) and
(b) above, the "worth at the time of award" is computed by
allowing interest at the rate of ten (10%) percent per annum. As
used in (c) above, the "worth at the time of award" is computed
by discounting such amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of award plus one (1%)
percent.
Page 3 of 5
<PAGE>
14.3 In the event of any such default by Lessee, Lessor shall so
have the right, with or without terminating this Lease, to re-
enter the Premises and remove all persons and property from the
Premises; such property may be removed and stored in a public
warehouse or elsewhere at the cost of and for the account of
Lessee.
14.4 In the event of the vacation or abandonment of the Promises
by Lessee or in the event that Lessor shall elect to re-enter as
provided in paragraph 14.3 above or shall take possession of the
Premises pursuant to legal proceeding or pursuant to any notice
provided by law, then if Lessor does not elect to terminate this
Lease as provided in paragraph 141 above, then Lessor may from
time to time, without terminating this Lease, either recover all
rental as it becomes due or relet to Premises or any part thereof
for such term or terms and at such redo or rentals and upon such
other terms and conditions as Lessor in its sole discretion may
deem advisable with to right to make alterations and repairs to
the Premises. In the event that Lessor shall elect to so relet,
then rentals received by Lessor front such reletting shall be
applied; first, to the payment of any indebtedness other than
rent duo hereunder from Lessee to Lessor; second, to the payment
of any cost of such reletting; third, to the payment of the cost
of any alterations and repairs to the Premises; fourth, to the
payment of rent due and unpaid hereunder; and the residue, if
any, shall be held by Lessor and applied in payment of future
rent as the same may become due and payable hereunder. Should
that portion of such rentals received from such reletting during
any month, which is applied by the payment of rent hereunder, be
less then to rent payable during that month by Lessee hereunder,
then Lessee shall pay such deficiency to Lessor immediately upon
demand therefor by Lessor. Such deficiency shall be calculated
and paid monthly. Lessee shall also pay to Lessor, as soon as
ascertained, any costs and expenses incurred by Lessor in such
reletting or in making such alterations and repairs not covered
by the rentals received front such reletting.
14.5 No re-entry or taking possession of the Premises by Lessor
pursuant to 14.3 or 14.4 of this Article 14 shall be construed as
an election to terminate this Lease unless a written notice of
such intention be given to Lessee or unless the termination
thereof be decreed by a court of competent jurisdiction.
Notwithstanding any roletting without termination by Lessor
because of any default by Lessee, Lessor may at any time after
such reletting elect to terminate this lease, for any such
default.
SURRENDER
OF LEASE 15. The voluntary or other surrender of this Lease by Lessee, or
a mutual cancellation thereof, shall not work a merger, and
shall, at the option of Lessor, terminate all or any existing
subleases or subtenances, or may, at the option of Lesson operate
as an assignment to him of any or all such subleases or
subtenancies.
TAXES 16. Lessee shall be liable for all taxes levied against its
personal property and trade or business fixtures, and agrees to
pay, as additional rental, all real estate taxes and special
assessment installment as they appear on the city and county tax
bills during the Lease term, and as they become due. If said
taxes and assessments are assessed against the entire building
and building site, and this lease does not cover entire building
or building site, the taxes laid assessment Installments
allocated to the leased premises shall be pro-rated on a square
footage or other equitable basis, as calculated by Lessor. It is
understood and agreed that Lessee's obligation under this
paragraph will be pro-rated to reflect the commencement and
termination dates of this Lease.
<PAGE>
NOTICES 17. All notices given to Lessee may be given in writing
personally or by depositing the same in the United States mail,
postage prepaid, and addressed to Lessee at the said promises,
whether or not Lessee has departed from, abandoned or vacated the
premises.
ENTRY BY
LESSOR 18. Lessee shall permit Lessor and his agents to enter Into and
upon said premises at all reasonable times subject to any
security regulations of Lessee for the purpose of inspecting the
same or for the purpose of maintaining the building in which said
premises are situated, or for the purpose of making repairs,
alterations or additions to any other portion of said building.
including the erection and maintenance of such scaffolding,
canopies, fences and props as may be required without any rebate
of rent and without any liability to Lessee for any loss of
occupation or quiet enjoyment of the premises thereby occasioned:
and shall permit Lessor and his agents, at any time within ninety
(90) days prior to the expiration of this Lease, to place upon
said premises any usual or ordinary "For Sale" or "to lease"
signs and exhibit the promises to prospective tenants at
reasonable hours.
DESTRUC.
ION OF
PREMISSES 19. In the event of a partial destruction of the said premisses
during the said term from any cause, Lessor shall forthwith
repair the same, provided such repairs can be made within (90)
days under the laws and regulations of State, Federal, County or
Municipal authorities, but such partial destruction shall in no
way annul or void this lease, except that Lessee shall be
entitled to a proportionate reduction of rent until such repairs
are complete, such proportionate reduction to be based upon the
extent to which the making of such repairs shall interfere with
the business carried on by Lessee in the said premisses. If such
repairs cannot be made in ninety (90) days, Lessor may, at his
option, make same within a reasonable time this Lease continuing
in full force and effect and the rent to be proportionately
reduced as aforesaid in this paragraph provided. In the event
that Lessor does not so elect to make such repairs which cannot
be made in ninety (90) days, or such repairs cannot be made under
such laws and regulations, this Lease may be terminated at the
option of either party. In respect to any partial destruction
which Lessor is obligated to repair or may elect to repair under
the terms of this paragraph, the provision of Section 1932,
Subdivision 2, and of Section 1933, Subdivision 4, of the Civil
Code of the State of California are waived by Lessee. In the
event that the building in which the demised premises may be
situated be destroyed to the extent of not less than 33-1/3% of
the replacement cost thereof, Lessor may elect to terminate this
Lease, whether the demised premises be injured or not. A total
destruction of the building in which the said premisses may be
situated shall terminate this Lease. In the event of any dispute
between Lessor and Lessee relative to the provisions of this
paragraph, they shall each select an arbitrator, the two
arbitrators so selected shall select a third arbitrator and the
three arbitrators so selected shall hear and determine the
controversy and their decision thereon shall be final and binding
upon both Lessor and Lessee, who shall bear the cost of such
arbitration equally between them.
<PAGE>
ASSIGN-
MENT
AND
SUBLET-
TING 20. Lessee or any part thereof or any right or privilege
appurtenant thereto, or suffer any other person (a bona fide
subsidiary or affiliate or Lessee excepted to occupy or use the
said premises, or any portion thereof, without the written
consent of Lessor first had and obtained, and a consent to one
assignment, subletting, occupation or use by any other person,
shall not be deemed to be a consent to any subsequent assignment,
subletting, occupation or use by another person. Any such
assignment or subletting without such consent shall be void, and
shall, at the option of the Lessor, terminate this Lease,
providing Lessor has not unreasonably witheld such consent. This
Lease shall not, nor shall any interest therein be assignable as
to the interest of Lessee. by operation of law, without the
written consent of Lessor. If Lessee desires to assign its rights
under this Lease or to sublet, all or a portion of the demisedd
promises to a party other than a bona fide subsidiary or
affiliate* of Lessee, Lessee shall first notify Lessor of the
proposed terms and conditions of such assignment or subletting.
Lessor shall have the right of first refusal to enter into a
direct Lessor-Lessee relationship with such party under such
proposed terms and conditions, in which event Lessee shall be
relieved of its obligations hereunder to the extent of the
Lessor-Lessee relationship entered into between Lessor and such
third party.
CONDEM-
NATION 21. If any part of the premises shall be taken for any public or
quasi-public use, under any statute or by right of eminent domain
or private purchase in lieu thereof, and a part thereof remains
which is susceptible of occupation hereunder, this Lease shall as
to the part so taken, terminate as of the date title shall vest
in the condemnor or purchaser, and the rent payable hereunder
shall be adjusted so that to Lessee shall be required to pay for
the remainder of the term only such portion of such rent as the
value of the part remaining after such taking bears to the value
of the entire premises prior to such taking; but in such event
Lessor shall have the option to terminate this Lease as of the
date when title to the part so taken vests in the condemnor or
purchaser. If all of the premises, or such part thereof be taken
so that there does not remain a portion susceptible for
occupation hereunder, this Lease shall thereupon terminate. If a
part or all of the promises be taken, all compensation awarded
upon such taking shall go to the Lessor and the Lessee shall have
no claim thereto.
Page 4 of 5
<PAGE>
EFFECTS
OF
CONVEYANCE 22. The term "Lessor" as used in this Lease, means only the owner
for the time being of the land and building, containing the
premises, so that, in the event of any sale of said land or
building, or in the event of a Lease of said building, the Lessor
shall be and hereby is entirely freed and relieved of all
covenants and obligations of the Lessor hereunder and it shall be
deemed and construed, without further agreement between the
parties and the purchaser at any such sale, or the Lessee of the
building, that he purchaser or Lessee of the building has assumed
and agreed to carry out any and all covenants and obligations of
the Lessor hereunder. If any security be given by the Lessee to
secure the faithful performance of all or any of the covenants of
this Lease on the part of Lessee, the Lessor shall transfer and
deliver the security, as such, to the purchaser at any such sale
or the Lessee of the building, and thereupon the Lessor shall be
discharged from any further liability in reference thereto.
SUBORDI-
NATION 23. This Lease, in the event Lessor so notifies Lessee in
writing, shall be subordinate to any ground Lease, deed of trust,
or other hypothecation for security now or hereafter placed upon
the real property of which the Premises are a part and to any and
all advances made on the security thereof and too renewals,
modifications, replacements and extensions thereof. Lessee agrees
to promptly execute any documents which may be required to
effectuate such subordination. Notwithstanding such
subordination, Lessee's right to quiet possession of the Premises
shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the
provisions of this Lease,
WAIVER 24. The waiver by Lessor of any breach of any term, covenant or
condition, herein contained shall not be deemed to be a waiver of
such term, covenant or condition or any subsequent breach of he
same or any other term, covenant or condition therein contained.
The subsequent acceptance of rent hereunder by Lessor shall not
be deemed to be a waiver of any preceding breach by Lessee of any
term, covenant or condition of this Lease, other than the failure
of Lessee to pay the particular rental so accepted, regardless of
Lessor's knowledge of such preceding breach at the time of
acceptance of such rent.
HOLDING
OVER 25. Any holding over after the expiration of the said term, with
the consent of Lessor, shall be construed to be a tenancy from
month to month, at a rental to be negotiated by Lessor and Lessee
prior to the expiration of said term, and shall otherwise be on
the terms and conditions herein specified, so far as applicable.
SUCCES-
SORS AND
ASSIGNS 26. The covenants and conditions herein contained shall, subject
to the provisions as to assignment, apply to and bind the heirs,
successors, executors, administrators and assigns of all of the
parties hereto; and all of tile parties hereto shall be jointly
and severally liable hereunder.
ESTOPPEL
CERTIF
ICATES 27. Lessee shall at any time during the term of this Lease, upon
not less than five (5) days prior written notice from Lessor,
execute and deliver to Lessor a statement in writing certifying
that this Lease is unmodified and in full force and effect (or,
if modified, stating the nature of such modification) and the
date to which the rent and other charges are paid in advance, if
any,
<PAGE>
and acknowledging that there are not, to Lessee's knowledge, any
uncured defaults on the part of Lessor hereunder or specifying
such defaults if they are claimed. Any such statement may be
conclusively relied upon by any prospective purchaser or
encumbrancer of the Premises. Lessee's failure to deliver such
statement within such time shall be conclusive upon the Lessee
that (a) this Lease is in full force and effect, without
modification except as may be represented by Lessor; (b) there
are no uncured defaults in Lessor's performance.
TIME 28. Time is of the essence of this Lease.
MARGINAL
CAPTIONS 29. The marginal headings or titles to the paragraphs of this
Lease are not a part of this Lease and shall have no effect upon
the construction or interpretation of any part thereof. This
instrument contains all of the agreements and conditions made
between the parties hereto and may not be modified orally or in
any other manner than by an agreement in writing signed by all of
the parties hereto or their respective successors in interest.
Paragraphs 30 through 41 are included herein and hereby
incorporated by this reference
IN WITNESS WHEREOF, Lessor and Lessee have executed these
presents, the day and year first above written.
LESSOR LESSEE
Berg Family Partnership Pacific Pay Video
Page 5 of 5 (general lease form not shown)
<PAGE>
ADDENDUM TO LEASE
Dated February 17, 1994
By and Between Berg Family Partnership
and Pacific Pay Video
Paragraph #2 of Lease agreement, page 2 continued:
Notwithstanding the foregoing, Lessee accepts the Premises "as is". Lessor
represents and warrants that as of the commencement date of the Lease the roof,
HVAC systems, electrical system, and plumbing are in good repair and working
condition. Lessor agrees to provide the Premises to Tenant in good condition
and repair. PPV proposes that within five (5) days of PPV's occupancy Lessor
and PPV perform a walk through of the Premises in order to determine what items
need to be addressed relative to the condition of the Premises.
Paragraph #4 of Lease Agreement, page 2 continued:
Tenant may make any alterations up to $15,000, not involving structural changes,
without Landlord approval. Tenant to remove such improvements if requested by
Landlord at Lease termination.
Paragraph #5 of Lease Agreement, page 2 continued:
Lessor, at Lessee's sole cost, shall maintain and repair roof and keep the
same in good working order and condition during the term of the Lease, Lessor
will have a service contract between a licensed reputable roof contractor to
perform semiannual maintenance to make repairs,
Immediately prior to Lease Termination, Lessee to provide Lessor with
certification by a knowledgeable company officer that lessee, its officers,
partners, employees, agents, invitees or other parties associated with Lessee,
to the best of their knowledge, have not allowed the Premises to be contaminated
by toxic or hazardous waste or materials.
Immediately prior to termination of Lessee's obligations under this Lease,
Lessee shall remove any, or all, non-general purpose improvements not installed
by lessor, if requested by Lessor.
Landlord agrees during term of initial lease, landlord will pay the cost in
excess of $700.00 to repair any single item in the HVAC, plumbing or electrical
systems after the Tenant has paid the first $1,000 provided that (i) the failure
or repair is not caused by the negligence, failure to properly maintain, or
misconduct of Tenant or Tenant's Agents The intent of this section is to limit
the exposure of Tenant for any major single item failures, that occur during the
above period, such as compressor, transformers and the like and not to make
Landlord liable for a number of small failures that are bundled into one
billing. Landlord will pay any roof repair cost inexcess of $1,000 during the
term if not caused or related to actions of Tenant.
<PAGE>
Paragraph #6 of Lease agreement, Page 3 continued
Lessor shall maintain in full force and effect, rental abatement insurance
against abatement or loss of Rent in case of fire or other casualty, in an
amount at least equal to the amount of the Rent payable by Lessee during the
next ensuing one (1) year, as reasonably determined by Lessor, Lessee to
reimburse Lessor for full cost of said rental abatement insurance. Where Lessee
is responsible for purchasing and keeping in force insurance in this paragraph,
Lessee's insurance coverage shall name Lessor as an additional insured and
provide Lessor with an endorsed copy of said insurance.
Paragraph #9 of Lease Agreement, page 3 continued:
Tenant shall have no obligation to make any modifications to Premises as a
result of any existing laws, codes or regulation unless as a result of Tenants
modifications or unique usage by Tenant.
Paragraph #19 of Lease Agreement, Page 4 continued.
Notwithstanding the above, Lessor is only obligated to repair or rebuild to
the extent of available insurance proceeds. Should Lessor determine that
insufficient or no insurance proceeds be available for repair or reconstruction
of Premises, Lessor, at its option, may terminate the Lease.
Lessee shall have the right to terminate the Lease if destruction to building is
over 33 1/3rd percent of total or if damages are to critical research areas
which are necessary for Lessee to continue its technology development program
and if damages to building are not repaired within 90 days.
30. Landlord and Tenant may be used various places in this lease as substitute
for Lessor and Lessee respectively.
31. HAZARD INSURANCE. As a condition of Lessor agreeing to waive the
requirement for earthquake insurance, Lessee agrees that it will pay, as
additional rent, an amount not to exceed $2,500.00 per year for earthquake
insurance if Lessor desires to obtain some form of earthquake insurance in the
future, if and when available, on terms acceptable to Lessor.
Provided Lessor is carrying earthquake insurance, Lessee shall pay any
deductible up to $1,500.00 per claim, but shall not be obligated for any
deductible in excess of $1,500.00 per claim.
<PAGE>
32. Not Applicable.
33. TAXES. Lessee, at its cost, shall have the right, at any time, to seek a
reduction in the assessed valuation of the premises or to contest any real
property taxes that are to be paid by Lessee. If Lessee seeks a reduction or
contests the real property taxes, the failure on Lessee's part to pay the real
property taxes shall not constitute a default as long as Lessee complies with
the provisions of this paragraph and posts a bond or Letter of Credit payable to
Lessor for all delinquent taxes and proposed penalties. Lessor shall not be
required to join in any proceeding or contest brought by Lessee unless the
provisions of any law requires that the proceeding or contest be brought by or
in the name of Lessor or any owner of the Premises. In that case, Lessor shall
join in the proceeding or contest or permit it to be brought in Lessor's name as
long as Lessor is not required to bear any cost. Lessee, on final determination
of the proceeding or contest, shall immediately pay or discharge any decision or
judgment rendered, together with all costs, charges, interest and penalties
incidental to the decision or judgment. Tax bills will be sent no the address in
the Notice Section, Article #17. If at any time during the term of this Lease a
tax or excise on rents or other tax, however described, is levied or assessed
against Lessor, as substitute in whole or in part for real property taxes
assessed or imposed on the premises Lessee shall pay before delinquency such tax
or excise on rents or such other tax to the extent that such tax or excise on
rents or such other tax is substitute in whole or in part for real property
taxes on the premises. In the event that a tax or excise on rents is levied or
assessed against Lessor, as a substitute in whole or in part for taxes assessed
or imposed on the premises, and the taxing authority takes the position that
Lessee cannot pay and discharge such tax on behalf of Lessor, then at the
election of Lessor, Lessor may increase the rent charged hereunder by the exact
portion of such tax which is a substitute in whole or in part for real property
taxes on the premises, and Lessee agrees to pay said portion in additional rent.
Lessee further agrees to pay any sewer or water usage fees or taxes that may be
assessed against the property as a result of Lessee's usage of premises.
34. HAZARDOUS MATERIALS,
A. As used herein, the following term shall have the following
meaning:
(1) The term "Hazardous Materials" shall mean (i)
polychlorinated biphenyls; (ii) radioactive materials: and (iii) any chemical,
material or substance now or hereafter defined as or included in the definitions
of "hazardous substance","hazardous waste" ,"hazardous material" , "extremely
hazardous waste" , "restricted hazardous waste" , or "toxic substances" or words
of similar import under any applicable laws including, without limitation, any
material or substance which is (i) defined as "hazardous waste", extremely
hazardous waste" or "restricted hazardou's waste" under Section 25115, 25117 or
15122.7, or listed pursuant to Section 25140 of the California Health and Safety
Code, Division 20, Chapter 6.5 (Hazardous Waste Control law), (ii) defined as
"hazardous substance" under Section 25316 of the California Health and Safety
Code, Division 20, Chapter 6.8 (Carpenter-Presely-Tenner Hazardous Substances
Account Act.),,, (iii) defined as "hazardous material", "hazardous substance",
or "hazardous waste" under Section 25501 of the California Health and Safety
Code, Division 20, Chapter 6.95 (Hazardous Materials Release, Response, Plans
and Inventory), (iv) defined as a "hazardous substance" under Section 25281 of
the California Health and Safety Code, Division 20, Chapter 6.7 (Underground
Storage of Hazardous Substances), (v) petroleum, (vi)asbestos, (vii) listed
under Article 9 or defined as "hazardous" or "extremely hazardous" pursuant to
Article 11 of Title 22 of the California Administrative Coder Division 4,
Chapter 20, (viii) designed as "hazardous substance" pursuant to Section 311 of
the Federal Water Pollution Control Act, 33 U.S.C. 1251 et seq. or listed
pursuant to Section 307 of the Federal Water Pollution control Act (33 U.S.C.
1317), (ix) defined as a "hazardous waste", pursuant to Section 1004 of the
Federal Resource Conservation and Recovery Act, 42 U.S.C. 6903. et seq., (x)
defined as "hazardous Substance" pursuant to Section 101 of the Comprehensive
Environmental Respibsem Compensations, and Liability Act, 42 U.S.C. 9601 et
seq., or,(xi) regulated under the Toxic Substances Control Act, 156 U.S.C, 2601
et seq.
<PAGE>
(2) The term "Hazardous Materials Laws" shall mean any local,
state and federal laws, rules, regulations, or ordinances relating to the use,
generation, manufacture, installation, release, discharge, storage or disposal
of Hazardous Material.
(3) The term "Landlord's Agents" as used in this Section 34.0
shall mean Landlord's agents, representatives, employees, contractors,
subcontractor, directors, officers, partners and invitees,
(4) The term "Tenant's Agents" used in this Section 34.0 shall
mean Tenant's agents, representatives, employees, contractors, subcontractors,
directors, officers, partners, invitees or any other person in or about the
Premises.
B TENANTS'S RIGHT TO INVESTIGATE: Tenant shall be entitled to cause
such inspections, soils and groundwater tests, and other evaluations to be made
of the Premises as Tenant deems necessary regarding (i) the presence and use of
Hazardous Materials in or about the Premises, and (ii) the potential for
exposure to Tenant's employees and other persons to any Hazardous Materials used
and stored by previous occupants in or about the Premises. Tenant shall provide
Landlord with copies of all inspections, test and evaluation, Tenant shall
indemnify, defend and hold Landlord harmless from any cost, claim or expense
arising from such entry by Tenant or from the performance of any such
investigation by such tenant,
C. LANDLORD'S REPRESENTATIONS: Landlord hereby represents and
warrants to the best of Landlord's knowledge that the Premises are, as of the
date of this Lease, in compliance with all Hazardous Material laws,
D. TENANT'S OBLIGATION TO INDEMNIFY: Tenant, at its sole cost and
expense, shall indemnify, defend, protect and hold Landlord and Landlord's
Agents from and against any and all cost or expenses, including those described
under subparagraphs (a), (b) and (c) hereinbelow set forth, arising from or
caused in whole or in part, directly or indirectly by:
(1) Tenant's or Tenant's Agents' use, analysis, storage,
transportation, disposal, release, threatened release, discharge or generation
of Hazardous Material to, in, on, under, about or from the Premises; or
(2) Tenant's or Tenant's Agents failure to comply with Hazardous
Material laws; or
(3) Any release of Hazardous; Material to, in, on, under, about,
from or onto the Premises caused by Tenant or Tenant's Agents occurring during
the Lease Terms except ground water contamination from other parcels where the
source is from off the Premises.
The cost and expenses indemnified against include, but are not limited
to the following:
(a) Any and all claims, actions, suits, proceedings, losses,
damages, liabilities, deficiencies, forfeitures, penalties, fines, punitive
damages, cost or expenses;
(b) Any claim, action, suit or proceeding for personal injury
(including sickness, disease, or death), tangible or intangible property damage,
compensation for lost wages, business income, profits or other economic loss,
damage to the natural resources of the environment, nuisance, pollution,
contamination, leaks, spills, releases or other adverse effects on the
environment;
(c) The cost of any repair, clean-up, treatment or detoxification
of the Premises necessary to bring the Premises into compliance with all
Hazardous Material Laws, including the preparation and implementation of any
closure, disposal, remedial action, or other actions with regard to the
Premises, and expenses (including, without limitation, reasonable attorney's
fees and consultants fees, investigation and laboratory fees, court cost and
litigation expenses).
E. TENANT'S OBLIGATION TO REMEDIATE CONTAMINATION: Tenant shall, at
its sole cost and expense, promptly take any and all action necessary to
remediate contamination of the Premises by Hazardous Material by Tenant &
Tenants Agents.
<PAGE>
F. OBLIGATION TO NOTIFY: Landlord and Tenant shall each give written
notice to the other as soon as reasonably practical of (i) any communication
received from any governmental authority concerning Hazardous Material which
relates to the Premises and (ii) any contamination of the Premises by Hazardous
Material which constitutes a violation of any Hazardous Material law.
G. SURVIVAL: The obligations of Tenant under this Paragraph 34.0
shall survive the expiration or earlier termination of this Lease,
H. CERTIFICATION AND CLOSURE: On or before the expiration or earlier
termination of the term of the Lease, Tenant shall deliver to Landlord a
certification executed by Tenant stating that, to the best of Tenant's
knowledge, there exists no violation of Hazardous Material Laws resulting from
Tenant obligation in Paragraph 34.0. If pursuant to local ordinance, state or
federal law, Tenant is required, at the expiration of the Lease Term, to submit
a closure plan for the Premises to a local, state or federal agency, then Tenant
shall furnish to Landlord a copy of such plan.
I. PRIOR HAZARDOUS MATERIALS: Lessee shall have no obligation to
clean up, or to comply with any law regarding, or to reimburse, indemnify,
defend, release or hold Lessor harmless with respect to, any Hazardous Materials
or wastes discovered on the Premises which were not introduced into, in, on or
under the Premises, or used, stored, dispose of or transported in, on or under
the Premises by Lessee or Lessee's Agents.
35. TENANT IMPROVEMENTS: Landlord shall perform and pay for the following:
a) recarpet those floors currently carpeted as shown in Exhibit "B"
b) repaint the interior walls
c) clean and wax the tiled floors
36. PRO RATA SHARE: This Lease is for a multi tenant building and the Lessor
will perform and pay for maintenance, taxes, insurance, landscaping and
utilities that are not separately metered or easily separated and Lessor will be
reimbursed by Lessee on a pro rata basis. Lessee's pro rata share of the
expenses represents 37.2% of the building.
37. APPROVALS: Whenever the Lease requires the approval or consent of either
Lessor or Lessee, such approval or consent shall not be unreasonably withheld or
delayed,
38. AUTHORITY: Each party is, corporation (or a partnership), each individual
executing the Lease on behalf of said corporation (or partnership) represents
and warrants that he or she is duly authorized to execute and deliver the Lease
on behalf of said corporation in accordance with the by-laws of said corporation
(or the partnership), that no other party's approval of consent to such
execution and delivery is require and that the Lease is binding upon said
corporation (or partnership) in accordance with its terms. Lessor and Lessee
shall, within ten (10) days after a written request therefore from Lessee and
Lessor, shall, deliver to Lessee and Lessor a certified copy of the resolution
of the board of directors of said corporation (or a certificate of the partners
of said partnership) authorizing or ratifying the execution of the Lease,
39, BROKERAGE COMMISSION: Lessor and Lessee each warrant to the other party
that MacMillan, Moore & Buchanan Inc. is the only broker involved in this
transaction, Lessor shall pay the commission due MacMillan, Moore & Buchanan per
separate agreement, Lessor and Lessee further warrant to each other that no
other broker or finder can properly claim a right to a commission or finder's
fee based upon contract between claimant and the warranting party with respect
to the other party, Lessor and Lessee shall indemnify, defend and hold the other
party harmless from and against any loss, cost or expense, including but not
limited to attorney's fees and court cost, resulting from any claim for fee or
commission by any other broker or finder in connection with the Premises and the
Agreement resulting from the indemnifying party's actions,
<PAGE>
40. ATTORNEYS FEE: In any action or legal proceeding brought by Lessor or
Lessee to enforce the rights or obligations created by the Lease, the prevailing
party shall be awarded its cost, including reasonable attorneys' fees,
41. EFFECT OF ADDENDUM: In the event of any inconsistency between this
Addendum and the Lease, the terms of this Addendum shall prevail.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Addendum as of the day
and year first above written.
LESSOR: LESSEE
Berg Family Partnership Pacific Pay Video Limited
By: By:
Its:2/28/94 Its:2/25/94
<PAGE>
Exhibit A
- ---------
Floor Plan of 405 Tasman Drive.
Exhibit B
- ---------
Floor Plan of 405 Tasman Drive. Plans for tile and carpet.
<PAGE>
LEASE EXTENSION AND MODIFICATION AGREEMENT
This Lease Extension and Modification Agreement ("Agreement"), is made and
entered into this 2nd day of January, 1996 by and between Berg Family
Partnership ("Berg") and Pacific Pay Video Limited ("PPV"), a California
corporation.
RECITALS:
A. PPV currently leases from Berg approximately 9,660 square feet of space
located at 405 Tasman Drive, Sunnyvale, California (the "Premises")
pursuant to that certain lease dated February 16, 1994 (the "Lease").
B. The term of the Lease expires on February 29, 1996.
C. PPV has elected and Berg has agreed to modify the terms of the Lease
and extend the term Lease subject to the terms and conditions set forth
herein:
NOW, THEREFORE, the parties hereto agree to amend the Lease as follows:
1. TERM: The term of the Lease is hereby extended for seven (7) months
until September 30, 1996.
2. RENT: PPV shall pay to Berg as rent for the Premises during the
extended lease term, a monthly rent payable in advance on the first day of
each calendar month as follows:
February 1, 1996 - February 29, 1996 $20,586.30
March 1, 1996 - September 30, 1996 $21,262.50
3. SECURITY DEPOSIT: PPV shall increase the security deposit by
$14,693.70. The additional security deposit amount of $14,693.70 shall be
paid to Berg prior to February 1, 1996.
4. PREMISES: The "Premises" shall include 9,660 square feet of space
located at 405 Tasman Drive. On February 1, 1996, the Premises shall be
expanded to include an additional 18,690 square feet of space located in
the building that PPV currently occupies, totaling 28,350 square feet of
space and 100% of the subject building. The address for the additional
space (18,690 square feet) is commonly referred to 1190 Morse Avenue,
Sunnyvale, CA. As a material inducement to the execution and delivery of
this Agreement by Berg, PPV is leasing the additional 18,690 square feet of
space in an "AS IS" physical condition and in an "AS IS" state of repair,
except that Berg shall repair water-damaged ceiling tiles. Berg shall not
provide any improvements to the Premises or the additional 18,690 square
feet of space, provided however, Berg shall provide a new water-tight roof
for the Premises (including the additional space).
5. OPTION TO EXTEND: Berg hereby grants to PPV one (1) option to extend
the term of the Lease for a period of six (6) months (the "Option Term") on
the following terms and conditions:
<PAGE>
(i) Lessee shall give Lessor written notice of its exercise of the
Option Term no later than June 30, 1996.
(ii) Lessee may not exercise the Option Term if Lessee is in default
according to the terms and conditions of the Lease.
(iii) All terms and conditions of the Lease and this Agreement shall
apply during the Option Term.
(iv) Rent for the Premises during the Option Term shall be payable
in advance on the first day of each calendar month as follows:
September 30, 1996 - March 31, 1997 $21,262.50
6. PRO RATA SHARE: Effective February 1, 1996, PPV's pro rata share shall
be increased to 100%.
7. BROKERAGE COMMISSION: Berg and PPV acknowledge that there are no
brokers involved with the terms of this Agreement and Berg shall have no
liability for any brokerage commission pursuant to this extended term.
8. LESSEE CERTIFICATION: As a condition of Berg's agreeing to the
extension of the Lease, PPV hereby certifies and confirms that as of the
date of this Agreement, PPV is not in violation of any government
regulations, ordinances, rules or laws, including those pertaining to
Hazardous Waste and/or Hazardous Materials.
9. RATIFICATION OF LEASE: Except as modified herein, the Lease is hereby
ratified, approved and confirmed upon all the terms, covenants, and
conditions.
BERG FAMILY PARTNERSHIP, PACIFIC PAY VIDEO LIMITED,
a California general partnership a California corporation
By:/s/Carl E. Jones By:/s/James A. Barth
Title: Authorized Agent Title:CFO
Date:1/4/96 Date:1/4/96
<PAGE>
SECOND LEASE EXTENSION AGREEMENT
This Second Lease Extension Agreement ("Agreement"), is made and entered into
this 12th day of July, 1996 by and between Berg Family Partnership ("Berg") and
Pacific Pay Video Limited ("PPV"), a California corporation.
RECITALS:
A. PPV currently leases from Berg approximately 28,350 square feet of space
located at 405 Tasman Drive, Sunnyvale, California (the "Premises")
pursuant to that certain lease dated February 16, 1994 and that certain
lease extension and modification agreement dated January 2, 1996
(collectively referred to herein as the "Lease").
B. The term of the Lease expires on September 30, 1996.
C. PPV has elected to exercise their option to extend the term of the Lease
pursuant to Section 5 of that certain lease extension and modification
agreement dated January 2, 1996 (the "Extension") subject to the terms and
conditions set forth herein:
NOW, THEREFORE, the parties hereto agree to amend the Lease as follows:
1. TERM: The term of the Lease is hereby extended for six (6) months
until March 31, 1997 as provided for in Section 5 of the Extension.
2. RENT. PPV shall pay to Berg as rent for the Premises during this
extended term, monthly rent payable in advance on the first day of each
calendar month as follows:
October 1: 1996 - March 31, 1997 $21,262.50
3. BROKERAGE COMMISSION: Berg and PPV acknowledge that there are no
brokers involved with the terms of this Agreement and Berg shall have no
liability for any brokerage commission pursuant to this extended term.
4 LESSEE CERTIFICATION: As a condition of Berg's agreeing to this
Agreement, PPV hereby certifies and confirms that as of the date of this
Agreement, PPV is not in violation of any government regulations,
ordinances, rules or laws, including those pertaining to Hazardous Waste
and/or Hazardous Materials.
5. AUTHORITY: Each party executing this Agreement represents and warrants
that he or she is duly authorized to execute and deliver this Agreement.
If executed on behalf of a corporation, that this Agreement is executed in
accordance with the by-laws of said corporation (or a partnership that this
Agreement is executed in accordance with the partnership agreement of such
partnership), that no other party's approval or consent to such execution
and delivery is required, and that this Agreement is binding upon said
individual, corporation (or partnership) as the case may be in accordance
with its terms.
<PAGE>
6. RATIFICATION OF LEASE: Except as modified herein, the Lease is hereby
ratified, approved and confirmed upon all the terms, covenants, and
conditions.
BERG FAMILY PARTNERSHIP, PACIFIC PAY VIDEO LIMITED,
a California general partnership a California corporation
By:/s/Carl E. Jones By: /s/ James A. Barth
Title: Authorized Agent Title:CFO
Date: 7/29/96 Date: 7/15/96
<PAGE>
EXECUTION COPY
EXHIBIT 10.22
PPV (THAILAND) CO., LTD,
PLEDGE OF SHARES AGREEMENT
--------------------------
THIS AGREEMENT is made on December 29, 1995 among
- --------------
(1) MagiNet Corporation, a company registered under the laws of the State of
California and having its registered office at 405 Tasman Drive, Sunnyvale,
California 94089, U.S.A., (the "Pledgor") as Pledgor;
(2) Each of the Noteholders named in Annex 1 (the "Pledgees") as Pledgees; and
(3) The Chase Manhattan Bank, N.A. (the "Collateral Agent") as collateral agent
for the Pledgees.
WHEREAS:
- -------
The Pledgor has entered into the Note Agreement with the Pledgees and the other
Note Documents on August 15, 1995 which contemplate the entering into of this
Agreement.
NOW IT IS HEREBY AGREED as follows:
- -----------------------
1. Definitions
-----------
1.1 In this Agreement, expressions defined in the Note Agreement shall
have the same meanings, except as otherwise defined herein.
"Company" means PPV (Thailand) Co., Ltd., a Thai limited company
(registration number 420/2537) with registered office at 425/1 Soi
Sirijulsavek, Silom Road, Kwaeng Silom, Khet Bangrak, Bangkok,
Thailand.
"Maximum Foreign Pledge" means (i) prior to the occurrence of a Change
in Tax Law Event, the aggregate number of Shares representing 66% (or
such other threshold amount as may become relevant after the date
hereof in determining whether a pledge under one or more pledge
agreements would result in the undistributed earnings of the Company,
as determined for U.S. Federal income tax purposes, being treated as a
deemed dividend to the Pledgor) of the total combined voting power of
all classes of Shares entitled to vote; and (ii) on and following the
occurrence of a Change in Tax Law
<PAGE>
2
Event, the aggregate number of Shares representing the maximum total
combined voting power of all classes of Shares entitled to vote that
may be pledged without creating a deemed dividend to the Pledgor.
"Pledged Shares" means the 660,000 shares of the Company owned by
Pledgor, share numbers 1 to 590,000 and 600,001 to 670,000, inclusive.
"Secured Obligations" means (i) the payment due of the principal of
and interest in respect of the Notes and payment of all other
obligations and liabilities (including without limitation indemnities,
premium, if any, fees and interest thereon) of the Pledgors, now
existing or hereafter incurred under, arising out of or in connection
with the Note Agreement, each Note or any other Note Document (other
than the Warrants); and (ii) the due performance and compliance with
the terms of the Note Documents by the Pledgors.
"Shares" means all the issued and outstanding shares or similar equity
interests of the Company (and any options, warrants or other rights to
purchase such shares or similar equity interests) now or hereafter
owned by the Pledgor.
1.2 Save where the contrary is indicated, any reference in this Agreement
to this Agreement or any other document shall be interpreted as a
reference to this Agreement or, as the case may be, such other
document as the same may from time to time be amended or novated.
2. Pledge
------
2.1 The Pledgor hereby pledges the Pledged Shares to the Pledgees as
collateral for due and punctual payment and performance of the Secured
Obligations;
2.2 The Pledgor shall deliver to the Collateral Agent (on behalf of the
Pledgees) the share certificates representing the Pledged Shares as
described in Annex 2 hereto evidencing the Pledgor's ownership
thereof;
2.3 The Pledgor undertakes with the Collateral Agent (for the account of
the Pledgees) that at any time if the Pledgor shall acquire (by
purchase, stock dividend or otherwise) at any time or from time to
time after the date hereof, any Shares (other than Pledged Shares)
and, following such acquisition, the Pledged Shares (together with any
Shares pledged to the Pledgees under another pledge agreement) are
less than the then-
<PAGE>
3
existing Maximum Foreign Pledge, then the Pledgor will forthwith (i)
pledge on a first priority basis under another pledge agreement in
form and substance satisfactory to the Collateral Agent (on behalf of
the Pledgees), and deposit as security with the Collateral Agent (on
behalf of the Pledgees), such additional Shares as are necessary so
that the Pledged Shares and such additional Shares so pledged under
another pledge agreement are equal to the then-existing Maximum
Foreign Pledge and (ii) deliver to the Collateral Agent certificates
therefor. The Pledgor will promptly deliver to the Collateral Agent a
certificate executed by a Responsible Officer describing such
additional Shares and certifying that the same have been duly pledged
with the Pledgees under such other pledge agreement. Such other
Shares shall be deemed to be included within the definition of
"Pledged Shares" for all purposes herein.
2.4 If a Change in Tax Law Event occurs, then the Pledgor shall forthwith
pledge under another pledge agreement in form and substance
satisfactory to the Collateral Agent (on behalf of the Pledgees) that
portion of the Shares owned by the Pledgor and not previously pledged
to the Pledgees. The Pledgor will promptly deliver to the Collateral
Agent a certificate executed by a Responsible Officer describing such
additional Shares and certifying that the same have been duly pledged
with the Pledgees under such other pledge agreement.
2.5 The Pledgor shall, and agrees (including upon request by the
Collateral Agent), to make, execute, do and perform all such acts,
deeds, documents, instruments of transfer, matters and things as may
be reasonably required or deemed advisable (i) to ensure that the
Collateral Agent (for the account of the Pledgees) has in its
possession (a) the share certificates evidencing the Shares, and (b)
notices to the Company in the form set forth in Annex 3 duly
acknowledged by the Company or any subsequently appointed share
registrar and (ii) to comply with the requirements of Section 7.13 of
the Note Agreement (which provision is incorporated in full herein by
reference) and do such further acts and things (including, without
limitation, paying all required documentary and other stamp tax) and
execute and deliver to the Collateral Agent (on behalf of the
Pledgees) such additional conveyances, assignments, agreements and
instruments (including without limitation one or more pledge
agreements in form and substance satisfactory to the Collateral Agent)
as may be reasonably required or deemed advisable to carry into effect
the purposes of this Agreement or to further assure and confirm unto
the Pledgees or the Collateral Agent their respective rights, powers
and remedies hereunder. The Collateral Agent shall not be liable for
any failure of the Pledgor to perform its duties pursuant to this
Section 2.5.
2.6 The Pledgor agrees that if at any time by reason of amalgamation,
reorganization, takeover, share certificate separation or for any
other
<PAGE>
4
reason whosoever whereby the Pledged Shares become represented by
other shares, share certificates, securities, debentures or cash
in place of the share certificates delivered under Clause 2.2
above, such other shares, share certificates, securities,
debentures or cash shall forthwith on receipt be deposited and
pledged with the Pledgees. Such other shares, share certificates,
securities, debentures or cash shall be deemed to be included
within the definition of the "Pledged Shares" for all the
purposes under this Agreement.
3. Representations and Covenant
----------------------------
3.1 The Pledgor represents to the Pledgees and the Collateral Agent
that:
(a) the Shares have been duly and validly issued, are fully paid, are
legally and beneficially owned by the Pledgor, and are free of
any pledge or other encumbrance;
(b) all authorizations required for the Pledgor to execute and
perform its obligations under this Agreement have been obtained
and delivered to the Collateral Agent and are in full force and
effect;
(c) the Pledgor has full power, authority and legal right to pledge
the Shares and to execute and perform its obligations under this
Agreement and the execution and performance of its obligations
under this Agreement will not breach any agreement to which the
Pledgor is a party or violate its constitutional documents; and
(d) this Agreement (and any other pledge agreement entered into as
contemplated by this Agreement) following delivery of share
certificates according to Clause 2.2 and entry of the pledge in
the share register book of the Company will constitute valid
security in the Pledged Shares.
3.2 The Pledgor covenants to the Pledgees that:
(a) The Pledgor shall upon execution of this Agreement (and any other
pledge agreement entered into as contemplated by this Agreement)
join with the Pledgees in notifying the Share Registrar of the
Company of the pledge hereby created;
(b) The Pledgor shall, in connection with this Agreement (and any
other pledge agreement entered into as contemplated by this
Agreement), cause the Company to furnish the Collateral Agent
with an acknowledgment in the form set forth in Annex 4;
<PAGE>
5
(c) the Pledgor will not transfer, pledge or otherwise dispose of the
Shares or any of them;
(d) the Pledgor shall pay in a timely manner all calls for unpaid
capital on the Shares; and
(e) the Pledgor will not assign, sell or otherwise dispose of, grant
any option with respect to, or create, incur, assume or suffer to
exist any Lien on any portion of the Pledged Shares or any other
Shares owned by it, except; (i) Liens in favor of Persons other
than the Pledgees permitted under Section 8.1 of the Note
Agreement; and (ii) Liens created by this Agreement and by any
other Pledge Document.
4. Dividends and Other Distributions
---------------------------------
4.1 Unless and until an Event of Default is continuing, all cash dividends
or other cash distributions payable in respect of the Pledged Shares
shall be paid directly to the Pledgor; provided, that, notwithstanding
any of the foregoing, all cash dividends payable in respect of the
Pledged Shares which are determined by the Collateral Agent to
represent in whole or in part an extraordinary, liquidating or other
distribution in return of capital (each, a "Liquidating Dividend")
shall be paid directly to the Collateral Agent and retained by it as
part of the collateral hereunder unless the event creating such
Liquidating Dividend was permitted by, and did not otherwise result in
an Event of Default under, the Note Agreement.
4.2 Upon an occurrence and continuance of Event of Default, all cash
dividends or other cash distributions payable in respect of the
Pledged Shares shall be paid directly to the Collateral Agent (for the
account of the Pledgees) as collateral.
4.3 The Pledgees shall also be entitled to receive directly, and to retain
as part of the collateral hereunder:
(a) all other or additional securities of the Company paid or
distributed by way of dividend in respect of the Pledged Shares;
(b) all other or additional securities or property (including cash)
paid or distributed in respect of the Pledged Shares by way of
share split, spin-off, split-up, reclassification, combination of
shares or similar rearrangement; and
(c) all other or additional securities or property which may be paid
in respect of the Pledged Shares by reason of any
<PAGE>
6
consolidation, merger, exchange of shares, conveyance of assets,
liquidation or similar corporate reorganization.
5. Voting Rights
-------------
5.1 Unless and until an Event of Default is continuing, the Pledgor may
vote the Pledged Shares provided that the Pledgor shall cast no vote
or take any action which would violate or be inconsistent with any of
the terms of this Agreement, any other Note Document or any other
instrument or agreement referred to herein or therein or which would
have the effect of impairing the position or interests of the
Collateral Agent or the Pledgees. All such rights of the Pledgor to
vote shall cease upon the earlier to occur of (i) delivery to the
Pledgor of written notice from any Pledgee pursuant to Section 9.1 of
the Note Agreement or the Collateral Agent stating that an Event of
Default has occurred and is continuing; or (ii) a Responsible Officer
obtaining knowledge of any condition or event which constitutes an
Event of Default, when Clause 5.2 shall become applicable; provided,
that the Collateral Agent shall be under no duty to deliver the
written notice described in clause (i) of the foregoing unless and
until it has received a notice from any Pledgee stating that an Event
of Default has occurred and is continuing.
5.2 Upon an occurrence and continuance of Event of Default, the Pledgor
shall appoint the Pledgees and/or person or persons from time to time
nominated by the Pledgees to be their proxy or proxies authorized to
attend and vote in respect to all of the Pledged Shares in all
meetings of the shareholders of the Company.
6. Assignment and Transfer
-----------------------
The obligation of the Pledgor under this Agreement shall be absolute and
unconditional and shall remain in full force and effect and shall not be
released, discharged, terminated or otherwise affected by any assignment or
transfer in whole or in part of any Note. The Pledgor hereby consents to
any assignments or transfers or any re-assignments or re-transfers of any
of the Notes either in whole or in part, regardless of whether or not a
notice of such assignment or transfer or re-assignments or re-transfers has
been given to the Pledgor. Each assignee or transferee of any Note shall
have full security interest in the Pledged Shares in proportion to the
amount of the Note assigned or transferred. Promptly upon notice of any
such assignment or transfer, the Pledgor shall (i) if so requested by such
assignee or transferree, by the Pledgee making such assignment or transfer
or by the Collateral Agent, execute a novation agreement in connection
therewith and enter into a new pledge agreement substantially in the form
of this Agreement, and (ii) cause the Company to enter into the share
register book of the Company the name and address of each such assignee or
transferee.
<PAGE>
7
7. Expenses
--------
The Pledgor covenants and agrees to pay to the Pledgees and the Collateral
Agent from time to time, and the Pledgees and the Collateral Agent shall be
entitled to, reasonable compensation for all services rendered by any of
them, and the Pledgor agrees to indemnify and reimburse to the Pledgees and
the Collateral Agent, all expenses, disbursements and costs reasonably
incurred or made by the Pledgees or the Collateral Agent, as the case may
be, in relation to the execution, performance and enforcement of this
Agreement.
8. Enforcement
-----------
8.1 If any Event of Default occurs and is continuing, the Collateral Agent
shall give notice to the Pledgor requiring it to remedy the default
within 7 (seven) days from the date of receipt of said notice.
Failure to remedy the default shall cause the pledge constituted under
Clause 2 to become immediately enforceable, provided that the
Collateral Agent notifies the Pledgor that the Required Holders have
so resolved. Once the pledge constituted under Clause 2 has become
enforceable, the Pledgees may sell the Pledged Shares by public
auction and take any other actions or exercise any other remedies
permitted by law. The Pledgor hereby authorized the Pledgees and/or
the Collateral Agent, any of their employees, agents or
representatives to conduct and participate in any public auction for
the purpose of enforcement.
8.2 In the enforcement of the pledge, the Collateral Agent may select any
or all of the Pledged Shares to be sold, as the Pledgees may instruct
in writing.
8.3 The proceeds (net of expenses) of the sale of the Pledged Shares at
any public auction shall be applied towards paying or discharging all
amounts to which the Pledgees are entitled. If and to the extent that
such proceeds are insufficient for such purpose, the Pledgor shall be
liable for the deficiency.
9. Waivers
-------
All rights of the Pledgees under this Agreement shall continue unimpaired,
and the Pledgor shall remain obligated in accordance with the terms of this
Agreement, notwithstanding the substitution of any of the Pledged Shares
held under this Agreement at any time, or of any rights or interest in this
Agreement, or any delay, extension of time, renewal, compromise or other
indulgence granted by the Pledgees in reference to any of the Secured
Obligations (including any renewal, extension, amendment or modification
of, or addition or supplement to or deletion from, the Note Agreement, any
Note or any other instrument or agreement referred to therein or any
assignment or transfer of any thereof), the Pledgor hereby waiving all
notice of any such delay, extension, release, substitution, renewal,
compromise or other
<PAGE>
8
indulgence, and hereby consenting to be bound thereby as fully and
effectually as if had expressly agreed thereto in advance.
10. Termination
-----------
The pledge constituted under Clause 2 shall remain in full force and effect
until the earlier of (a) the date on which the pledge may be released in
accordance with the terms of the Note Agreement and (b) the date on which
the Secured Obligations have been paid and discharged in full. After such
date, the Collateral Agent (for the account of the pledgees) shall at the
written request and expense of the Pledgor, terminate and discharge with no
warranty the pledge hereby created.
11. Rights and Remedies
-------------------
11.1 All rights and remedies of the Pledgees under this Agreement are
in addition to and not in limitation of any rights by law. The
rights and remedies granted to the Pledgees under this Agreement
shall be cumulative and may be exercised singly or concurrently
on any one or more occasions. This Agreement shall be in
addition to and shall be independent of every guarantee,
indemnity or other collateral which any of the Pledgees may at
any time hold for the Secured Obligations.
11.2 Nothing contained in this Agreement is intended to, or shall
operate so as to, prejudice or affect any guarantee, indemnity or
other collateral of any kind whatsoever which any of the Pledgees
may have for the Secured Obligations or any of them or any right,
remedy or privilege of any of the Pledgees thereunder.
11.3 Any receipt, release or discharge of the collateral created by,
or of any liability arising under, this Agreement may be given by
the Collateral Agent (acting in accordance with the instructions
of the Pledgees) and shall not release or discharge the Pledgor
from any liability for the same or any other monies which may
exist independently of this Agreement. Where such receipt,
release or discharge relates only to part of the Pledges Shares
such receipt, release or discharge shall not prejudice or affect
the collateral hereby created in relation to the remainder of the
Pledged Shares.
11.4 The Collateral Agent may in its discretion grant time or other
indulgence, or make any other arrangement, variation or release
with, the Pledgor or any other person (whether or not party
hereto and whether or not jointly liable with the Pledgor) in
respect of the Secured Obligations or of any other collateral
therefore or guarantee in respect thereof without prejudice
either to the collateral created by or pursuant to this Agreement
or to the liability of the Pledgor for the Secured Obligations.
<PAGE>
9
12. Notices
-------
(A) Each communication under this Agreement shall be made by facsimile
transmission or telex or registered mail or otherwise in writing.
Each communication or document to be delivered under this Agreement
shall be sent to the addressee at the facsimile number or telex number
or address and marked for the attention of the person (if any) from
time to time designated by the relevant party to the Collateral Agent
(in the case of the Collateral Agent, by it to each other party) for
the purpose of this Agreement. The initial facsimile and telex
number, address and person so designated (if any) by each party are
set out under its name on Annex 5.
(B) Any communication from the Pledgor shall be irrevocable and shall not
be effective until received by the Collateral Agent. Any other
communication to any person shall be deemed to be received by it (if
sent by facsimile transmission or telex) on the next Business Day in
the place to which it is sent after dispatch with transmission report
or, as the case may be, answerback or (in any other case) two Business
Days (or five Business Days if sent from one country to another) after
the same has been sent by post with postage prepaid (which shall be
airmail in the case of international post).
(C) All communications and documents shall be in English.
13. Governing Law
-------------
This Agreement shall take effect under and be governed by and construed in
accordance with the laws of Thailand.
14. Amendments
----------
None of the terms or provisions of this Agreement may be altered, modified,
amended or waived except as the Collateral Agent (acting in accordance with
the written instructions of the Pledgees) may consent thereto in writing.
15. Successors and Assignees
------------------------
This Agreement shall be binding upon and ensure to the benefit of each
Pledgee and the Collateral Agent and their respective successors and
permitted assigns. The Pledgor shall not assign its rights or obligations
hereunder without the consent of the Collateral Agent (acting on the
written instructions of the Pledgees). Any bank into which the Collateral
Agent may be merged, or any corporation or bank resulting from any merger,
conversion or consolidation to which the Collateral Agent shall be a party,
or any corporation to which the Collateral Agent shall sell or otherwise
transfer all or substantially all of its corporate trust business shall be
the successor to the Collateral Agent under this
<PAGE>
10
Agreement without the execution or filing of any document or any further
act on the part of the parties hereto.
16. Invalidity of Any Provisions
----------------------------
If any of the provisions of the Assignment becomes invalid, illegal or
unenforceable in any respect under any law, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected
or impaired.
<PAGE>
IN WITNESS whereof the duly authorized representatives of the parties hereto
have executed this Agreement the day and year first before written.
The Pledgor:
- ------------
MAGINET CORPORATION
By:/s/ J.A. Barth
--------------------------
Name: JAMES A. BARTH
Title: CFO
The Pledgees:
- -------------
NEW YORK LIFE INSURANCE COMPANY
By:
--------------------------
Name:
Title:
THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK
By:
--------------------------
Name:
Title:
WASLIC COMPANY II
By:
--------------------------
Name:
Title:
NAMTOR BVC LP
By:
--------------------------
Name:
Title:
<PAGE>
11
IN WITNESS whereof the duly authorized representatives of the parties hereto
have executed this Agreement the day and year first before written.
The Pledgor:
- ------------
MAGINET CORPORATION
By:
--------------------------
Name:
Title:
The Pledgees:
- -------------
NEW YORK LIFE INSURANCE COMPANY
BY:/s/Mark C. Boyce
--------------------------
Name: Mark C. Boyce
Title: Investment Vice President
THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK
By:
--------------------------
Name:
Title:
WASLIC COMPANY II
BY:
--------------------------
Name:
Title:
NAMTOR BVC LP
By:
--------------------------
Name:
Title:
<PAGE>
11
IN WITNESS whereof the duly authorized representatives of the parties hereto
have executed this Agreement the day and year first before written.
The Pledgor:
- ------------
MAGINET CORPORATION
By:
--------------------------
Name:
Title:
The Pledgees:
- -------------
NEW YORK LIFE INSURANCE COMPANY
By:
--------------------------
Name:
Title:
THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK
By:/s/ Peter W. Oliver
--------------------------
Name: Peter W. Oliver
Title: Managing Director
WASLIC COMPANY II
By:
--------------------------
Name:
Title:
NAMTOR BVC LP
By:
--------------------------
Name:
Title:
<PAGE>
11
IN WITNESS whereof the duly authorized representatives of the parties hereto
have executed this Agreement the day and year first before written.
The Pledgor:
- ------------
MAGINET CORPORATION
By:
--------------------------
Name:
Title:
The Pledgees:
- -------------
NEW YORK LIFE INSURANCE COMPANY
BY:
--------------------------
Name:
Title:
THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK
By:
--------------------------
Name:
Title:
WASLIC COMPANY II
BY:/s/ Daniel F. Lindley
--------------------------
Name: Danel F. Lindley
Title: President
NAMTOR BVC LP
By:
--------------------------
Name:
Title:
<PAGE>
11
IN WITNESS whereof the duly authorized representatives of the parties hereto
have executed this Agreement the day and year first before written.
The Pledgor:
- ------------
MAGINET CORPORATION
By:
--------------------------
Name:
Title:
The Pledgees:
- -------------
NEW YORK LIFE INSURANCE COMPANY
By:
--------------------------
Name:
Title:
THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK
By:
--------------------------
Name:
Title:
WASLIC COMPANY II
By:
--------------------------
Name:
Title:
NAMTOR BVC LP
By:/s/ Michael C. Rothman
--------------------------
Name: Michael C. Rothman
Title: Partner
<PAGE>
12
The Collateral Agent:
- ---------------------
CHASE MANHATTAN BANK, N.A., as Collateral Agent.
By:/s/ Rossana Abueva
--------------------------
Name: Rossana Abueva
Title: Vice President
<PAGE>
ANNEX 1
The Pledgees
------------
1. New York Life Insurance Company
2. The Mutual Life Insurance Company of New York
3. Waslic Company II
4. Namtor BVC LP
<PAGE>
ANNEX 2
<TABLE>
<CAPTION>
Amount
Certificate No. Name of Shareholder Number of Shares Share Number Par Value Paid-up(%)
- ---------------- ------------------- ---------------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
0016 MagiNet Corporation 660,000 1-590000, 10.- 100%
600001-670000
</TABLE>
Number of Shares owned by Pledgor: 774,993
<PAGE>
Date: December ,1995
PPV (THAILAND) CO. LTD.
Address: 425/1 Soi Sirijulsavek
Silom Road, Kwaeng Lumpini
Khet Bangrak, Bangkok, Thailand
Dear Sirs:
We, who own the following shares in your company, have pledged such shares to
the Noteholders listed in the attached Schedule.
Share Certificate No. No. of Shares Shares Numbers
--------------------- ------------- --------------
0016 660,000 1-590000,
600001-670000
Please register such pledge in the Share Register Book of the Company, and send
to the Collateral Agent:
(i) a copy of this letter countersigned by your authorized directors to confirm
that the pledge has been duly registered in the Share Register Book; and
(ii) a copy of the Share Register Book showing such registration of pledge
certified true and correct by authorized directors.
When the pledge is released, the Collateral Agent (on behalf on the Pledgees)
will inform you accordingly so that the pledge may be withdrawn from the Share
Register Book. In case of enforcement of the pledge by auction, the Collateral
Agent (on behalf of the Pledgees) will inform you accordingly to cancel the
pledge and register the shares in the name of the selected bidder.
In transferring shares according to the enforcement of the pledge, we
irrevocably authorize in advance the Collateral Agent (on behalf of the
Pledgees) to sign on behalf of
1
<PAGE>
Maginet Corporation as the transferor on the share transfer deed to be made
according to the Company's articles of association and pay the stamp duty.
Yours faithfully,
MAGINET CORPORATION
By:
-----------------
Acknowledgement of Pledge of Shares.
- ------------------------------------
We, PPV (Thailand) Co., Ltd., confirm that the above pledge has been entered in
the Share Register Book of the Company.
PPV (THAILAND) CO., LTD.
By:/s/(authorized directors [2 signatures])
----------------------------------------
(authorized director)
[PPV logo not shown]
2
<PAGE>
Maginet Corporation as the transferor on the share transfer deed to be made
according to the Company's articles of association and pay the stamp duty.
Yours faithfully,
MAGINET CORPORATION
By:/s/J.A. Barth
----------------
Acknowledgement of Pledge of Shares.
- ------------------------------------
We, PPV (Thailand) Co., Ltd., confirm that the above pledge has been entered in
the Share Register Book of the Company.
PPV (THAILAND) CO., LTD.
By:/s/(authorized directors [2 signatures])
----------------------------------------
(authorized director)
[PPV logo not shown]
2
<PAGE>
ANNEX 4
Form of Acknowledgement
-----------------------
Date: _______________________
To: New York Life Insurance Company
51 Madison Avenue
New York, New York 10010
U.S.A.
The Mutual Life Insurance Company of New York
1740 Broadway, 11th Floor
New York, New York 10019
U.S.A.
Waslic Company II
c/o FT Washington Investment Advisors
400 Broadway
Cincinnati, Ohio 45202
U.S.A.
Namtor BVC LP
311 South Wacker Drive, Suite 4190
Chicago, Illinois 60606
U.S.A.
The Chase Manhattan Bank, N.A.
Corporate Trust Administration
4 Chase MetroTech Center, 3rd Floor
Brooklyn, New York 11245
U.S.A.
as Collateral Agent
Acknowledgment of the Thai Pledge of Shares Agreement.
- -----------------------------------------------------
We hereby acknowledge receipt of a notice of pledge and
(i) consent and agree to the terms of the Thai Pledge of Shares
Agreement;
(ii) confirm that we have not received any other notice of, and have not
previously consented to, the pledge of all or any of the Pledged
Shares; and
<PAGE>
(iii) Upon an occurrence and continuance of an Event of Default and when
advised by the Collateral Agent, agree to (i) pay all cash
dividends or other cash distributions payable in respect of the
Pledged Shares directly to the, Collateral Agent (for the account
of the Pledgees) and (ii) provide necessary documents to effect the
entitlement of the Pledgees under Clause 4.3 of the Thai Pledge of
Shares Agreement.
The pledge has been duly approved by the directors under Article 10 of the
Articles of Association of the Company, and has been duly entered in the share
register book of this Company.
We hereby confirm that this acknowledgment is our legal, valid and enforceable
obligation and we have the right, power and authority to enter into and perform
our obligations under this acknowledgment.
Yours faithfully,
PPV (Thailand) Co. Ltd.
By: /s/ [2 signatures]
----------------------
(Authorized Directors)
[PPV logo not shown]
<PAGE>
ANNEX 5
NEW YORK LIFE INSURANCE COMPANY
51 Madison Avenue
New York, New York 10010 U.S.A.
Attention: Investment Department
Private Finance Group Facsimile: 1-212-447-4122
with a copy to Office of the General Counsel
Facsimile: 1-212-576-8340
THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK
1740 Broadway
New York, New York 10019 U.S.A.
Attention: MONY Capital Management Unit
NAMTOR BVC LP
Namtor Inc.
311 South Wacker Drive
Chicago, Illinois 60606 U.S.A.
Attention: Edward P. Langefeld
Facsimile: 1-312-663-4706
WASLIC COMPANY II
J.P. Morgan Delaware
902 N. Market Street, 9th Floor
Wilmington, Delaware 19801 U.S.A.
Facsimile 1-302-651-9637
With a copy to:
Ft. Washington Investment Advisors
400 Broadway
Cincinnati, Ohio 45202 U.S.A.
Facsimile: 1-513-629-1695
THE CHASE MANHATTAN BANK, N.A.
Corporate Trust Administration
4 Chase MetroTech Center
3rd Floor
Brooklyn, New York 11245
Facsimile: 1-718-242-5885
<PAGE>
=================================================================
Exhibit 10.23
PLEDGE AGREEMENT
between
MAGINET CORPORATION,
as Pledgor
and
THE CHASE MANHATTAN BANK, N.A.,
as Pledgee
------------------------
Dated as of December [31], 1995
------------------------
=================================================================
<PAGE>
TABLE OF CONTENTS*
-----------------
<TABLE>
<CAPTION>
Section Page
------- ----
<S> <C> <C>
SECTION 2. DEFINITIONS AND PRINCIPLES OF
CONSTRUCTION........................................ 2
SECTION 3. PLEDGE OF SECURITIES................................ 3
SECTION 4. APPOINTMENT OF AGENTS; ENDORSEMENTS................. 6
SECTION 5. VOTING AND OTHER RIGHTS WHILE NO
EVENT OF DEFAULT.................................... 6
SECTION 6. DIVIDENDS AND OTHER DISTRIBUTIONS................... 7
SECTION 7. REMEDIES IN CASE OF EVENT OF DEFAULT................ 7
SECTION 8. APPLICATION OF PROCEEDS............................. 10
SECTION 9. PURCHASERS OF PLEDGE COLLATERAL..................... 11
SECTION 10. FURTHER ASSURANCES.................................. 11
SECTION 12. TRANSFER BY THE PLEDGOR............................. 12
SECTION 13. REPRESENTATIONS, WARRANTIES AND
COVENANTS OF THE PLEDGOR............................ 13
SECTION 14. PLEDGOR'S OBLIGATIONS ABSOLUTE...................... 13
SECTION 15. REGISTRATION........................................ 13
SECTION 16. INDEMNITY........................................... 14
SECTION 17. TERMINATION; RELEASE................................ 15
SECTION 18. NOTICES............................................. 15
SECTION 19. MISCELLANEOUS....................................... 16
</TABLE>
- -------------------------------
* This Table of Contents is provided for convenience only and is not a part
of the attached Pledge Agreement.
<PAGE>
EXECUTION COPY
PLEDGE AGREEMENT
----------------
PLEDGE AGREEMENT, dated as of December 3l, 1995, between MAGINET
CORPORATION, a corporation organized under the laws of the State of California,
as pledgor (the "Pledgor"), and The Chase Manhattan Bank, N.A., a national
-------
banking association, as collateral agent (the "Pledgee") for the benefit,
-------
pursuant to the Appointment Agreement, of New York Life Insurance Company, The
Mutual Life Insurance Company of New York, Waslic Company II and Namtor BVC LP
as Noteholders and their respective successors and permitted assigns.
Capitalized terms used herein shall have the meanings provided in Section 2.
WITNESSETH:
-----------
WHEREAS, the Pledgor and the Purchasers have entered into the Note
Agreement providing for the issuance and sale of the Notes and the issuance of
the Warrants as contemplated therein;
WHEREAS, The Chase Manhattan Bank, N.A., the Pledgor and the Purchasers
have entered into the Appointment Agreement providing for the appointment of The
Chase Manhattan Bank, N.A. to act as collateral agent for the benefit of the
Noteholders under the Security Documents (including this Agreement);
WHEREAS, pursuant to the Note Agreement, the Pledgor agreed to restrict the
actions of a subsidiary of the Pledgor until such time as the Pledgor shall,
among other things, have executed and delivered to the Pledgee this Agreement;
WHEREAS, the Pledgor desires to execute this Agreement to satisfy the
condition described in the preceding paragraph;
NOW, THEREFORE, in consideration of the benefits accruing to the Pledgor,
the receipt and sufficiency of which are hereby acknowledged, the Pledgor hereby
makes the following representations and warranties to the Pledgee and hereby
covenants and agrees with the Pledgee as follows:
SECTION 1. SECURITY. (a) This Agreement is for the benefit of the Pledgee
--------
as collateral agent for the Noteholders pursuant to the Appointment Agreement
(and, to the extent provided in Section 16 of this Agreement, for the benefit of
the Pledgee in its individual capacity) to secure: (i) the payment due of the
principal of and interest in respect
1
<PAGE>
of the Notes and payment of all other obligations and liabilities (including
without limitation indemnities, premium, if any, fees and interest thereon) of
the Pledgor, now existing or hereafter incurred under, arising out of or in
connection with the Note Agreement, each Note or any other Note Document (other
than the Warrants); and (ii) the due performance and compliance with the terms
of the Note Documents by the Pledgor (all such principal, interest, obligations
and liabilities, collectively, the "Secured Obligations").
-------------------
SECTION 2. DEFINITIONS AND PRINCIPLES OF CONSTRUCTION. For all purposes
------------------------------------------
of this Agreement: (i) capitalized terms not otherwise defined herein shall have
the meanings set forth in the Note Agreement; (ii) the principles of
construction set forth in the Note Agreement shall apply; and (iii) as used
herein, references to "this Agreement", "hereunder" and words of like meaning
shall refer to this pledge agreement.
As used in this Agreement:
"Agreement" and "this Agreement" shall mean this pledge agreement, dated as
--------- --------------
of December, 1995, as the same may be modified, amended or supplemented from
time to time.
"Liquidating Dividend" shall have the meaning set forth in Section 6.
--------------------
"Maximum Foreign Pledge" shall mean (i) prior to the occurrence of a Change
----------------------
in Tax Law Event, the aggregate number of Securities representing 66% (or such
other threshold amount as may become relevant after the date hereof in
determining whether a pledge under one or more pledge agreements would result in
the undistributed earnings of the Subsidiary, as determined for U.S. Federal
income tax purposes, being treated as a deemed dividend to the Pledgor) of the
total combined voting power of all classes of Securities entitled to vote; and
(ii) on and following the occurrence of a Change in Tax Law Event, the aggregate
number of Securities representing the maximum total combined voting power of all
classes of Securities entitled to vote that may be pledged without creating a
deemed dividend to the Pledgor.
"Pledge Documents" shall mean: (i) this Agreement (and any other pledge
----------------
agreement in form and substance satisfactory to the Pledgee entered into as
contemplated by this Agreement); (ii) the Note Agreement and (iii) any other
Note Document to which the Pledgee is or will be a party.
"Secured Obligations" shall have the meaning set forth in Section 1.
-------------------
"Securities" shall mean, as of the date of determination, all the issued
----------
and outstanding shares of capital stock or similar equity interests of the
Subsidiary (and any options, warrants or other rights to purchase such capital
stock or similar equity interests). The Pledgor hereby represents and warrants
that on the date hereof: (i) the information set forth in Annex A concerning the
Securities issued and outstanding as of the date hereof and the Pledged
Securities is true and correct; and (ii) there are no outstanding options,
warrants, or other rights to purchase the Securities.
2
<PAGE>
All Securities described as "Pledged Securities" in Annex A are
hereinafter referred to as the "Pledged Securities," and the Pledged Securities,
------------------
together with all proceeds thereof, including any securities and moneys received
and at the time held by the Pledgee hereunder, are hereinafter referred to as
the "Pledge Collateral."
-----------------
"Subsidiary" shall mean Pacific Pay Video (Taiwan) Inc.
----------
SECTION 3. PLEDGE OF SECURITIES.
--------------------
3.1 Pledge. To secure the Secured Obligations and for the purposes set
------
forth in Section 1, the Pledgor: (i) hereby grants to the Pledgee a continuing
security interest of first priority in all of the Pledge Collateral; (ii) hereby
pledges and deposits as security with the Pledgee (except as otherwise permitted
in this Section 3) the Pledged Securities owned by the Pledgor on the date
hereof and delivers to the Pledgee certificates therefor (to the extent such
Pledged Securities are certificated) either with the pledge duly endorsed in
blank or with the pledge duly endorsed thereon; and (iii) hereby assigns,
transfers, hypothecates, mortgages, charges and sets over to the Pledgee all of
the Pledgor's right, title and interest in and to such Pledged Securities, to be
held by the Pledgee upon the terms and conditions set forth in this Agreement
and the other Pledge Documents.
3.2 Subsequently Acquired Securities. If the Pledgor shall acquire (by
--------------------------------
purchase, stock dividend or otherwise, including pursuant to Section 6), at any
time or from time to time after the date hereof, any Securities (other than
Pledged Securities) and, following such acquisition, the Pledged Securities
(together with any Securities pledged to the Pledgee under another pledge
agreement) are less than the then existing Maximum Foreign Pledge, then the
Pledgor will forthwith (i) pledge, mortgage or charge on a first priority basis
under another pledge agreement in form and substance satisfactory to the
Pledgee, and deposit as security with the Pledgee, such additional Securities as
are necessary so that the Pledged Securities and such additional Securities so
pledged, mortgaged or charged under another pledge agreement are equal to the
then existing Maximum Foreign Pledge and (ii) deliver to the Pledgee
certificates therefor either with the pledge duly endorsed in blank or with the
pledge duly endorsed thereon. The Pledgor will promptly deliver to the Pledgee a
certificate executed by a Responsible Officer describing such additional
Securities and certifying that the same have been duly pledged, mortgaged or
charged with the Pledgee under such other pledge agreement.
3.3 Uncertificated Securities. Notwithstanding anything to the contrary
-------------------------
contained in Sections 3.1 and 3.2, if any Pledged Securities are evidenced by an
uncertificated security, the Pledgor shall promptly: (i) notify the Pledgee of
such uncertificated security; (ii) take all actions required to perfect the
security interest of the Pledgee therein under applicable law; and (iii) notify
the Pledgee of such actions taken. The Pledgor further agrees: (i) to take such
actions as the Pledgee deems necessary or reasonably desirable to effect the
foregoing and to permit the Pledgee to exercise any of its rights and remedies
hereunder or any other pledge agreement entered into by the Pledgor as
contemplated herein; and (ii) to provide an opinion of counsel satisfactory to
the Pledgee with respect to any such pledge of uncertificated Pledged Securities
upon the pledge thereof and at any other time promptly upon request of the
Pledgee.
3
<PAGE>
3.4 Change in Tax Law Event. If a Change in Tax Law Event occurs, then
-----------------------
the Pledgor shall forthwith pledge, mortgage or charge under another pledge
agreement in form and substance satisfactory to the Pledgee that portion of the
Securities owned by the Pledgor and not previously pledged, mortgaged or charged
to the Pledgee. The Pledgor will promptly deliver to the Pledgee a certificate
executed by a Responsible Officer describing such additional Securities and
certifying that the same have been duly pledged, mortgaged or charged with the
Pledgee under such other pledge agreement.
SECTION 4. APPOINTMENT OF AGENTS: ENDORSEMENTS. The Pledgee shall have
-----------------------------------
the right to appoint one or more agents for the purpose of retaining physical
possession of the Pledged Securities and other Pledge Collateral (and any
additional Securities to be pledged to the Pledgee pursuant to the terms of this
Agreement), which may be held (in the discretion of the Pledgee) in the name of
the Pledgor, endorsed or assigned in blank or in favor of the Pledgee or any
nominee or nominees of the Pledgee or an agent appointed by the Pledgee.
SECTION 5. VOTING AND OTHER RIGHTS WHILE NO EVENT OF DEFAULT. Unless and
-------------------------------------------------
until an
Event of Default shall have occurred and be continuing, the Pledgor shall
be entitled to vote any and all Pledged Securities and to give consents, waivers
or ratifications in respect thereof; provided, that in no event shall the
--------
Pledgor cast any vote, or give any consent, waiver or ratification or take any
action which would violate or be inconsistent with any of the terms of this
Agreement, any other Note Document or any other instrument or agreement referred
to herein or therein or which would have the effect of impairing the position or
interests of the Pledgee or any Noteholder. All such rights of the Pledgor to
vote and to give consents, waivers and ratifications shall cease upon the
earlier to occur of: (i) delivery to the Pledgor of written notice from any
Noteholder pursuant to Section 9.1 of the Note Agreement or from the Pledgee
stating that an Event of Default has occurred and is continuing; or (ii) a
Responsible Officer obtaining knowledge of any condition or event which
constitutes an Event of Default, when Section 7 shall become applicable;
provided, that the Pledgee shall be under no duty to deliver the written notice
- --------
described in clause (i) of the foregoing unless and until it has received a
notice from any Noteholder stating that an Event of Default has occurred and is
continuing.
SECTION 6. DIVIDENDS AND OTHER DISTRIBUTIONS. Unless and until an Event
---------------------------------
of Default shall have occurred and be continuing all cash dividends payable in
respect of the Pledged Securities shall be paid directly to the Pledgor;
provided, that notwithstanding any of the foregoing, all cash dividends payable
- --------
in respect of the Pledged Securities which are determined by the Pledgee to
represent in whole or in part an extraordinary, liquidating or other
distribution in return of capital (each, a "Liquidating Dividend") shall be paid
directly to the Pledgee and retained by it as part of the Pledge Collateral
unless the event creating such Liquidating Dividend was permitted by, and did
not otherwise result in an Event of Default occurring under, the Note Agreement.
The Pledgee shall also be entitled to receive directly, and to retain as
part of the Pledge Collateral:
4
<PAGE>
(a) all other or additional stock or securities of the Subsidiary paid or
distributed by way of dividend in respect of the Pledged Securities;
(b) all other or additional stock or other securities or property
(including cash) paid or distributed in respect of the Pledged Securities by way
of stock-split, spin-off, split-up, reclassification, combination of shares or
similar rearrangement; and
(c) all other or additional stock or other securities or property which may
be paid in respect of the Pledge Collateral by reason of any consolidation,
merger, exchange of stock, conveyance of assets, liquidation or similar
corporate reorganization or otherwise;
except, in each case, prior to the occurrence and continuance of an Event
- ------
of Default, to the extent the receipt of such stock dividends and other
securities distributions would cause the Pledged Securities (and any additional
Securities pledged to the Pledgee under one or more additional pledge
agreements) to exceed the then existing Maximum Foreign Pledge, in which case
the Pledgee shall be entitled to receive directly and retain as part of the
Pledge Collateral only such amount of stock dividends and securities
distributions as equals, together with the Pledged Securities and other
Securities previously pledged to the Pledgee, the then existing Maximum Foreign
Pledge.
SECTION 7 REMEDIES IN CASE OF EVENT OF DEFAULT. (a) In case an Event of
------------------------------------
Default shall have occurred and be continuing, the Pledgee shall be entitled to
exercise all the rights, powers and remedies vested in it (whether vested in it
by this Agreement, by any other Note Document or by law) for the protection and
enforcement of its rights in respect of the Pledge Collateral, and the Pledgee
shall be entitled without limitation to exercise the following rights, which the
Pledgor hereby agrees to be commercially reasonable:
(i) to receive all amounts payable in respect of the Pledge Collateral
otherwise payable under Section 6 to the Pledgor;
(ii) to the extent permitted by law and to the extent not previously
transferred, to transfer all or any part of the Pledged Securities into the
Pledgee's name or the name of its nominee or nominees;
(iii) to vote all or any part of the Pledged Securities (whether or not
transferred into the name of the Pledgee) and give all consents, waivers and
ratifications in respect of the Pledge Collateral and otherwise act with respect
thereto as though it were the outright owner thereof (the Pledgor hereby
irrevocably constituting and appointing the Pledgee the proxy and attorney-in-
fact of the Pledgor, with full power of substitution to do so, as further
provided in paragraph (b) below); and
(iv) to notify the Pledgor that it intends to keep, sell or otherwise
dispose of all or any part of the Pledge Collateral in such manner, for such
price and on such terms and conditions as the Pledgee may specify and apply the
proceeds of any such disposition of the Pledge Collateral in accordance with the
provisions of Section 8. If the Pledgor within ten (10) days afar receipt of
such notice notifies the Pledgee that the Pledgor objects to the
5
<PAGE>
actions proposed in such notice, then the Pledgee shall be entitled to
foreclose its pledge of the Pledge Collateral in accordance with Republic of
China law, including the Republic of China Law Governing the Application of the
Chapter of Obligations and the Republic of China Compulsory Execution Law. If
the Pledgor does not within ten (10) days after receipt of such notice so notify
the Pledgee of its objection, then the Pledgor shall be deemed to have consented
to such actions and the Pledgee may proceed with such actions. Thereafter the
Pledgee may at any time or from time to time sell, assign and deliver, or grant
options to purchase, all or any part of the Pledge Collateral, or any interest
therein, at any public or private sale, without demand of performance,
advertisement or notice of intention to sell or of the time or place of sale or
adjournment thereof (all of which are hereby waived by the Pledgor) or to redeem
or otherwise the Pledged Collateral, for cash, on credit or for other property,
for immediate or future delivery without any assumption of credit risk, and for
such price or prices and on such terms as the Pledgee may determine. The
Pledgor hereby waives and releases to the fullest extent permitted by law any
right or equity of redemption with respect to the Pledge Collateral, whether
before or after sale hereunder, and all rights, if any, of marshalling the
Pledge Collateral and any other security for the Secured Obligations or
otherwise. At any such sale, unless prohibited by applicable law, the Pledgee
on behalf of the Noteholders may bid for and purchase all or any part of the
Pledge Collateral so sold free from any such right or equity of redemption.
None of the Pledgee or the Noteholders shall be liable for failure to collect or
realize upon any or all of the Pledge Collateral or for any delay in so doing
nor shall any of them be under any obligation to take any action whatsoever with
regard thereto.
(b)(i) The Pledgor hereby irrevocably appoints the Pledgee as its
attorney-in-fact with right of substitution, so that the Pledgee or any other
Person empowered by the Pledgee shall be authorized, without need of further
authorization from the Pledgor, upon the occurrence and continuance of an Event
of Default and in preservation of the rights of the Pledgee and the Noteholders
hereunder:
(A) to effect the sale of any of the Pledge Collateral in one
or more transactions to the extent permitted by law and in such other
manner as may be determined by the attorney-in-fact, including the direct
sale without public auction of any such Pledge Collateral at such price,
and upon such terms as may be determined by such attorney-in-fact;
(B) to enter upon any premises where the Pledge Collateral or
any part thereof may be located without the need for a court order or
other form of authority otherwise than upon the authority granted herein;
(C) to take and retain actual possession and control of any
such Pledge Collateral as receivers without bond or otherwise, and
transport any such Pledge Collateral to any location as determined by
such attorney-in-fact;
(D) to administer, manage and use any of the Pledge Collateral;
(E) to conclude any agreement and collect any moneys thereunder
or otherwise due to the Pledgor in respect of, or generated through the
usage of, any of the Pledge Collateral;
6
<PAGE>
(F) to exercise any of the rights of the Pledgor arising under
or in connection with the Pledge Collateral or to delegate to another
Person, in substitution of such attorney-in-fact, the exercise of such
rights of the Pledgor, under such terms as such attorney-in-fact shall
deem proper or necessary;
(G) to collect, claim and receive all moneys and avail itself
of all benefits that accrue and that may become due and payable to the
Pledgor with respect to the Pledge Collateral and to hold the same as
security for the timely payment and discharge by the Pledgor of the
Secured Obligations;
(H) to send written notice to the Subsidiary instructing it to
pay all moneys due and owing to the Pledgor from time to time (whether
payable in U.S. dollars, in another convertible foreign currency or
other-wise), with respect to the Pledge Collateral to such bank accounts
as shall be designated in the notice;
(I) to institute and maintain such suits and proceedings as
such attorney-in-fact shall deem expedient to prevent any impairment of
the Pledge Collateral or to preserve and protect such attorney-in-fact's
interest therein;
(J) to execute and deliver such deeds of conveyance or sale as
may be necessary or proper for the purpose of conveying full title and
ownership, free from any claims and rights of the Pledgor, to any of the
Pledge Collateral, after foreclosure thereof; and
(K) in general, to sign such agreements and documents and
perform such acts and things required, necessary or, in the opinion of
such attorney-in-fact, advisable, to fully accomplish the purpose hereof.
(ii) This special power of attorney shall be deemed coupled with an
interest, and shall not be revoked by the Pledgor until the discharge in full of
the Secured Obligations. Upon the earlier to occur of: (A) delivery to the
Pledgor of written notice from any Noteholder pursuant to a notice delivered
under Section 9.1 of the Note Agreement or the Pledgee stating that an Event of
Default has occurred and is continuing; or (B) a Responsible Officer obtaining
knowledge of any condition or event which constitutes an Event of Default, the
Pledgor shall abstain from exercising any rights with respect to the Pledge
Collateral which shall be inconsistent with the exercise of the rights and
functions herein granted to the Pledgee as attorney-in-fact, including
abstaining from collecting, claiming and receiving any moneys with respect to
the Pledge Collateral; provided, that the Pledgee shall be under no duty to
--------
deliver the written notice described in clause (A) of the foregoing unless and
until it has received a notice from any Noteholder stating that an Event of
Default has occurred and is continuing. To the extent that the Pledgor shall
receive any moneys in respect thereof notwithstanding the provisions of this
paragraph (ii), it shall be deemed to have received such funds for the account
of the Pledgee and shall hold the same in trust and promptly pay the same to the
Pledgee or as it may direct from time to time.
7
<PAGE>
SECTION 8. APPLICATION OF PROCEEDS. All moneys collected by the
-----------------------
Pledgee upon any sale or other disposition of the Pledge Collateral, together
with all other moneys received by the Pledgee hereunder, shall, to the extent
permitted by applicable law, be applied in the following order of priority:
(a) FIRST, to the payment of such fees as are due and payable to any
judicial or governmental body in the Republic of China in connection with such
sale or other disposition of the Pledge Collateral or the collection of any such
moneys;
(b) SECOND, to the payment of such amounts as are due and payable to the
Pledgee or any of its agents (or any prior collateral agent) pursuant to this
Agreement or the Appointment Agreement, including the payment of all costs and
expenses incurred by the Pledgee in connection with such sale, the delivery of
the Pledge Collateral or the collection of any such moneys (including, without
limitation, attorneys' fees and expenses);
(c) THIRD, to the payment of the Secured Obligations in the following
order of priority to the extent such amounts are not sufficient to repay the
Secured Obligations in full and within each category on a pro rata basis among
the Noteholders:
(i) to the payment of charges, fees, indemnity obligations, costs and
expenses due under the Note Agreement or the other Note Documents to the
Noteholders;
(ii) to the payment of interest on principal with respect to the Notes
which became overdue;
(iii) to the payment of interest accrued with respect to the Notes;
(iv) to the payment of principal with respect to the Notes; and
(v) to the payment of premium, if any, with respect to the Notes; and
(d) FOURTH, any balance of such money as directed in writing by the
Pledgor.
SECTION 9. PURCHASERS OF PLEDGE COLLATERAL. Upon any sale of the Pledge
-------------------------------
Collateral by the Pledgee hereunder (whether by virtue of the power of sale
herein granted, pursuant to judicial process or otherwise), the receipt of the
Pledgee or the officer making the sale shall be a sufficient discharge to the
purchaser or purchasers of the Pledge Collateral so sold, and such purchaser or
purchasers shall not be obligated to see to the application of any part of the
purchase money paid over to the Pledgee or such officer or be answerable in any
way for the misapplication or nonapplication thereof.
SECTION 10. FURTHER ASSURANCES. Without limitation to the provisions of
------------------
Section 7, the Pledgor agrees that it will (in each case at its own expense):
8
<PAGE>
(a) prepare, execute, file and refile such financing statements,
continuation statements and other documents in such offices as may be necessary
or reasonably desirable and wherever required or permitted by law in order to
perfect and preserve the Pledgee's security interest in the Pledge Collateral,)
and the Pledgee agrees to execute such financing statements and other documents
prepared by the Pledgor, and the Pledgor hereby irrevocably authorizes the
Pledgee following an Event of Default, as its attorney-in-fact, to file or cause
to be filed such financing statements and amendments thereto and other documents
relative to all or any part of the Pledge Collateral without the signature of
the Pledgor where permitted by law;
(b) comply with the requirements of Section 7.13 of the Note Agreement
(which provision is incorporated in full herein by reference); and
(c) do such further acts and things (including, without limitation,
paying all required documentary and other stamp tax) and execute and deliver to
the Pledgee such additional conveyances, assignments, agreements and instruments
(including without limitation one or more pledge agreements in form and
substance satisfactory to the Pledgee) as may be reasonably required or deemed
advisable to carry into effect the purposes of this Agreement or to further
assure and confirm unto the Pledgee its rights, powers and remedies hereunder.
SECTION 11. THE PLEDGEE. (a) The Pledgee will hold in accordance with the
-----------
terms and provisions of the Appointment Agreement (which terms and provisions
are incorporated in full herein by reference) all Pledge Collateral at any time
received by it under this Agreement. It is expressly understood and agreed that
the obligations of the Pledgee as holder of the Pledge Collateral and interests
therein and with respect to the disposition thereof, and otherwise under this
Agreement, are only those expressly set forth in this Agreement and in the
Appointment Agreement, and no implied covenants or obligations shall be read
into this Agreement against the Pledgee.
(b) In case of any litigation under this Agreement, or in case of any
enforcement of remedies or exercise of rights upon the occurrence of an Event of
Default, or in case the Pledgee deems that, by reason of any present or future
law of any jurisdiction, it may not or may not effectively exercise any of the
powers, rights or remedies herein granted to it or hold title to the properties,
in trust, as herein granted, or take any other action which may be desirable or
necessary in connection therewith, the Pledgee shall be entitled to appoint, to
the extent consistent with applicable law, one or more separate or additional
co-agents.
In the event that the Pledgee appoints an individual or institution as a
separate or additional co-agent: (i) any appointment of any such co-agent by the
Pledgee shall be made only with the prior written consent of the Pledgor and the
Required Holder(s) (except that, if the Pledgee shall have received written
notice from any Holder of Secured Obligations that a Default or an Event of
Default has occurred and is continuing, such consent shall be required only of
the Required Holder(s)), which consent shall not be unreasonably withheld or
delayed; and (ii) each and every remedy, power, right, title, interest, trust,
duty and obligation expressed or intended by this Agreement to be exercised
9
<PAGE>
by or vested in, conveyed to or imposed upon, the Pledgee with respect thereto
shall be exercisable by and vest in such separate or additional co-agent but
only to the extent necessary, appropriate or desirable to enable such separate
or additional co-agent to exercise or have vested in it such powers, rights,
trusts, titles, interests, duties and obligations and remedies, and every
covenant and obligation necessary, appropriate or desirable to the exercise
thereof by such separate or additional co-agent shall run to and be enforceable
by either or any of them.
The Pledgee shall have the right to terminate the appointment of any
such co-agent hereunder with the prior written consent of the Pledgor and the
Required Holder(s) (except that, if the Pledgee shall have received written
notice from any Holder that a Default or an Event of Default has occurred and is
continuing, such consent shall be required only of the Required Holder(s)),
which consent shall not be unreasonably withheld or delayed. Should any
instrument in writing from the Pledgor be required by the separate or additional
co-agent so appointed by the Pledgee to more fully and certainly vest in and
confirm to it such remedies, rights, powers, titles, interests, trusts, duties
and obligations, any and all such instruments in writing shall, on request, be
executed, acknowledged and delivered by the Pledgor. In case any separate or
additional co-agent, or a successor to either, shall become incapable of acting,
resign or be removed, all the remedies, rights, powers, titles, interests,
trusts, duties and obligations of such separate or additional co-agent, so far
as permitted by law, shall vest in and be exercised by the Pledgee until the
appointment of a new agent or successor to such separate or additional co-agent.
SECTION 12. TRANSFER BY THE PLEDGOR. The Pledgor will not assign, sell
-----------------------
or otherwise dispose of, grant any option with respect to, or create, incur,
assume or suffer to exist any Lien on any portion of the Pledge Collateral or
any other Securities owned by it, except: (i) Liens in favor of Persons other
than the Noteholders permitted under Section 8.1 of the Note Agreement; and (ii)
Liens created by this Agreement and by any other Pledge Document.
SECTION 13. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PLEDGOR.
--------------------------------------------------------
The Pledgor represents and warrants that: (i) it is the legal, record and
beneficial owner of, and has good and marketable title to, the Securities
described on Annex A hereto, subject to no Lien (except the Lien created by this
Agreement); (ii) it has full power, authority and legal right to pledge all such
Securities pursuant to this Agreement; (iii) all the shares of such Securities
have been duly and-validly issued, are fully paid and nonassessable; (iv) this
Agreement (and any other pledge agreement entered into as contemplated by this
Agreement) creates, as security for the Secured Obligations, a valid and
enforceable first priority perfected Lien on all of the Pledge Collateral in
existence on the date hereof, in favor of the Pledgee for the benefit of the
Noteholders, subject to no Lien in favor of any other Person; and (v) other than
registrations and filings described on Annex B hereto (all of which have been
made prior to the date hereof or will be made within the relevant statutory
period) no consent, filing, recording or registration is required to perfect the
Lien purported to be created by this Agreement. The Pledgor covenants and
agrees that: (i) it will defend the. Pledgee's right, title and Lien in and to
the Pledge Collateral against the claims and demands of all Persons; and (ii) it
will take all actions within its powers to ensure
10
<PAGE>
that it will have like title to and right to pledge any other property at any
time hereafter pledged to the Pledgee as Pledge Collateral hereunder or under
another pledge agreement.
SECTION 14. PLEDGOR'S OBLIGATIONS ABSOLUTE. The obligations of the
------------------------------
Pledgor under this Agreement shall be absolute and unconditional and shall
remain in full force and effect without regard to, and shall not be released,
suspended, discharged, terminated or otherwise affected by, any circumstance or
occurrence whatsoever, including, without limitation: (i) any renewal,
extension, amendment or modification of, or addition or supplement to or
deletion from, the Note Agreement, any Note or any other instrument or agreement
referred to therein or any assignment or transfer of any thereof; (ii) any
waiver, consent, extension, indulgence or other action or inaction under or in
respect of the Note Agreement, any Note or any other such instrument or
agreement or any exercise or nonexercise of any right, remedy, power or
privilege under or in respect of the Note Agreement, any Note or any other such
instrument or agreement; (iii) any furnishing of any additional security to the
Pledgee or any acceptance thereof or any sale, exchange, release, surrender or
realization of or upon any security by the Pledgee; or (iv) any invalidity,
irregularity or unenforceability of all or part of the Secured Obligations or of
any security therefor or the termination or release of any security therefor.
SECTION 15. REGISTRATION. (a) If an Event of Default shall have
------------
occurred and be continuing and the Pledgor shall have received from the Pledgee
a written request or requests that the Pledgor cause any registration,
qualification or compliance under any securities law or laws, or listing
requirements, to be effected with respect to all or any part of the Pledged
Securities, the Pledgor as soon as practicable and at its expense will use its
best efforts to cause such registration to be effected (and be kept effective)
and will use its best efforts to cause such qualification and compliance to be
effected (and be kept effective) as may be so requested and as would permit or
facilitate the sale and distribution of such Pledged Securities, including
without limitation, registration under any applicable securities laws (including
the Securities Act) and appropriate compliance with any other governmental and
listing requirements, provided that the Pledgee shall furnish to the Pledgor
such information regarding the Pledgee as the Pledgor may request in writing and
as shall be required in connection with any such registration, qualification or
compliance. The Pledgor will cause the Pledgee to be kept reasonably advised in
writing as to the progress of each such registration, qualification or
compliance and as to the completion thereof, will furnish to the Pledgee such
number of prospectuses, offering circulars or other documents incident thereto
as the Pledgee from time to time may reasonably request, and agrees to indemnify
and hold harmless the Pledgee and all others participating in such registration,
qualification or compliance (or the distribution of such Pledged Securities)
against all losses, liabilities, claims or damages caused by any untrue
statement (or alleged untrue statement) of a material fact contained therein (or
in any related registration statement, notification or the like) or by any
omission (or alleged omission) to state therein (or in any related registration
statement, notification or the like) a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as the same may have been caused by an untrue statement or omission
based upon information furnished in writing to the Pledgor by the Pledgee
expressly for use therein.
11
<PAGE>
(b) If at any time when the Pledgee shall determine to exercise its
right to sell all or any part of the Pledged Securities pursuant to Section 7
such Pledged Securities or the part thereof to be sold shall not, for any reason
whatsoever, be effectively registered under any applicable securities law or
laws (including the, Securities Act), the Pledgee may sell such Pledged
Securities or part thereof by private sale in accordance with Section 7(a)(iv)
so that such sale may legally be effected without such registration. Without
limiting the generality of the foregoing, in any such event the Pledgee: (i) may
proceed to make such private sale notwithstanding that a registration statement
for the purpose of registering such Pledged Securities or part thereof shall
have been filed under such securities laws; (ii) may approach and negotiate with
a single possible purchaser to effect such sale; and (iii) may restrict such
sale to a purchaser who will represent and agree that such purchaser is
purchasing for its own account, for investment, and not with a view to the
distribution or sale of such Pledged Securities or any part thereof. In the
event of any such sale, the Pledgee shall incur no responsibility or liability
for selling all or any part of the Pledged Securities at a price which the
Pledgee (acting in accordance with instructions from the Required Holder(s)) may
in good faith deem reasonable under the circumstances, notwithstanding the
possibility that a substantially higher price might be realized if the sale were
deferred until after registration as aforesaid.
SECTION 16. INDEMNITY. (a) The Pledgor covenants and agrees to pay to
----------
the Pledgee from time to time, and the Pledgee shall be entitled to, reasonable
compensation for all services rendered by it, and the Pledgor will pay or
reimburse the Pledgee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Pledgee in accordance with
any of the provisions of this Agreement or any other Pledge Document (including
the compensation and the expenses and disbursements of its agents and counsel
and of all Persons not regularly in its employ).
(b) The Pledgor also covenants to indemnify the Pledgee (which, for
purposes of this Section 16, shall include its directors, officers, employees
and agents) for, and to hold it harmless from and against, any and all loss,
liability or expense reasonably incurred without gross negligence, willful
misconduct or bad faith on the part of the Pledgee, arising out of or in
connection with the acceptance or administration of this trust, the exercise of
any rights and remedies arising out of this Agreement or any other Pledge
Document, or the performance of any of its duties, including the reasonable
costs and expenses of defending itself against any claim of liability and in
enforcing any provision of this Agreement or any other Pledge Document (except
any liability incurred with gross negligence, willful misconduct or bad faith on
the part of the Pledgee), with interest thereon at a rate equal to that in the
Pledgee's customary banking practice with respect to overdrafts (including the
imposition of interest, funds, wage and administrative fees) from the date the
same shall have been paid until actually reimbursed.
(c) The obligations of the Pledgor under this Section 16 to compensate
and indemnify the Pledgee and to pay or reimburse the Pledgee for reasonable
expenses, disbursements and advances shall constitute additional indebtedness
hereunder and shall survive the satisfaction, discharge or other termination of
this Agreement and any other Pledge Document and the resignation or removal of
the Pledgee hereunder.
12
<PAGE>
(d) To secure payment of such compensation, reimbursement and
indemnification, the Pledgee shall have a claim and Lien prior to that of any
party, which claim and Lien shall constitute Secured Obligations secured by this
Agreement.
SECTION 17. TERMINATION: RELEASE. Upon:
--------------------
(a) the receipt by the Pledgee of a certificate executed by each
Purchaser certifying that the conditions set forth in Section 5.3 of the Note
Agreement to the release of the Pledge Collateral have been satisfied; or
(b) the date on which the Secured Obligations have been discharged in
full; this Agreement shall terminate, and the Pledgee, at the written request
and expense of the Pledgor, will promptly execute and deliver to the Pledgor a
proper instrument or instruments acknowledging the satisfaction and termination
of this Agreement, and will duly assign, transfer and deliver to the Pledgor,
without recourse and without any representation or warranty, such of the Pledge
Collateral as may be in the possession of the Pledgee and has not theretofore
been sold or otherwise applied or released pursuant to this Agreement, together
with any moneys at the time held by the Pledgee hereunder.
SECTION 18. NOTICES. All notices and other communications hereunder
-------
shall be in the English language, in writing and made at the addresses, in the
manner and with the effect provided in Section 11.10 of the Note Agreement,
provided that, for this purpose, the address of the Pledgee shall be as follows:
The Chase Manhattan Bank, N.A.
Corporate Trust Administration
4 Chase MetroTech Center,
3rd Floor, Brooklyn,
New York 11245
Facsimile: (718) 242-5885 or
(718) 242-3529
or sent to the Pledgee at such other address as it may designate for itself by
notice given in accordance with this Section 18.
SECTION 19. MISCELLANEOUS.
-------------
19.1 Benefit of Agreement. This Agreement shall be binding
--------------------
upon and inure to the benefit of and be enforceable by the respective successors
and permitted assigns of the parties hereto and shall inure to the benefit of
the Noteholders; provided, however, that the Pledgor may not, without the prior
written consent of the Pledgee (acting on the instructions of all the
Noteholders), assign or transfer any of its right or obligations hereunder. The
Pledgee may transfer, assign or grant its rights hereunder in connection with an
assignment or transfer of all or any part of its interest in and rights under
this Agreement pursuant to the provisions of Sections 10 and 11 of the
Appointment Agreement.
13
<PAGE>
19.2 Amendment, Waiver. This Agreement may be changed, waived,
-----------------
discharged or terminated only with the written consent of the Required
Holder(s), the Pledgor and the Pledgee.
19.3 Governing Law. This Agreement is a contract made under the laws
-------------
of the Republic of China and shall for all purposes be construed and enforced
in accordance with, and the rights of parties shall be governed by, the laws of
such country.
19.4 Section Headings, Counterparts. The headings of the several
------------------------------
sections and subsections in this Agreement and the title of this Agreement are
inserted for convenience only and shall not in any way affect the meaning or
construction of any provision of this Agreement. This Agreement may be executed
in any number of counterparts and by the different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an original,
but all of which together shall constitute one and the same instrument.
19.5 Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
19.6 Consent to Jurisdiction; Service of Process. For the purposes
-------------------------------------------
of assuring that the Pledgee and the Noteholders may enforce their respective
rights under this Agreement, the Pledgor for itself and its successors and
assigns, hereby irrevocably: (i) agrees that any legal or equitable action, suit
or proceeding against the Pledgor arising out of or relating to this Agreement
or the other Note Documents or any transaction contemplated hereby or the
subject matter of any of the foregoing may be instituted in any court in Taipei,
Taiwan, Republic of China; (ii) waives any objection which it may now or
hereafter have to the venue of any action, suit or proceeding in the Republic of
China or any claim of forum non conveniens in the Republic of China; and (iii)
--------------------
irrevocably submits itself to the non-exclusive jurisdiction of any court of
competent jurisdiction in Taipei, Taiwan, Republic of China for purposes of any
such action, suit or proceeding. Without limiting the foregoing, the Pledgor
hereby appoints, in the case of any such action or proceeding brought in the
courts of or in the Republic of China, Baker & McKenzie, with offices on the
date hereof at 15th Floor, Hung Tai Center, 168 Tun Hwa North Road, Taipei,
Taiwan, Republic of China, to receive, for it and on its behalf, service of
process in the Republic of China with respect thereto, provided the Pledgor may
appoint any other person, reasonably acceptable, to the Pledgee (acting on the
instructions of the Required Holder(s)), with offices in the Republic of China
to replace such agent for service of process upon delivery to the Noteholders of
a reasonably acceptable agreement of such new agent agreeing so to act. The
Pledgor agrees that service of process by means of notice (as provided in
Section 11.10 of the Note Agreement) of any such action, suit or proceeding with
respect to any matter as to which it has submitted to jurisdiction as set forth
in this Section 19.6 shall be taken and held to be valid personal service upon
it.
19.7 No Waiver; Remedies Cumulative. No failure or delay on the part
------------------------------
of the Pledgee or any Noteholder in exercising any right, power or privilege
hereunder or under
14
<PAGE>
any other Pledge Document, as the case may be, and no course of dealing between
the Pledgor and the Pledgee or any Noteholder shall operate as a waiver thereof;
nor shall any single or partial exercise of any right, power or privilege
hereunder or under any other Pledge Document preclude any other or further
exercise thereof or the exercise of any other right, power or privilege
hereunder or thereunder. The rights, powers and remedies herein or in any other
Pledge Document expressly provided are cumulative and not exclusive of any
rights, powers or remedies which the Pledgee or any Noteholder, as the case may
be, would otherwise have. No notice to or demand on the Pledgor in any case
shall entitle the Pledgor to any other or further notice or demand in similar or
other circumstances or constitute a waiver of the rights of the Pledgee or any
Noteholder to any other or further action in any circumstances without notice or
demand.
19.8 New Secured Lenders. The parties acknowledge that Section 8.1
-------------------
of the Note Agreement contemplates that the Noteholders may enter into an
intercreditor agreement for the purpose of sharing the Pledge Collateral with
the other parties to such agreement in accordance with the terms thereof. It is
understood that at the time of such event, the Pledgor, the Pledgee and the
Noteholders will investigate whether and how this Agreement may be amended to
accommodate and give effect to such an intercreditor agreement.
15
<PAGE>
IN WITNESS WHEREOF, the Pledgor and the Pledgee have caused this
Agreement to be executed by their duly elected Officers duly authorized as of
the date first above written.
MAGINET CORPORATION
By
--------------------
Name
Title
THE CHASE MANHATTAN BANK, N.A., as
Collateral Agent, pursuant to the
Appointment Agreement, for the benefit of
New York Life Insurance Company, The Mutual Life
Insurance Company of New York, Waslic Company II and
Namtor BVC LP as Noteholders and their respective
successors and permitted assigns
By
-------------------------------
Name
Title
<PAGE>
IN WITNESS WHEREOF, the Pledgor and the Pledgee have caused this
Agreement to be executed by their duly elected officers duly authorized as of
the date first above written.
MAGINET CORPORATION
By /s/JA Barth
---------------------
Name James A. Barth
Title CFO
THE CHASE MANHATTAN BANK, N.A., as
Collateral Agent, pursuant to the
Appointment Agreement, for the benefit of
New York Life Insurance Company, The Mutual Life
Insurance Company of New York, Waslic Company II and
Namtor BVC LP as Noteholders and their respective
successors and permitted assigns
By
-----------------------
Name
Title
<PAGE>
ANNEX A to
PLEDGE AGREEMENT
LIST OF SECURITIES AND PLEDGED SECURITIES
------------------------------------------
PACIFIC PAY VIDEO (TAIWAN) INC.
-------------------------------
<TABLE>
<CAPTION>
Number of Securities Number of Pledged Securities Percentage of Outstanding
(ordinary shares) (ordinary shares) Shares of Capital Stock
----------------- ----------------- -----------------------
Owned by Pledged by
Pledgor Pledgor
------- -------
<S> <C> <C> <C>
2,500,000 1,375,000 55% 55%
</TABLE>
<PAGE>
ANNEX B to
PLEDGE AGREEMENT
Registrations and Filings
-------------------------
None
<PAGE>
EXHIBIT 10.24
SHAREHOLDERS AGREEMENT
----------------------
THIS AGREEMENT is made and entered into on the 6 day of June, 1995 by and
between:
I. PACIFIC PAY VIDEO LIMITED, a corporation organized and existing under the
laws of the State of California, United States of America, having its
principal place of business at 405 Tasman Drive, Sunnyvale, California
94043, United States of America (hereinafter referred to as "PPV") on one
part; and
II. MR. ARUN CHURDBOONCHART, a Thai citizen with his address at 176 Soi Pipat
2, Silom Road, Silom Sub-District, Bangrak District, Bangkok, Thailand
(hereinafter referred to as "ARC"); and
AC TELECOM LIMITED, a limited company organized and existing under the laws
of Thailand, having its principal place of business at 425 Silom Road,
Bangkok 10520, Thailand (hereinafter referred to as "ACT") on the other
part;
(hereinafter referred to collectively as "Thai Parties").
WHEREAS, PPV is engaged in the development, manufacture and distribution of on-
demand pay per view entertainment, shopping, and information systems
(hereinafter referred to as the "Products") and has acquired and possesses
valuable technical information, and experience in the installation and operation
of such Product; and
WHEREAS, the parties wish to co-operate and use their skills and expertise to
promote, market, distribute and service such Products in the premier hotel
industry of Thailand; and
WHEREAS, the parties wish to run the aforesaid business through PPV (Thailand)
Co., Ltd., (hereinafter referred to as the "Company") a limited company already
organized and existing under the laws of Thailand; and
WHEREAS, the parties wish to restructure the shareholding in the company to meet
the requirements of Thai laws and principles agreed upon by the parties.
NOW THEREFORE, in consideration of the promises and mutual covenants contained
herein, the parties, hereto agreed as follows:
1. PPV (Thailand) Co., Ltd.
------------------------
PPV (Thailand) Co., Ltd. is a limited company organized and existing under the
laws of Thailand. The registered capital of the Company is Baht 10,000,000.00
(ten million) which is divided into 1,000,000 ordinary shares having the par
value of Baht 10 each, 25% paid-up. The shareholding in the Company at present
is illustrated in the Schedule I attached hereto.
<PAGE>
2. Acquisitions of Shares in the Company
-------------------------------------
2.1 PPV agrees to buy under its own name and/or any persons designated by PPV
which are agreed to by Thai Parties 28.5% of the shares in the Company so
that PPV and its designees will hold a total of 77.5% of the shares in the
Company after the purchase and Thai Parties agree to sell 28.5% of the
shares in the Company (18.5% from ARC and 10% from ACT) to PPV and/or its
designees. ARC further agrees to sell 5% of shares in the Company to Her
Royal Highness Princess Uboltratanarajakanya ("HRH") so that after the
sales Thai Parties will hold under their own names and/or any persons
designated by them which are agreed to by PPV a total of 17.5% of the
shares in the Company. After such sales and purchases, shareholding in the
Company shall be as illustrated in Schedule II.
2.2 For the purpose of the preceding Clause 2.1 Thai Parties agree to sell to
PPV and PPV agrees to buy an aggregate of 285,000 shares, representing
28.5% of shares in the Company, at the price of Baht 2.5 (two point five)
per share.
2.3 No later than Friday, 17 February 1995:
2.3.1 ARC shall deliver to HRH a completed share transfer document duly
executed by him before a witness from B&M to transfer the 5% shares
to HRH;
2.3.2 ARC shall deliver to Baker & McKenzie, Bangkok ("B&M") for B&M to
pass on to PPV completed share transfer documents duly executed by
him before a witness from B&M to transfer the 18.5% shares to PPV;
and
2.3.3 ACT shall deliver to B&M for B&M to pass on to PPV a completed
share transfer document duly executed by them before a witness from
B&M to transfer the 10% shares to PPV.
2.4 No later than Friday, 10 March 1995, PPV shall deliver the share transfer
documents duly counter-signed by them before a witness back to B&M.
2.5 No later than Wednesday, 14 March 1995, Thai Parties shall cause the
Company to enter the share transfers into the share register book of the
Company and to file a new list of shareholders with the Ministry of
Commerce to evidence the new shareholding structure illustrated in Schedule
II.
2.6 With respect to the price of the 28.5% shares sold to PPV and half of the
5% shares sold to HRH, all parties hereto acknowledge that it has already
been paid in full by PPV on 27 February 1995 in the amount of Baht 712,500
(seven hundred twelve thousand and five hundred) (the "Purchase Price") by
way of paying to ARC and ACT through the Company.
-2-
<PAGE>
2.7 All parties agree that the Purchase Price paid to ARC and ACT via the
Company shall be treated as loans by ARC and ACT to the Company in the
amounts of Baht 462,500 (four hundred sixty two thousand and five hundred)
and Baht 250,000 (two hundred and fifty thousand) respectively. The parties
shall cause the Company to enter into loan agreements with ARC and ACT no
later than 14 March 1995 with terms and conditions acceptable to all
parties to this Agreement.
2.8 No later than 17 March 1995, Thai Parties shall cause the Company to issue
new share certificates to PPV and HRH.
2.9 Stamp duty of 0.1% of the Purchase Price in connection with the transfer of
shares shall be for the account of PPV.
3. Alien Business Law
------------------
The parties hereto are aware of the fact that if 50% or more of the shares of
the Company are held by foreigner(s), the Company will be classified by the NEC
No. 281 (the "Alien Business Law") as a foreign company and permission from the
Ministry of Commerce is required for doing service business in Thailand.
However, the Alien Business Law does not apply to a company incorporated in
Thailand, 50% or more shares in which are owned by U.S. nationals. This is due
to protection granted to U.S. nationals and to companies incorporated in
Thailand and owned and controlled by U.S. nationals under the Treaty of Amity
and Economic Relations between the U.S. and Thailand 1968 (the "U.S. Treaty").
In this connection, in parallel with the share transfers to achieve the new
shareholding structure in Schedule II, under which U.S. nationals shall own
77.5% of all shares in the Company, the parties agree to cooperate on the
applications at the U.S. Consulate in Bangkok and at the Ministry of Commerce
for the acknowledgment of protection under the U.S. Treaty. If any amendment of
the Memorandum of Association of the Company is necessary or appropriate, the
parties agree to cause the Company to make such amendment.
4. Business Purposes
-----------------
The parties agree that the major business purposes of the Company shall be as
follows, subject to approval of the Companies Registrar for inclusion of these
purposes as Objects of the Company attached to the Memorandum of Association:
(a) To market, distribute, and service on-demand pay per view entertainment
and information systems for use in the hotel industry (the "Products") in
Thailand;
(b) To carry on such activities as are incidental to or necessary for the
business activities referred to in (a) or such other activities as may be
agreed to by the parties.
The parties agree to cause the Objects of the Company, as part of the Memorandum
of Association, to be amended to be in accordance with the U.S. Treaty. The new
Objects of the Company shall substantially be in the form of Schedule III.
-3-
<PAGE>
5. Articles of Association
-----------------------
The parties agree to cause the Company to amend its Articles of Association and
the new Articles of Association shall be substantially in the form attached
hereto as Schedule IV.
6. Agreements with PPV and Thai Parties
------------------------------------
The parties shall cause the Company to enter into the following agreements:
6.1 a license agreement. a supply agreement or other agreements with PPV or
persons designated by PPV, with terms and conditions to be agreed to
between the Company and PPV and acceptable to Thai Parties; and
6.2 a service agreement or other agreements with either of the Thai Parties or
persons designated by them, with terms and conditions to be agreed to
between the Company and Thai Parties and acceptable to PPV.
7. Shares of the Company
---------------------
7.1 All shares of the Company shall be ordinary shares. The par value for each
share shall be Baht 10.
7.2 Neither party shall pledge or encumber in any way whatsoever the shares it
holds in the Company without prior written consent of the Board of
Directors.
7.3 Transfer of the shares in the Company shall require prior approval from the
Board of Directors of the Company. Such approval, however, shall not be
applicable, if transfer of the shares is made in accordance with the
following:
(i) If at any time either party wishes to sell, transfer or otherwise
dispose of all or any part of its shares, such party must first
offer to sell such shares (the "Offer") to the other party by giving
written notice specifying the terms of the Offer, which shall
include the sale price per shares and the number of shares to be
sold.
(ii) If the Offer is not accepted within 45 days from the date of the
receipt of the notice of the Offer, then such party shall be free to
sell the shares to any third party, provided that the price and
terms of such purchase and sale shall in no event be more favorable
to the third party than those offered to the other party.
(iii) Notwithstanding the foregoing, neither party shall have the right to
transfer its shares to any entity or individual which competes with
the business of the Company.
8. Board of Directors
------------------
8.1 The Company shall be administered by a Board of Directors consisting of 5
directors.
-4-
<PAGE>
8.2 The members of the Board of Directors shall be elected and appointed by the
General Shareholders' Meeting. The parties hereto agree to exercise their
voting right to ensure that 3 directors will be appointed from the
nomination of PPV ("Class A Directors") and 2 directors will be appointed
from the nomination of Thai Parties ("Class B Directors").
8.3 The Board of Directors shall appoint one of its members who is nominated by
PPV to be the Chairman of the Board.
8.4 [The Board of Directors shall elect 2 Class A Directors and 2 Class B
Directors as the Company's authorized directors. Any contract and/or
juristic act entered into on behalf of the Company and which will bind the
Company shall require a joint signature of at least 2 authorized directors
one of whom shall be from Class A Directors and another shall be from Class
B Directors.]
8.5 If any directorship is vacant, the party who has nominated such director,
shall be entitled to nominate a nominees to fill the vacancy and the
parties hereto shall exercise their votes to ensure the appointment of such
nominee for filling the vacancy.
8.6 Meeting of the Board of Directors shall be convened in accordance with the
provisions of the Company's Articles of Association at least once per year.
8.7 At all meetings of the Board of Directors a quorum shall consist of 3
directors. All resolutions of the Board of Directors require an
affirmative vote of at least 3 directors.
9. General Meeting
---------------
9.1 Meetings of the Shareholders shall be convened in accordance with the
provisions of the Company's Articles of Association.
9.2 A quorum for a general meeting of Shareholders shall consist of holders of
a majority of the total number of shares of the Company. Shareholders
represented by proxy shall be counted in determining a quorum.
9.3 Subject to the special resolutions required by the laws, all ordinary
resolutions shall be adopted by the affirmative vote of a majority of the
shares present, in person or by proxy, at the general meeting.
10. Books and Accounts
------------------
10.1 The fiscal year of the Company shall commence on the 1st of January and
end on the 31st of December of each year provided that the first fiscal
year shall commence on the date of incorporation and end on the next
subsequent 31st of December.
10.2 The Company shall keep at its head office up to date books of accounts
and records prepared according to generally accepted accounting principles
and Thai laws. Upon the request of any
-5-
<PAGE>
party, the Company shall furnish the said books of account and records for
inspection by that party or his representative at any time during the
normal business hours of the Company.
11. Additional Financing
--------------------
From time to time the Company will require additional capital or financing
either by way of equity or loans and the parties shall make their contribution
proportionately to their then respective shareholdings.
12. Financial Information
---------------------
The parties shall cause the Company to mail the following reports to PPV and
Thai Parties throughout the term of this Agreement:
(a) Within ten (10) days after the end of each month and after the end of each
quarterly accounting period, a balance sheet, the statements of profit and
loss and the statement of retained earnings, all stated in Baht and
dollars, prepared in accordance with generally acceptable accounting
principles. Such financial reports shall be prepared and delivered to PPV
in the English language.
(b) As soon as practicable after the end of the first, second and third
quarterly accounting periods, in each fiscal year of the Company ending
December 31 of each year and in any event within thirty (30) days
thereafter, a balance sheet, the statements of profit and loss and the
statement of retained earnings, all stated in Baht and Dollars, prepared
in accordance with generally accepted accounting principles (other than
for accompanying notes) consistently applied, subject to changes resulting
from year-end adjustments, all in reasonable detail and signed by the
Company's principal financial officer. The annual financial statements
shall be audited by an independent auditing firm designated by PPV.
13. Services and Assistance
-----------------------
13.1 The parties shall use their most diligent efforts to cooperate and assist
the Company in order to promote the profitability and successful conducts
of the Company's business.
13.2 The cost of services or assistance to be provided by any party to and for
the Company shall be agreed upon by the parties prior to the provision of
such services or assistance.
14. Non-Competition Undertaking by Thai Parties
-------------------------------------------
14.1 Thai Parties hereto agrees that during the term of this Agreement and,
for a period of five (5) years after termination of this Agreement (except
for termination arising from a breach of this Agreement by PPV), neither
Thai Parties nor any affiliate of Thai Parties shall enter into any
business in competition with the Company or any relationship to provide
video programming to be used in any type of hardware other than the
Products.
-6-
<PAGE>
14.2 Thai Parties hereby agree that neither they nor any affiliate of Thai
Parties will participate in the design, manufacturing, marketing and
selling of the Products or equipment functionally similar to the Products
except through the Company.
15. Term and Termination
--------------------
15.1 This Agreement may only be terminated by the occurrence of any of the
following: a) the breach of any material provision of this Agreement which
is not cured by the breaching party within ninety days after receipt of
written notice of such breach; (b) the bankruptcy, insolvency, or
assignment for the benefit of creditors of Thai Parties; (c) the sale by
the Company of all or substantially all of its assets; (d) the consent of
the parties. In the event of breach or bankruptcy, the nondefaulting party
shall have the right to purchase from the defaulting party its shares in
the Company, at fair market value as determined by an independent appraisal
company selected by mutual agreement or, if unable to agree, by the
International Chamber of Commerce in accordance with its rule. In the event
of a termination by sale of all or substantially all of its assets, the
Company shall be liquidated and the proceeds distributed prorate to
shareholders.
15.2 Clauses 14 ("Non-Competition"), 17 and 18 ("Representations and
Warranties"), 19.1 (governing law) and 14.2 ("Attorney's Fees") shall
survive any termination of this Agreement.
16. Government Approvals
--------------------
PPV and Thai Parties shall cooperate and use their most diligent efforts to
obtain and/or cause the Company to obtain all applicable clearances from the
Thai Government or its applicable regulatory authorities including, without
limitation the Ministry of Commerce and the Department of Commercial
Registration with respect to this Agreement and the licenses and supply and
other agreements in accordance with their terms as set forth herein and the
transactions contemplated hereunder and thereunder.
17. Representations and Warranties of PPV
-------------------------------------
PPV represents and warrants to Thai Parties as follows:
17.1 Corporate Power
---------------
PPV has all requisite legal and corporate power to execute and deliver this
Agreement and to carry out and perform its obligations under the terms of this
Agreement.
17.2 Authorization
-------------
(a) The execution, delivery and performance of this Agreement by PPV have
been duly authorized by all requisite corporate action.
-7-
<PAGE>
(b) This Agreement will constitute valid and binding obligations of PPV
enforceable in accordance with their terms subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors,
and rules of laws governing specific performance, injunctive relief or
other equitable remedies.
(c) The execution, delivery and performance of this Agreement and
compliance with the provisions hereof and thereof by PPV does not and will
not conflict with, or result in a breach or violation of the terms,
conditions or provisions of, or constitute a default under, the terms of
the Amended Articles of Incorporation or Bylaws of PPV, or any material
statute, laws, rule or regulations, or any material order, judgment,
decree, indenture, mortgage, lease or other material agreement or
instrument to which PPV is a party, or by which PPV or any of its material
properties is bound, or give rise to a claim or right of termination,
acceleration or cancellation in or with respect to any of PPV's material
properties, assets, contracts or agreements.
17.3 Litigation
----------
There is no action, suit, proceeding or investigation pending or, currently
threatened against PPV which questions the validity of this Agreement, or the
right of PPV to enter into any such agreements, or to consummate the
transactions contemplated hereby.
18. Representations and Warranties of Thai Parties
----------------------------------------------
Thai Parties (referring to ARC as individual and/or ACT as legal entity, as
applicable) represents and warrants to PPV as follows:
18.1 Corporate Power
---------------
Thai Parties has all requisite legal and corporate power to execute and deliver
this Agreement and to carry out and perform their obligations under the terms of
this Agreement.
18.2 Authorization
-------------
(a) The execution, delivery and performance of this Agreement to which
Thai Parties are parties by Thai Parties have been duly authorized by all
requisite corporate action.
(b) This Agreement will constitute valid and binding obligations of Thai
Parties enforceable in accordance with their terms, subject to laws of
general application relating to bankruptcy, insolvency and the relief of
debtors, and rules of law governing specific performance, injunctive relief
or other equitable remedies.
(c) The execution, delivery and performance of this Agreement and
compliance with the provisions hereof and thereof by Thai Parties does not
and will not conflict with, or result in a breach or violation of the
terms, conditions or provisions of, or constitute a default under, the
terms of the Articles of Association or Bylaws of Thai Parties, or any
material statute, laws, rule or regulation,
-8-
<PAGE>
or any material order, judgment, decree, indenture, mortgage, lease or
other material agreement or instrument to which Thai Parties is a party, or
by which Thai Parties or any of its material properties is bound, or give
rise to a claim or right of termination, acceleration or cancellation in or
with respect to any of Thai Parties's material properties, assets,
contracts or agreements.
18.3 Litigation
----------
There is no action, suit, proceeding or investigation pending or currently
threatened against Thai Parties which questions the validity of this Agreement,
or the right of Thai Parties to enter into any such agreements, or to consummate
the transactions contemplated hereby.
19. Miscellaneous
-------------
19.1 This Agreement shall be construed in accordance with and all disputes
hereunder shall be governed by the laws of Thailand.
19.2 In any action to interpret or enforce this Agreement, the prevailing
party shall be awarded all court costs and reasonable attorneys' fees
incurred.
19.3 Neither party hereto shall assign this Agreement or the rights under this
Agreement to any third party without prior written consent of PPV or Thai
Parties as the case may be.
19.4 This Agreement is in the English language only, which language shall be
controlling in all respects, and all versions hereof in any other language
shall be for accommodation only and shall not be binding upon the parties
hereto. All communications and notices to be made or given pursuant to
this Agreement shall be in the English language.
19.5 Neither party shall be held in breach of this Agreement for any
performance required of it hereunder to the extent the same is prevented in
whole or in party by reason of strike, fire, flood, acts of God,
governmental acts, failure of suppliers, lack of transportation or any
other force majeure beyond the reasonable control of such party, provided
that the party affected shall give prompt written notice to the other party
of the nature and date of commencement of the force majeure and expected
duration, and the party so affected shall use reasonable efforts to avoid
or remove the force majeure to the extent it is so able to do.
19.6 Any notice or other communications required or permitted hereunder shall
be in writing and shall be mailed by registered air mail, postage prepaid,
or otherwise delivered by hand, or by commercial express courier service,
or facsimile addressed as follows:
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<PAGE>
To PPV:
Pacific Pay Video Limited
405 Tasman Avenue
Sunnyvale, California 94089, U.S.A.
Attention: Chief Financial Officer
Fax No.: (1-408) 734-1687
with a copy to
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050, U.S.A.
Attn: Thomas C. DeFilipps
Fax No.: (1-415) 858-4486
To Thai Parties:
Khun Arun Churdboonchart
176 Soi Pipat 2, Silom Road
Silom Sub-District, Bangrak District
Bangkok 10500, Thailand
Fax No.: 231-5374
AC Telecom, Ltd.
425 Silom Road
Bangkok 10500, Thailand
Attn: Khun Arun Churdboonchart
Fax No.: 236-6493
Such notices shall be deemed to have been served when delivered or (if by
facsimile) when dispatched or, if delivery is not accomplished by reason of
some fault of the addressee, when tendered.
19.7 If any paragraph, provision, or clause thereof in this Agreement shall be
found or be held to be invalid or unenforceable in any jurisdiction in
which this Agreement is being performed, the remainder of this Agreement
shall be valid and enforceable and the parties shall use their respective
best efforts to negotiate a substitute, valid and enforceable provision
which most nearly effects the parties' intent in entering into this
Agreement.
19.8 This Agreement may be executed in two (2) or more counterparts, all of
which, taken together, shall be regarded as one and the same instrument.
-10-
<PAGE>
19.9 The failure of either party to enforce at any time the provisions of this
Agreement shall in no way be construed to be a present or future waiver
of such provisions, not in any way affect the validity of either party to
enforce each and every such provision thereafter.
19.10 The terms and conditions herein contained, constitute the entire
agreement between the parties and supersede all previous agreements and
understandings, whether oral or written, between the parties hereto and
no agreement or understanding varying or extending the same shall be
binding upon either party hereto unless in a written document signed by
the party to be bound thereby.
19.11 At any time or from time to time on and after the date of this Agreement,
each party shall at the request of the other party, at such requesting
party's expense, (i) deliver such records, data or other documents
consistent with the provisions of this Agreement, (ii) execute, and
deliver or cause to be delivered, all such assignments, consents,
documents or further instruments of transfer or license, and (iii) take
or cause to be taken all such other actions, as the requesting party may
reasonably deem necessary or desirable in order for the requesting party
to obtain the full benefits of this Agreement and the transactions
contemplated hereby.
19.12 The section headings contained in this Agreement are for reference
purposes only and shall not affect in anyway the meaning or
interpretation of this Agreement.
19.13 The effective date of this Agreement, shall be the first date that this
Agreement has been executed and delivered by both Thai Parties and PPV.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
by duly authorized officers or representatives as of the date first above
written.
MR. ARUN CHURDBOONCHART
/s/ Arun Churdboonchart
- ------------------------
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<PAGE>
Schedule I: Illustration of Present Shareholding (Clause 1)
Schedule II: Illustration of New Shareholding (Clause 2.1)
Schedule III: English Translation of New Objects as Part of Memorandum of
Association (Clause 4)
Schedule IV: English Translation of New Articles of Association (Clause 5)
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<PAGE>
Schedule I
Illustration of Present Shareholding
of
PPV (Thailand) Co., Ltd.
Shareholders: Number of Shares Percentage
1. Pacific Pay Video Ltd. 330,000 33%
2. Mr. Robert Creager 159,999 15.9999%
3. Mr. Eric Sternberg 000,001 00.0001%
4. AC Telecom Ltd. 110,000 11%
5. Mr. Arun Churdboonchart 369,999 36.9999%
6. Mrs. Vina Churdboonchart 010,000 01%
7. Miss Sirisub Namnath 010,000 01%
8. Mr. Inthanom Churdboonchart 010,000 01%
9. Miss Bussayamas Charuchandra 000,001 00,0001%
--------- -------
Total: 1,000,000 100%
========= =======
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<PAGE>
Schedule II
Illustration of New Shareholding
of
PPV (Thailand) Co., Ltd.
Shareholders: Number of Shares Percentage
1. Princess Ubolratanarajakanya 050,000 05%
2. Pacific Pay Video Ltd. 615,000 61.5%
3. Mr. Robert Creager 159,999 15.9999%
4. Mr. Eric Sternberg 000,001 00.0001%
5. AC Telecom Ltd. 010,000 01%
6. Mr. Arun Churdboonchart 134,999 13.4999%
7. Mrs. Vina Churdboonchart 010,000 01%
8. Miss Sirisub Nanmath 010,000 01%
9. Mr. Inthanom Churdboonchart 010,000 01%
10. Miss Bussayamas Charuchandra 000,001 00.0001%
--------- -------
Total: 1,000,000 100%
========= =======
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<PAGE>
Schedule III
English Translation of New Objects
of
PPV (Thailand) Company Limited
The objects of this Company are 38 in number, as follows:
Objects in details:
(1) To buy, obtain, receive, rent, buy on hire-purchase, own, possess, improve,
use or otherwise manage any property whatsoever as well as the fruits
thereof, except from exploiting benefits from land.
(2) To sell, transfer, mortgage, pledge, exchange or otherwise dispose of any
property, except from exploiting benefits from land and other natural
resources and internal trade relating to native agricultural produce.
(3) To be a broker, agent or commission agent in transactions and businesses of
all types except insurance, membership recruitment for associations, and
trading in securities.
(4) To borrow money, overdraw from accounts with banks, juristic persons or
other finance institutions; and to lend money or otherwise give credit,
with or without security; as well as to accept, issue, transfer or endorse
bills of exchange or other negotiable instruments.
(5) To establish branch offices or to appoint agents, within or without the
Kingdom.
(6) To become a partner with limited liability and a partner with unlimited
liability in a partnership and a shareholder in a limited company and a
limited public company.
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<PAGE>
(7) To carry on the business of trading in machinery, engines, mechanical
tools, labour-saving devices, vehicles, electricity generators and
electrical goods, refrigerators, air-conditioners, fans, electric rice-
cookers, electric irons, water-pumps, heaters, coolers, kitchen utensils,
hardware, copperware, brassware, sanitary fittings, home fittings,
furniture, electrical equipment, and plumbing, including spare parts and
accessories for the aforesaid goods.
(8) To carry on the business of trading in pre-cooked food, tinned food, food
seasoning, liquid refreshment, liquor, beer, cigarettes.
(9) To carry on the business of trading in textiles, yarn, garments, ready-made
clothes, wearing apparel and accessories, cosmetics, beauty aids and
accessories, and other consumer goods, except for internal trade in
indigenous agricultural produce.
(10) To carry on the business of trading in medicines for the curing and
prevention of disease in humans and animals, pharmaceutical products,
chemical substances, medical and pharmaceutical equipment, fertilizers,
herbicides and pesticides, all kinds of growth agents for plants and
animals, and scientific instruments and equipment.
(11) To carry on the business of trading in worked or manufactured gold,
precious metal alloys, silver, diamonds, precious gems and semi-precious
stones, including imitations thereof.
(12) To carry on the business of trading in paper, stationery, school books,
printed forms, printed books, educational materials, calculators, printers,
printing equipment and accessories, printed matter, newspapers, filing
cabinets, and all kinds of office equipment.
(13) To carry on the business of trading in construction materials, construction
equipment and tools and implements used in construction, all types of
workman's tools, pigment and paint, painter's equipment, and all kinds of
building ornament and decoration.
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<PAGE>
(14) To carry on the business of trading in plastics, or other similar
materials, either in raw form or processed into articles.
(15) To carry on the business of automobile body builders, ceramic and glazed
ware factory, pottery factory, vegetable-oil extraction factory, paper
factory, gunny-bag factory, textile factory, spinning factory, textile
dying and printing factory, rubber-tire manufacture and retreading factory,
iron works, metal casting and machine lathing, and galvanized, iron sheet
manufacture, pre-cooked food factory, liquor distillery, gas factory,
cigarette factory, sugar-mill, plastic goods factory, metal-pressing and
smelting factory, door and window leaves manufacture, glass factory, soft
drink manufacture, rubber casting factory, automobile assembly works.
(16) To carry on the business of printing, of printing and publishing books, and
of newspaper publishing.
(17) To carry on the business of ice factory.
(18) To carry on the contracting business of constructing buildings, commercial
buildings, residential buildings, offices, roads, bridges, tunnels, dams,
and all other kinds of constructions as well as all categories of civil
engineering work.
(19) To carry on the business of hotels, restaurants, bars, night-clubs, bowling
alleys, massage parlours, cinema theatres and other kinds of theatres of
entertainment, vacation resorts, sport fields, and swimming pools.
(20) To carry on the business of guided tours including all kinds of business
involved with guided tours, (except for domestic transport).
(21) To carry on the business of foreign currency exchange (when permitted by
the Ministry of Finance).
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<PAGE>
(22) To carry on the business of import and export of the goods stipulated in
the objects, and of their distribution at home and abroad.
(23) To carry on the business of hair-cutting, hair-dressing, beauty-salon,
dress-making, and laundry.
(24) To carry on the business of commercial photograph, the development,
printing and enlargement of photographs, including the same for documents.
(25) To carry on the business of production and distribution of movie films.
(26) To carry on the business of a service station selling petrol and providing
repair, maintenance and inspection services, lubrication, spraying, and
anti-rust treatment for all kinds of vehicles, including the services of
installation, inspection and fixing of all kinds of anti-theft and accident
prevention accessories.
(27) To carry on service businesses in legal, accountancy, engineering and
architectural fields, including advertising.
(28) To undertake a service business providing guarantees for debt, liability or
performance of the contractual obligations of other persons, including the
guarantee for a person who has entered or departed the country in
accordance with the laws of immigration, taxation and other laws.
(29) To undertake a service business of counseling and making recommendations
on problems related to work management, commerce and industry, including
problems of manufacturing, marketing and distributing.
(30) To carry on a service business of collecting, compiling, preparing,
publishing and distributing statistics, data and information concerning
agriculture, industry, commerce, finance and the market, including
analyzing and assessing the outcome of business transactions.
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<PAGE>
(31) To carry on the business of a private hospital and nursing home, of curing
of the ill and people in pain, and technical instruction and training in
medicine and health science.
(32) To carry on the business of bidding for sale of goods and hire of work in
accordance with all of the objects, for any person, body of persons,
juristic person, government agency and state enterprise, except, goods that
are local agricultural products.
(33) The Company is entitled to issue shares at a price higher than par value.
(34) To conduct the business of trading operations of video equipment, video-
television equipment, telephone equipment, personal radio paging equipment,
telecommunications equipment, communications system, computer system and
every kind of communications equipment including spare parts and
accessories thereof.
(35) To conduct the service business of undertaking the installation of video
equipment, video-television equipment, telephone equipment and computer
systems.
(36) To conduct the business of renting out video tapes, disks, video games or
any item which have made the recordings of picture and sound, as well as to
undertake the hire to make recordings of picture and sound on tapes, disk,
video games or such item.
(37) To conduct the business of importing and exporting of products set forth in
the Objects.
(38) To conduct the business on-demand video entertainment in hotels whereby
viewers agree to pay service price before viewing the programs, direct sale
by video shopping programs in hotels including development, manufacture and
distribution of such video programs.
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<PAGE>
Schedule IV
Articles of Association
of
PPV (Thailand) Company Limited
CHAPTER I
---------
General
-------
1. These regulations shall be called the Articles of Association of PPV
(Thailand) Company Limited.
2. Unless otherwise specified "Company" shall means PPV (Thailand) Company
limited.
3. Unless otherwise stipulated in these Articles the provisions in the
Civil and Commercial Code regarding limited companies shall apply.
4. Any addition or amendment to these Articles or Memorandum of Association of
the Company shall require the passing of a special resolution by two
successive general meetings of the shareholders.
CHAPTER II
----------
Shares and Shareholders
-----------------------
5. The Company's shares shall consist solely of ordinary shares entered in
name certificates.
The registered capital of the Company is Baht 10,000,000 (ten million)
which is divided into 1,000,000 ordinary shares having the par value of
Baht 10 per share.
6. The shares of the Company shall be divided into three classes:
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(1) Class A shares: Share numbered 1 to 590000 and 600001 to 785000,
inclusive (A number equaling 77.5% of the total shares issued).
(2) Class B shares: Share numbered 590001 to 600000 and 835001 to
1000000, inclusive (A number equaling 17.5% of the total shares
issued).
(3) Class C shares: Share numbered 785001 to 835000, inclusive (A number
equaling 5% of the total shares issued).
Unless otherwise provided by these Articles, all shares in the three
classes shall have the same rights and status. The designation of class
shall be incorporated on each share certificate issued by the Company.
7. Each share certificate issued by the Company shall bear the following
statement upon its face: "Transfer or sale of shares represented by this
share certificate is subject to the restrictions contained in the Articles
of Association of the Company."
8. The Company shall not own its own shares nor take them in pledge.
9. The Company shall provide a register of shareholders which shall be kept by
the Company under the control of the Board of Directors, and in which shall
be entered the particulars of transfer or alteration of every share.
10. No shareholder may pledge or encumber in any way whatsoever the shares he
holds in the Company without prior written consent of the board of
Directors.
No shareholder may transfer, his shares in the Company unless with the
prior written approval from the Board of Directors. Such approval, however,
shall not be applicable, if transfer of the shares is made in accordance
with the following:
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(i) If at any time either party wishes to sell, transfer or otherwise
dispose of all or any part of its shares, such party must first
offer to sell such shares (the "Offer") to the other party by giving
written notice specifying the terms of the Offer, which shall
include the sale price per shares and the number of shares to be
sold.
(ii) If the Offer is not accepted within 45 days from the date of the
receipt of the notice of the Offer, then such party shall be free to
sell the shares to any third party, provided that the price and
terms of such purchase and sale shall in no event be more favorable
to the third party than those offered to the other party.
(iii) Notwithstanding the foregoing, neither party shall have the right to
transfer; its shares to any entity or individual which competes with
the business of the Company.
11. All transfers of shares must be in writing and executed both by the
transferor and the transferee whose Signatures shall be certified by at
least one witness. The transferor shall be deemed to remain the holder of
the shares until the particulars of transferee and the shares transferred
are recorded in the register of shareholders.
12. The Board of Directors may, in their, absolute discretion, and without
assigning any reason, refuse to register a transfer of any share. If the
Board of Directors refuse to register a transfer of any shares, they shall,
within one month after the date on which the transfer was lodged with the
Company, send to the transferor and transferee notice of the refusal.
13. A fee, as the Board of Directors may from time to time determine, in
accordance with law, may be charged for issue of share certificates and
registration of transfers.
14. The Company may close the registration of share transfer during the
fourteen days immediately preceding Ordinary General Meeting.
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CHAPTER III
-----------
General Meetings
----------------
15. A general meeting of shareholders shall be held within six months of the
date of registration of the Company and a general meeting shall
subsequently be held once at least in every twelve months. Such general
meetings are called "Ordinary General Meetings", and all other general
meetings are called "Extraordinary General Meetings". Subject to the
foregoing the Board of Directors may summon general meetings whenever they
think fit.
16. At least fifteen days' notice prior to every general meeting shall be given
to all shareholders whose names appear in the register of shareholders.
Notices to shareholders in Thailand shall be given by post and notices to
shareholders abroad shall be immediately sent by registered airmail or
cable or telex or facsimile in which three latter cases a letter confirming
the notice in writing shall be sent to the shareholders. The notice shall
specify the place, the day and the hour of the meeting, and the nature of
the business to be transacted thereat.
17. Ordinary General meetings shall be summoned for the purpose of:
(1) Reviewing the report of the Board of Directors covering work done
during the previous period and suggestions as to future courses of
action.
(2) Considering the balance sheet and the profit and loss account of the
preceding fiscal year and approving the same.
(3) Reviewing directors' remuneration, declaration of dividends, and the
appropriation of amounts as reserve fund.
(4) Election of new Directors in place of those who must retire on the
expiration of their terms.
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(5) Appointment of the auditor and fixing his remuneration.
(6) Other business.
18. A quorum for a general meeting of Shareholders shall consist of holders of
a majority of the total number of shares of the Company. Shareholders
represented by proxy shall be counted in determining a quorum.
19. In casting votes at a general meeting, each shareholder shall have one vote
for each share of which he is the holder. All ordinary resolutions shall
require the vote by a majority of the share present. in person or by proxy,
at the general meeting.
20. Decisions on the following matters shall be made by special resolution
only, which shall require affirmative votes at a general meeting of
shareholders of not less than three-fourths of all of the shares issued by
the Company, and at a subsequent general meeting affirmative votes of the
shareholders holding not less than two-thirds of all of the shares issued
by the Company. The Civil and Commercial Code shall apply to other
procedures.
(1) To amend the Memorandum or Articles of Association.
(2) To increase or reduce the registered capital.
(3) To dissolve the company.
(4) To amalgamate with another company.
(5) To allot. new shares as fully or partly paid up otherwise than in
money.
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21. Any shareholder may vote by proxy, provided the power given to such proxy
is in writing. The instrument appointing a proxy shall be dated and signed
by the shareholder and shall contain the following particulars:
(1) The number and class of shares held by the shareholder.
(2) The full name and address of the proxy.
(3) The meeting or meetings or the period for which the proxy is
appointed.
If a proxy proposes to vote at a meeting, the instrument of appointment of
the proxy must be deposited with the Chairman at or before the commencement
of that meeting.
22. Only shareholders duly registered and having paid all sums for the time
being due and payable to the Company in respect of their shares, shall be
entitled to vote on any question either personally or by proxy at any
general meeting.
23. The Chairman of the Board of Directors shall preside at every general
meeting. If there is no such Chairman, or if he is not present within
fifteen minutes after the time appointed for holding the meeting, the
shareholders present may elect one of the other directors to be Chairman.
The Chairman shall have a casting vote.
24. The Chairman may adjourn a general meeting with the consent of the meeting
but in the succeeding meeting no other business may be discussed except
that pending from the previous meeting.
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CHAPTER IV
----------
Directors and Auditors
----------------------
25. A Board of Directors shall be elected by the general meeting to carry out
the Company's business under the control of the general meeting of
shareholders and subject to these Articles of Association.
A director need not be a-shareholder in the Company.
A director shall not be personally liable for any acts or omissions
excepting those involving fraud or willful wrongdoing.
26. At the first Ordinary General Meeting after the registration of the Company
and at the first Ordinary General Meeting in every subsequent year, one-
third of the directors, or, if their number is not a multiple of three,
then the number nearest to one-third must retire from office. A retiring
director is eligible for re-election.
27. The number of directors shall be 5 directors. The shareholders shall be
entitled to nominate directors in the following ratio:
(a) Class A shareholders shall be entitled to nominate three (3) persons
to be directors of the Company and any person so nominated shall
hereinafter be referred to as Class A Director.
(b) Class B shareholders shall be entitled to nominate two (2) persons to
be directors of the Company and any person so nominated shall
hereinafter be referred to as Class B Director.
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<PAGE>
28. The Board of Directors will elect one of the directors as Chairman as
nominated by Class A shareholders. The Chairman shall have a casting vote.
The Board of Directors will appoint one of the directors nominated by the
Class A shareholders as the Managing Director of the Company; and if he
shall at any time vacate office the Board of Directors shall appoint in his
place Managing Director from the directors nominated by the Class A
shareholders.
29. A Managing Director shall, while holding that office, be subject to
retirement by rotation of directors. He shall be subject to the same
provisions as to disqualification, resignation and removal as the other
directors of the Company. If he ceases from any cause to be a director or
if the Company in general meeting resolves that his tenure of office of
Managing Director be terminated, he shall, ipso facto, cease to hold such
office.
30. Any vacancy among the- members of the Board of Directors occurring
otherwise than by rotation under Article 26 may be filled by the Board of
Directors, upon nomination by that class of shareholders who nominated the
director whose office is vacated. Any person so appointed shall retain
office only during such time as the director whom he replaces would have
been entitled to retain the same.
31. Any director may be present at a meeting of directors and vote by proxy,
provided the power given to such proxy is in writing. Instruments
appointing proxies shall be in such form and be executed in such manner as
the Board of Directors may from time to time determine or in particular
cases accept.
32. Meetings of the Board of Directors shall be held at such times and places
as may be determined by the Chairman or by the Managing Director. Not less
than fifteen days' notice of a meeting shall be given to each director by
letter, cable, telex or facsimile as appropriate. Such notice to any
-27-
<PAGE>
director may be waived by that director and shall be deemed waived by his
presence at the meeting.
33. Whenever any notice whatsoever is required to be given to any director, or
whenever a matter is submitted at any meeting of directors and such matter
was omitted from the proposed agenda for such meeting in the notice
therefor, a written waiver of such notice or of such omission, signed by
the person or persons entitled to any such notice whether before or after
the time of such meeting, shall be deemed the equivalent of the timely
giving of such notice or the inclusion of such matter in the proposed
agenda, as the case may be.
34. At all meetings of the Board of Directors a quorum shall consist of at
least three directors but at least two of whom must be the directors
nominated by Class A shareholders. A proxy appointed under Article 31 shall
be counted in determining the presence of a quorum in the absence of the
director in whose place he acts.
All resolutions of the Board of Directors shall require the affirmative
vote of at least 3 directors but at least one vote must be adopted by a
director nominated by Class A shareholders.
The Board of Directors may adopt a resolution without holding a meeting if
all directors approve the action by placing their signatures on the
original copy of the resolution. Any such resolution shall be binding on
the Company only after all of the directors have signed the resolution. The
duly signed resolution shall be delivered to the Chairman and placed in the
minute book of the Company.
35. The Board of Directors may entrust to and confer upon a Managing Director
or manager any of the powers exercisable by the Board of Directors upon
such terms and conditions and with such restrictions as the Board of
Directors think expedient, and may from time to time revoke, withdraw,
alter or vary all or any of such powers.
-28-
<PAGE>
36. The Board of Directors may appoint other persons to carry out the Company's
business under the Board of Directors' supervision or may by duly executed
power of attorney entrust to and confer upon such other persons such powers
as they think fit and for such time as they think expedient and they may
confer such powers collaterally with or to the exclusion of or in
substitution for all or any of the powers of the Board of Directors in that
behalf and may from time to time revoke, withdraw, alter or vary any of
such powers.
37. The Board of directors shall elect 2 Class A directors and 2 Class B
directors as the Company's authorized directors. Any contract and/or
juristic act entered into on behalf of the Company and which will bind the
Company shall require a joint signature of at least 2 authorized directors
one of whom shall be from Class A director and another shall be from Class
B directors with the Company's seal affixed.
The names of authorized directors, whose signatures together with the
Company's seal shall bind the Company may be fixed by the Board of
Directors in accordance with the condition stipulated in the foregoing
paragraph.
38. The Company's auditor shall be elected upon the nomination of the Board of
Directors and his remuneration fixed every year at an Ordinary General
Meeting. A retiring auditor is eligible for re-election.
CHAPTER V
---------
Books and Accounts
------------------
39. The Company's books and accounts shall be kept in English with Thai
caption, and shall be maintained according to international accounting
practices and procedures generally acceptable in Thailand.
-29-
<PAGE>
40. The Board of Directors shall cause true and complete accounts to be kept:
(1) Of the sums received and expended by the Company and of the matters in
respect of which each receipt or expenditure takes place.
(2) Of the assets and liabilities of the Company.
41. The Board of Directors shall cause a balance sheet to be made at least once
in every twelve months, as of the end of the fiscal year of the Company.
The balance sheet must contain a summary of the assets and liabilities of
the Company and a profit and loss account for the fiscal year of the
Company.
The fiscal year of the Company shall commence on the 1st of January and end
on the 31st of December of each year, provided that the first fiscal year
shall commence on the date of incorporation and end on the next subsequent
31st of December.
The Board of Directors shall also cause an internal balance sheet, the
profit and loss account and the statements of retained earnings to be made
after the end of each month and after the end of each quarterly and copies
of the internal balance sheet, the profit and loss.-account and the
statements of retained earnings must be sent to every person entered in the
register of shareholders within ten days after the end of each month and
after the end of each quarterly.
42. The Board of Directors shall have the balance sheet and profit and loss
account examined by the Company's auditor and submitted to a general
meeting for adoption within four months from the end of the fiscal year. A
copy of the balance sheet and profit and loss account must be sent to every
person entered in the register of shareholders at least seven days before
the general meeting.
43. The Board of Directors shall cause minutes of all proceedings and
resolutions of all meetings of shareholders and directors to be recorded
and duly entered in the minutes book which shall be
-30-
<PAGE>
kept at the registered office of the Company. Any such minutes signed by
the Chairman of the meeting or of the succeeding meeting, are presumed
correct evidence of the matters therein contained, and all resolutions and
proceedings of which minutes have been so made are presumed to have been
duly passed.
CHAPTER VI
----------
Dividends and Reserves
----------------------
44. The Company must appropriate to a reserve fund. at each distribution of
dividends, at least one-twentieth of the profits, until the reserve fund
reaches one-tenth of the capital of the Company.
45. No dividend may be declared except by a resolution passed in a general
meeting.
Notice of any dividend that may have been declared shall be given by letter
to each shareholder whose name appears on the register of shareholders.
The Board of Directors may from time to time pay to the shareholders such
interim dividends as appear to the Board of Directors to be justified by
the profits of the Company.
If the Company has incurred losses, no dividend may be paid unless such
losses have been made good.
CHAPTER VII
-----------
Increase in Capital
-------------------
46. The Company may, by special resolution, increase its registered capital by
such sum as the resolution shall prescribe. Save as the shareholders may by
special resolution direct, each new share shall be issued either as an "A"
class share to a shareholder holding "A" class shares or as
-31-
<PAGE>
a "B" class share to a shareholder holding "B" class shares: or a "C" class
share to a shareholder holding "C" class shares.
47. All new shares must be offered to the shareholders in proportion to the
shares held by them.
48. No new shares of the Company may be allotted as fully or partly paid up
otherwise than in money, unless otherwise provided for by special
resolution of the Shareholders.
------------------------
-32-
<PAGE>
EXHIBIT 10.25
[LOGO OF BLOOMBERG APPEARS HERE]
LETTER OF INTENT
----------------
Bloomberg L.P. ("Bloomberg") and MagiNet agree to the following in relation to
BLOOMBERG INFORMATION TV programming:
1. The contract term shall be for a period of [***] years from the date
of the full contract.
2. MagiNet will install the necessary equipment to carry BIT Programming to
its Hotels in the Pacific Rim and Europe.
3. MagiNet will sell the Service to the Hotels for a monthly rate of
approximately [***] to [***] per room.
4. MagiNet shall keep [***] of the revenue generated by the BIT Programming
until its capital costs plus a return on capital are paid for. Where the
Equipment is currently in place, capital costs per Hotel shall be
approximately [***]. The return on capital shall be [***].
5. Once capital has been recouped, revenue shall be split between Bloomberg
and MagiNet. Recoupment shall be measured on a Hotel by Hotel basis.
MagiNet shall receive [***] of the revenue and Bloomberg shall receive
[***] of the revenue.
6. As an incentive to persuade the top business oriented Hotels to carry
BIT Programming, MagiNet may offer to install a BLOOMBERG terminal
either in the Hotel's business center or concierge floor, provided: (a)
Bloomberg will have final approval over which Hotels are supplied with a
BLOOMBERG terminal: (b) each Hotel shall pay all installation and
monthly phone charges as well as the charges for the installation of the
Equipment; and (c) each Hotel will sign a Bloomberg Agreement and
Schedule of Services.
7. MagiNet shall have the exclusive rights to carry BIT Programming in any
Hotel in the Asia Pacific region and Europe that MagiNet currently has
under contract. However, Bloomberg may market and distribute the BIT
Programming to any Hotel in the Asia Pacific region not under contract
with MagiNet.
8. MagiNet shall ensure that Hotel guests receive BIT Programming free of
charge.
This letter of intent reflects the interest of MagiNet in the television
programming being offered by Bloomberg. It is understood that a full contract
will follow this letter of intent.
IN WITNESS WHEREOF this letter of intent accurately reflects the agreement of
the undersigned parties.
/s/[SIGNATURE APPEARS HERE] /s/[SIGNATURE APPEARS HERE] 9-6-96
- --------------------------- --------------------------- ------
Bloomberg L.P. MagiNet Date
[***] Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
<PAGE>
EXHIBIT 10.26
PACIFIC PAY VIDEO (TAIWAN) SHAREHOLDER AGREEMENT
(8/l/1994)
THIS AGREEMENT is made the 1st day of August, 1994.
BETWEEN:
(1) Pacific Pay Video Limited., a company limited by shares incorporated under
the laws of the state of California, whose registered office is at 405 Tasman
Drive, Sunnyvale, California 94089.
(2) Spectrum, Inc. a company limited by shares, incorporated under the laws of
Republic of China (R.O.C.), whose registered office is at 5F, 50 Sung-Chiang
Road, Taipei, Taiwan, R.O.C. or its principals.
WHEREAS:
(A) The parties wish to participate together through a hotel pay video movies
service company ("the Company") which will provide movie rental service through
a two way private cable system.
(B) This Agreement is intended to regulate the relationship between the
Shareholders in relation to their holdings of shares in the Company and as
between the Shareholders and the Company.
DEFINITIONS AND INTERPRETATION
(A) In this Agreement, the following expressions (except where the context
otherwise requires) shall have the following meanings:
"Articles of Incorporation" means the Articles of Incorporation of the Company
with such amendments as shall be approved from time to time in accordance with
Article III;
"Annual Budget" means the annual budget prepared by the senior management of
the Company from time to time;
<PAGE>
"the Board of Directors" means the board of directors of the Company as
constituted from time to time;
"the Board of Supervisors" means the board of supervisors of the Company as
constituted from time to time;
"the Business Plan" means the business plan of the Company as prepared by the
senior management of the Company from time to time;
"Directors" means the directors for the time being of the Company;
"Operating Company" a company in which the Company owns an equity interest in
connection with the business of the Company;
"ROC" means Republic of China.
"Territory" means Taiwan, Republic of China.
"Affiliate" means a business concern owned or controlled in whole or in part
by another concern.
(B) In this Agreement:
Any reference to a provision of any Statutes is a reference to that provision
as amended, extended or re-enacted from time to time;
References to Clauses, Articles and Schedules are to Clauses, Articles, and
Schedules to this Agreement;
The heading to Articles and Schedules are inserted for convenience only and
shall not affect the construction of this Agreement;
Unless the context otherwise requires, words importing the singular number
shall include the plural and vice-versa, persons shall include bodies corporate
and partnerships.
-2-
<PAGE>
ARTICLE I - Formation of the Company
1.1 The name of the Company is __________________ in the Chinese language and
is known as "Pacific Pay Video (TAIWAN), INC." in the English language.
1.2 The Company was incorporated in Taiwan and is a company limited by shares
with an authorized capital of NT$50,000,000 divided into 5,000,000 ordinary
shares, which-should be in form of common, namebearing stocks, having full
voting rights and a par value of New Taiwan Dollars Ten (NT$10) each. All
stocks shall be fully paid for when issued at the par value thereof.
1.3 The first round of capitalization will be NT$12,500,000, 25% of the total
authorized capital. Immediately following execution hereof, the parties shall
subscribe at par the number of fully paid ordinary shares of NT$10.00 each in
accordance with the following table, and each of the Shareholders shall deliver
to the Company the amount of subscription Moneys due and the Company shall
procure upon such delivery that the shares are issued and allotted to the
respective Shareholders.
Shareholder Percentage and Number of Shares
- --------------------------------------- ------------------------------------
PPV [55%] [687,500]
SPECTRUM [45%] [562,500]
1.4 Upon any increase in the issue shares as described in Clause 1.3, or upon
any subsequent issue of shares, the Shareholders shall pay to the Company the
amount of such increase in accordance with their respective shareholding ratio.
ARTICLE II - Structure of the Corporation
2.1 Decisions of Shareholders shall be made, only by resolution, and only if
a quorum is present in person or by proxy. Unless the ROC Company Law sets
forth a higher percentage, a quorum shall be the Shareholders present in person
or by proxy which hold more than half (1/2) of the stocks issued and
outstanding, and unless otherwise provided for in this Agreement a resolution
shall be adopted only by the affirmative vote of more than half (1/2) of the
stocks held by the shareholders present in person or by proxy at the meeting.
-3-
<PAGE>
Shareholder meeting notice shall contain agenda specifying in reasonable
detail the matters to be discussed at the meeting. Notices for general
Shareholder meeting shall be given to each shareholder in writing 20 days in
advance. Notice for special Shareholder meeting shall be given to each
shareholder in writing at least 10 days in advance.
2.2 The business of the Company shall be decided and executed by the Board of
Directors and also supervised by the Board of Supervisors in accordance with the
laws and regulations, Articles of Incorporation, resolutions of the
Shareholders' Meetings, and Board Meetings.
2.3 The Board of Directors shall initially consist of 5 persons, elected
through cumulative vote by Shareholders. Shareholder shall be entitled to
remove any director elected by it and to appoint another Director in his/her
place. The Board of Supervisors shall consist of 3 persons. One represents PPV
and the other two represent Spectrum.
2.4 The Board shall act only by resolution, and only if a quorum is present
in person or by proxy. Unless the ROC Company Law or this Agreement requires a
higher percentage, a quorum shall be more than half of the Directors and a
resolution shall be adopted, unless specified otherwise, by the affirmative vote
of more than half of the Directors present in person or by proxy.
2.5 The Board of Directors shall elect a Chairman of the Board from among the
directors.
2.6 For the normal board meeting, at least 7 days advance notice in writing
shall be given to each Director containing an agenda specifying in reasonable
detail the matters to be discussed at the meeting. In emergency, the board
meeting can be called at anytime by the chairman of the board.
2.7 The Board of Directors shall establish an advisory committee of 3
members, which shall support and advise the management team.
-4-
<PAGE>
ARTICLE III - Matters Requiring Supermajority
Approval of the shareholders
3.1 The following matters shall require supermajority approval of the
Shareholders which, unless the ROC Corporation Law requires a higher percentage,
means a quorum of those representing more than 2/3 of the outstanding shares and
a resolution shall be adopted by the affirmative vote of more than 2/3 of the
stocks held by the shareholders present in person or by proxy at the meeting.
(a) amendment to the Articles of Incorporation;
(b) increase or decrease of the authorized share capital; Spectrum
agrees not to block any new capital infusion.
(c) amalgamation with, acquisition of or investment in company other
than ordinary course of company business;
(d) bankruptcy, dissolution, liquidation, sale of the Company;
ARTICLE IV - Matters Requiring Supermajority Approval of the Board
4.1 The following matters shall require super-majority approval of the
Board which means a quorum of those representing more than 2/3 of the Board of
Directors attending the meeting, and a board resolution shall be adopted by the
affirmative vote of more than 2/3 of the Board members present in person or by
proxy at the meeting.
(a) increase of the issued share capital up to the registered
(authorized) capital amount; Spectrum agrees not to block any new
capital infusion.
(b) borrow funds on behalf of the Company in excess in the aggregate
of NT$2,500,000;
(c) cause the Company to enter into any contract, agreement or
understanding with any Shareholder or any Affiliate of a
Shareholder;
-5-
<PAGE>
(d) approval of and modification in any material respect of the
Annual Budget or Business Plan;
(e) approve the issuance of new shares in the Company to a person who
does not at the date of the proposed issue hold any shares;
(f) transferring, selling, assigning, mortgaging, pledging, encum-
bering, leasing or otherwise disposing of, assets having a value
in excess in the aggregate of NT$2,500,000.
ARTICLE V - Transfer of Shares
5.1 No shareholder may sell, transfer or otherwise part with the legal or
beneficial ownership or beneficial ownership of or any other interest in any
shares of the Company sold to a third party except to an Affiliate for a period
of 12 months.
5.2 Right of First Refusal
In the event any shareholder wishes to sell any or all of its shares in
PPVT after the one year anniversary of the formation of PPVT, such shareholder
shall first notify PPVT and the remaining shareholders of the price and the
terms of the proposed sale and the identity of the person or persons to whom it
is proposed to transfer such shares, and the remaining shareholders or their
assignees shall have the right for 60 calendar days after receipt of such
notification to purchase all or part of the shares proposed to be transferred,
at the same price and on the same terms set forth on the shareholder notice. To
the extent the remaining shareholders or their assignees fail to purchase the
shares described in the notice, such selling shareholder shall be free for 120
days following the end of such 60-day period to sell to the proposed person(s)
on such term or terms less favorable to the purchaser. Notwithstanding any
terms of this section, this right of first refusal shall not apply in the event
of a merger or acquisition in which the selling shareholder is not the surviving
entity.
5.3 Notwithstanding the foregoing, Spectrum shall not have the right to
transfer its Shares to any entity or individual which competes with either PPV
or On Command Video Corporation in any of their markets.
-6-
<PAGE>
5.4 The parties agree not to pledge or encumber in any way whatsoever the
shares they hold in PPVT without the prior written consent of PPVT.
ARTICLE 6. - Dividends
6.1 Dividends will be recommended by the Board and approved by a resolution
of the Shareholder meeting at the end of each fiscal year after all taxes levied
by the ROC government and after establishing any reserves required to off-set
prior operating losses and reserves required by law.
Employee bonuses which shall not be less than an amount provided under the
Articles of Incorporation shall be determined by the Shareholder meeting for the
prudent conduct of the Company's affairs.
Payment of dividends shall be made to the Shareholders pro rata in
accordance with their shareholdings.
ARTICLE VII. - Fiscal Methods and Procedures
7.1 The accounting methods and financial reporting procedures of the Company
shall be in accordance with generally accepted accounting principles in the
Territory.
7.2 The Company's books, records and accounts shall be audited by an
independent accounting firm of international standing at least once during each
fiscal year at the Company's expense.
7.3 Each Shareholder shall have the right at any time or times to audit the
Company's books, record and accounts at its own expense.
7.4 Pre-Incorporation Expenses
All direct costs and expenses which are necessary for the incorporation of
the Company, and which are permitted to be borne by the Company under applicable
Taiwan law without an express provision in the Articles of Association, shall be
borne
-7-
<PAGE>
by the Company. All other direct costs and expenses necessary for incorporation
of the Company shall be borne by PPV and SPECTRUM as mutually agreed.
7.5 Financial Information
The Company shall mail the following reports to PPV and SPECTRUM throughout
the term of this Agreement:
(a) Within ten (10) days after the end of each month and after the
end of each quarterly accounting period, a balance sheet and the statements of
profit and loss, and the statement of retained earnings, all stated in NT$ and
dollars, prepared in accordance with generally acceptable accounting
principles. Reports shall be prepared and delivered to PPV in the English
language.
(b) As soon as practicable after the end of the first, second and
third quarterly accounting periods in each fiscal year of the Company and in
any event within thirty (30) days thereafter, the balance sheet, the
statements of profit and loss, and the statement of retained earnings, all
stated in NT$ and U.S. Dollars, prepared in accordance with generally accepted
accounting principles, subject to changes resulting from year-end adjustments,
all in reasonable detail and signed by the Company's principal financial
officer.
ARTICLE VIII - Competition
8.1 Each Shareholder agrees it will not directly or indirectly undertake,
invest, invest in, acquire or initiate any business in competition with the
Company in the Territory from the date hereof until the date two years after
such party ceases to be a Shareholder in the Company.
8.2 Spectrum agrees not to use any PPV technology or proprietary information
without the prior written consent of PPV.
8.3 Notwithstanding the foregoing, PPVT shall have the right to engage
alternative companies for installation and maintenance in the event PPVT is not
satisfied with the cost or quality of services provided by Spectrum Inc.
-8-
<PAGE>
ARTICLE IX - Confidentiality
9.1 Each Shareholder acknowledges that, during the term of this Agreement and
the course of the business of the Company, it may receive confidential and
proprietary business, financial, technical and other information from the other
Shareholder or from Affiliates of a Shareholder. Neither Shareholder shall
disclose to third parties, and each Shareholder shall prevent its employees,
agents, Affiliates from disclosing to third parties, any confidential
information received from the other Shareholder or any of the provisions of this
Agreement unless it has first obtained the written consent of the other
Shareholder; provided, that no consent shall be required for the disclosure of
confidential information under appropriate secrecy agreements to Affiliate,
agents, contractors or consultants of the Company or a Shareholder solely for
use in the business of the Company. A Shareholder shall not use any
confidential information of the other Shareholder except in connection with the
business of the Company.
9.2 The obligations imposed in this Clause shall survive the variation
renewal or termination of this Agreement.
ARTICLE X - Assistance to Company
10.1 The parties shall use their most diligent efforts to promote the
profitability and successful conduct of the company business. Without limiting
the foregoing, the parties specifically agree to contribute management resources
and technical expertise to PPVT.
10.2 All products and services provided to PPVT by the parties shall be
offered on an actual cost basis with no mark up.
ARTICLE XI - Default and Termination
11.1 If: (a) any Shareholder commits a material breach of the terms of this
Agreement; or (b) any Shareholder enters into bankruptcy, receivership,
composition, rehabilitation, liquidation, reorganization for the purpose of
avoiding bankruptcy or becomes insolvent by being unable to pay its debts as
they become due. The provisions of Clause 11.2 shall apply.
-9-
<PAGE>
11.2 If a Shareholder ("Defaulting Shareholder" ) commits or suffers any of
the matters mentioned in Clause 11.1:
(a) the Company shall promptly advise all the Shareholders in
writing of the circumstances as aforesaid ("Default");
(b) the Defaulting Shareholder shall not (and shall not be
entitled to) exercise any right, power or privilege, or receive any benefit,
under this Agreement or the Article (including any right to attend, vote or be
counted in the quorum at any meeting or to receive dividends, interest or
repayment of capital), and any Director appointed by such Defaulting
Shareholder shall not (and shall not be entitled to) receive notice of, attend
and vote at any meeting of the Board;
(c) if the Default is incapable of remedy or if capable of remedy
it persists for a period of no less than 30 days after receipt of the notice,
the Defaulting Shareholder shall, if required by the Shareholders not in
default ("the remaining Shareholders"), be deemed to have served a Transfer
Notice in respect of its entire shareholding and the provisions of the
Articles in respect of the service of a Transfer Notice shall apply save that
the Defaulting Shareholder shall not be entitled to withdraw the Transfer
Notice; and
(d) this Agreement may, at the option of the remaining
Shareholders and without penalty or liability on the part of the remaining
Shareholders, be terminated.
ARTICLE XII - Change In Circumstances
12.1 If at any time any law or regulation shall be introduced or passed by
any authority to which jurisdiction a Shareholder is subject as a result of
which, any Shareholder is materially prejudiced or unable in accordance with the
terms of such law or regulation to hold shares in the company including without
limitation any provisions relating to the nationality of Shareholders or
participants in companies carrying on business in the nature of the business, or
if any law or regulation is amended or passed or introduced by any authority to
which jurisdiction a Shareholder is subject which materially varies the terms of
any provision relating to taxation and as a result of which the taxation
position of a Shareholder is materially prejudiced from that existing at the
-10-
<PAGE>
date hereof, each Shareholder shall use its best effort so as to off set or
reduce the impact of such law or regulation.
ARTICLE XIII - Governing Laws, Language
13.1 The interpretation, validity and performance of this agreement shall be
governed by the appropriate Corporate laws of the Republic of China. In the
event the partners cannot agree any dispute on this agreement, the issues will
be resolved through arbitration in Hong Kong according to the rules of the
International Chamber of Commerce.
13.2 This agreement has been negotiated, written and signed in English.
ARTICLE XIV - Notices
14.1 Written notices and other communications required or permitted to be
given under this agreement may be delivered by hand, or sent by mail, by telex,
or by facsimile transmission.
14.2 Each Shareholder may change its address or addresses by giving written
notice of the change to the company.
14.3 Any such written notice or other communication shall be deemed to have
been received by the Shareholder to which it was addressed no later than ten
(10) days after it was deposited in the mail or no later than two (2) days after
it was transmitted by telex or facsimile or cable, provided that any notice or
communication by mail to parties residing outside the Territory shall be sent by
registered airmail.
PACIFIC PAY VIDEO LIMITED
405 Tasman Drive, Sunnyvale, California 94089
TEL: 408-752-1000, FAX: 408-734-1687.
-11-
<PAGE>
SPECTRUM, INC.
5F, 50 Sung-Chiang Road
Taipei, Taiwan, R.O.C.
TEL: (02) 567-7810, FAX: (02) 561-0453.
ARTICLE XV - Entire Contract and Modifications
15.1 This Agreement shall become effective after execution by all of the
Shareholders. Notwithstanding which, this Agreement may be executed in several
counterparts, each of which shall be valid and all of which shall constitute the
entire agreement among the parties.
15.2 This Agreement may not be altered or amended except by written
agreement of the Shareholders.
IN WITNESS THEREOF this Agreement has been executed the day and year written
above.
SIGNED by : /s/ROBERT R. CREAGER
--------------------
for and on behalf of PPV
SIGNED by : /s/PANG HO
--------------------
for and on behalf of SPECTRUM
-12-
<PAGE>
EXHIBIT 11.1
MAGINET CORPORATION
STATEMENT OF COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Historical primary net
loss per share:
Shares used in
calculation of net loss
per share:
Weighted average
common shares
outstanding.......... 263,569 271,084 291,163 282,694 306,951
Shares related to SAB
Nos. 55, 64, and 83:
Common Stock........ 188,911 188,911 188,911 188,911 188,911
Warrants............ 184,615 184,615 184,615 184,615 184,615
Stock Options....... 818,065 818,065 818,065 818,065 818,065
Preferred Stock, if
converted.......... 3,142,858 3,142,858 3,142,858 3,142,858 3,142,858
----------- ----------- ------------ ----------- -----------
4,334,449 4,334,449 4,334,449 4,334,449 4,334,449
----------- ----------- ------------ ----------- -----------
Total............. 4,598,018 4,605,533 4,625,612 4,617,143 4,641,400
=========== =========== ============ =========== ===========
Net loss................ $(3,379,000) $(7,926,000) $(12,796,000) $(5,385,000) $(7,326,000)
Net loss per share...... $ (0.73) $ (1.72) $ (2.77) $ (1.17) $ (1.58)
Pro Forma:
Shares used in
calculation of pro
forma net loss
per share:
Weighted average
common
shares outstanding... 291,163 306,951
Preferred stock, if
converted............ 7,766,020 7,766,020
Shares related to SAB
Nos. 55, 64 and 83:
Common Stock........ 188,911 188,911
Warrants............ 184,615 184,615
Stock Options....... 818,065 818,065
Preferred Stock,
if converted....... 3,142,858 3,142,858
------------ -----------
4,334,449 4,334,449
------------ -----------
Total............. 12,391,632 12,407,420
============ ===========
Net loss................ $(12,796,000) $(7,326,000)
Pro forma net loss per
share.................. $ (1.03) $ (0.59)
</TABLE>
<PAGE>
Exhibit 21.1
MAGINET CORPORATION
SUBSIDIARY LIST
Australia - MagiNet Australia Pty Limited
- ---------
Hong Kong - MagiNet (H.K.) Ltd.
- ---------
Israel - MagiNet Israel, Inc. (a California Corporation)
- ------
Japan - MagiNet, KK Ltd
- -----
Korea - MagiNet (Korea), Ltd.
- -----
New Zealand - MagiNet New Zealand Limited
- -----------
Singapore - Maginet (Singapore) PTE. LTD.
- ---------
South Africa - Maginet South Africa, Inc.
- ------------
Taiwan - MagiNet Taiwan, Inc.
- ------
Thailand - Pacific Pay Video (Thailand) Co. Ltd.
- --------
MagiNet International Corporation (a California Corporation)
Pacific Pay Video Limited (a California Corporation)
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated August 21, 1996, in the Registration Statement
(Form S-1) and related Prospectus of MagiNet Corporation for the registration
of 5,750,000 shares of its common stock.
Ernst & Young LLP
Palo Alto, California
September 17, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
JUNE 30, 1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 JUN-30-1996
<CASH> 18,672 14,772
<SECURITIES> 151 0
<RECEIVABLES> 1,191 2,152
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 20,638 18,854
<PP&E> 2,035 2,657
<DEPRECIATION> 659 998
<TOTAL-ASSETS> 46,540 52,185
<CURRENT-LIABILITIES> 6,096 5,283
<BONDS> 24,900 25,403
0 0
40,231 53,241
<COMMON> 124 356
<OTHER-SE> (270) (634)
<TOTAL-LIABILITY-AND-EQUITY> 46,540 52,185
<SALES> 8,689 7,923
<TOTAL-REVENUES> 8,689 7,923
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 11,768 8,956
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,297 1,855
<INCOME-PRETAX> (12,490) (7,067)
<INCOME-TAX> 554 383
<INCOME-CONTINUING> (12,796) (7,326)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (12,796) (7,326)
<EPS-PRIMARY> (2.77) (1.58)
<EPS-DILUTED> (2.77) (1.58)
</TABLE>
