<PAGE> 1
As Filed with the Securities and Exchange Commission on May 15, 1998
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File No. 0-22815
TCI MUSIC, INC.
(Exact name of Registrant as specified in its charter)
State of Delaware 84-1380293
------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8101 East Prentice Avenue, Suite 500
Englewood, Colorado 80111
- ---------------------------------------- ---------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (310) 444-1744
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of the Registrant's common stock as of
April 30, 1998 was 18,480,737.
<PAGE> 2
PART I - FINANCIAL STATEMENTS
TCI MUSIC, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ---------
Assets amounts in thousands
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,010 7,915
Trade receivables:
Related party (note 5) 2,365 2,530
Other 8,043 6,275
Allowance for doubtful accounts (744) (563)
--------- ---------
9,664 8,242
Prepaid expenses and other 4,316 2,993
Equipment inventory 8,053 6,713
--------- ---------
Total current assets 26,043 25,863
Investment in equity interests 1,185 1,201
Property and equipment:
Furniture and equipment 9,875 7,024
Leasehold improvements 557 543
Studio equipment 6,091 5,599
Other equipment 1,563 1,435
--------- ---------
18,086 14,601
Less accumulated depreciation (2,203) (1,113)
--------- ---------
15,883 13,488
--------- ---------
Intangible assets, at cost, net of amortization (note 6) 162,721 153,265
Other assets, at cost, net of amortization 992 910
--------- ---------
$ 206,824 194,727
========= =========
</TABLE>
(continued)
I-1
<PAGE> 3
TCI MUSIC, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ---------
Liabilities and Stockholders' Equity amounts in thousands
<S> <C> <C>
Current liabilities:
Accounts payable $ 3,598 4,390
Accrued liabilities 11,105 10,561
Accrued loss on disposal - DMX-Europe N.V
(notes 4 and 9) 2,827 2,827
Deferred revenue 119 186
Other notes payable (note 7) 968 3,354
Income taxes payable, related party (note 5) 1,274 1,762
--------- ---------
19,891 23,080
--------- ---------
Investment in and advances to DMX-Europe N.V
(notes 4 and 9) 9,058 9,058
--------- ---------
Total current liabilities 28,949 32,138
--------- ---------
Debt:
Related party, including accrued interest (note 5) 1,061 4,359
Other (note 7) 71,986 53,236
Deferred income taxes 2,728 2,811
Other liabilities 2,400 2,357
--------- ---------
Total liabilities 107,124 94,901
--------- ---------
TCI Music, Inc. redeemable convertible preferred stock,
$.01 par value; Authorized 5,000,000 shares;
Issued 1,742,484 shares; $39,154,000 liquidation
preference and redemption value 35,962 35,588
Stockholders' equity (note 8):
TCI Music, Inc. common stock:
Series A Common Stock, $.01 par value;
Authorized 295,000,000 shares;
Issued 18,480,737 shares in 1998 and
18,098,983 shares in 1997 185 181
Series B Common Stock, $.01 par value;
Authorized 200,000,000 shares;
Issued 62,500,000 shares 625 625
Paid-in capital 67,860 63,899
Accumulated deficit (4,892) (465)
Accumulated other comprehensive losses (40) (2)
--------- ---------
Total stockholders' equity 63,738 64,238
--------- ---------
Commitments and contingencies (note 9)
$ 206,824 194,727
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
I-2
<PAGE> 4
TCI MUSIC, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
TCI Music DMX
(note 1) (note 1)
-------------- ------------
Three months Three months
ended ended
March 31, 1998 March 31, 1997
-------------- ------------
amounts in thousands
<S> <C> <C>
Subscriber fee revenue:
Related party (notes 3 and 5) $ 7,808 2,382
Other 4,114 2,216
-------- --------
Total subscriber revenue 11,922 4,598
Viewer revenue, net 2,437 --
Advertising revenue, net 2,771 --
Other revenue, net 1,518 226
Revenue - DMX-Europe N.V. (note 4) -- 754
-------- --------
Total revenue 18,648 5,578
-------- --------
Operating costs and expenses:
Operating expenses:
Related party 2,018 1,130
Other 3,462 1,553
DMX-Europe N.V. (note 4) -- 2,609
Selling, general and administrative 11,522 3,131
Stock compensation 42 --
Depreciation and amortization 5,251 602
-------- --------
Total operating costs 22,295 9,025
-------- --------
Operating loss (3,647) (3,447)
Other income (expense):
Interest expense:
Related party (note 5) (88) (62)
DMX-Europe N.V. (note 4) -- (55)
Other, net (952) (10)
-------- --------
(1,040) (127)
Share of (losses) earnings of affiliates (105) 77
Other, net (6) (1)
-------- --------
Loss before income taxes (4,798) (3,498)
Income tax benefit 371 --
-------- --------
Net loss $ (4,427) (3,498)
======== ========
Basic and diluted loss per common share $ (.05) (.06)
======== ========
Weighted average number of common shares 80,749 59,587
======== ========
Comprehensive loss (note 1) $ (4,465) (3,500)
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
I-3
<PAGE> 5
TCI MUSIC, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Consolidated Statement of Stockholders' Equity
(unaudited)
<TABLE>
<CAPTION>
Accumulated
Common Stock other
---------------------- Paid in Accumulated comprehensive
Series A Series B capital deficit losses Total
-------- -------- ------- ------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998 $ 181 625 63,899 (465) (2) 64,238
Accretion of put option (note 3) -- -- 1,213 -- -- 1,213
Issuance of common stock 4 -- 3,122 -- -- 3,126
Accretion of redeemable convertible preferred stock -- -- (374) -- -- (374)
Foreign currency translation adjustment -- -- -- -- (38) (38)
Net loss -- -- -- (4,427) -- (4,427)
------- ------- ------- ------- ------- -------
Balance at March 31, 1998 $ 185 625 67,860 (4,892) (40) 63,738
======= ======= ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements
I-4
<PAGE> 6
TCI MUSIC, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
TCI Music DMX
(note 1) (note 1)
----------------- --------------
Three months Three months
ended ended
March 31, 1998 March 31, 1997
----------------- --------------
amounts in thousands
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (4,427) (3,498)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 5,251 845
Share of (losses) earnings of affiliates 105 (77)
Stock compensation 42 --
Intercompany current tax allocation (488) --
Provision for doubtful accounts 180 92
Deferred income tax expense 117 --
Changes in operating assets and liabilities,
net of acquisitions:
Trade receivables (881) (1,511)
Prepaid expenses and other current assets (1,881) (206)
Other assets (57) 6
Deferred revenue (95) (18)
Accounts payable, accrued
liabilities and other (1,302) 2,894
-------- --------
Net cash used in operating activities (3,436) (1,473)
Cash flows from investing activities:
Cash paid for acquisitions (10,113) --
Capital expended for property and equipment, net (2,486) (399)
Investments in affiliates (89) --
Return of capital from affiliates -- 150
-------- --------
Net cash used in investing activities (12,688) (249)
Cash flows from financing activities:
Repayment of principal and interest to related party (3,298) 1,867
Borrowing on note payable to bank 18,750 --
Repayment of note payable (3,226) --
Repayments of principal portion of capital
lease obligation (7) (111)
-------- --------
Net cash provided by financing activities 12,219 1,756
-------- --------
Net (decrease) increase in cash
and cash equivalents (3,905) 34
Cash and cash equivalents, beginning of period 7,915 986
-------- --------
Cash and cash equivalents, end of period $ 4,010 1,020
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
I-5
<PAGE> 7
TCI MUSIC, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
March 31, 1998
(unaudited)
(1) Organization
TCI Music, Inc. ("TCI Music" or "the Company") was incorporated on
January 21, 1997, and on January 24, 1997 one share of TCI Music Series
B common stock, $.01 par value per share ("TCI Music Series B Common
Stock"), was issued to Tele-Communications, Inc. ("TCI") for a capital
contribution of $1. On July 11, 1997, DMX Inc. ("DMX") and TCI Music,
consummated a merger pursuant to an Agreement and Plan of Merger, dated
February 6, 1997, as amended by Amendment One to Merger Agreement dated
May 29, 1997 (the "DMX Merger Agreement"), among DMX, TCI, TCI Music,
and TCI Merger Sub ("Merger Sub"), a wholly-owned subsidiary of TCI
Music, whereby Merger Sub was merged with and into DMX (the "DMX
Merger"), with DMX as the surviving corporation and TCI Music became the
successor registrant to DMX. The DMX Merger was deemed effective July 1,
1997 for accounting purposes. See note 3.
TCI Music has three classes of stock outstanding at March 31, 1998, the
TCI Music Series A Convertible Preferred Stock, $.01 par value per share
("TCI Music Preferred Stock"), TCI Music Series A Common Stock, $.01 par
value per share ("TCI Music Series A Common Stock") and TCI Music Series
B Common Stock, $.01 par value per share ("TCI Music Series B Common
Stock"), collectively with the TCI Music Series A Common Stock (the "TCI
Music Stock"). TCI beneficially owns approximately 5% of the outstanding
TCI Music Preferred Stock, 37.77% of the outstanding shares of TCI Music
Series A Common Stock and 100% of the outstanding shares of TCI Music
Series B Common Stock, which collectively represents approximately 80.7%
of the outstanding shares of TCI Music Stock, assuming conversion of the
TCI Music Preferred Stock, representing 97.4% of the voting power of the
outstanding shares of TCI Music Stock.
Basis of Presentation
In the accompanying financial statements and in the following text,
references are made to DMX and TCI Music. The consolidated statement of
operations for the three months ended March 31, 1997 reflect the
consolidated results of operations of DMX and is referred to as "DMX"
(the predecessors' operations). The financial statements as of December
31, 1997 and for the three months ended March 31, 1998 reflect the
consolidated results of operations and financial condition of TCI Music.
All significant intercompany accounts and transactions have been
eliminated for the periods presented. As a result of the DMX Merger, the
consolidated financial information for the periods after the DMX Merger
are presented on a different cost basis than that for the periods before
the DMX Merger and, therefore, are not comparable.
The accompanying interim consolidated financial statements are unaudited
and in the opinion of management, reflect all adjustments necessary for
a fair presentation of the results for such periods. The results of
operations for any interim period are not necessarily indicative of
results for the full year. The accompanying financial information for
the three months ended March 31, 1998 and 1997, should be read in
conjunction with the audited consolidated financial statements and notes
thereto included in the Company's Annual report filed on Form 10-K for
the year ended December 31, 1997.
Reclassifications
Certain reclassifications of prior period amounts have been made to
conform to the current year's reporting format.
(continued)
I-6
<PAGE> 8
TCI MUSIC, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Reporting Comprehensive Income
Effective January 1, 1998, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130"). The Company has reclassified its
prior period consolidated balance sheet and consolidated statement of
operations to conform to the requirements of SFAS 130. SFAS 130 requires
that all items which are components of comprehensive earnings be
reported in a financial statement in the period in which they are
recognized. The Company has included cumulative foreign currency
translation adjustments in other comprehensive earnings, which had been
recorded directly in stockholders' equity. Pursuant to SFAS 130, this
item is reflected, as a component of other comprehensive earnings in the
Company's consolidated statements of operations, and is included in
accumulated other comprehensive losses in the Company's consolidated
balance sheets and statements of stockholders' equity.
(2) Supplemental Disclosures to Consolidated Statements of Cash Flows
Cash paid for interest was $1,188,000 and $135,000 for the three months
ended March 31, 1998 and 1997, respectively. Cash paid for taxes for
periods presented was not material.
Significant noncash investing and financing activities are as follows
for the period ended March 31, 1998 (amounts in thousands):
<TABLE>
<CAPTION>
<S> <C>
Cash paid for acquisitions:
Fair value of assets acquired $ 2,509
Net liabilities assumed (1,123)
Equity interest issued to acquired entities (3,126)
Debt issued (775)
Excess of cost paid over fair value of net assets acquired 12,628
---------
Cash paid for acquisitions $ 10,113
=========
Noncash accretion of stockholders'
put option (note 3) $ 1,213
=========
</TABLE>
(3) Mergers and Related Transactions
DMX Merger
In connection with the DMX Merger, TCI and TCI Music entered into a
Contribution Agreement dated July 11, 1997, as amended by the Amended
and Restated Contribution Agreement (the "Amended Contribution
Agreement"). Pursuant to the Amended Contribution Agreement: (i) TCI
Music issued to TCI (as designee of certain of its indirect
subsidiaries), 62,500,000 shares of TCI Music Series B Common Stock, and
a promissory note in the amount of $40 million, (ii) TCI is required to
deliver, or cause certain of its subsidiaries to deliver to TCI Music
monthly payments aggregating $18 million annually, adjusted annually
through 2017 (the "Annual TCI Payments"), which represent revenue of
certain subsidiaries of TCI that is attributable to the distribution and
sale of the DMX service to certain cable subscribers who receive the DMX
Service (net of an amount equal to 10% of such revenue derived from
residential customers and license fees otherwise payable to DMX pursuant
to the Affiliation Agreement); and compensation to TCI Music and DMX for
various other rights; (iii) TCI contributed to TCI Music certain digital
commercial tuners that are not in service, and (iv) TCI granted to each
stockholder of DMX who became a stockholder of TCI Music pursuant to the
DMX Merger, one right (a "TCI Right") with respect to each whole share
of TCI Music Series A Common Stock, acquired by such stockholder in the
DMX Merger pursuant to the terms of the Rights Agreement among TCI, TCI
Music and the Bank of New York to require TCI to purchase from such
holder one share of TCI Music Series A Common Stock at a purchase price
of $8.00 per share payable at the election of TCI, in cash, a number of
shares of TCI Group Series A Common Stock, having an equivalent value or
a combination thereof, if during the one-year period beginning on July
11, 1997, the effective date of the DMX Merger, the price of TCI Music
Series A Common Stock does not equal or exceed $8.00 per share for a
period of at least 20 consecutive trading days.
(continued)
I-7
<PAGE> 9
TCI MUSIC, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
The number of shares of TCI Music Series A Common Stock and TCI Rights
issued were based upon DMX Common Stock ownership as of June 30, 1997.
The estimated fair value of the DMX Merger Consideration issued to
stockholders not controlled by TCI ("Unaffiliated Stockholders") is
being accreted to the value of $8.00 per share (the equivalent of $2.00
per share of DMX Common Stock), subject to reduction by the aggregate
amount per share of any dividend and certain other distributions, if
any, made by TCI Music to its stockholders during the one-year period
beginning on the effective date of the DMX Merger. Such accretion is
reflected as an increase in excess cost with a corresponding increase to
additional paid-in capital
The Box Merger
Effective December 16, 1997, The Box Worldwide, Inc., ("The Box") and
TCI Music consummated a merger pursuant to an Agreement and Plan of
Merger, dated August 12, 1997 (the "Box Merger Agreement"), among The
Box, TCI Music, and TCI Music Acquisition Sub, Inc., a wholly-owned
subsidiary of TCI Music, whereby TCI Music Acquisition Sub, Inc. was
merged into The Box (the "Box Merger"), with The Box as the surviving
Corporation and a wholly-owned subsidiary of TCI Music
Pursuant to the Box Merger Agreement, 24,892,623 outstanding shares of
common stock of The Box were converted into the right to receive a
fraction of a share of TCI Music Preferred Stock, equal to the quotient
of $1.50 divided by three times the average of the average daily closing
bid and asked prices of one share of TCI Music Series A Common Stock
trading with an associated TCI Right for a period of 20 consecutive
trading days ending on the third trading day prior to the closing of the
Box Merger as reported on the Nasdaq SmallCap Market and cash in lieu of
fractional shares of TCI Music Series A Preferred Stock. Each share of
TCI Music Preferred Stock is convertible at the option of the holder
into three shares of TCI Music Series A Common Stock without associated
TCI Rights, subject to certain antidilution adjustments and certain
adjustments for dividends and distributions, if any. Each share of TCI
Music Preferred Stock is entitled to vote on all matters submitted to a
vote of the holders of the TCI Music Series A Common Stock and to the
number of votes equal to the number of shares of TCI Music Series A
Common Stock into which such share is convertible as of the record date
for the matter to be voted upon. The Box's 6% Convertible Redeemable
Preferred Stock, par value $.15 per share and stated value of $1.50 per
share ("Box Preferred Stock"), was purchased by the Company for
$2,652,000. Each share of TCI Music Series A Common Stock currently
outstanding trades together with an associated TCI Right issued in
connection with the DMX Merger. The TCI Rights will terminate or expire
on or before August 10, 1998 unless extended by their terms. The shares
of TCI Music Series A Common Stock into which the TCI Music Preferred
Stock is convertible do not have any such associated TCI Rights, and if
a holder of TCI Music Preferred Stock converts shares into TCI Music
Series A Common Stock prior to the termination or expiration of the TCI
Rights, the TCI Music Series A Common Stock without the TCI Rights
received upon conversion will not be tradable on the Nasdaq SmallCap
Market under the Symbol "TUNE" with the TCI Music Series A Common Stock
that includes the TCI Rights until such TCI Rights terminate or expire.
The Company has performed a preliminary allocation of the purchase price
to excess cost over the fair value of net assets acquired as the net
book values of The Box's assets and liabilities were estimated to
approximate their respective fair values, and is awaiting information
and evaluation at which point it will finalize such allocation.
Paradigm Merger
Effective December 31, 1997, Paradigm Music Entertainment Company
("Paradigm") and TCI Music consummated a merger pursuant to an Agreement
and Plan of Merger, dated December 9, 1997 (the "Paradigm Merger
Agreement"), among Paradigm, TCI Music and TCI Para Merger Sub, Inc.,
("TCI Para Merger Sub"), a wholly-owned subsidiary of TCI Music, whereby
TCI Para Merger Sub was merged into Paradigm (the "Paradigm Merger"),
with Paradigm the surviving corporation and a wholly-owned subsidiary of
TCI Music.
(continued)
I-8
<PAGE> 10
TCI MUSIC, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Pursuant to the Paradigm Merger Agreement, all the outstanding shares of
common stock of Paradigm ("Paradigm Common Stock") were converted into a
number of shares of TCI Music Series A Common Stock determined by
dividing $24,000,000 by the average of the average daily closing bid and
asked prices of one share of TCI Music Series A Common Stock trading
with an associated TCI Right, for a period of 20 consecutive trading
days ending on the third day prior to the closing of the Paradigm
Merger, as reported on the Nasdaq SmallCap Market and cash in lieu of
fractional shares. The shares of TCI Music Series A Common Stock issued
in the Paradigm Merger do not have the associated TCI Rights attached
and are not tradable on the Nasdaq SmallCap Market under the symbol
"TUNE" until such TCI Rights expire or terminate.
The Paradigm Merger was effective December 31, 1997 and was accounted
for under the purchase method of accounting. The estimated aggregate
fair value of the TCI Music Series A Common Stock issued in the Paradigm
Merger equaled approximately $22.3 million and has been allocated to
excess cost over fair value of net assets acquired as the net book
values of Paradigm's assets and liabilities were estimated to
approximate their respective fair values. The number of shares issued
was based upon Paradigm's Common Stock ownership as of December 30,
1997.
(4) Investment in and Disposition of DMX-Europe N.V. and Subsidiary
On May 17, 1996, DMX consummated the merger of TCI-Euromusic, Inc.
("TCI-E"), an indirect affiliate of TCI ("the TCI-E Merger") pursuant to
the terms of the Agreement and Plan of Merger, dated August 28, 1995, as
amended on November 1, 1995 and January 17, 1996 among DMX, TCI-E and
United Artists Programming International, Inc. ("UAPI"), an indirect
affiliate of TCI and owner of the outstanding shares of TCI-E. As a
result of the TCI-E Merger, DMX acquired the remaining 49% interest in
DMX-Europe N.V. ("DMX-E NV") and its subsidiary DMX-Europe (UK) Limited
("DMX-E UK"), collectively ("DMX-E").
DMX-E ceased operation on July 1, 1997. DMX-E UK was placed into
receivership on July 1, 1997 and into liquidation on July 18, 1997.
DMX-E NV, although inactive since July 1, 1997, was placed into
receivership on December 23, 1997. Accordingly, the accompanying balance
sheets as of March 31, 1998 and December 31, 1997 and the statements of
operations and cash flows for the three months ended March 31, 1998
give effect to the deconsolidation of DMX-E.
(5) Related Party Transactions
Pursuant to an Amended and Restated Contribution Agreement between TCI
and TCI Music to be effective as of July 1, 1997 (the "Amended
Contribution Agreement") TCI is required to deliver, or cause certain of
its subsidiaries to deliver to TCI Music monthly payments aggregating
$18 million annually, adjusted annually through 2017 (the "Annual TCI
Payments"). Pursuant to the Amended Contribution Agreement, the Annual
TCI payments represent (i) revenue of certain subsidiaries of TCI that
is attributable to the distribution and sale of the DMX service to
certain cable subscribers (net of an amount equal to 10% of such revenue
derived from residential customers and license fees otherwise payable to
DMX pursuant to the Affiliation Agreement) and (ii) compensation to TCI
Music and DMX for various other rights. During the three months ended
March 31, 1998, TCI Music recognized $5.1 million of subscriber fee
revenue and $565,000 which was charged to operating expense pursuant to
the Amended Contribution Agreement.
Pursuant to an affiliation agreement (the "Affiliation Agreement")
between Satellite Services, Inc., a wholly-owned subsidiary of TCI
("SSI") and DMX, effective as of July 1, 1997, SSI has the non-exclusive
right to distribute and subdistribute the DMX Service to commercial and
residential customers for a 10-year period in exchange for licensing
fees paid by SSI to DMX. Under the Affiliation Agreement, SSI will pay
an annual fee to DMX of $8,500,000 for the initial three years, subject
to adjustment annually (beginning July 1, 1998) by the percentage change
in the CPI for the prior year and for changes in the number of
subscribers, as a result of divestiture or acquisition of cable systems.
During the fourth through tenth years of the term of the Affiliation
Agreement, the annual fee will be further adjusted on a monthly basis
upward or downward, as the case may be, based on an
(continued)
I-9
<PAGE> 11
TCI MUSIC, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
increasing percentage of the increase in actual number of subscribers
above or below a specified number of residential and commercial
subscribers, provided that such fees cannot be reduced below a specified
minimum license fee, which minimum fee is decreased each year in years
four through ten. For the three months ended March 31, 1998, the
Company recognized $2.1 million of licensing fees, which are included in
subscriber fee revenue, related party.
On February 6, 1997 the Company entered into a loan and security
agreement with TCI which provided $3.5 million. The loan was paid in
full on March 2, 1998.
The Company has an equipment lease with the National Digital Television
Center, Inc. ("NDTC"), a subsidiary of TCI, for the equipment at the
studio and uplinking facility in Littleton, Colorado. The outstanding
balance of the capital lease obligation at March 31, 1998 and December
31, 1997 was approximately $1.0 million and $1.2 million, respectively,
with terms that extend through the year 2000, at an interest rate of
9.5%. The related studio equipment had a net book value of approximately
$618,000 and $728,000 at March 31, 1998 and December 31, 1997,
respectively, and is included in property and equipment in the
accompanying consolidated balance sheets. Additionally the Company
leases certain office space and uplinking and satellite services from
the NDTC. Total expenses under these leases were $1,244,000 and
$1,052,000 for the three months ended March 31, 1998 and 1997,
respectively and are included in operating expenses, related party.
The components of related party debt at March 31, 1998 and December 31,
1997, respectively, were as follows (amounts in thousands):
<TABLE>
<CAPTION>
Accrued
Principal interest Total
--------- --------- --------
March 31, 1998
<S> <C> <C> <C>
Capital lease obligation $ 1,036 25 1,061
========== ========= =========
December 31, 1997
$3.5 million equipment loan $ 3,117 32 3,149
Capital lease obligation 1,171 39 1,210
--------- --------- --------
$ 4,288 71 4,359
========== ========= =========
</TABLE>
TCI Music is included in the consolidated federal income tax return of
TCI. Income tax expense or benefit for TCI Music is based on those items
in the consolidated calculation applicable to TCI Music. Intercompany
tax allocation represents an apportionment of tax expense or benefit
(other than deferred taxes) among the subsidiaries of TCI in relation to
their respective amounts of taxable earnings or losses. The payable or
receivable arising from the intercompany tax allocation is recorded as
an increase or decrease in amounts due to related parties.
(6) Intangible Assets
The balance of intangible assets as of March 31, 1998 principally
consists of the excess of cost over the fair value of the net assets
acquired in the acquisitions of DMX, The Box and Paradigm (see note 3).
Such intangibles are being amortized over a 10 year period.
(continued)
I-10
<PAGE> 12
TCI MUSIC, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
(7) Debt
On December 30, 1997 the Company entered into a revolving loan agreement
(the Revolving Loan Agreement) with several banks which provides for
borrowings up to $100 million. Interest on borrowings under the
agreement is tied to London Interbank Offered Rate ("LIBOR"), plus an
applicable margin dependent upon the Company's leverage ratio, as
defined, for the preceding quarter or at the banks base rate. The
Revolving Loan Agreement matures on June 30, 2005 with principal
reductions beginning semi-annually on June 30, 2000 based on a scheduled
percentage of the total commitment. A commitment fee is charged on the
unborrowed portion of the Revolving Loan Agreement commitment ranging
from .25% to .375% based upon the leverage ratio for the preceding
quarter.
In connection with the Paradigm Merger, the Company assumed debt
consisting of two bridge loans and a note payable to an individual. The
notes bear interest at 10% per annum and were paid in full, including
accrued interest, in January 1998.
The fair market value of TCI Music's debt approximated its carrying
value at March 31, 1998.
(8) Stockholders' Equity
Stock Options and Stock Appreciation Rights
Estimates of the compensation relating to options and/or stock
appreciation rights granted to employees of TCI Music and members of the
Board have been recorded in the accompanying financial statements, but
are subject to future adjustment based upon vesting and the market value
of TCI Music Series A Common Stock and ultimately, on the final
determination of market value when the rights are exercised. The payable
or receivable arising from the compensation related to the options
and/or stock appreciation rights is included in other liabilities.
Capital Stock
The Company has the authority to issue 500 million shares of Capital
Stock consisting of (i) 295 million shares of TCI Music Series A Common
Stock; (ii) 200 million shares of TCI Music Series B Common Stock; and
(iii) 5 million shares of TCI Music preferred stock. The TCI Music
Series A Common Stock and TCI Music Series B Common Stock are identical
except for voting and conversion rights. Each share of TCI Music Series
A Common Stock entitles the holder to one vote and each share of TCI
Music Series B Common Stock entitles the holder to ten votes. Each share
of TCI Music Series B Common Stock is convertible, at the option of the
holder, at any time into one share of TCI Music Series A Common Stock.
The TCI Music Series A Common Stock is not convertible into TCI Music
Series B Common Stock.
Earnings (Loss) Per Common and Potential Common Share
Basic earnings per share ("basic EPS") is measured as the income or loss
available to common stockholders divided by the weighted average
outstanding common shares for the period. Diluted earnings per share
("diluted EPS") is similar to basic EPS but presents the dilutive effect
on a per share basis of potential common shares as if they had been
converted at the beginning of the periods presented. Potential common
shares that have an ant-dilutive effect are excluded from diluted EPS.
The basic and diluted loss attributable to TCI Music and DMX
stockholders per common share was computed by dividing the net loss
attributable to TCI Music and DMX stockholders by the weighted average
number of common shares outstanding of TCI Music and DMX stock for the
three months ended March 31, 1998 and 1997 (80.7 million and 59.6
million, respectively). Potential common shares were not included in the
computation of weighted shares outstanding because their inclusion would
be anti-dilutive.
(continued)
I-11
<PAGE> 13
TCI MUSIC, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
At March 31, 1998, there were 3.6 million potential common shares
consisting of fixed and nonvested performance awards that could
potentially dilute future EPS calculations in periods of net income.
Such potential common share amount does not take into account the
assumed number of shares that would be repurchased by TCI Music upon
exercise of the fixed and nonvested performance awards. No material
changes in the weighted average outstanding shares or potential common
shares occurred after March 31, 1998.
(9) Commitments and Contingencies
Year 2000
Many existing computer programs use only two digits to identify a year
in a date. If not corrected, many computer applications and systems
could fail or create erroneous results by or at the year 2000. TCI Music
is in the process of identifying computer systems and software that may
not function correctly in the year 2000. Additionally, TCI Music is
planning a program of communications with its significant suppliers,
customers and affiliated companies to determine the readiness of these
third parties and the impact on the Company as a consequence of their
own year 2000 issues. TCI Music's manual assessment of the impact of the
year 2000 date change should be complete by the end of 1998. TCI Music
believes that it will be able to identify, and, if necessary, modify or
replace such systems and software before any year 2000 associated
problems arise. No assurances can be given that such modification and
replacement will be completed before any year 2000 associated problems
arise or that costs arising from unanticipated problems will not have a
material adverse effect on the Company. As of March 31, 1998, amounts
expensed on the Company's year 2000 have not been material.
Vendor Commitments
DMX and Scientific-Atlanta, Inc. ("S-A"), had an agreement with respect
to the manufacture, distribution and servicing of the DM-2000 tuners and
DMXoDJ's. DMX was not obligated to purchase or guarantee the
purchase of any minimum number of tuners or DMXoDJ's, and S-A was
the exclusive tuner manufacturer in the United States and Canada and
earned a royalty of approximately five percent (5%) of DMX's premium
audio service revenues until August 1996. No payments are required until
DMX achieves "operating breakeven", as defined in the agreement.
Accrued Music Right Royalties
DMX licenses rights to re-record and distribute music from a variety of
sources and pays royalties to songwriters and publishers through
contracts negotiated with performing rights societies such as the
American Society of Composers, Authors and Publishers ("ASCAP"),
Broadcast Music, Inc. ("BMI") and the Society of European Stage Authors
and Composers ("SESAC"). DMX has separate agreements with ASCAP, BMI and
SESAC for residential and commercial distribution. Certain of the
agreements are being negotiated on an industrywide basis mainly over new
rate structures that may require retroactive rate increases. DMX has
continued to accrue royalties that are under negotiations based on its
best estimate, after consultation with counsel and consideration of the
terms and rates of the expired contracts.
The Digital Performance Right in Sound Recordings Act of 1995 ("1995
Act") was signed into law on November 1, 1995. The 1995 Act establishes
the right of owners of the performance rights, such as the performers
and record companies, to control digital transmission of sound
recordings by means of subscription service digital transmissions. The
1995 Act provides a compulsory license for noninteractive subscription
services. An arbitration panel rendered a decision before the United
States Copyright Office in late November 1997 that determined the
statutory license royalty rate of 5% to be paid under the 1995 Act by
DMX and other digital music residential subscription services on
services transmitted to non-business subscribers, and required back
payments be made on a forward basis amortized over approximately thirty
months, without interest. On April 30, 1998, the United States Copyright
office made a determination of reasonable rates and terms for the 1995
Act which set the statutory license royalty rate at 6.5% with the
required back payments to be paid on July 20, 1998. This determination
is subject to appeal. As of March 31, 1998, the Company's accrued music
royalties include the license royalty at the rate of 6.5% and the change
in rate did not have a material impact on the financial position or
result of operations for the three months ended March 31, 1998.
Parent Guarantees
As described in note 4, "Investment in and Disposition of DMX-Europe
N.V. and Subsidiary", DMX-E ceased operations and DMX-E U.K. was put
into receivership on July 1, 1997 and into liquidation proceedings on
July 18, 1997. DMX-Europe NV, has been inactive since July 1, 1997, and
was placed into receivership on December 23, 1997. As a result claims
may be filed under the following guarantees.
The Company has guaranteed certain contracts of DMX-E related to their
uplink services agreement and subscriber management services agreement.
To the extent DMX-E is unable to perform under the agreements, certain
creditors of DMX-E may pursue claims against the Company under the
(continued)
I-12
<PAGE> 14
TCI MUSIC, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
guarantees. A claim under the guaranty of DMX-E's obligation to
indemnify British Sky Broadcasting under the uplink services agreement
could potentially approximate $1.3 million which is included in the loss
on disposal of DMX-E in the accompanying consolidated statement of
operations. The Company has also guaranteed certain other obligations of
DMX-E under the Subscriber Management Services Agreement between DMX-E
and Selco Servicegesellschaft fur elektronische Kommunikation mbH
("Selco"), and the related side letter agreement. The Company cannot
estimate the amount of any potential claims at this time under such
guarantee.
DMX has received a letter from counsel for Selco Servicegesellschaft fur
elektronische Kommunikation mbH ("Selco") requesting that DMX make a
proposal to settle claims alleged by Selco for damages in the amount of
approximately $3.5 million with respect to a guaranty by DMX of
obligations of DMX-E N.V. under a Subscriber Management Services
Agreement between DMX-E N.V. and Selco. TCI Music does not believe that
DMX has any liability to Selco under that guaranty. Nevertheless, TCI
Music cannot estimate, based on the facts available as of the date of
this Form 10-Q, whether Selco will continue to pursue its claims and, if
Selco elects to initiate formal legal proceedings, whether DMX will be
held liable for any material amount. (See "Legal Action" below.)
Legal Actions
From time to time the Company may be a party to legal actions arising in
the ordinary course of business, including claims by former employees.
In the opinion of the Company's management, after consultation with
counsel, disposition of such matters are not expected to have a material
adverse effect upon the financial position, results of operations or
liquidity of the Company.
I-13
<PAGE> 15
TCI MUSIC, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information concerning
the results of operations and financial condition of the Company. Such
discussion should be read in conjunction with the accompanying consolidated
financial statements and notes thereto of the Company. Additionally, the
following discussion and analysis should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and financial statements included in Part IV of the Company's Annual
Report on Form 10-K for the year ended December 31, 1997. The following
discussion focuses on material trends, risks and uncertainties affecting the
results of operations and financial condition of the Company.
Certain statements in this Quarterly Report on Form 10-Q constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. In particular, some of the statements contained
under this caption are forward-looking. Such forward-looking statements involve
known and unknown risks, uncertainties and other important factors that could
cause the actual results, performance or achievements of the Company to differ
materially from future results, performance, or achievements expressed or
implied by such forward-looking statements. Such risks, uncertainties and other
factors include, among others: general economic and business conditions and
industry trends; the regulatory and competitive environment of the industries in
which the Company has interests or operations; uncertainties inherent in new
business strategies, new product launches and development plans; rapid
technological changes; development and provisions of programming for new
television and telecommunications technologies; future financial performance,
including availability, terms and deployment of capital; the ability of vendors
to deliver required equipment, software and services; availability of qualified
personnel; changes in, or failure or inability to comply with, government
regulations, changes in the nature of key strategic relationships with partners
and joint venturers; competitor responses to the Company's products and
services, and the products and services of the entities in which the Company has
interests, and the overall market acceptance of such products and services; and
other factors. These forward-looking statements (and such risks, uncertainties
and other factors) speak only as of the date of this Report, and the Company
expressly disclaims any obligation or undertaking to disseminate any updates or
revisions to any forward-looking statement contained herein, to reflect any
change in the Company's expectations with regard thereto, or any other change in
events, conditions or circumstances on which any such statement is based.
TCI Music's assets include businesses which are principally engaged in:
(i) programming, distributing, and marketing continuous commercial-free compact
disc-quality music programming; (ii) programming, distributing, and marketing an
interactive music video television programming service; and (iii) distributing
and marketing music entertainment products through traditional and
non-traditional channels.
YEAR 2000
Many existing computer programs use only two digits to identify a year
in a date. If not corrected, many computer applications and systems could fail
or create erroneous results by or at the year 2000. TCI Music is in the process
of identifying computer systems and software that may not function correctly in
the year 2000. Additionally, TCI Music is planning a program of communications
with its significant suppliers, customers and affiliated companies to determine
the readiness of these third parties and the impact on the Company as a
consequence of their own year 2000 issues. TCI Music's manual assessment of the
impact of the year 2000 date change should be complete by the end of 1998. TCI
Music believes that it will be able to identify, and, if necessary, modify or
replace such systems and software before any year 2000 associated problems
arise. No assurances can be given that such modification and replacement will be
completed before any year 2000 associated problems arise or that costs arising
from unanticipated problems will not have a material adverse effect on the
Company. As of March 31, 1998, amounts expensed on the Company's year 2000 have
not been material.
SUMMARY OF OPERATIONS
REVENUE
Total revenue, increased to $18.6 million for the three months ended
March 31, 1998 from $5.6 million for the three months ended March 31, 1997. The
$13.0 million increase was attributed to $5.1 million of revenue from sales of
DMX Music services to TCI's residential and commercial subscribers (the "Annual
TCI Payments") as a result of the DMX Merger and pursuant to a Contribution
Agreement dated July 11, 1997, as amended by the Amended Contribution Agreement
(the "Amended Contribution Agreement"); $5.2 million of viewer and advertising
revenue from the Box as a result of the Box Merger which was effective December
16, 1997; $560,000 of other revenue as a result of the Paradigm Merger which was
effective December 31, 1997; and increased subscriber revenue of $2.9 million
from DMX, primarily resulting from growth in its commercial subscriber base and
expansion in six new markets which occurred in the last quarter of the fiscal
year 1997 through the first quarter of 1998. In the last quarter of the fiscal
year 1997, DMX expanded its owned and operated commercial sales business to
Miami, Florida; Atlanta, Georgia; and Phoenix, Arizona. During the three months
ended March 31, 1998, DMX acquired owned and operated operations in
Massachusetts, Minnesota and Northern California.
OPERATING EXPENSES
Operating expenses, exclusive of DMX-Europe N.V. operating expenses of
$2.6 million for the three months ended March 31, 1997, increased to $5.5
million for the three months ended March 31, 1998 from $2.7 million for the
three months ended March 31, 1997. The $2.8 million increase was comprised of an
increase in related party operating expenses of $888,000 which represented
$564,000 of fees paid to TCI as compensation for services rendered in generating
the TCI Annual Payments pursuant to the Amended Contribution Agreement and
$320,000 of uplinking and affiliate fees incurred by the Box; and an increase in
operating expenses - other of $1.9 million which primarily represented the
inclusion of the Box and Paradigm operating expenses of $1.7 million and
$175,000, respectively for the current period.
Selling, general and administrative expenses increased to $11.5 million
for the three months ended March 31, 1998 from $3.1 million for the three months
ended March 31, 1997. The $8.4 million increase primarily represented the
inclusion of the Box and Paradigm selling, general and administrative expenses
of $4.4 million and $2.3 million, respectively for the current period and
increased expenses for DMX of $1.1 million which is commensurate with their
growth in subscriber revenues and expansion related to the commercial
businesses' six market launch.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense, exclusive of DMX-Europe N.V.
depreciation of $213,000 for the three months ended March 31, 1997, increased
to $5.3 million for the three months ended March 31, 1998 from $602,000 for
the three months ended March 31, 1997. Such increase is primarily attributable
to an
I-14
<PAGE> 16
TCI MUSIC, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
increase in the balance of property and equipment and intangibles resulting from
the DMX Merger and The Box Merger.
OPERATING EXPENSES AND DISPOSAL OF -DMX-E
DMX-E and its subsidiary DMX-Europe (UK) Limited ("DMX-E UK"), ceased
operation on July 1, 1997. DMX-E UK was placed into receivership on July 1, 1997
and into liquidation proceedings on July 18, 1997. DMX-Europe N.V. ("DMX-E NV")
has been inactive since July 1, 1997 and entered liquidation proceedings in
December 1997. DMX-E has been deconsolidated since June 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The decrease in cash of $3.9 million for the three months ended March
31, 1998 was the net result of funds used in operating activities of $3.4
million and net funds provided by financing activities of $12.2 million offset
by cash used in investing activities of $12.7 million. For additional
information concerning the cash flow of TCI Music, see the consolidated cash
flow statement included in the accompanying consolidated financial statements.
During the three months ended March 31, 1998, the Annual TCI Payments
were a primary source of operating cash of $4.5 million. Together, with the net
funds provided by financing activities of $12.2 million from the revolving loan
agreement, the Company funded its operating activities and the growth and
acquisitions of the owned and operated commercial subscriber businesses which
expanded the DMX business into six new markets.
TCI Music believes that cash provided by the Annual TCI Payments and
available capacity of $28 million as of March 31, 1998, pursuant to the
revolving loan agreement will provide adequate sources of liquidity for the next
year. For additional information concerning TCI Music's revolving loan
agreement, see note 7 to the accompanying consolidated financial statements.
At March 31, 1998, the Company had $72 million of variable-rate debt.
Accordingly, in an environment of rising interest rates, the Company expects
that it would experience an increase in interest expense.
As described in notes 4 and 9 to TCI Music's consolidated financial
statements and as discussed above, DMX-E has ceased operations on July 1, 1997.
DMX-E UK was placed into receivership on July 1, 1997 and into liquidation
proceedings on July 18, 1997. DMX-E NV, has entered into liquidation proceedings
in December 1997. Although no assurances can be given, Management believes that
any claim arising under the parent guarantees will not have a material adverse
effect on the Company's financial condition or results of operations.
I-15
<PAGE> 17
TCI MUSIC, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
PART II - OTHER INFORMATION
Item 2. Changes in Securities.
(c) On December 31, 1997 a wholly-owned subsidiary of the Company was
merged with and into Paradigm Music Entertainment Company
("Paradigm") in a transaction that was not registered under the
Securities Act of 1933, as amended (the "Securities Act"). Pursuant
to the merger, 3,202,335 shares of TCI Music Series A Common Stock
were issued to former shareholders of Paradigm pursuant to an
Agreement of Merger dated as of December 8, 1997. No underwriter or
placement agent was involved in the issuance of the shares of TCI
Music Series A Common Stock pursuant to the Paradigm merger, and the
Company did not receive any cash consideration for such shares (which
constituted the purchase price paid by the Company for Paradigm). The
shares of TCI Music Series A Common Stock were issued to former
Paradigm shareholders in a transaction exempt from the Securities Act
pursuant to Rule 506 promulgated thereunder.
On January 16, 1998, a wholly-owned subsidiary of the Company was
merged with and into Sound Products, Inc. ("Sound Products") in a
transaction that was not registered under the Securities Act.
Pursuant to the merger, 138,373 shares of TCI Music Series A Common
Stock were issued to former shareholders of Sound Products pursuant
to an Agreement of Merger dated as of January 1, 1998. No underwriter
or placement agent was involved in the issuance of the shares of TCI
Music Series A Common Stock pursuant to the Sound Products merger,
and the Company did not receive any cash consideration for such
shares (which constituted part of the purchase price paid by the
Company for Sound Products). The shares of TCI Music Series A Common
Stock were issued to former Sound Products shareholders in a
transaction exempt from the Securities Act pursuant to Rule 506
promulgated thereunder.
On March 2, 1998, a wholly-owned subsidiary of the Company was merged
with and into New England Sound & Communications, Inc. ("New England
Sound") in a transaction that was not registered under the Securities
Act. Pursuant to the merger, 243,381 shares of TCI Music Series A
Common Stock were issued to former shareholders of New England Sound
pursuant to an Agreement of Merger dated as of January 30, 1998. No
underwriter or placement agent was involved in the issuance of the
shares of TCI Music Series A Common Stock pursuant to the New England
Sound merger, and the Company did not receive any cash consideration
for such shares (which constituted part of the purchase price paid by
the Company for New England Sound). The shares of TCI Music Series A
Common Stock were issued to former New England Sound shareholders in
a transaction exempt from the Securities Act pursuant to Rule 506
promulgated thereunder.
All of the foregoing shares of TCI Music Series A Common Stock
were issued without associated TCI Rights.
II-1
<PAGE> 18
TCI MUSIC, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits -
10.59* Purchase Agreement between DMX Inc. and OMT Technologies Inc.
T/A Media Touch, dated March 19, 1998
10.60* DMX/Media Touch Joint Venture Agreement, dated
March 17, 1998
(27) TCI Music, Inc. Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter ended March 31, 1998:
None.
*TCI Music, Inc. has requested confidential treatment for a portion of the
referenced Exhibit.
II-2
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TCI MUSIC, INC.
Date: May 15, 1998 By: /s/ Thomas McPartland
---------------------------------------
Thomas McPartland
President and
Chief Executive Officer
Date: May 15, 1998 By: /s/ Joanne Wendy Kim
---------------------------------------
Joanne Wendy Kim
Vice President-Finance,
Principal Financial Officer and
Principal Accounting Officer
II-3
<PAGE> 1
EXHIBIT 10.59
[MEDIATOUCH LOGO]
Purchase Agreement
Between
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------
VENDOR CUSTOMER
OMT Technologies Inc. T/A Media Touch DMX Inc.
658 King Edward Street 11400 W. Olympic Blvd. Suite 1100
Winnipeg, Manitoba R3H OP2 Los Angeles, California, USA 90064-1507
Hereinafter referred to as "VENDOR" Hereinafter referred to as the "CUSTOMER"
- -------------------------------------------------------------------------------------------------
Agreement Number 980212-1 Date of Agreement March 19, 1998 Project # 3080-720
- -------------------------------------------------------------------------------------------------
</TABLE>
WHEREAS, Customer desires to acquire certain audio, data processing equipment
and/or software for its particular use and purposes; and
WHEREAS, Vendor desires to develop, provide and deliver such software to
Customer in accordance with this Agreement and the Vendor Specification attached
hereto and incorporated herein as Schedule A.
THEREFORE, Customer and Vendor mutually agree as follows:
1. EFFECTIVE DATE. This Agreement becomes effective when signed by Customer
and Vendor.
2. TRANSACTION AND SCOPE. Vendor agrees to provide to Customer and Customer
agrees to acquire from Vendor the following:
a) SOFTWARE. The software listed in Schedule C.
b) SERVICES. Services as listed in Schedule D.
c) SUPPORT. Support as listed in Schedule E.
3. COST. The purchase price/license fee for the items listed in Schedules
B, C, D and E shall be
a) ($ 266,520.00 ) Dollars [X] US [ ] Canadian
b) This price does not include all applicable sales taxes,
c) This price does not include freight and delivery which is extra
and borne by the Customer.
4. TITLE AND OWNERSHIP. Title and ownership of the various components and
services comprising the system or any part or item thereof, or license
rights in the software shall remain vested in the Vendor until the
sooner of delivery acceptance, as the case may be, and payment at the
times provided for in Schedule F has been made; at which time title,
ownership and license rights shall vest in the Customer free and clear
of any lien of encumbrance.
5. NEEDS AND REQUIREMENTS. The parties hereto agree that:
a) Customer has communicated its needs and requirements to Vendor
and has indicated what, if any, unusual conditions or uses
needed to be taken into account by Vendor in preparing its
proposal;
b) Vendor has evaluated the information supplied by Customer and
has provided Customer with a detailed Vendor Specification
(Schedule A) setting forth Vendor's understanding of Customer's
needs and requirements as well as the items (including detailed
specifications) which will satisfy the needs and requirements
contained therein;
c) The specifications set forth in the Vendor Specification shall
be deemed to constitute the maximum specifications to be met by
the items listed therein;
d) Customer has carefully reviewed the Vendor Specification
(Schedule A) and is satisfied that its needs and requirements
are accurately and completely described, and that the items
contained in Schedule A will satisfy these needs and
requirements so long as the listed specifications are met. Any
errors, omissions of ambiguities are not to deemed to result
from the objectives set out by the Customer and shall be brought
to the Customers attention by the Vendor for consideration.
6. PAYMENT SCHEDULE. The payment schedule for the items enumerated herein
is set forth in Schedule F, which is attached hereto and made a part
hereof.
7. IMPLEMENTATION SCHEDULE. Attached hereto as Schedule G, and made a part
hereof, is a schedule of tasks and deliverables setting forth the time
and manner in which the transactions under this Agreement are to be
performed.
8. PERSONNEL. The personnel assigned by Vendor to implement the delivery
and installation of the System shall be qualified to perform the tasks
described in Schedules D and E.
9. CUSTOMER RESPONSIBILITIES. Customer shall be responsible for timely site
preparation including, but not limited to, the provision of adequate
electrical power and sufficient number and type of electrical outlets,
dust and smoke control provisions, adequate furniture, and sufficient
work space for Vendor's personnel to perform installation. Customer
shall be responsible for equipment cabling except as specifically set
forth herein to be provided by Vendor. I
- ----------
* Indicates that material has been omitted and confidential treatment has been
requested therefor. All such omitted material has been filed separately with
the Commission pursuant to Rule 24b-2.
- --------------------------------------------------------------------------------
USA - 2480 S.E. 52nd Street Ocala, FL. 34480-7500 Canada - 658 King Edward
Street Winnipeg, MB. R3H OP2
Toll Free (888)665-0501 Phone (204)786-3994 Fax (204)783-5805 Email [email protected]
Document # PP120997
<PAGE> 2
[MEDIATOUCH LOGO]
10. CUSTOMER ACCEPTANCE. The System shall be deemed accepted by Customer
when the System has been delivered, installed and made ready for use at
Customer's site in accordance with the manufacturers installation and
operating specifications; and Vendor and customer have tested to ensure
that all included hardware and software will substantially meet the
manufacturers specifications and those contained in the Vendor
Specification and Customer has notified Vendor of Final Acceptance (as
defined in the Rider) (Schedule A).
11. DOCUMENTATION. With the delivery of the System, Vendor shall include any
published manuals or other documentation specifications supplied with
the hardware or software by the manufacturer, developer or distributor
for distribution to end user Customer.
12. TRAINING. Any training to be provided by Vendor to Customer or its
employees shall be set forth in Schedule D; and any such training shall
be conducted according to the timetable and at the location or locations
set forth in Schedule D.
13. TITLE. Vendor warrants and represents that the System (software) and any
documentation to be furnished pursuant to this Agreement shall be the
property of Vendor and that Vendor shall be capable of transferring the
title thereto, or, in the case of non Custom Portions (as defined in the
Rider) of software and documentation, the license for the use thereof,
to Customer.
14. WARRANTIES.
a) In addition to any express warranties set forth herein, Customer
may be entitled to the benefit from certain limited warranties
provided directly by the manufacturers, owners, publishers or
distributors of these products. Vendor assumes no liability for,
nor responsibility under, these third party warranties unless
such liability or responsibility shall be specifically set forth
herein.
b) Customer hereby acknowledges and agrees that any warranties
included herein do not extend or apply to Customer's use of any
attachment, feature or software on or in conjunction with the
System, or any item, element or component thereof, which has not
been furnished pursuant to this Agreement or which has not been
approved in writing by Vendor.
c) Customer understands and agrees that Vendor, Vendor's supplier
or suppliers, and the manufacturers, developers or distributors
of the items, elements and components of the System are not
engaged in a joint venture and, subject to Article 15, that
Vendor has no intention, obligation or duty to warrant and/or
represent the quality, performance and condition of such
deliverables on their behalf.
15. RISK OF LOSS. All risk of loss or damage to the System, or any item,
element or component thereof, shall be borne by the party upon whose
premises the System is located at the time of such loss or damage. In
the event the loss or damage occurs during shipping or delivery, the
party in charge of arranging for such shipping or delivery shall bear
the responsibility for the loss or damage. Customer agrees, upon
delivery of any item, element or component of the System, and prior to
the transfer of title and/or license rights, to insure such deliverables
pursuant to the policy of conventional commercial fire insurance with
extended coverage of other risks sufficient to protect Vendor's interest
in such items, elements or components of the System.
16. DELAYS. Customer acknowledges that the products provided pursuant to
this Agreement may have to be ordered from and be made subject to
delivery by manufacturers, distributors, wholesalers, or transport
companies not subject to the control of Vendor. Vendor agrees to provide
Customer with its best estimate of the time of delivery of each ordered
item. However, Vendor and Customer shall not be liable for any damages,
whether direct, indirect, special, incidental, consequential, exemplary
or of any other nature, for delay in delivery or installation, or for
the failure to give notice of such delay, when delay is due to factors
beyond the reasonable control of such party, including, but not limited
to, delays in transportation, delays due to labor strife, acts of God,
or delays in delivery by manufacturers, distributors or other
third-party Vendors. In addition, Vendor and Customer shall not be
liable for any delay which shall be due to or reasonably within the
control of the other party, whether by the other party's action or
inaction.
17. TAXES. Customer hereby agrees to be responsible for and to pay any and
all sales taxes levied by federal, provincial, state or local
governments, and such taxes shall be collected by Vendor pursuant to
Paragraph 3 above; and, in addition, Customer shall indemnify and hold
Vendor harmless from payment of any taxes, including but not limited to
sales, use, or personal property taxes and excluding corporate taxes or
taxes on Vendors income when, and if, Vendor is required to pay such tax
based on this Agreement. Customer has the right to contest these taxes.
18. LIMITATION OF REMEDY. Customer's exclusive remedy and Vendor's entire
liability in contract, tort or otherwise, in the event that Vendor,
exercising reasonable diligence and having made repeated efforts, is
unable to comply with the requirements as set forth herein, shall be the
payment of actual damages incurred, but not to exceed the actual
contract price for the item as specified herein. Vendor's exclusive
remedy shall be limited to actual damages incurred and not to exceed
contract price.
19. DEFAULT.
a) If Customer should default on its obligations under this
Agreement and such default continues for thirty (30) days after
written notice thereof by Vendor, then Vendor may elect to
terminate this Agreement and exercise any remedy
- --------------------------------------------------------------------------------
USA - 2480 S.E. 52nd Street Ocala, FL. 34480-7500 Canada - 658 King Edward
Street Winnipeg, MB. R3H OP2
Toll Free (888)665-0501 Phone (204)786-3994 Fax (204)783-5805 Email [email protected]
Document # PP120997
<PAGE> 3
[MEDIATOUCH LOGO]
existing at law or in equity, including the repossession of such
items. As long as a bona fide dispute exists over payment or
performance, Vendor shall not delay or terminate.
b) Customer hereby agrees that at all times prior to making payment
in full to Vendor, Customer shall:
i) Keep the System free from all liens and encumbrances;
ii) Not use or permit the System, or any item, element or
component thereof, to be used in any careless, reckless
or negligent manner which is likely to be injurious to
said products;
iii) Not make or permit any alterations to said products
without Vendor's prior written consent; and
iv) Upon reasonable notice during regular business hours,
permit inspection of the System by Vendor or Vendor's
designated agent.
20. NOTICES. All notices required or permitted hereunder shall be in writing
and shall be deemed duly given, upon dispatch, if sent registered mail
or by facsimile transmission to the parties at the addresses listed on
the first page of this Agreement, or to such other addresses as the
parties may from time to time designate by appropriate notice, with a
copy sent to Peter Laird, Customer's attorney, at Edelstein, Laird &
Sobel, LLP 9255 Sunset Blvd., Suite 800, Los Angeles, CA 90069.
21. SCHEDULES. Any schedules referred to herein and/or attached hereto are,
and shall be so considered, a part hereof just as if the material
contained therein was included in the body of this Agreement.
22. HEADINGS NOT CONTROLLING. The paragraph headings contained in this
Agreement are inserted for identification purposes only and shall not be
deemed a part of this Agreement for purposes of interpretation.
23. SEVERABILITY. If any provision or provisions of this Agreement shall be
determined to be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any
way be affected or impaired thereby.
24. ENTIRE AGREEMENT. This Instrument, including any schedules and the rider
attached hereto, contains the entire agreement of the parties hereto and
no modification, change or discharge of any term or provision of this
Agreement shall be valid or binding unless the same is in writing signed
by all the parties hereto. No waiver of any of the terms or conditions
of this Agreement shall be valid or binding unless the same is in
writing signed by the party against whom such waiver is asserted. This
Agreement supersedes all prior agreements or representations, whether
oral or written, between the parties hereto relating to the subject
matter hereof, and all such prior agreements or representations are
hereby terminated.
25. CONSTRUCTION. Whenever used in this Agreement, the singular shall
include the plural and the plural the singular, and the use of any
gender shall be applicable to all genders.
26. LIMITATION OF WARRANTIES. Notwithstanding Article 18 and 19, warranties
are limited to the provision of products and services as indicated in
SCHEDULES A, B, C, D, E AND F and are in lieu of all obligations or
liability on the part of the Vendor for loss of profits or damages
including, but not limited to, direct, indirect special, incidental
consequential, or exemplary damages, arising out of or in connection
with the use or performance of the products and services sold hereunder.
27. EFFECT. This Agreement shall be binding upon and shall inure to the
benefit of the legal successors and assigns of the parties hereto.
28. GOVERNING LAW. This agreement shall be construed and enforced in
accordance with the laws of the State of California.
IN WITNESS WHEREOF, the parties have duly executed this Agreement this
19th day of March, 1998
VENDOR CUSTOMER
Authorized Signature Authorized Signature
/s/ SCOTT FARR 3-20-98 /s/ MARTIN PUCHER 3-19-98
Scott Farr Martin Pucher
Vice President Vice President
- --------------------------------------------------------------------------------
USA - 2480 S.E. 52nd Street Ocala, FL. 34480-7500 Canada - 658 King Edward
Street Winnipeg, MB. R3H OP2
Toll Free (888)665-0501 Phone (204)786-3994 Fax (204)783-5805 Email [email protected]
Document # PP120997
<PAGE> 4
[MEDIATOUCH LOGO]
SCHEDULE A - VENDOR SPECIFICATION
SCOPE OF PROJECT:
To provide software, consulting and professional services for 120 automated
music formats using MPEG I Layer 2 WAV audio compression. Each format is to
operate on a Windows95 PC and is to play scheduled audio events from local
storage and be reasonably tolerant of server platform(s) failure. Microsoft NT
4.0/RAID 5 servers are to provide central play list management and audio
storage. Play List Schedule programming occurs in Los Angeles and data is shared
over a T1 data link with Denver, where all audio data and origination studio
equipment is located.
Regardless of vendor source of supply of PC hardware, OMT is to be supplied with
sufficient equipment to develop and test the complete system.
PLAY BACK SOFTWARE SPECIFICATION
The playback system is to utilize a single Windows95 PC playback engine and
audio card, based on our current Oplog and MediaDisk software with modifications
to support perpetual daily play list automation from the local drive, as opposed
to direct playback from the file server. The software will locate audio and play
schedule data from a central file server and download this data to a high
capacity local drive for playback, prior to scheduled time. Tolerance of failed
network connections will allow continuous operation during failure of server or
network components. Upon restoration of network failure condition, the
application should re-discover and re-establish these connections. Fading and
segue specifications based on two audio streams will be supported as per Hukk
Engineering DDC manual and implemented through the daily play list as exported
from Selector. Support of Title/Track/Artist data output as per current
specification, and additional functionality as indicated below.
* Windows95 16 bit software development.
* Utilize Antex SX9 audio card with AES/EBU and S/PDIF digital audio output.
* 2GB EIDE drive required >1400 stereo minutes local storage (MPEG 1 Layer 2,
Stereo, 44.1K Sample, 192Kbps).
* Peak leveling parameter that mimics the current DSS leveling software.
* Online / real time editing of play schedules.
* Local real time and remote off line audio data search and edit.
* Ability to edit song cross-fade parameters.
* Current play schedule to loop and report if a required daily play schedule
is unavailable and load the required play schedule when it becomes
available.
* The ability to view last 60 minutes of play schedule events.
* Support 4 Title/Track/Artist (specification as currently implemented), RS232
data streams via Digiboard or equivalent.
* Ability to insert and edit the outgoing order of TTA data fields.
* Ability to switch TTA fields to accommodate promotional text displays.
* Utilize PC function keys to operate various operations of the software
eliminating reliance on a mouse.
* Create and update a daily event/error log, per format, providing date and
time stamped entries of errors encountered and pertinent data in the
execution of scheduled activities.
* Ability to sync play schedule to current time (implemented within play
schedule).
* The audio storage database is organized by server, category and cut number.
XXXXXX - 6 character server name (DMX999)
XXX - 3 character category (RET - Retro)
XXXX - 4 digit cut number (9999)
- --------------------------------------------------------------------------------
USA - 2480 S.E. 52nd Street Ocala, FL. 34480-7500 Canada - 658 King Edward
Street Winnipeg, MB. R3H OP2
Toll Free (888)665-0501 Phone (204)786-3994 Fax (204)783-5805 Email [email protected]
Document # PP120997
<PAGE> 5
[MEDIATOUCH LOGO]
OPERATIONS AND PROGRAMMING SOFTWARE SPECIFICATION
Daily play list creation and associated TTA data to be supported through
Selector export and, as required, conversion utilities to support conversion to
playback daily log formats.
Application to FTP transfer of play schedules from Los Angeles to Denver.
Editor application to support viewing and editing of daily schedules.
Reporting application to support viewing, printing and exporting of data from
the event/error log.
WEB monitoring application providing HTML display of channel status (2
closures/states per format), forward play schedule availability, TTA data of
current play schedule event. Required PC and electronic hardware is not
included, specifications will be supplied.
ENCODING STATION SOFTWARE SPECIFICATION
The MediaTouch Format Recorder, as implemented for DMX, will be an MS-DOS
application based on the MediaTouch Network Recorder. The application will
provide dual simultaneous recording streams via AES/EBU input from a Pioneer
V3200 CD AutoChanger operated by the DMX current playback software, DSS. The TTA
RS232 data stream will provide cut identification during the record process.
HARDWARE
Equipment procurement, configuration and facilities including wiring, racks and
required labor are the responsibility of DMX Inc. MediaTouch can provide
additional consulting and design assistance outside the scope of this agreement
for additional cost.
OTHER AGREED TO ITEMS
1. MediaDisk Audio Playback software and UltraTools Log Management software
licenses:
1st 120 channels implemented by DMX [*]
121 through 240 channels implemented by DMX [*]
241 through 360 channels implemented by DMX [*]
361 and more channels implemented by DMX [*]
2. Software license fees shall be applicable to channels as implemented and on
the air delivering music to DMX subscribers. Licenses may be transferred to
other DMX locations upon notification to MediaTouch. License fees are not
refundable for channels removed from delivering audio to DMX subscribers but
may be transferred or used at a future date on new or other DMX music
services.
3. Software upgrades will be made available to DMX at no additional cost
throughout the warranty period, thereafter for licenses covered by an Annual
Maintenance Agreement. Maintenance Agreement fees, on a per license basis,
to be at a mutually agreeable price.
4. A one-time engineering fee of $45,000.00 for the enhancement of MediaDisk
based on a mutually acceptable Statement of Work and System Specification,
to be negotiated.
5. WEB monitoring software for silence alarm and TTA data shall be provided at
no additional charge based upon a mutually agreed specification. Complete
specification for the WEB monitoring software has not yet been defined. Any
- ----------
* Indicates that material has been omitted and confidential treatment has been
requested therefor. All such omitted material has been filed separately with
the Commission pursuant to Rule 24b-2.
- --------------------------------------------------------------------------------
USA - 2480 S.E. 52nd Street Ocala, FL. 34480-7500 Canada - 658 King Edward
Street Winnipeg, MB. R3H OP2
Toll Free (888)665-0501 Phone (204)786-3994 Fax (204)783-5805 Email [email protected]
Document # PP120997
<PAGE> 6
[MEDIATOUCH LOGO]
cost outside the development, supply and integration assistance of software
developed by MediaTouch is the responsibility of DMX. If a feature specified
requires a hardware component or a Third-party software product and
MediaTouch is asked to supply and integrate this product or component then,
costs plus a reasonable handling charge would apply.
6. Call center and telephone consulting support shall be at no additional cost
for the first two (2) years. For the Third and subsequent years support
shall be charged annually at a mutually agreeable price.
7. DMX shall procure and provide all hardware, installation labor, installation
drawings, hardware technical support, rack hardware and wiring. MediaTouch
will provide consulting services as required during the design and
procurement. Other professional services as required and not covered within
the scope of this agreement, and not requiring onsite services, shall be
charged at $250.00 per day plus materials.
8. The MediaTouch Log Management software shall be modified as required to
support the RCS Selector export file used by DMX and shall be compatible
with a mutually agreeable overall Server Studio specification incorporating
elements of our proposed specification dated 8/28/97.
9. DMX Inc. and OMT Technologies Inc. have executed a mutually agreeable
Non-Disclosure Agreement.
10. After initial installation and acceptance testing by DMX, MediaTouch shall
provide a two-year software warranty providing timely fixes for any software
deficiencies discovered based on the scope and specification agreed upon.
Changes or enhancements required by DMX outside the scope or specification
shall be provided at a professional services rate of $250.00 day plus
materials or onsite services as required.
11. DMX Inc. and MediaTouch shall negotiate a mutually acceptable progress
payment schedule and project sign-off procedure that shall include a
$55,000.00 initial deposit for software and services. Third-party software
required to be supplied by MediaTouch shall be based on mutually agreeable
terms and conditions at time of order.
12. User manuals, top level software descriptions and trouble shooting
procedures shall be provided for all software components as required and in
a mutually agreeable format.
13. Source code and documentation required to maintain and support the installed
software shall be placed in a Source Code Escrow Agreement, to protect the
interests of DMX Inc. as related to installed MediaTouch software in the
event of OMT Technologies Inc. ceasing operations or acquisition or sale to
another business entity. The cost of maintenance to a mutually agreeable
Source Code Escrow Agreement shall be included in the to be negotiated
Annual Software Maintenance Agreement.
SCHEDULE B - HARDWARE
<TABLE>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
QTY PART NUMBER DESCRIPTION PRICE EXTENSION
- --------------------------------------------------------------------------------------
No Hardware is supplied by OMT
- --------------------------------------------------------------------------------------
TOTAL
- --------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
USA - 2480 S.E. 52nd Street Ocala, FL. 34480-7500 Canada - 658 King Edward
Street Winnipeg, MB. R3H OP2
Toll Free (888)665-0501 Phone (204)786-3994 Fax (204)783-5805 Email [email protected]
Document # PP120997
<PAGE> 7
[MEDIATOUCH LOGO]
SCHEDULE C - SOFTWARE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
QTY PART NUMBER DESCRIPTION LICENSE ID PRICE EXTENSION
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
120 MediaDMX Digital Audio Playback Software Schedule A
1 MediaBGR-Custom Format Record Software Schedule A
Site License - Denver
1 MediaMONITOR WEB Monitoring Software Schedule A
- ------------------------------------------------------------------------------------------------------------------------
TOTAL
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
SOFTWARE LICENSE AGREEMENT
1. Definition.
"Licenser" means the Vendor and developer of the software.
"Licensee" means the Customer and the licensed user of the software.
"Software" means all computer programs identified in SCHEDULE C and
developed by the Vendor.
"Documentation" means material related to the software provided to a
Customer.
2. Limited Use License. In consideration of Licensee's payment of the license
fee to Licenser, Licenser grants to Licensee and Licensee accepts a
non-transferable, non-exclusive limited use license to use the software on
the equipment identified herein under the terms and conditions stated
herein. Licensee may: (a) use the software only on the single computer
processing unit ("CPU") or network designated on the License Agreement; (b)
make two copies of the software in any machine-readable form for operational
or archival backup use, but only on the designated CPU or network; and (c)
use the Software on any other equipment provided this License Agreement is
accordingly amended and appropriate fees are paid. Licensee shall: (a)
maintain records of the number and location of any such copies, in whole or
in part, of the software and upon request shall make such records available
to Licenser; (b) reproduce and include all copyright notices (including each
copyright notice applicable to the third-party software products merged and
included in the software on any copy; and (c) not reverse engineer,
disassemble, de-compile, reverse translate, or in any manner decode the
software in order to derive any source code form of the software. Licensee
shall not rent, provide or lease the software to others.
3. Software Copies. The software, or any copy, modification or merged portion,
may not be used, copied, modified or transferred, in whole or in part,
except as expressly provided herein. If possession of the software, or any
copy, modification, or merged portion thereof is transferred to any other
party, this license agreement is automatically terminated, unless otherwise
agreed.
4. Protection and Security of the software. Licensee agrees: (a) that the
software is confidential, contains trade secrets and information that derive
substantial independent economic value from not being generally known to,
and not being readily ascertainable by proper means by, other persons who
can obtain economic value from its disclosure or use; that the software is
proprietary to Licenser; and that the software is protected by copyrights
owned by Licenser under the Copyright Act of the United States and Canada;
(b) that Licenser owns the original and copies of the software; (c) to take
all reasonable steps to safeguard and to prevent the unauthorized or
inadequate disclosure or use of any part of the software in any form to any
third-party; and (d) not to copy or reproduce the software or any part
thereof, except as permitted hereunder. The obligations under items (c) and
(d) shall survive the termination of this Agreement.
5. Limited Warranties. Licenser warrants that the software will perform in the
manner specified in the documentation furnished with the software and in
compliance with SCHEDULE A, but only if the software is used on and with the
features and configuration of the components specified in the documentation
or software otherwise provided by licenser. This warranty will not be
changed by the rendering of technical, programming or other advice or
service by the Licenser or its agents. If modifications or changes are made
to the software other than as directed or approved by the Licenser, in
writing, then this warranty is void.
6. The foregoing warranties of Licenser do not extend to any software which has
been damaged as a result of accident, misuse, abuse or as a result of
service or modification by anyone other than Licenser or their agents.
Except as expressly set forth above, no other warranties, either expressed
or implied, are made with respect to the software, including, but not
limited to, the implied warranties of merchantability and fitness for a
particular purpose, and Licenser expressly disclaims all warranties not
stated herein. Licensee assumes the entire risk as to the quality and
performance of the software. This warranty gives Licensee specific legal
rights, and Licensee may also have other rights which vary from state to
state and province to province. Licensee's sole remedies and the entire
liability of Licenser is as set forth above. In no event will Licenser be
liable to Licensee or any other person for any extraordinary damages, causes
of action arising out of this Agreement or the performance of this Agreement
or any
- --------------------------------------------------------------------------------
USA - 2480 S.E. 52nd Street Ocala, FL. 34480-7500
Canada - 6588 King Edward Street Winnipeg, MB. R3H OP2
Toll Free (888)665-0501 Phone (204) 786-3994 Fax (204) 783-5805
Email [email protected]
Document #PP120997
<PAGE> 8
[MEDIATOUCH LOGO]
action related to this Agreement, including, but not limited to, any
incidental or consequential damages, expenses, lost profits, lost savings or
other damages arising out of the use of or inability to use the software.
7. License and Other Fees. In consideration of the License granted herein,
Licensee agrees to pay Licenser the License fee stated in SCHEDULE A hereof.
Training, education, or installation of the software are not included in the
License fee, and will be provided at the price stated in SCHEDULE D. If any
provision of this Agreement is declared illegal, null or void or contrary to
public policy, it shall be deleted and shall not affect the validity of any
other term or condition of this Agreement. Licensee may not Sub-license,
assign rights or delegate duties hereunder, or transfer the License or the
software, except as expressly provided in this Agreement.
- --------------------------------------------------------------------------------
USA - 2480 S.E. 52nd Street Ocala, FL. 34480-7500 Canada - 658 King Edward
Street Winnipeg, MB. R3H OP2
Toll Free (888)665-0501 Phone (204)786-3994 Fax (204)783-5805 Email [email protected]
Document # PP120997
<PAGE> 9
[MEDIATOUCH LOGO]
SCHEDULE D - SERVICES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
QTY DESCRIPTION PRICE EXTENSION
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operational and technical training as required by Customer within the included included
warranty period
- ----------------------------------------------------------------------------------------------------------------
TOTAL
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
** PRICE for services set out under the terms of this Agreement shall be
provided for according to prices and quantities as stated in SCHEDULE D unless a
fixed fee service is provided and is indicated as such in SCHEDULE D. Service
fees exclude charges for equipment, supplies, travel, lodging, third-party
services and incidental expenses, unless otherwise indicated. Charges for
services, approved by the Customer, over and above the contract amount are due
and payable upon presentation of invoice. All applicable Federal, Provincial,
State and Municipal taxes are extra.
SCHEDULE E - SUPPORT
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
QTY DESCRIPTION PRICE EXTENSION
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 2-year Software and Telephone Support Warranty N/C
- ----------------------------------------------------------------------------------------------------------------
TOTAL N/C
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Toll-free telephone support for two (2) years from date of installation for all
software included within this Agreement. Annual Support Agreements and software
updates are available for an additional charge.
SCHEDULE F - PAYMENT SCHEDULE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
DUE DATE DESCRIPTION AMOUNT
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Initial 10,000.00 Deposit plus 45,000.00 development fee 55,000.00
Phase 1 60 License Fees, upon functional acceptance of software 110,760.00
Phase 2 60 License Fees less 10,000.00 deposit, upon implementation and Final 100,760.00
Acceptance of software
- --------------------------------------------------------------------------------------------------
TOTAL 266,520.00
- --------------------------------------------------------------------------------------------------
</TABLE>
SCHEDULE G - IMPLEMENTATION SCHEDULE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
TARGET DATE DESCRIPTION RESPONSIBILITY
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Meeting all specifications and deliverables within 90 days from
date of contract and deposit.
- ---------------------------------------------------------------------------------------------------
</TABLE>
SCHEDULE H - CUSTOMER SUPPLIED EQUIPMENT AND FACILITIES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
QUANTITY DESCRIPTION
- --------------------------------------------------------------------------------
<S> <C>
All computer hardware, operating system software, audio
equipment, facilities and all required labor are the
responsibility of DMX Inc.
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
USA - 2480 S.E. 52nd Street Ocala, FL. 34480-7500 Canada - 658 King Edward
Street Winnipeg, MB. R3H OP2
Toll Free (888)665-0501 Phone (204)786-3994 Fax (204)783-5805 Email [email protected]
Document # PP120997
<PAGE> 10
[MEDIATOUCH LOGO]
RIDER
This Rider ("Rider") is attached and made a part of that certain
Purchase Agreement (the "Purchase Agreement," and together with this Rider, the
"Agreement") dated March 19, 1998, between OMT Technologies Inc. T/A Media Touch
("Vendor") and DMX Inc. ("Customer"). In the event of inconsistency or conflict
between the Purchase Agreement and this Rider, this Rider shall control.
Notwithstanding anything to the contrary contained in the Purchase Agreement,
Vendor and Customer agree as follows:
1. To fulfill the requirements of SCHEDULE A attached to the Agreement,
Vendor recommends the software manufactured, developed or supplied by Vendor and
other components to be supplied by Vendor described on SCHEDULE C attached to
the Agreement (the "Manufacturers" Software") together with substantial
modifications to the Manufacturers' Software and custom programming to be
performed by Vendor and more fully described in SCHEDULE C (the "Custom
Portions"). The Manufacturers' Software and the Custom Portions are sometimes
herein referred to collectively as the "System."
2. For all purposes of the Agreement, all references to the "System" shall
be deemed to include all components, equipment, program products, systems,
services, training and documentation referenced in the Agreement or necessary to
enable the System to operate in accordance with all Vendors' published
specifications with respect thereto, SCHEDULE A and all of the terms and
conditions of the Agreement (collectively, the "Performance Standards"). Vendor
agrees to provide the necessary skills and services to design, develop, test,
document and install the Custom Portions and other necessary design and
implementation services so that the entire System meets the "Performance
Standards."
3. Vendor hereby assigns, grants and conveys to and for the benefit of
Customer all warranties (and all rights thereunder) which any applicable vendor
has granted or will grant to Vendor with respect to any item of the
Manufacturers' Software or which such vendor authorizes Vendor to pass on to a
customer buying or licensing any item of Manufacturers' Software. Vendor hereby
represents and warrants to Customer that it possesses all rights necessary, and
is duly authorized and empowered to assign, grant and convey such warranties to
Customer. Vendor warrants that the warranty service it provides shall be
performed in a competent manner by qualified, trained maintenance personnel.
During any period that warranty or maintenance services are being provided by
Vendor, Vendor shall also make available to Customer all revisions,
modifications and enhancements to any of the Manufacturers' Software or Custom
Portions which are made available without additional charge (other than normal
maintenance fees) to any other customer of Vendor or any other applicable
vendor. Revised programs shall themselves be warranted for an additional twelve
(12) months. In no event shall Vendor suspend or terminate the maintenance
commitment unless Customer is in default as hereinafter provided. Vendor may
suspend maintenance service if Customer is in default in payment of any amount
due hereunder for a period of thirty (30) days after written notice to Customer
of such default. Customer may, at its option, pay under protest any amount
allegedly due hereunder for maintenance service without waiving any of its
rights whatsoever.
4. Vendor represents and warrants to Customer that: (a) the System will be
capable of fulfilling all of Customers current and reasonably anticipated needs
in an efficient and commercially desirable and competitive manner; (b) there are
no problems or defects, including viruses, known to Vendor in the System; (c)
the System does not contain any limitations which would render the System
unsuitable for use by Customer in processing its own applications and those of
its current divisions, subsidiaries or affiliates, or presently contemplated
future divisions, subsidiaries or affiliates; (d) the System will operate and
conform in all respects during the term hereof in accordance with the
Performance Standards; (e) the System will meet all applicable local, state and
federal codes, laws, regulations and tariffs, and that Vendor has no knowledge
of any pending or proposed change in such codes, laws, regulations or tariffs
which the System as installed would not meet.
5. The remedial rates charged to Customer shall be the lowest such rates
charged any Customer of Vendor for comparable service. The rates may be
increased annually but to no more than the lesser of (a) the lowest rates then
being charged any Customer of Vendor for comparable service, or (b) five percent
(5%) of the previous year's rates. No additional charges shall be applied for
service unless the service and charges are approved in writing by a duly
authorized representative of Customer. Such charges must be identified in the
contract or in a duly executed written change order. Vendor must warrant that
all prices and charges are the lowest it offers any Customer for comparable
products and services.
6. For purposes of the Agreement, the term "installation" or "installed"
shall mean that all items described as part of the Manufacturers' Software and
all other items necessary to enable the Manufacturers' Software and the Custom
Portions
- --------------------------------------------------------------------------------
USA - 2480 S.E. 52nd Street Ocala, FL. 34480-7500 Canada - 658 King Edward
Street Winnipeg, MB. R3H OP2
Toll Free (888)665-0501 Phone (204)786-3994 Fax (204)783-5805 Email [email protected]
Document # PP120997
<PAGE> 11
[MEDIATOUCH LOGO]
to operate as contemplated by Schedule A are placed in good working order and
such items are able to function in accordance with (a) all published benchmarks,
standards and systems specifications for such items and (b) all Performance
Standards with respect to the performance or characteristics of such items to
the extent applicable thereto, and the System has operated at an "Effectiveness
Level" of ninety-eight percent (98%) for ten (10) business days. The
"Effectiveness Level" of the System shall be computed by dividing the actual
time (expressed in hours and whole minutes) of operation in compliance with the
Performance Standards during the period of measurement ("Operational Use Time")
by the sum of Operational Use time and the actual time (expressed in hours and
whole minutes) in such period during which the System or any component part
thereof is inoperative, or downgraded below the Performance Standards, or unable
to perform productive work expressed as a percentage ("Downtime"). Downtime
shall be measured from the time Customer makes a bona fide attempt to notify
Vendor (orally or in writing) during the scheduled period of maintenance of such
condition and shall continue until the System or affected portion thereof is
returned to fully operational status in accordance with the Performance
Standards. Vendor agrees to provide to Customer all of its available information
and all information of which it has knowledge relating to the maintenance
problems that users of systems similar to the Manufacturers' Software have
experienced and Vendor's recommendations as to the best methods of minimizing
the impact of such problems.
7. Customer shall retain title to all data or information supplied to or
obtained by Vendor hereunder and all files containing such data ("Customers
Data") and the media on which Customers Data reside. All of Customer's Data
shall be subject to the confidentiality provisions below. Upon Final Acceptance
of the System or termination of the Agreement for any reason, the right of
Vendor to possess and use Customer's Data for any reason whatsoever shall
terminate and Vendor agrees immediately to deliver to Customer all of the
Customers Data and all copies thereof possessed by Vendor. Vendor shall, at that
time, also certify in writing to Customer that it has fulfilled its obligations
under this Section.
(a) Vendor hereby acknowledges that Customer's Data contains
sensitive information and valuable trade secrets of Customer relating to its
business and critical to its competitive position in the marketplace.
Accordingly, Vendor hereby agrees to observe complete confidentiality with
regard to Customer's Data; not to disclose or otherwise permit to any third
person or entity access to the Customers Data without Customers prior written
permission (except that such disclosure or access shall be permitted to an
employee of Vendor to the extent required by such employee in the course of
performing Vendors obligations hereunder or, with Customer's prior written
consent, to any other third party or entity to the extent required to enable
Vendor to perform its obligations hereunder); to ensure that Vendor's employees
or subcontractors participating in the performance of Vendor's obligations
hereunder are advised of the confidential nature of Customers Data and to ensure
by agreement or otherwise that they are prohibited from copying or revealing,
for any purpose whatsoever, Customers Data (or any part thereof), or from taking
any action prohibited to Vendor under this subsection, except that such copying
or revealing shall be permitted to an employee or subcontractor of Vendor to the
extent required by such employee or subcontractor in the course of performing
Vendor's obligations hereunder, or, with the prior written consent of Customer,
to any other third party or entity to the extent required to enable Vendor to
perform its obligations hereunder; to notify Customer promptly and in writing of
any circumstances of which Vendor has knowledge surrounding any possession, use
or knowledge of Customers Data (or any part thereof) by any person or entity
other than those authorized hereunder. Vendor's obligations under this Section
shall survive any expiration or termination of the Agreement.
(b) Because of the unique and proprietary nature of the Customers
Data, it is understood and agreed that Customers remedies at law for a breach by
Vendor of its obligations under this Section will, in all likelihood, be
inadequate and that Customer shall, in the event of such breach, be entitled to
equitable relief (including without limitation injunctive relief, specific
performance or other equitable remedies) in addition to all other remedies
provided hereunder or available at law.
8. All material, data, information, reports, specifications, tapes,
programs, documentation, diagrams, either written or readable by machine,
tangible or intangible which are provided by Customer to Vendor or which are
prepared by Vendor specifically for delivery to Customer hereunder and which are
incorporated into the Custom Portions shall be the sole and exclusive property
of Customer and shall be considered Customer's proprietary materials (the "DMX
Proprietary Materials"). Customer shall at all times retain title to the DMX
Proprietary Materials; provided, however, that risk of loss to the DMX
Proprietary Materials shall be borne by Vendor until Final Acceptance of the
System (or earlier termination of the Agreement) and the delivery of all DMX
Proprietary materials and copies thereof to Customer pursuant hereto.
- --------------------------------------------------------------------------------
USA - 2480 S.E. 52nd Street Ocala, FL. 34480-7500 Canada - 658 King Edward
Street Winnipeg, MB. R3H OP2
Toll Free (888)665-0501 Phone (204)786-3994 Fax (204)783-5805 Email [email protected]
Document # PP120997
<PAGE> 12
[MEDIATOUCH LOGO]
(a) Customer shall have the right from time to time in its sole
discretion during the performance by Vendor of its obligations hereunder to
request that Vendor deliver to Customer copies of any or all of the DMX
Proprietary Materials in whatever state of development they may exist at the
time of such request, including source materials and related documentation. Any
copies of DMX's Proprietary Materials so requested by Customer shall be
delivered by Vendor within three (3) days from the date of such request.
(b) Upon Final Acceptance of the System or earlier termination of
the Agreement for any reason, Vendor's right to possession and use of the DMX
Proprietary Materials in connection with the performance of its obligations
hereunder shall terminate and Vendor agrees immediately to deliver to Customer
all of the DMX Proprietary Materials and all copies thereof possessed by Vendor.
Vendor shall, at that time, also certify in writing to Customer that it has
fulfilled its obligations under this Section.
9. Vendor shall provide to Customer:
(a) A reasonable number of complete sets of operating manuals,
including complete specifications and operating manuals for the Custom Portions.
The operating manuals shall be comprehensive enough to enable a person of
average intelligence, not skilled in the operation of equipment such as that
contemplated by the Agreement, to operate the System efficiently and adequately.
The specifications documentation shall be comprehensive and detailed.
(b) A reasonable number of complete source code listings (including
related job control statements and annotations) of the System. The complete
source code listings shall be treated by Customer as proprietary and
confidential.
(c) Replacement copies of complete source code, System
specifications and operating manuals at no charge upon request.
10. Upon completion of preliminary acceptance testing, the System shall
undergo final acceptance testing in accordance with the implementation schedule
described in SCHEDULE G attached to the Agreement and the following procedures:
(a) All Manufacturers' Software and Custom Portions of the System
shall be run by Customer in a live or simulated environment whereby performance
in accordance with the Performance Standards is undertaken by Customer for a
period of forty-five (45) calendar days commencing on the first business day on
which such testing is first conducted to demonstrate to Customer's satisfaction
(to be evidenced by written acceptance by Customer) that the entire System will
function in accordance with the Performance Standards;
(b) Customer may process all data as Customer may reasonably
determine shall be necessary to demonstrate to Customer's satisfaction the
System's ability to function without system failures;
(c) During such forty-five (45) calendar day period, Vendor shall
promptly correct all system failures, and shall completely document all such
corrections;
(d) Customer shall accept the System in writing ("Final Acceptance")
at the conclusion of such forty-five (45) calendar day period if the system has
performed during the last ten (10) business days thereof without any system
failures and at an Effectiveness Level of ninety-eight percent (98%).
(e) In the event that the System does not perform without system
failures during such ten (10) business day period, final acceptance testing, at
the option of Customer (to be exercised in its sole discretion and without
prejudice to any of its rights hereunder), shall continue pursuant to this
Section for a period of time not to exceed an additional thirty (30) business
days. Customer shall accept the System in writing upon the conclusion of any
consecutive ten (10) business days within such thirty (30) business day period
during which the System has performed without any system failures; and
(f) Whether or not Final Acceptance has been achieved pursuant to
this Section, Vendor shall promptly correct all system failures identified by
purchaser, and shall thoroughly document such corrections.
11. The cost of and time required for all final acceptance testing is
included in the purchase price and taken into account in determining the
implementation schedule.
12. In addition to any other remedies available to Customer hereunder, the
amounts payable by Customer to Vendor pursuant to the Agreement shall be reduced
by three thousand dollars ($3,000.00) for each day that Final Acceptance is
delayed beyond its final date for completion in the implementation schedule
(SCHEDULE G).
13. Upon a material breach by Vendor of its obligations, and after notice to
Vendor of such breach and a reasonable opportunity to cure such breach, Customer
may, at its option to be exercised in its sole discretion and in additional to
any other rights or remedies to which Customer may be entitled hereunder or at
law or in equity:
- --------------------------------------------------------------------------------
USA - 2480 S.E. 52nd Street Ocala, FL. 34480-7500 Canada - 658 King Edward
Street Winnipeg, MB. R3H OP2
Toll Free (888)665-0501 Phone (204)786-3994 Fax (204)783-5805 Email [email protected]
Document # PP120997
<PAGE> 13
[MEDIATOUCH LOGO]
(a) Require that Vendor return all amounts previously paid by
Customer to Vendor hereunder within five (5) days after notice to Vendor from
Customer demanding such payment, and upon such payment, title and risk of loss
to the System shall pass to Vendor; or.
(b) Upon notice to Vendor, terminate further performance by Vendor
of all or any portion of Vendors obligations hereunder and, at Vendor's expense,
seek assistance from other persons or entities in completing performance of such
obligations.
14. For each calendar day after any due date that Vendor has failed to
achieve a task or deliverable, Customer, at its option, shall be entitled to the
following payments or credits ("Delay Credit"): (i) for the first fifteen (15)
calendar days after each such due date, the Delay Credit shall be Five Hundred
Dollars ($500.00) per calendar day; (ii) for the next fifteen (15) calendar
days after the unmet due date, the Delay Credit shall be One Thousand Dollars
($1,000.00) per calendar day; and (iii) thereafter, the Delay Credit shall be
Two Thousand Dollars ($2,000.00) per calendar day.
15. Nothing in the Agreement shall limit Vendor's liability for any claim
respecting Vendors willful misconduct or failure to act, or respecting personal
injury or property damage arising out of the negligence of Vendor or its
employees, agents or subcontractors in performance of maintenance services.
16. Customer may change the sites of any of its operations, and may assign
or transfer any of its rights under the Agreement to any direct or indirect
affiliate or successor in interest of Customer, or to any person or entity to
whom Customers operations are assigned or transferred.
AGREED, ACKNOWLEDGED AND ACCEPTED BY:
OMT TECHNOLOGIES INC T/A DMX INC
MEDIA TOUCH
By: [SIG] 3-20-98 By: [SIG] 3-19-98
Scott Farr Martin Pucher
- --------------------------------------------------------------------------------
USA - 2480 S.E. 52nd Street Ocala, FL. 34480-7500 Canada - 658 King Edward
Street Winnipeg, MB. R3H OP2
Toll Free (888)665-0501 Phone (204)786-3994 Fax (204)783-5805 Email [email protected]
Document # PP120997
<PAGE> 14
[MEDIATOUCH LOGO]
AMENDMENT NO. 1
THIS AMENDMENT NO.1 ("Amendment") is made as of this 19th day of March, 1998, by
and between OMT Technologies Inc. T/A Media Touch ("Vendor") and DMX Inc.
("Customer"), with respect to that certain Agreement dated concurrently herewith
by and between Vendor and Customer (the "Agreement"). All capitalized terms not
otherwise defined herein shall have the meanings assigned to them in the
Agreement.
In consideration of the mutual promises and covenants contained herein, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereby agree to amend the Agreement as follows:
1. Notwithstanding anything to the contrary contained in the Agreement, the
Vendor acknowledges and agrees that the fees and items described in Schedule A
to the Agreement in provision "1." of the section entitled "Other agreed to
items" are applicable to, and include authorization to Customer for, the
utilization of all or any part of the System software by Customer and/or
Customer's licensees and/or affiliates to deliver music programming content to
Customer's affiliates and/or licensees (and correspondingly to their respective
customers and/or licensees) including, without limitation, by granting licenses
or sub-licenses.
2. Except as specifically provided otherwise hereunder, all terms and
conditions of the Agreement shall remain and continue in full force and effect.
OMT Technologies Inc.
T/A Media Touch DMX Inc.
By: /s/ [SIG] By: /s/ [SIG]
Scott Farr Martin Pucher
L.A. Troxel, President
- --------------------------------------------------------------------------------
USA - 2480 S.E. 52nd Street Ocala, FL. 34480-7500 Canada - 658 King Edward
Street Winnipeg, MB. R3H OP2
Toll Free (888)665-0501 Phone (204)786-3994 Fax (204)783-5805 Email [email protected]
Document # PP120997
<PAGE> 1
EXHIBIT 10.60
DMX/MEDIA TOUCH JOINT VENTURE AGREEMENT
This Agreement is made as of March 17, 1998 between DMX, Inc. ("DMX"), a
Delaware corporation, and OMT Technologies, Inc. T/A Media Touch ("OMT"), a
Canadian corporation.
RECITALS
WHEREAS, DMX has developed and markets a multi-format programming music
service known as the DMX Digital File Server Studio ("DFS Studio") for delivery
of audio content to national and international licensees; and
WHEREAS, OMT has developed and is developing custom playback software for
both national and international applications ("OMT Software"), including but
not limited to the software specified in that certain Purchase Agreement
between DMX and OMT dated as of March 17, 1998 (the "Purchase Agreement"); and
WHEREAS, DMX and OMT desire to jointly develop the DFS Studio
(incorporating the OMT Software as provided in the Purchase Agreement) to
provide Licensees (as defined below) with turn-key multi-format programming
solutions utilizing the DFS Studio technologies, as provided in this Agreement;
NOW THEREFORE, in consideration of the mutual covenants contained herein,
DMX and OMT hereby agree as follows:
1. Definitions.
a. "DFS Studio" shall mean the multi-format programming service
established by DMX, as more specifically described in the Purchase
Agreement.
b. "OMT Software" shall mean all playback software necessary in
connection with the DFS Studio, including all software necessary for the
operation of the DFS Studio.
c. "Licensees" shall mean any third party companies licensing the
DFS Studio from DMX in any location throughout the world.
2. Term.
The term of this Agreement (the "Term") shall be for a period of five (5)
years from the date first written above. In addition, DMX shall have the right
to continue to utilize the OMT Software in connection with the DFS Studio after
the Term hereof solely with respect to Licensees who have contracts for
services and equipment covered by this Agreement, if such contracts were
entered into during the Term hereof.
1
<PAGE> 2
3. Duties of DMX.
a. DMX will create DFS Studios for Licensees incorporating the OMT
Software exclusively during the Term for the purpose of originating audio
content in the DFS Studio;
b. DMX shall market and sell the DFS Studio to Licensees;
c. DMX shall provide Licensees with the DFS Studio equipment (i.e.,
hardware OMT Software and audio content);
d. DMX shall have sole control and approval over all software
licenses granted in connection with the DFS Studio and has the right to
sub-license any or all of the OMT Software to Licensees for such purposes. DMX
shall have the right in its sole discretion to control such licenses and to
grant and reallocate such licenses to any company or location worldwide;
e. DMX shall be responsible for the installation and servicing of
the DFS Studio equipment for Licensees;
f. DMX shall be responsible for billing and collection from
Licensees for all costs related to the DFS Studio.
4. Duties of OMT
a. OMT shall provide to DMX the OMT Software in a format necessary
for DMX to perform its obligations hereunder, in accordance with the Purchase
Agreement;
b. OMT hereby acknowledges that pursuant to the Purchase Agreement
it has granted an exclusive license to DMX to use certain custom portions of
the OMT Software, and a non-exclusive license to DMX for the remainder of the
OMT Software, in the DFS Studio for all purposes contemplated in this
Agreement, including use for Licensees;
c. OMT shall be responsible to obtain, and pay all sums required for
and/or arising in connection with, all licenses, approvals and consents of any
kind necessary to use OMT Software for all purposes contemplated hereunder,
including without limitation all necessary rights from third party software
owners;
d. OMT shall provide engineering, technical, programming and
software expertise and training on how to use the OMT Software as provided in
the Purchase Agreement and otherwise as mutually agreed upon by DMX and OMT;
e. During the Term, OMT shall not develop and/or sell
2
<PAGE> 3
to any person or entity in any manner other than through DMX (i) the custom
portions of the OMT Software or (ii) any multi-format programming software.
OMT shall not provide services to, or utilize, any company other than DMX
for the multi-format programming initiatives worldwide during the Term.
Notwithstanding anything contained herein, OMT shall retain the right to
continue to provide maintenance support for its clients pursuant to
agreements existing as of the date of this Agreement, and to provide
software development and marketing services only to low powered commercial
radio and O.E.M. ("Original Equipment Manufacturer") audio applications
which do not in any manner directly compete with DMX. For purposes of
example only, OMT shall not provide the aforementioned software and/or
services to medium and high powered satellite distribution initiatives
and/or newly emerging broadband technologies.
5. Mutual Duties of DMX and OMT.
DMX and OMT shall have the following mutual obligations with respect to
the DFS Studio:
a. DMX and OMT shall use their best efforts to jointly develop
software solutions to support the Licensee's systems as it pertains to the
DFS Studio;
b. OMT shall assist and support DMX in marketing the DFS Studio to
Licensees upon DMX's request.
6. Fees.
DMX shall pay to OMT the license fees set forth in Schedule "A" attached
hereto.
7. Breach, Cure and Termination.
In the event of a material breach of the Agreement, the non-breaching
party shall provide the breaching party with written notice of the breach, and
if such breach is not cured with thirty (30) days of receipt of such written
notice, the non-breaching party shall have the right to terminate this
Agreement with no further obligation to the breaching party except as expressly
set forth herein. The obligations that shall survive termination under this
Paragraph 7, unless waived by the non-breaching party, are as follows: all
product and service warranties, if any; the obligation to fill orders placed
prior to termination; the obligation to service Licensees which purchased the
DFS Studio prior to termination of this Agreement; the indemnity provisions of
Paragraph 8; the confidentiality provisions of Paragraph 9; and, any other
obligations owed to Licensees under the terms of agreements with such Licensees
signed during the Term hereof. In addition to any other material breach of this
Agreement, it shall
3
<PAGE> 4
be deemed a material breach of this Agreement if OMT breaches the terms of the
Purchase Agreement or otherwise fails to provide playback software competitive
of DMX's stated business objectives.
8. Indemnification.
DMX hereby agrees to indemnify and hold OMT and its agents, employees,
representatives, successors and assigns harmless from and against any and all
claims, suits, actions, liabilities, judgments, losses and costs (including
reasonable attorneys' fees) related to wrongful actions by DMX or its agents,
employees or representatives, arising out of or in connection with DMX's
obligations and/or representations hereunder and which are not caused by the
willful or negligent actions of OMT or its agents, employees or representatives.
OMT hereby agrees to indemnify and hold DMX and its agents, employees,
representatives, successors and assigns harmless from and against any and all
claims, suits, actions, liabilities, judgments, losses and costs (including
reasonable attorneys' fees) related to wrongful actions by OMT or its agents,
employees or representatives, arising out of or in connection with OMT's
obligations and/or representations hereunder and which are not caused by the
willful or negligent actions of DMX or its agents, employees or representatives.
9. Confidentiality.
Without the prior consent of the other, neither OMT nor DMX shall disclose
to any third party (other than its respective employees, in their capacity as
such, who have a need to know in the performance of their ordinary employee
functions, or Licensees which need to know as part of the use of the DFS
Studio, provided in either case, such employees and parties agree to be bound
by the provisions of this paragraph) including, without limitation, any
municipality or other governmental entity, any information with respect to the
terms and provisions of this Agreement, or any information obtained from the
other in connection with this Agreement or the performance hereof, 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 as promptly as practicable (and, if possible, prior to
making such disclosure) and shall seek confidential treatment of such
information; (ii) as part of its normal reporting or review procedure to its
auditors or its attorneys; (iii) in order to enforce its rights pursuant to
this Agreement; or (iv) as to any information which is in the public domain or
which is properly obtained from a third party.
10. Miscellaneous Provisions.
a. Representations and Warranties.
4
<PAGE> 5
DMT and OMT each hereby represent and warrant that it has the authority
and is free to enter into this Agreement and that neither the execution of this
Agreement nor the performance of its obligations hereunder will interfere with
or cause the breach of any agreement between it and a third party. OMT
represents and warrants that it has secured all rights in the OMT Software as
are necessary for the parties to perform all obligations hereunder.
b. Governing Law.
This Agreement shall be construed and enforced in accordance with the laws
of the State of California, and all such actions or proceedings shall be
submitted to the exclusive jurisdiction of the courts in Los Angeles,
California.
c. Integration and Modification.
This Agreement represents the entire understanding of the parties with
respect to the subject matter hereof and supersedes all prior understandings,
whether written or oral, related to the matters set forth herein. This
Agreement is not intended, and shall not be deemed, to supercede this Purchase
Agreement. This Agreement may be modified only in a writing signed by the party
to be charged.
d. Severability.
If any provision of this Agreement should become or be deemed illegal,
unenforceable or void, then the remainder of this Agreement shall remain valid
and enforceable according to its terms.
e. Waiver.
The failure of either party to insist upon the performance of any of the
provisions of this Agreement shall not be considered a waiver or relinquishment
of future compliance therewith, nor shall a waiver by either party of
any breach at one time of any provision operate as a waiver of any other
provision or as a continuing waiver of such provision.
f. Binding Effect; Assignment.
This Agreement shall be binding upon and inure to the benefit of the
parties thereto and their respective heirs, successors and assigns; provided,
however, that neither party may or shall assign this Agreement, without the
express written authorization of the other, except to an entity that is related
to the assigning party by virtue of at least fifty
5
<PAGE> 6
percent (50%) common ownership, or to an entity purchasing all or substantially
all of the assets of the assigning party.
g. Headings.
Headings used in this Agreement are for reference purposes only and
shall not in any way affect the meaning or interpretation hereof.
h. No Agency.
The relationship between the parties shall be that of independent
contractors, and nothing contained in this Agreement shall create the
relationship of principal and agent or otherwise permit either party to incur
any debts or liabilities or obligations on behalf of the other party (except as
specifically provided herein).
i. Fully Negotiated.
This Agreement shall be construed as having been fully and completely
negotiated, and neither the Agreement nor any provision thereof shall be
construed more strictly against either party.
j. Notices.
Any notice or report given or required to be given under this
Agreement shall be in writing, shall be sent postage prepaid by registered or
certified mail, return receipt requested or by hand or messenger delivery, or
by Federal Express or similar overnight delivery service, or by facsimile
transmission, to the other party, at the following address (unless either party
at any time or times designates another address for itself by notifying the
other party thereof by certified mail, in which case all notices to such party
thereafter shall be given at the following or at such address as either party
may supply to the other in writing):
To OMT: OMT Technologies Inc. T/A Media Touch
658 King Edward Street
Winnipeg, Manitoba R3H 0P2
Facsimile transmission: _____________________
Attention: President
To DMX: DMX Inc.
11400 West Olympic Boulevard, Suite 1100
Los Angeles, California 90064-1507
Facsimile transmission: (310) 444-1717
Attn: President
6
<PAGE> 7
With copy to:
Peter Laird, Esq.
Edelstein, Laird & Sobel, LLP
9255 Sunset Boulevard, Suite 800
Los Angeles, California 90069
Facsimile transmission: (310) 271-2664
Any notice or report given by personal delivery shall be deemed given on
delivery. Any notice or report given by mail shall be deemed given on the
earlier to occur of actual receipt thereof or on the third day following
mailing thereof. Any notice or report given by Federal Express or similar
overnight delivery service shall be deemed given on the next business day
following delivery of the notice or report to such service with
instructions for overnight delivery. Any notice or report given by
facsimile transmission shall be deemed given on the date of confirmed
transmission.
WHEREFORE, THE PARTIES HAVE EXECUTED THIS AGREEMENT AS OF THE DATE FIRST
WRITTEN ABOVE.
OMT TECHNOLOGIES INC. T/A MEDIA TOUCH
By: /s/ SCOTT FARR
-----------------------------------
Scott Farr, Vice President
-----------------------------------
(print name and title)
DMX INC.
By: /s/ LON TROXEL
-----------------------------------
Lon Troxel, President
-----------------------------------
(print name and title)
7
<PAGE> 8
EXHIBIT A
JOINT VENTURE AGREMENT
1st 120 licenses [*]
121-170 [*]
171-220 [*]
221-270 [*]
271-320 [*]
321-370 [*]
371-420 [*]
421-470 [*]
471-520 [*]
License fees will not be discounted under [*] and are a one-time fee.
- ----------
* Indicates that material has been omitted and confidential treatment has been
requested therefor. All such omitted material has been filed separately with
the Commission pursuant to Rule 24b-2.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 4,009,558
<SECURITIES> 0
<RECEIVABLES> 10,407,963
<ALLOWANCES> 744,267
<INVENTORY> 8,053,256
<CURRENT-ASSETS> 26,042,973
<PP&E> 18,085,935
<DEPRECIATION> 2,202,848
<TOTAL-ASSETS> 206,823,937
<CURRENT-LIABILITIES> 19,891,245
<BONDS> 0
0
35,961,763
<COMMON> 809,810
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 206,823,937
<SALES> 18,648,324
<TOTAL-REVENUES> 18,648,324
<CGS> 0
<TOTAL-COSTS> 22,294,923
<OTHER-EXPENSES> 6,312
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,113,490
<INCOME-PRETAX> (4,798,206)
<INCOME-TAX> (371,778)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,426,428)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
