<PAGE>
As filed with the Securities and Exchange Commission on May 20, 1999
Registration No. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------
Note Exchange Offer
on
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
TVN ENTERTAINMENT CORPORATION
(Exact name of Registrant as specified in its charter)
--------------
<TABLE>
<S> <C> <C>
Delaware 4841 95-4138203
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
2901 West Alameda Avenue, Seventh Floor
Burbank, California 91505
(818) 526-5000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
--------------
Stuart Z. Levin
Chief Executive Officer
TVN Entertainment Corporation
2901 West Alameda Avenue, Seventh Floor
Burbank, California 91505
(818) 526-5000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------
Copies to:
Robert P. Latta, Esq.
Roger E. George, Esq.
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, CA 94304
(650) 493-9300
--------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
--------------
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance
with General Instruction G. check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
--------------
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Title of Each Class of Proposed Maximum Proposed Maximum
Securities to be Amount to be Offering price Aggregate Amount of
Registered Registered Per Unit(1) Offering Price(1) Registration Fee
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
14% Senior Notes due
2008.................. $200,000,000 60% $120,000,000 $33,360
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
--------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until the
Registration Statement shall become effective on such date as the Securities
Exchange Commission, acting pursuant to said Section 8(a), may determine.
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- -------------------------------------------------------------------------------
<PAGE>
Subject to Completion, Dated May 20, 1999
STRICTLY CONFIDENTIAL
TVN
ENTERTAINMENT CORPORATION
Offer to Exchange
14% SENIOR NOTES DUE 2008, SERIES A (UNREGISTERED)
FOR 14% SENIOR NOTES DUE 2008, SERIES B (REGISTERED)
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME ON [JULY 29], 1999, UNLESS EXTENDED.
----------------
MATERIAL TERMS OF THE EXCHANGE OFFER
. Expires at 5:00 p.m., New York City time, on [July 29,] 1999, unless
extended.
. The only conditions to completing the exchange offer are that the exchange
offer not violate applicable law or any applicable interpretation of the
staff of the Securities and Exchange Commission and no injunction, order or
decree has been issued which would prohibit, prevent or materially impair
our ability to proceed with the exchange offer.
. All unregistered notes that are validly tendered and not validly withdrawn
will be exchanged.
. Tenders of unregistered notes may be withdrawn at any time prior to the
expiration of the exchange offer.
. The terms of the registered notes to be issued in the exchange offer are
substantially identical to the unregistered notes that we issued on July 29,
1998, except for certain transfer restrictions, registration rights and
additional interest.
. We will not receive any proceeds from the exchange offer.
. If you fail to tender your unregistered notes while the exchange offer is
open, you will continue to hold unregistered securities and your ability to
transfer them could be adversely affected.
----------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this prospectus is , 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
Special Note Regarding Forward-Looking Statements........................ i
Summary.................................................................. 1
Summary Consolidated Financial Data...................................... 11
Risk Factors............................................................. 13
Use of Proceeds.......................................................... 28
Dividend Policy.......................................................... 29
Capitalization........................................................... 29
Selected Historical Financial Data....................................... 30
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 32
Business................................................................. 41
Management............................................................... 56
Certain Transactions and Related Party Transactions...................... 63
</TABLE>
<TABLE>
<CAPTION>
Page
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<S> <C>
Principal Stockholders..................................................... 66
Description of Certain Indebtedness........................................ 67
The Exchange Offer......................................................... 68
Description of the Old Notes............................................... 76
Description of the New Notes............................................... 106
Form of New Notes.......................................................... 106
Description of Capital Stock............................................... 107
Certain United States Federal Income Tax Considerations.................... 112
Plan of Distribution....................................................... 117
Legal Matters.............................................................. 117
Experts.................................................................... 117
Additional Information..................................................... 118
Index to Financial Statements.............................................. F-1
</TABLE>
----------------
We are a Delaware corporation. Our principal executive offices are located
at 2901 West Alameda Avenue, Seventh Floor, Burbank, California 91505, and our
telephone number is (818) 526-5000. In this prospectus, "TVN," "we," "us," and
"our" refer to TVN Entertainment Corporation, unless the context otherwise
requires.
You should rely only on the information incorporated by reference or
provided in this prospectus. We have authorized no one to provide you with
different information. We are not making an offer of these securities in any
state where the offer is not permitted. You should not assume that the
information in this prospectus or the prospectus supplement is accurate as of
any date other than the date on the front of the document.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," and elsewhere in this prospectus constitute forward-
looking statements. These statements involve known and unknown risks,
uncertainties, and other factors that may cause our or our industry's results,
levels of activity, performance, or achievements to be materially different
from any future results, levels of activity, performance, or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, those listed under "Risk Factors" and elsewhere in this
prospectus.
In some cases, you can identify forward-looking statements by terminology
such as "may," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," or "continue" or the negative of such
terms or other comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, events, levels
of activity, performance, or achievements. We do not assume responsibility for
the accuracy and completeness of the forward-looking statements. We do not
intend to update any of the forward-looking statements after the date of this
prospectus to conform them to actual results.
----------------
TVN(R), TVN Digital Cable Television, TVN DCTV, TVN Digital Entertainment,
TVN Marquee Mix, DCTV and variations using one or the other of these names are
trademarks of and are used by TVN Entertainment Corporation. This prospectus
also makes reference to trade names and trademarks of other companies.
i
<PAGE>
SUMMARY
This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus, including "Risk Factors" beginning on
page 13, carefully.
TVN Entertainment Corporation
Our company provides the only fully interoperable, turnkey, end-to-end
digital solution that enables virtually any cable system to deliver a wide
variety of new digital television programming and services to subscribers over
existing cable infrastructure. In response to increasing consumer demand for
additional entertainment programming and services, the cable industry has begun
a large scale conversion from analog to digital transmission, facilitated by
recent advances in digital compression and encryption technology. In late 1997,
we launched TVN Digital Cable Television, also known as our DCTV Service. This
"one-stop" digital cable solution combines a digital delivery system with
programming content and support services to enable cable operators to expand
the channel capacity of their existing bandwidth and generate new sources of
revenue without the need to rewire or significantly upgrade their existing
analog cable systems.
The TVN Digital Solution
Our digital solution offers two types of service: (i) DCTV Service targeted
at smaller and medium size cable systems and (ii) PPV Feeds Service targeted at
larger cable systems.
DCTV Service
Our turnkey solution combines a digital delivery system with programming
content and support services to enable cable operators to expand the channel
capacity of their existing bandwidth and generate new sources of revenue
without undertaking a substantial and expensive upgrade of their cable plant.
DCTV Service can expand the number of video channels delivered by a typical
smaller cable system from 60 analog video channels to over 100 combined digital
and analog channels for digital subscribers. Many operators also gain the
ability to remotely address set-top boxes for the first time.
We believe our turnkey solution provides an attractive offering for cable
subscribers. The incremental price to the subscriber for DCTV Service is
determined by the cable operator and is generally $10.99 per month. Pay-per-
view, or PPV, movies typically cost $3.99 each and PPV events are priced
individually. A typical DCTV Service digital tier includes:
. 32 digital channels of near-video-on-demand, or NVOD, movies and PPV
events;
. a channel showing previews of currently offered films and coming
attractions;
. adult programming;
. 40 CD quality digital music channels from DMX;
. the TV Guide interactive on-screen program guide which displays
comprehensive program listings (including each system's analog channels
and local broadcasts) and provides parental control;
. new digital basic and/or multiplexed premium channels;
. additional information, data and text services; and
. continued access to the system's analog cable and local channels.
1
<PAGE>
We believe our turnkey solution is particularly attractive to smaller and
medium size cable systems, including smaller, non-clustered systems of multi-
system operators, or MSOs, which may lack the scale, funding, technical or
administrative resources to economically implement a digital tier on their own.
Turnkey support services provided for the cable operator include:
. automated ordering and authorization;
. customer service and billing;
. engineering and marketing support;
. studio licensing and fee administration; and
. the installation of digital head-end equipment.
The typical $10.99 monthly fee charged by the cable operator to subscribers
for the digital tier of programming generally more than covers the monthly DCTV
Service fee paid to us by the cable operator and the amortized cost of the
digital set-top box. PPV revenues generated from our NVOD movies and PPV events
are shared by us and the cable operator based on a percentage of the PPV
revenue. We believe that cable operators can achieve a meaningful increase in
revenue and earn an attractive return on investment by providing DCTV Service.
PPV Feeds Service
Our PPV Feeds Service transmits to cable systems the same digital NVOD
movies and PPV events included in DCTV Service. PPV Feeds Service allows cable
systems to receive content from a single source of distribution and avoid the
significant capital investment otherwise required for automated playback,
storage, scheduling and delivery of PPV programming. Cable operators receiving
PPV Feeds Service also benefit from our expertise in selecting and scheduling
PPV programming to maximize buy rates, based on our experience in delivering
PPV movies and events to the C-Band HSD market since 1991. We receive from the
cable operator a percentage of the revenue generated by cable subscribers'
purchases of TVN PPV movies and events. Our PPV Feeds Service is a highly
attractive opportunity because it generates recurring revenue and cash flow at
little incremental cost.
In addition, we also transmit three digital channels of PPV hit movies and
events that cable operators can receive in digital format at the system head-
end and then convert to analog format for delivery to their addressable
subscribers, known as our Marquee Mix Service. This service provides a
replacement for the PPV programming offered by Request Television, which ceased
operations on June 30, 1998. This service also preserves analog channels for
PPV that can be used in the future by cable operators to implement DCTV Service
or PPV Feeds Service. For Marquee Mix Service, we receive from the cable
operator a percentage of the revenue generated by cable subscribers' purchases
of TVN PPV movies and events.
Recent Cable Operator Affiliations
Following the completion of comprehensive operational testing and marketing
trials in late 1997, we formally launched our digital cable programming and
services. As of May 15, 1999, we have entered into agreements with or have
received commitments from 63 cable operators for DCTV Service, 5 cable
operators for PPV Feeds Service and 17 cable operators for Marquee Mix Service,
as listed below. In addition, we are in active negotiations with cable
operators whose systems serve 650,000 subscribers, approximately 365,000 for
DCTV Service, and approximately 285,000 for PPV Feeds Service.
2
<PAGE>
THE EXCHANGE OFFER
On July 29, 1998, we issued in a private placement $200 million in aggregate
principal amount of our 14% Senior Notes due 2008 (the "Old Notes"). We entered
into a registration rights agreement with the initial purchaser (the "Initial
Purchaser") of the Old Notes in which we agreed to deliver to you this
prospectus and to complete an offer to exchange the Old Notes for registered
notes on or prior to July 29, 1999. Completing this exchange offer (the
"Exchange Offer") will satisfy our obligations under the registration right
agreement. We are offering to exchange your Old Notes in the Exchange Offer for
registered notes with substantially identical terms (the "New Notes"). We
believe that the New Notes may be resold by you without compliance with the
registration and prospectus delivery requirements of the Securities Act of
1933, subject to certain limited conditions. You should read the discussion
under the headings "The Exchange Offer" and "Description of the New Notes" for
further information regarding the New Notes.
SUMMARY OF THE TERMS OF THE EXCHANGE OFFER
The Exchange Offer relates to the exchange of up to $200 million aggregate
principal amount of Old Notes for an equal aggregate principal amount of
registered notes. On July 29, 1998, we issued and sold $200 million in
aggregate principal amount of the Old Notes in a private placement. The form
and terms of the New Notes are substantially the same as the form and terms of
the Old Notes, except that the New Notes will have been registered under the
Securities Act of 1933 and will not bear legends restricting their transfer. We
issued the Old Notes under an indenture which grants you certain rights (the
"Indenture"). The New Notes also will be issued under that indenture and you
will have the same rights under the indenture as the holders of the Old Notes.
See "Description of the New Notes." References to the "Notes" apply to both the
Old Notes and New Notes.
<TABLE>
<C> <S>
Registration Rights Agreement.... You are entitled under the Registration
Rights Agreement to exchange your
unregistered notes for registered notes
with substantially identical terms. We are
offering to exchange your unregistered Old
Notes for registered New Notes with
substantially the same terms in the
Exchange Offer. The Exchange Offer is
intended to satisfy our obligations under
the registration rights agreement. After
the Exchange Offer is completed, you will
no longer be entitled to any exchange or
registration rights with respect to your
Old Notes.
The Registration Rights Agreement requires
us to file a registration statement for a
continuous offering in accordance with Rule
415 under the Securities Act for your
benefit if you would not receive freely
tradeable registered notes in the Exchange
Offer or you are ineligible to participate
in the Exchange Offer and indicate that you
wish to have your Old Notes registered
under the Securities Act. See "The Exchange
Offer--Procedures For Tendering."
The Exchange Offer............... We are offering to exchange $1,000
principal amount of New Notes, our Series B
14% Senior Notes due 2008 which have been
registered under the Securities Act for
each $1,000 principal amount of Old Notes,
our 14% Senior Notes due 2008 which were
issued on July 29, 1998 in a private
placement. In order to be exchanged, an Old
Note must be properly tendered and
accepted. All Old Notes that are validly
tendered and not validly withdrawn will be
exchanged for New Notes.
</TABLE>
3
<PAGE>
<TABLE>
<C> <S>
As of this date, there are $200 million
aggregate principal amount of Old Notes
outstanding.
We will issue the New Notes promptly after
the expiration of the Exchange Offer.
Resales of the Registered Notes.. We believe that the New Notes may be
offered for resale, resold and otherwise
transferred by you without compliance with
the registration and prospectus delivery
provisions of the Securities Act if you
meet the following conditions:
(1) The New Notes to be acquired by you in
the Exchange Offer are acquired by you
in the ordinary course of your
business;
(2) you are not engaging in and do not
intend to engage in a distribution of
the New Notes;
(3) you do not have an arrangement or
understanding with any person to
participate in the distribution of the
registered notes; and
(4) you are not an "affiliate" of ours, as
that term is defined in Rule 405 under
the Securities Act.
If you do not meet the above conditions,
you may incur liability under the
Securities Act if you transfer any New Note
without delivering a prospectus meeting the
requirements of the Securities Act. We do
not assume or indemnify you against that
liability.
Each broker-dealer that receives New Notes
in the Exchange Offer for its own account
in exchange for Old Notes which were
acquired by that broker-dealer as a result
of market-making activities or other
trading activities must acknowledge that it
will deliver a prospectus meeting the
requirements of the Securities Act in
connection with any resales of the
registered notes. A broker-dealer may use
this prospectus for an offer to resell or
to otherwise transfer these registered
notes.
Expiration Date.................. The Exchange Offer will expire at 5:00
p.m., New York City time, on [July 29],
1999, unless we decide to extend the
Exchange Offer. We do not intend to extend
the Exchange Offer, although we reserve the
right to do so.
Conditions to the Exchange
Offer........................... The only conditions to completing the
Exchange Offer are that the Exchange Offer
not violate applicable law or any
applicable interpretation of the staff of
the Securities and Exchange Commission and
no injunction, order or decree has been
issued which would prohibit, prevent or
materially impair our ability to proceed
with the Exchange Offer. See "The Exchange
</TABLE> Offer--Conditions."
4
<PAGE>
<TABLE>
<C> <S>
Procedures for Tendering Old
Notes Held in the Form of Book-
Entry Interests................. The Old Notes were issued as global
securities in fully registered form without
coupons. Beneficial interests in the Old
Notes which are held by direct or indirect
participants in The Depository Trust
Company ("DTC") through certificateless
depositary interests are shown on, and
transfers of the notes can be made only
through, records maintained in book-entry
form by DTC with respect to its
participants.
If you are a holder of an Old Note held in
the form of a book-entry interest and you
wish to tender your Old Note for exchange
pursuant to the Exchange Offer, you must
transmit to The Bank of New York, as
exchange agent, on or prior to the
expiration of the Exchange Offer, either:
. a written or facsimile copy of a properly
completed and executed letter of
transmittal and all other required
documents to the address set forth on the
cover page of the letter of transmittal;
or
. a computer-generated message transmitted
by means of DTC's Automated Tender Offer
Program system and forming a part of a
confirmation of book-entry transfer of
which you acknowledge and agree to be
bound by the terms of the letter of
transmittal.
The exchange agent must also receive on or
prior to the expiration of the Exchange
Offer either:
. a timely confirmation of book-entry
transfer of your Old Notes into the
exchange agent's account at DTC, in
accordance with the procedure for book-
entry transfers described in this
prospectus under the heading "The
Exchange Offer--Book-entry Transfer;" or
. the documents necessary for compliance
with the guaranteed delivery procedures
described below.
A letter of transmittal accompanies this
prospectus. By executing the letter of
transmittal or delivering a computer-
generated message through DTC's Automated
Tender Offer Program system, you will
represent to us that, among other things:
(1) the New Notes to be acquired by you in
the Exchange Offer are being acquired
in the ordinary course of your
business;
(2) you are not engaging in and do not
intend to engage in a distribution of
the New Notes;
(3) you do not have an arrangement or
understanding with any person to
participate in the distribution of the
New Notes; and
(4) you are not an "affiliate" of ours, as
that term is defined in Rule 405 under
the Securities Act.
</TABLE>
5
<PAGE>
<TABLE>
<C> <S>
Procedures for Tendering
Certificated Old Notes.......... If you are a holder of book-entry interests
in the Old Notes, you are entitled to
receive, in limited circumstances, in
exchange for your book-entry interests,
certificated New Notes which are in equal
principal amounts to your book-entry
interests. See "Description of the New
Notes--Form of New Notes." No certificated
Old Notes are issued and outstanding as of
the date of this prospectus. If you acquire
certificated Old Notes prior to the
expiration of the Exchange Offer, you must
tender your certificated Old Notes in
accordance with the procedures described in
this prospectus under the heading "The
Exchange Offer--Procedures for Tendering--
Certificated Old Notes."
Special Procedures for Beneficial
Owner........................... If you are the beneficial owner of Old
Notes and they are registered in the name
of a broker, dealer, commercial bank, trust
company or other nominee, and you wish to
tender your Old Notes, you should promptly
contact the person in whose name your Old
Notes are registered and instruct that
person to tender on your behalf. If you
wish to tender on your own behalf, you
must, prior to completing and executing the
letter of transmittal and delivering your
Old Notes, either make appropriate
arrangements to register ownership of the
Old Notes in your name or obtain a properly
completed bond power from the person in
whose name your Old Notes are registered.
The transfer of registered ownership may
take considerable time. See "The Exchange
Offer--Procedures for Tendering--Procedures
Applicable to All Holders."
Guaranteed Delivery Procedures... If you wish to tender your Old Notes and:
(1) they are not immediately available;
(2) time will not permit your Old Notes or
other required documents to reach the
exchange agent before the expiration of
the Exchange Offer; or
(3) you cannot complete the procedure for
book-entry transfer on a timely basis;
you may tender your Old Notes in accordance
with the guaranteed delivery procedures set
forth in "The Exchange Offer--Procedures
for Tendering--Guaranteed Delivery
Procedures."
Acceptance of Old Notes and
Delivery of Registered Notes.... Except under the circumstances described
above under "Conditions to the Exchange
Offer," we will accept for exchange any and
all Old Notes which are properly tendered
in the Exchange Offer prior to 5:00 p.m.,
New York City time, on the expiration date.
The New Notes to be issued to you in the
Exchange Offer will be delivered promptly
following the expiration date. See "The
Exchange Offer--Terms of the Exchange
Offer."
</TABLE>
6
<PAGE>
<TABLE>
<C> <S>
Withdrawal....................... You may withdraw the tender of your Old
Notes at any time prior to 5:00 p.m., New
York City time, on the expiration date. We
will return to you any Old Notes not
accepted for exchange for any reason
without expense to you as promptly as we
can after the expiration or termination of
the Exchange Offer.
Exchange Agent................... The Bank of New York is serving as the
exchange agent in connection with the
Exchange Offer.
Consequences of Failure to
Exchange........................ If you do not participate in the Exchange
Offer, upon completion of the Exchange
Offer, the liquidity of the market for your
Old Notes could be adversely affected. If
the liquidity of the market for your Old
Notes is adversely affected, you may be
unable to sell or transfer your Old Notes
and the value of your Old Notes may
decline. See "Risk Factors--Consequences of
Failure to Exchange Your Old Notes for New
Notes."
Federal Income Tax Consequences.. The exchange of the Old Notes will not be a
taxable event for federal income tax
purposes. See "Certain United States
Federal Income Tax Considerations."
</TABLE>
7
<PAGE>
SUMMARY OF THE TERMS OF THE NEW NOTES
<TABLE>
<C> <S>
The New Notes.................... $200 million principal amount of 14% Senior
Notes due 2008, Series B.
Maturity......................... August 1, 2008.
Interest......................... The New Notes will pay interest in cash at
the rate of 14% per annum, payable on
February 1 and August 1 of each year,
commencing February 1, 2000.
Security......................... We have purchased and pledged to The Bank
of New York, as trustee (the "Trustee")
under the Indenture governing the Old
Notes, as security for your benefit of the
holders of the Notes, a portfolio of U.S.
government securities (the "Pledged
Securities") in an amount expected to be
sufficient to provide for payment in full
of the first six scheduled interest
payments on the Notes. A portion of the
Pledged Securities will have been used to
make the first two interest payments on the
Old Notes. We believe that the remaining
amount of the Pledged Securities will be
sufficient to make the first four interest
payments on the New Notes. Except for the
Pledged Securities, the New Notes will be
unsecured. See "Description of the Old
Notes--Security."
Optional Redemption.............. At our option, we may redeem any or all of
New Notes, at any time on or after August
1, 2003, for a redemption price initially
equal to 108% of their principal amount,
plus any accrued and unpaid interest. The
redemption price will decrease by equal
amounts each year to 100% of the principal
amount of the Notes, plus any accrued and
unpaid interest on and after August 1,
2006.
In addition, at any time prior to August 1,
2001, we may redeem New Notes representing
up to 35% of the aggregate principal amount
of the New Notes at 114% of the principal
amount thereof on the date of redemption
with the net proceeds of one or more Public
Equity Offerings (as defined); provided
-- that New Notes representing at least
$130.0 million aggregate principal
amount remain outstanding after each
such redemption and
-- notice of such redemption is mailed
within 60 days after the consummation of
the related Public Equity Offering.
See "Description of the Old Notes--Optional
Redemption."
</TABLE>
8
<PAGE>
<TABLE>
<C> <S>
Change of Control................ Upon a Change of Control, you will have the
right to require us to make an offer to
repurchase the New Notes at a purchase
price equal to 101% of their principal
amount, plus any accrued and unpaid
interest. There can be no assurance that we
will have sufficient funds available at the
time of any Change of Control to repurchase
the Notes. We cannot otherwise redeem the
Notes. See "Description of the New Notes--
Repurchase of Notes upon a Change of
Control."
Ranking.......................... The New Notes will be our unsubordinated,
unsecured (except to the extent described
under "--Security" above) indebtedness,
will rank equally in priority of payment
with all of our other existing and future
unsubordinated indebtedness and will be
senior in right of payment to all of our
future subordinated indebtedness. As of
March 31, 1999, we had $298.2 million of
indebtedness outstanding, including the
Notes. The Notes will be effectively
subordinated to all of our secured
indebtedness and all of our subsidiaries'
existing and future liabilities, including
trade payables and subordinated debt. As of
March 31, 1999, $92.7 million of our
indebtedness was secured indebtedness. We
and our subsidiaries may incur substantial
additional indebtedness, including secured
indebtedness, under the terms of the
Indenture. See "Risk Factors--We are highly
leveraged."
Certain Covenants................ The Indenture contains certain covenants
for your benefit as holders of the Notes
which will, among other things, restrict
our ability and the ability of our
Restricted Subsidiaries (as defined
herein):
. to incur or guarantee additional
indebtedness, create liens, or engage in
sale-leaseback transactions;
. to pay dividends or make distributions in
respect of our capital stock, redeem
capital stock, make investments or
certain other restricted payments;
. to sell assets;
. to issue or sell stock of Restricted
Subsidiaries;
. to enter into transactions with
stockholders or affiliates; or
. to merge, consolidate, or dispose of
substantially all of our assets.
These covenant limitations are subject to
significant qualifications and exceptions.
See "Description of the Old Notes--
Covenants."
</TABLE>
9
<PAGE>
<TABLE>
<C> <S>
Form of New Notes................ The New Notes will be represented by one
permanent global Note in definitive, fully
registered form, to be deposited with The
Bank of New York, as the Trustee (the
"Trustee") under the Indenture, as
custodian for, and registered in the name
of, a nominee of DTC. Any New Notes sold in
offshore transactions in reliance on
Regulation S under the Securities Act will
be represented by one permanent global Note
in definitive, fully registered form
deposited with the Trustee as custodian
for, and registered in the name of, a
nominee of DTC for the accounts of Morgan
Guaranty Trust Company of New York,
Brussels office, as operator of Euroclear
and Cedel Bank. See "The Exchange Offer--
Book-entry Transfers."
Use of Proceeds.................. We will not receive any proceeds from the
Exchange Offer.
</TABLE>
RISK FACTORS
For a discussion of certain factors that should be considered by holders in
evaluating the Exchange Offer. See "Risk Factors" beginning on page 13.
10
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following Summary Consolidated Financial Data should be read in
conjunction with our financial statements and related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein. The historical consolidated financial
information does not reflect the significant changes in our financial results
that will occur as a result of the late 1997 launch of our digital cable
programming and services business. A substantial portion of our revenues to
date have been generated by our C-Band HSD business. Our historical expenses
have been generated by the C-Band HSD business but have also included
substantial operating expenses, lease payments and capital investments to
develop our digital cable programming and services business, which was launched
in late 1997 and has generated only modest revenues to date.
<TABLE>
<CAPTION>
Year Ended March 31,
-----------------------------------------------
1995 1996 1997 1998 1999
------- -------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue...................... $35,073 $ 33,001 $ 33,380 $ 30,545 $ 39,812
Operating expenses:
Cost of revenue(1)......... 29,300 28,767 18,812 20,426 31,775
Selling.................... 9,076 8,612 5,998 7,067 14,302
General and
administrative............ 3,424 3,937 5,061 5,619 8,520
Depreciation and
amortization(1)........... 425 1,384 10,534 11,984 12,253
Goodwill amortization...... (803) (803) (803) (100) 199
------- -------- -------- -------- --------
Total operating expenses..... 41,422 41,897 39,602 44,996 67,049
------- -------- -------- -------- --------
Loss from operations......... (6,349) (8,896) (6,222) (14,451) (27,237)
Interest expense............. 1,407 2,248 13,908 15,163 34,195
Interest income.............. (6) (15) (63) (223) (6,472)
Other (income) and expense... 25 (10) 54 471 (84)
------- -------- -------- -------- --------
Loss before extraordinary
gain........................ (7,775) (11,119) (20,121) (29,862) (54,876)
Extraordinary gain........... -- -- 2,454 -- 1,113
------- -------- -------- -------- --------
Net loss..................... $(7,775) $(11,119) $(17,667) $(29,862) $(53,763)
======= ======== ======== ======== ========
Other Data:
EBITDA(2).................... $(6,728) $ (8,316) $ 3,509 $ (2,567) $(14,785)
Capital expenditures(3)...... 444 342 182 308 2,620
Ratio of earnings to fixed
charges(4).................. -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
March 31, 1999
--------------
(in thousands)
<S> <C>
Balance Sheet Data:
Cash and cash equivalents........................................ $ 84,343
Restricted cash and investments.................................. 67,121
Property and equipment, net...................................... 84,997
Total assets..................................................... 254,725
Total debt:
Senior Notes due 2008(5)....................................... 186,798
Notes payable(6)............................................... 15,666
Capitalized leases............................................. 95,703
Series B redeemable preferred stock.............................. 53,047
Total stockholders' deficit(5)................................... (127,176)
</TABLE>
11
<PAGE>
- --------
(1) Until February 1996, transponder costs were incurred pursuant to operating
leases and were reported as cost of revenue. Since then, such lease
agreements have met the criteria for capitalization and the related costs
have been recognized as depreciation and interest expense.
(2) EBITDA consists of loss before extraordinary gain, depreciation,
amortization, net interest expense and other (income) and expense. EBITDA
is provided because it is a measure commonly used in the media industry. It
is not intended to represent cash flows or results of operations in
accordance with GAAP for the periods indicated.
(3) Capital expenditures exclude acquisitions financed through notes payable
and capitalized leases of $70.5 million, $45.3 million and $175,000 in
fiscal 1996, fiscal 1997 and fiscal 1998, respectively.
(4) In calculating the ratio of earnings to fixed charges, "earnings" consist
of net loss before fixed charges. Fixed charges consist of interest
expense, including such portion of rental expense that is attributed to
interest. Our earnings were insufficient to cover fixed charges for these
periods. The amount of the deficiencies were $7.8 million, $11.1 million,
$20.1 million, $29.9 million and $54.9 million for each of the five years
in the period ended March 31, 1999.
(5) Senior Notes due 2008 and total stockholders' deficit reflect the value
ascribed to the warrants issued in connection with the Old Notes (the
"Warrants") which results in additional debt discount that will be
amortized as interest expense using the effective interest method over the
period that the Notes are outstanding.
(6) Notes Payable does not include Contingent Notes Payable totaling
approximately $28.7 million. Interest on the Contingent Notes Payable
accrues at a rate of prime plus 1%. We may renegotiate the terms of the
Contingent Notes Payable to incorporate a defined maturity and payment
schedule. In conjunction with such renegotiation, we may restructure or
repay all or a portion of the Contingent Notes Payable. In the event that
we are unable to agree on a defined maturity and payment schedule, the
timing of the repayment of the Contingent Notes Payable will remain
uncertain and subject to events outside our control. See "Description of
Certain Indebtedness."
12
<PAGE>
RISK FACTORS
An investment in the New Notes involves a high degree of risk. In addition
to the other information contained in this prospectus, prospective investors
should carefully consider the following factors in evaluating an investment in
the New Notes offered hereby. No investor should participate in the Exchange
Offer unless such investor can afford a complete loss of the investment. In
addition, this Prospectus includes "forward-looking" statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act; provided, however, that the safe harbor provisions of Section 27A and
Section 21E are not applicable to any "forward looking" statements made in
connection with the initial issuance of New Notes pursuant to this prospectus,
although such provisions are applicable to such statements made in connection
with resales of New Notes. Although the Company believes that its plans,
intentions and expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such plans, intentions or
expectations will be achieved. Actual results will differ from such plans,
intentions and expectations, and such differences may be material. Important
factors that could cause actual results to differ materially from the Company's
forward-looking statements are set forth below and elsewhere in this
prospectus. All forward-looking statements attributable to the Company or
persons acting on its behalf are expressly qualified in their entirety by the
cautionary statements set forth herein. The Company disclaims any obligation to
update information contained in any forward-looking statement.
Consequences of Failure to Exchange Your Old Notes for New Notes
The Old Notes have not been registered under the Securities Act or any state
securities laws. When the Exchange Offer has been completed, we will have no
further obligation to register the Old Notes. Thereafter, if you have not
tendered your Old Notes in the Exchange Offer, even if you are an "affiliate"
(as that term is defined in Rule 405 of the Securities Act) of the Company and
cannot tender your Old Notes in the Exchange Offer, you will continue to hold
restricted securities. You may not offer to sell or otherwise transfer your Old
Notes unless the sale complies with the registration requirements of the
Securities Act and any other applicable securities laws, or unless there is an
exemption from the securities laws for your sale. In addition, to sell your Old
Notes, you must comply with certain other conditions and restrictions,
including our and the Trustee's right in certain cases to require you to
deliver opinions of counsel, certifications and other information prior to any
such transfer. If you do not exchange your Old Notes in the Exchange Offer, the
Old Notes will continue to bear a legend reflecting such restrictions on
transfer. In addition, once the Exchange Offer has been completed, you will not
be entitled to have your Old Notes exchanged for registered notes or registered
under the Securities Act or to any similar rights under the Registration Rights
Agreement (except for the Initial Purchaser in certain circumstances). We do
not intend to register under the Securities Act any Old Notes which remain
outstanding after the Exchange Offer is completed (except for the Initial
Purchaser in certain circumstances).
When the Exchange Offer is completed, the liquidity of any trading market
for Old Notes which remain outstanding after the Exchange Offer could be
adversely affected. If the liquidity of the trading market for the Old Notes is
adversely affected, you may be unable to sell or transfer your Old Notes and
the value of your Old Notes may decline.
The New Notes and any Old Notes which remain outstanding after consummation
of the Exchange Offer will vote together as a single class for purposes of
determining whether holders of the requisite percentage in outstanding
principal amount thereof have taken certain actions or exercised certain rights
under the Indenture.
The Registration Rights Agreement provides that the interest rate on the Old
Notes will increase by 0.50% per annum unless the Exchange Offer is completed
or a shelf registration statement is declared effective by July 29, 1999. See
"Description of the Old Notes--Registration Rights." When the Exchange Offer is
completed, neither the Old Notes nor the New Notes will be entitled to any such
additional interest.
13
<PAGE>
We are highly leveraged
The Indenture permits us and our Subsidiaries to incur substantial
additional indebtedness subject to certain restrictions. See "Description of
the Old Notes--Certain Covenants." As of March 31, 1999, we had outstanding
indebtedness of approximately $298.2 million and a stockholders' deficit of
approximately $127.2 million. We cannot be certain that our operations will
generate sufficient cash flows to pay our obligations, including our
obligations on the New Notes. Earnings were inadequate to cover fixed charges
by the amount of $54.9 million for the year ended March 31, 1999. The degree to
which we are leveraged could have important consequences to the holders of the
New Notes, including, but not limited to, the following: (i) our ability to
obtain additional financing or refinancing in the future for working capital,
capital expenditures, service development and enhancement, acquisitions,
general corporate purposes or other purposes may be materially limited or
impaired; (ii) our cash flow, if any, may be unavailable for our business as a
substantial portion of our cash flow must be dedicated to the payment of
principal and interest on our indebtedness, including the New Notes; (iii) the
terms of future permitted indebtedness may limit our ability to redeem the New
Notes in the event of a Change of Control; and (iv) our high degree of leverage
may make us more vulnerable to economic downturns, may limit our ability to
withstand competitive pressures and may reduce our flexibility in responding to
changing business and economic conditions.
We expect that we will continue to generate substantial operating losses and
negative cash flow for at least the next several years. Our ability to make
scheduled payments on our debt (including the New Notes) will depend upon,
among other things:
. our ability to achieve significant and sustained growth in cash flow;
. the rate of and successful commercial deployment of our digital cable
programming and services;
. the market acceptance, subscriber demand, rate of utilization and pricing
for our digital cable programming and services;
. our future operating performance; and
. our ability to complete additional financings.
Each of these factors is, to a large extent, subject to economic, financial,
competitive and other factors, many of which are beyond our control. We cannot
be certain that we will be successful in developing and maintaining a level of
cash flow from operations and financings sufficient to permit us to pay the
principal, premium, if any, and interest on our indebtedness, including the New
Notes. If we are unable to generate sufficient cash flow from operations and
financings to service our indebtedness, including the New Notes, we may have to
reduce or delay the deployment of our digital cable programming and services or
restructure or refinance our indebtedness. We cannot be certain that any of
these actions or any additional debt or equity financings could be effected on
satisfactory terms, if at all, in light of our high leverage, or that they
would yield sufficient proceeds to service and repay our indebtedness,
including the New Notes. Any failure by us to satisfy our obligations with
respect to the New Notes at maturity or prior thereto would constitute a
default under the Indenture and could cause a default under agreements
governing our other indebtedness. In the event of such default, the holders of
such indebtedness would have enforcement rights, including the right to
accelerate such debt and the right to commence an involuntary bankruptcy
proceeding against us. Absent successful commercial introduction of our service
on a broad scale and significant growth of our cash flow, we will not be able
to service or repay our indebtedness, including the New Notes.
Our business plan contemplates that a substantial portion of future revenues
will be generated by businesses new to us
Our efforts have historically focused on providing national satellite PPV
and related services to C-Band HSD owners. However, beginning in late 1997, we
have been devoting an increasing percentage of our personnel and financial
resources, and intend to devote substantially more resources, to the continued
development and integration of digital programming, transactional services and
delivery systems, home
14
<PAGE>
shopping, and electronic commerce products and services. Our digital cable
programming and services were launched in late 1997 and have generated only
modest revenues to date. We believe that our future ability to service our
indebtedness and to achieve profitability is dependent upon our success in
generating substantial revenues from our digital cable programming and
services. We expect to continue experiencing negative operating margins and
EBITDA while our DCTV Service and PPV Feeds Service are being marketed to cable
systems and their subscribers. We expect to realize improved operating margins
and EBITDA only as:
. the number of cable systems offering DCTV Service and the number of cable
systems offering PPV Feeds Service increases so as to increase the
numbers of homes passed by our digital programming and services;
. the number of subscribers to DCTV Service increases;
. the buy rates of our PPV movies and events increase; and
. revenues are generated from our home shopping and electronic commerce
products and services.
The continued roll out of our digital cable programming and services
requires significant operating expenditures, in particular selling expenses, a
large portion of which will be expended before any revenue is generated. We
have experienced and expect to continue experiencing, negative cash flows and
significant losses while we continue to market our digital cable television
programming and services and until we can establish a customer base of cable
operators and their subscribers that will generate revenue sufficient to cover
our costs. We cannot be certain that we will be able to successfully roll out
our digital cable programming and services or establish such a customer base,
or that we will generate significant revenues from our home shopping or
electronic commerce products and services. If we fail to adequately address any
of these risks, it could result in a material adverse effect on our business,
financial condition and results of operations.
This business plan will also result in significant changes in our financial
performance. The financial information contained herein, including our audited
financial statements, is presented on a historical basis and, therefore,
reflects only the first year's results of our DCTV Service and PPV Feeds
Service operations. See "--Our historical financial information is of limited
relevance to our future business" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Our future growth will depend on the successful introduction and market
acceptance by cable operators and their subscribers of our turnkey DCTV Service
and PPV Feeds Service
These services will need to find acceptance not only in markets we currently
serve, but in new and newly evolving markets. We have expended and will
continue to expend substantial sums for our sales and marketing efforts to
promote cable operator and subscriber awareness of our digital cable
programming and services. The digital cable television market is new and
rapidly evolving. Therefore, it is difficult to predict the rate at which this
market will grow, if at all. If the market fails to grow, or grows more slowly
than anticipated, our business, financial condition and results of operations
will be materially adversely affected. Even if the market does grow, we cannot
be certain that our digital cable programming and services will realize market
acceptance or will meet the technical or other requirements of cable operators
or their subscribers. The failure of DCTV Service or PPV Feeds Service to gain
market acceptance would have a material adverse effect on our business,
financial condition and results of operations.
Our marketing efforts to date with regard to our digital programming and
services have involved identification and characterization of specific cable
system market segments that we believe will be the most receptive to our
digital programming and services. We cannot be certain that we have correctly
identified such markets or that our DCTV Service or PPV Feeds Services will
adequately address the needs of such markets. Broad commercialization of our
digital cable programming and services will require us to overcome significant
market development hurdles, many of which may not currently be foreseen. See
"Business--Products, Markets and Customers."
15
<PAGE>
The market for electronic delivery of home television entertainment is
characterized by rapidly changing technology
Our future success and ability to remain competitive will depend in
significant part upon the technological quality of our products and processes
relative to those of our competitors, and our ability to both develop new and
enhanced products and services and to introduce such products and services at
competitive prices in a timely and cost effective fashion. Our development
efforts have been focused on the design and integration of resources,
technologies and systems, and testing and implementation of our digital cable
programming and services. We cannot be certain that our technological
development will remain competitive or not be outpaced by other advances.
We rely substantially on third party vendors for the continued development
of these technologies and we cannot be certain that such vendors will be able
to develop such technologies in a manner that meets our needs and those of our
customers and subscribers. The failure to implement these technologies or to
obtain licenses on favorable economic terms from other vendors, individually or
in combination, could have a material adverse effect on our prospects for
future growth. We cannot be certain that we will be successful in selecting,
developing and implementing new products or services, or in enhancing our
existing products and services on a timely basis or at all or that such
products will achieve market acceptance. Moreover, the introduction of services
embodying new technologies or programming can render existing services or
programming obsolete or unmarketable. We cannot be certain that we will be
successful in identifying, developing, contracting for the manufacture, and
marketing of product enhancements or new services or programming that are
responsive to technological change, that we will not experience difficulties
that could delay or prevent the successful development, introduction and
marketing of these products or services or that our new products and product
enhancements will adequately meet the challenges of emerging technologies, the
requirements of the marketplace and achieve market acceptance. Delays in
commercial availability of new products and services and enhancements to
existing products and services may result in customer dissatisfaction and delay
or loss of revenue. If we are unable, for technological or other reasons, to
develop and introduce new products and services or enhancements of existing
products and services in a timely manner, or if new versions of existing
products do not achieve a significant degree of market acceptance, there could
be a material adverse effect on our business, financial condition and results
of operations. See "Business--Technology and Operations."
Our success will depend in large part on our ability to sign long-term
affiliation agreements with cable operators to deploy DCTV Service and PPV
Feeds Service
To date, we have entered into affiliation agreements with only 85 cable
operators. Our ability to obtain additional long-term affiliation agreements
will depend upon, among other things, the successful commercial deployment of
our DCTV Service and PPV Feeds Service pursuant to our initial affiliation
agreements and our ability to demonstrate that our digital cable programming
and services are reliable and more attractive to cable operators and their
subscribers than alternative services. We cannot be certain that we will be
able to enter into definitive agreements with additional cable operators or
that the ongoing economic viability of DCTV Service or PPV Feeds Service will
be successfully demonstrated.
We do not set the prices charged by cable operators to their subscribers for
DCTV Service or for PPV movies and events. The level at which such prices are
set may adversely affect subscriber penetration and/or PPV buy rates.
Therefore, we cannot be certain that we will be able to achieve projected rates
of return. The market for digital cable television programming and services is
new, and our digital cable service is only one possible means available to
cable operators for providing PPV movies and events in the home. Although we
believe that our DCTV Service offers a comprehensive and economically viable
digital cable solution, we cannot be certain that we will be successful in
obtaining a sufficient number of cable operators who are willing:
. to be early adopters of new technology rather than waiting for widespread
industry implementation;
. to risk subscriber dissatisfaction if the removal of existing analog
channels is required to accommodate new digital channels that will only
be available to digital subscribers and not to the system's entire
subscriber base;
16
<PAGE>
. to bear the costs of purchasing new digital set-top boxes and installing
and supporting required head-end receiving equipment; or
. to sign and remain party to long-term affiliation agreements with us for
our digital cable programming and services, including an arrangement to
share revenue from PPV movie and event buys.
Our failure to enter into or to sustain additional long-term affiliation
agreements with cable operators and/or their lack of acceptance of digital
cable programming and services would have a material adverse effect on our
business, financial condition and results of operations, as well as our ability
to achieve sufficient cash flow to service our indebtedness, including the New
Notes. See "Business--Products, Markets and Customers."
Selling and installing DCTV Service requires lengthy sales and implementation
cycles
The decision by a cable operator to deploy DCTV Service is often viewed as
an important and strategic decision that generally requires us to engage in a
lengthy sales cycle (typically between three and six months) to provide a
significant level of explanation to prospective cable operators regarding the
use and benefits of our digital cable programming and services to such
operators and their respective subscribers. Additionally, the sales cycle can
be delayed by the size of the transaction and prospective implementation costs
including the purchasing, installing and maintaining new digital set-top boxes,
installing and supporting required digital head-end equipment, as well as the
potential complexity of financing or other arrangements. The cable operator's
implementation of DCTV Service involves a significant commitment of resources
over an extended period of time which may lead prospective operators to defer
indefinitely the decision to implement DCTV Service or to delay such
implementation despite having agreed to do so. For these and other reasons, the
sales and customer implementation cycles are subject to significant delays over
which we have little or no control. Delay in the sale or implementation of even
a limited number of DCTV Service installations could have a material adverse
effect on our business, financial condition and results of operations. See
"Business--Products, Markets and Customers" and "--Marketing and Sales."
We have incurred net losses in every fiscal year since inception
We experienced net losses of $17.7 million, $29.9 million and $53.8 million
in fiscal 1997, fiscal 1998 and fiscal 1999, respectively. These net losses are
attributable to the significant costs incurred to develop and implement our
business plan and to develop, install and integrate our digital programming and
services. We expect that net losses will continue and increase for the
foreseeable future as we plan to continue to incur substantial sales and
marketing expenses to build our customer base of cable operators and
substantial capitalized lease payments for our satellite transponders. We have
not achieved profitability on a quarterly or annual basis, and we anticipate
that we will continue to incur net losses for at least the next several years.
We also expect to continue to incur significant product development and
administrative expenses. We cannot be certain that any of our business
strategies will be successful or that significant revenues or profitability
will ever be achieved or, if they are achieved, that they can be consistently
sustained or increased on a quarterly or annual basis in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and notes thereto included elsewhere
in this Offering Memorandum.
Our historical financial information is of limited relevance to our future
business
The historical financial information included herein for the fiscal years
ending 1995 to 1998 primarily reflects our C-Band HSD business. The historical
financial information for the fiscal year ended 1999 does not fully reflect the
many significant changes in our financial results that will occur as a result
of the ongoing roll out of our digital cable programming and services nor the
changes that will occur in our funding and operations in connection with such
roll out. The continued roll out of our digital cable programming and services
require significant operating expenditures, particularly selling expenses, a
large portion of which are expended before any revenue is generated. We have
experienced, and expect to continue experiencing, negative cash flows and
significant losses while we continue to market our digital cable programming
and services to establish a
17
<PAGE>
sufficient revenue generating customer base of cable operators, their
subscribers and other customers. We cannot be certain that we will be able to
successfully roll out our digital cable programming and services or establish
such a customer base. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Our operating results may fluctuate significantly in the future as a result of
a variety of factors, many of which are outside our control
These factors include:
. demand for our digital cable programming and services, including our DCTV
Service and PPV Feeds Service;
. the availability for PPV distribution of popular movie titles and special
events;
. lengthy sales cycles;
. changes in the growth rate of digital cable subscribers and their PPV
buying patterns;
. cable operators' expenditures and other costs relating to the expansion
and penetration of their respective digital cable offerings;
. the market for in-home entertainment services;
. the evolution of alternative in-home entertainment systems;
. seasonal trends in home entertainment;
. introduction of new products or services by us or our competitors;
. delays in the introduction or enhancement of products and services by us
or our competitors;
. changes in our pricing policies or those of our competitors;
. our ability to anticipate and effectively adapt to developing trends;
. markets and rapidly changing technologies;
. the mix of products and services sold and the distribution channels for
those products and services;
. general economic conditions; and
. specific economic conditions in the cable television and related
industries.
Additionally, as a strategic response to a changing competitive environment,
we may elect from time to time to make pricing, service, marketing or
acquisition decisions that could have a material adverse effect on any of our
quarterly financial results.
We expect that a significant portion of our future revenues will be
generated from long-term affiliation agreements with cable operators. We
recognize revenues under our cable operator agreements only when our DCTV
Service or PPV Feeds Service is successfully integrated and operating and
subscriber billing commences. Accordingly, the recognition of revenues will lag
the announcement of a new cable operator affiliation agreement by at least the
time necessary to install the service and to achieve meaningful subscriber
penetration and/or PPV buy rates. We expect that the number and timing of such
affiliation agreements and the effect of anticipated lagging revenues, all of
which are difficult to forecast, may cause material fluctuations in our
operating results, particularly on a quarterly basis. We expect that revenues
from our DCTV Service and PPV Feeds Service will also be difficult to forecast
because our sales cycle, from initial evaluation to final affiliation
agreement, is expected to vary substantially from customer to customer.
Accordingly, the cancellation or deferral of even a small number of affiliation
agreements could have a material adverse effect on our quarterly financial
performance.
18
<PAGE>
We plan to significantly increase our operating expenses to expand our sales
and marketing operations, broaden our cable support services, develop new
distribution channels, fund greater levels of research and development and
establish additional strategic alliances. Because our operating expenses are
based on anticipated revenue trends, a delay in generating or recognizing
revenue from a limited number of affiliation agreements could cause significant
variations in operating results from quarter to quarter and could result in
further operating losses. Moreover, because our expense levels are based, in
part, on management's expectations regarding future revenue, if revenue is
below expectations in any quarter, the adverse effect may be magnified by our
inability to adjust spending in a timely manner to compensate for any such
revenue shortfall. The extent to which such expenses are not subsequently
followed by increased revenues could have a material adverse effect on our
business, financial condition and results of operations. As a result of these
and other factors, we believe that period to period comparisons of our
operating results may not be meaningful and should not be relied upon as an
indication of future performance. Due to all of the foregoing factors, it is
likely that in one or more future quarters, our operating results may be below
the expectations of analysts and investors. See "--Our business plan
contemplates that a substantial portion of future revenues will be generated by
businesses new to us" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
We operate in highly competitive markets and face intense competition from
existing and potential competitors
Our competitors include a broad range of companies engaged in communications
and home entertainment, including DBS operators and programming providers,
coaxial and wireless cable operators, broadcast television networks, home video
companies featuring VHS, DIVX and DVD technologies, as well as companies
developing new in-home entertainment technologies, such as the video-on-demand
service being marketed by DIVA. We expect to compete primarily against other
providers of digital PPV programming, including cable and satellite
programmers.
We compete with companies offering digital programming direct-to-the-home
via various DBS systems. DBS offers consumers the appeal of significantly
expanded channel capacity, features such as an interactive on- screen program
guide, digital pictures without the "noise" often seen in analog video, CD
quality digital music channels and many channels of movies and sports available
on a PPV basis. Several well capitalized DBS companies pose a substantial
threat to cable operators. DirecTV, owned by Hughes Electronics, was the first
all-digital DBS company and as of April, 1999 had in excess of 4.7 million
subscribers to its DBS service according to DBS Digest, an industry
publication. Two other high power DBS companies are currently in operation:
EchoStar, which markets its digital television service under the "Dish Network"
brand name and USSB, whose DBS programming service operates in tandem with
DirecTV (which has agreed to acquire USSB) offering premium subscription
programming such as multiplexed HBO and SHOWTIME channels. A medium power DBS
service, PrimeStar, is also being acquired by DirecTV. Currently, local
programming is generally unavailable through DBS; however, pending legislation
would facilitate the ability of DBS companies to include local broadcasts in
their digital programming services.
We expect to encounter a number of challenges in competing with MSOs that
generally have large installed subscriber bases and significant investments in,
and access to, competitive programming sources. In addition, these MSOs have
the financial and technological resources to create their own digital tier of
services, including NVOD movies. We also face the risk that the current trend
of industry consolidation will continue with the result that smaller and medium
size cable operators that might otherwise become our customers will be acquired
by such MSOs. Currently, the only available alternative for cable operators
that wish to offer digital services similar to those provided by DBS is a
satellite transmitted digital programming delivery service called "Head-End-In-
The-Sky" or "HITS," owned and utilized by TCI to deliver digital programming to
its own cable systems, and now offered to other cable operators as well. HITS
transmits digitally compressed programming feeds to cable operators that have
the technical and transactional infrastructure to deliver their own tier of
digital programming and services to their subscribers. TCI charges fees to
cable operators for access to HITS programming, including PPV programming.
Certain telephone companies have announced
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initiatives and have made significant investments to become digital television
providers. We cannot be certain that we will be able to compete effectively
against HITS, telephone companies or other companies that provide digital cable
television programming and services. Moreover, we cannot be certain that MSOs
developing their own digital tiers of programming will not offer such services
to our target markets.
Our competitors generally have substantially greater financial, technical,
marketing and other resources, and have larger installed customer bases than we
do. We cannot be certain that we will be able to compete successfully against
our current and future competitors based on these and other factors. We expect
that an increasingly competitive environment may also result in price
reductions that could reduce unit profit margins and cause loss of market
share, all of which would have a material adverse effect on our business,
financial condition and results of operations. Moreover, the market for in-home
entertainment has become increasingly concentrated in recent years as a result
of acquisitions and strategic alliances, which may permit our competitors to
devote significantly greater resources to the development and marketing of new
competitive products and services. We expect that competition will increase
substantially as a result of these and other industry consolidations and
alliances, as well as the emergence of new competitors. We cannot be certain
that we will be able to compete successfully with new or existing competitors
or that competitive pressures we face will not materially and adversely affect
our business, financial condition and results of operations. See "Business--
Competition."
We are dependent on programming providers
We are dependent on all the major and many independent movie studios to
provide us with hit movies that appeal to mass audiences. Our current PPV movie
programming is obtained through course-of-dealing studio arrangements without
specific renewal provisions. We have relationships with the Playboy
Entertainment Group, supplier of the Spice PPV adult movie service and the
Playboy Channel that we distribute, ESPN, for our ESPN GamePlan college
football subscription and pay-per-day-programming packages, and Guthy-Renker,
creator of direct response television "infomercials" which sell various
products direct to the customer, including self-improvement tapes and home
exercise equipment. We cannot be certain that any of such agreements will be
renewed or will not be canceled, that we would be able to obtain or develop
substitute programming or that such substitute programming would be comparable
in quality or profitability to our existing programming. The cancellation or
nonrenewal of any such agreement could have a material adverse effect on our
business, financial condition and results of operations. Our ability to succeed
in the digital cable television market will depend on our ability to continue
obtaining desirable programming and successfully market it to cable operators
and their subscribers at competitive prices. See "Business--Programming."
The loss of even a limited number of our satellite transponders, and our G-9
transponders in particular, could have a material adverse effect on our
business, financial condition and results of operations
We transmit our programming content via transponders leased on two PanAmSat
C-Band satellites, Galaxy IIIR or G-3 and Galaxy IX or G-9, both of which have
desirable geostationary orbital positions with transmission coverage of the
continental United States. Our transponder leases, which provide attractive
financial terms for us, both expire in 2006, prior to the expiration of each
satellite's expected useful life. We cannot be certain that we will be able to
obtain replacement transponder capacity on terms acceptable to us or at all.
Our failure to maintain sufficient, well located, economically attractive
transponder capacity would have a material adverse effect on our business,
financial condition and results of operations. If either satellite was
destroyed or became inoperable prior to the expiration of our lease, we would
need to obtain replacement satellite transponder capacity. Although we expect
that we would be able to obtain such replacement capacity, we cannot be certain
that such replacement capacity will be available when required or, if
available, that it will be on terms acceptable to us. The satellites now used
by us are also subject to the risks of all geostationary satellites, including
damage or destruction by space debris, military actions or acts of war, anti-
satellite devices, electrostatic storms, solar flares, loss of location or
other extraterrestrial events. In addition, satellite transponders may
malfunction or become inoperative in the ordinary course as a result of faulty
operation or latent faults in design or construction. We currently lease 15
transponders, ten on G-3 transmitting analog format programming and five on G-9
transmitting digital format programming. Although we have the benefit of
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certain limited warranties on the transponders and carry business interruption
and in-orbit insurance, such warranties and insurance coverage will not be
sufficient to reimburse us for our losses if we are unable to continue
transmitting via satellite, or are only able to transmit with fewer than 15
transponders.
We rely on PanAmSat's satellites for transmission of all our programming.
Our relationship with PanAmSat is important to us and our business, and our
dependence on PanAmSat entails a number of significant risks. Our business,
financial condition and results of operations would be materially adversely
affected if PanAmSat were unable for any reason to satisfy our satellite
delivery commitments, or if any of these transmissions failed to satisfy our
quality requirements. In the event that we were unable to continue to use our
PanAmSat satellite capacity or obtain comparable replacement satellite capacity
via PanAmSat, we would have to identify, qualify and transition deliveries to
an acceptable alternative satellite transmission vendor. This identification,
qualification and transition process could take six months or longer, and we
cannot be certain that an alternative satellite transmission vendor would be
available to us or be in a position to satisfy our delivery requirements on a
timely and cost effective basis. See "Business--Technology and Operations."
We depend on technology and services provided by third parties
We are dependent on GI for the continued development and standardization of
the analog and interoperable digital compression and encryption technologies,
access control services and equipment we use. Our relationship with GI includes
not only the use of DCII Technology and encoding equipment to digitally
compress and encrypt our programming, but also includes GI's manufacture and
supply of DCII head-end equipment and set-top decoder boxes that are material
to the successful deployment of our DCTV Service. Our business, financial
condition and results of operations would be materially adversely affected if
GI were unable for any reason to meet our DCTV Service deployment strategy,
development schedule or delivery commitments with respect to either head-end
equipment or digital set-top boxes. If we are unable to continue to obtain and
use the DCII Technology, we would have to identify, qualify and transition
compression and encryption to an acceptable alternative vendor. This
identification, qualification and transition process could take six months or
longer, and we cannot be certain that an alternative vendor would be available
to us or be in a position to satisfy our delivery requirements on a timely and
cost effective basis.
Our DCTV Service has been designed around DCII Technology and head-end and
set-top box equipment designed and built by GI. A substantial number of cable
operators have standardized their analog operations on equipment manufactured
by Scientific Atlanta, Inc., known as SA. SA has recently introduced set-top
boxes and head-end digital cable equipment that are compatible with DCII
Technology but use SA access control. SA has yet to produce such equipment in
large volumes. A delay in the supply and deployment of GI compatible equipment
manufactured by SA, or a failure by SA to supply such equipment in sufficient
quantities or on a cost effective basis could have a material adverse effect on
our sales to the large number of SA affiliated cable operators.
We currently depend on GI to provide us with conditional access services for
the remote national authorization and deauthorization of digital set-top boxes.
We have no written agreement with GI for the provision of such services. We
have licensed on a long-term basis the conditional access technology from HITS
for our use in implementing our own conditional access facility. If we were
unable to continue to receive conditional access services from GI on acceptable
terms, our only alternative would be to implement our own facility. We have not
currently undertaken to implement such facility. Such implementation would take
six months or longer and would require us to incur substantial expense. We
cannot be certain that such implementation could be completed in a timely
manner or on a cost effective basis. Currently, there is no alternative vendor
offering such services. Our business, financial condition and results of
operations would be materially adversely affected if we were unable to cost
effectively obtain digital set-top box authorization services from GI, provide
such services our self or obtain them from an alternative source. See
"Business--Products, Markets and Customers" and "--Technology and Operations."
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Our business is dependent on our ability to deliver programming to our cable
operator customers and their subscribers within the time periods advertised
Our failure to do so, whether or not within our control, could result in
dissatisfied subscribers and in lost orders for services which we could have
otherwise sold. We cannot be certain that dissatisfied cable operators or
subscribers would continue to subscribe to Company digital cable programming
and services in the event of a significant occurrence of failed deliveries,
which would have a material adverse effect on our business, financial condition
and results of operations. Although we maintain insurance against business
interruption, we cannot be certain that such insurance will be adequate to
protect us from significant loss in these circumstances, or that a major
catastrophe (such as an earthquake or other natural disaster) would not result
in a prolonged interruption of our business. In particular, the Operations
Center is located in the Los Angeles area, which has in the past and will in
the future experience significant, destructive seismic activity that could
damage or destroy the Operations Center. In addition, our ability to make
deliveries to subscribers within the time periods advertised depends on a
number of factors, some of which are outside of our control, including
equipment or software failure, interruption in services by satellite and uplink
service providers, and our inability to provide programming to cable
subscribers due to service outages experienced by cable systems that comprise
our distribution network. The result of our failure to make timely delivery of
programming and/or services, for whatever reason, could be that dissatisfied
subscribers would refuse to order future programming and/or services through
us, which would have a material adverse effect on our business, financial
condition and results of operations. See "--The loss of even a limited number
of our satellite transponders, and our G-9 transponders in particular, could
have a material adverse effect on our business, financial condition and results
of operations" and "Business--Technology and Operations."
Our technical infrastructure features in-house production, storage,
compression, encoding and access control capabilities, and other outsourced
services supervised by Company personnel. Programming originates from a
playback facility located at our Operations Center and is then uplinked to our
transponders from an immediately adjacent uplink facility. These playback,
production and uplink facilities were, and continue to be, custom built and
operated to our specifications by 4MC, a video post-production and facilities
service and management company, which owns and operates those facilities for
our use under renewable service agreements. The playback and production
facilities are dedicated to us, while the uplink facility is used by 4MC for us
and for other 4MC clients, such as Playboy and television program syndicators.
Our business, financial condition and results of operations would be materially
adversely affected if 4MC were unable for any reason to meet our production and
transmission development schedule or delivery commitments or if any uplink
transmissions failed to satisfy our quality requirements. If we are unable to
continue relying on 4MC's operational expertise and technology, we would have
to identify, qualify and transition such operations to an acceptable
alternative vendor or perform such operations ourself. This identification,
qualification and transition process could take six months or longer, and we
cannot be certain that we could perform these services or that an alternative
vendor would be available to us or be in a position to satisfy our requirements
on a timely and cost effective basis. See "Business--Technology and
Operations."
We rely on third party vendors to provide certain of the transactional services
we sell to cable operators
We contract with CSG to provide customer billing and subscriber management
services. Certain customer response calls are outsourced to TicketMaster
Corporation, which maintains regional call centers with extensive switching and
live operator capabilities. These systems and resources are part of the
transactional services that we offer with our turnkey DCTV Service. Our
business, financial condition and results of operations would be materially
adversely affected if these systems and technological resources were
unavailable for any reason to meet our transactional service commitments,
service management requirements or customer service quality requirements. If we
are unable to continue using these systems and technological resources, we
would have to identify, qualify and transition such operations to an acceptable
alternative vendor or arrange for in-house operations. This identification,
qualification and transition process could take six months or longer, and we
cannot be certain that we could perform such functions or that an alternative
vendor would be available to us or be in a position to satisfy our requirements
on a timely and cost effective basis. See "Business--Products, Markets and
Customers" and "--Technology and Operations."
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We face the risk of piracy of our signals
While our VCII+ analog encryption and DCII digital encryption systems have
been designed by GI to minimize the risk of signal piracy, our revenues could
be adversely affected if signal piracy were to become widespread. The GI
encryption system that we use is based on the concept of renewable security
through the use of set-top decoder cards, which can be changed periodically to
thwart commercial piracy efforts. In addition, electronic countermeasures can
be transmitted over the link at any time in an effort to counter certain types
of piracy. However, we cannot be certain that this encryption technology,
electronic countermeasures and other efforts designed to prevent signal piracy
will be effective. Moreover, we cannot be certain that future technological
developments will not render our anti-piracy features less effective or
completely useless. Any significant piracy of our programming could have a
material adverse effect on our business, operating results and financial
condition and results of operations. See "Business--Technology and Operations."
We rely on a combination of trade secret, copyright and trademark laws,
confidentiality and nondisclosure agreements and other such arrangements to
protect our proprietary rights and confidential information
We consider our proprietary software interfaces, scheduling system, ANI
ordering system, trademarks, logos, copyrights, know-how, advertising, and
promotion design and artwork to be of substantial value and importance to our
business. Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy or obtain and use information that we regard as
proprietary. We cannot be certain that the steps taken by us to protect our
proprietary information will prevent misappropriation of such information and
such protection may not preclude competitors from developing confusingly
similar brand names or promotional materials, technology, or developing
products and services similar to ours. In addition, the laws of some foreign
countries do not protect our proprietary rights to the same extent as do the
laws of the United States. While we believe that our proprietary software,
trademarks, copyrights, advertising and promotion design and artwork do not
infringe upon the proprietary rights of third parties, we cannot be certain
that we will not receive future communications from third parties asserting
that our software, systems, trademarks, copyrights, advertising and promotion
design and artwork infringe, or may infringe, on the proprietary rights of
third parties. Any such claims, with or without merit, could be time consuming,
require us to enter into royalty arrangements or result in costly litigation
and diversion of management personnel. We cannot be certain that any necessary
licenses can be obtained or that, if obtainable, can be obtained on terms
acceptable to us. In the event of a successful claim of infringement against us
and our failure or inability to license the infringed or similar proprietary
information, our business, financial condition and results of operations could
be materially adversely affected. See "Business--Intellectual Property and
Proprietary Rights."
Rapid growth of our new digital cable programming and services could place a
significant strain on our managerial, operational and financial resources and
on our internal systems and controls
We cannot be certain that we would have adequate resources, be able to
develop our systems, controls or procedures effectively, or on a timely basis
manage such relationships to accommodate and manage such growth. Our financial
and management controls, reporting systems and procedures are constrained by
limited resources. Although some new controls, systems and procedures have been
implemented, our growth, if any, will depend on our ability to continue to
implement and improve operational, financial and management information and
control systems on a timely basis, together with maintaining effective cost
controls, and any failure to do so would have a material adverse effect on our
business, financial condition and results of operations. Further, we will be
required to manage multiple relationships with various customers and other
third parties. We cannot be certain that our systems, procedures or controls
will be adequate to support our operations or that our management will be able
to successfully offer our services and implement our business plan. We intend
to hire a significant number of additional sales, support, marketing,
operations and research and development personnel in 1999 and beyond.
Competition for such personnel is intense, and we cannot be certain that we
will be able to attract, assimilate, train or retain additional highly
qualified personnel in the future. If we are unable to hire and retain such
personnel, particularly those in key positions, our business,
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financial condition and results of operations may be materially adversely
affected. Our future success also depends in significant part upon the
continued service of our executive officers and other key sales, marketing and
support personnel. In addition, our products and technologies are complex and
we are substantially dependent upon the continued service of our existing
engineering personnel, and especially our founders. Our inability to
effectively manage future growth, if any, would have a material adverse effect
on our business, financial condition and results of operations. See "--Our
success depends to a significant degree upon our ability to attract and retain,
qualified management, sales, operations, marketing and technological
personnel," "Business--Employees" and "Management."
We anticipate that our existing capital and cash from operations will be
adequate to satisfy our capital requirements for the next 12 months
We have Contingent Notes Payable totaling approximately $28.7 million. We
may renegotiate the terms of the Contingent Notes Payable to incorporate a
defined maturity and payment schedule. In conjunction with such renegotiation,
we may restructure or repay all or a portion of the Contingent Notes Payable.
In the event that we are unable to agree on a defined maturity and payment
schedule, the timing of the repayment of the Contingent Notes Payable will
remain uncertain and subject to events outside of our control. In the event
that we were to repay the Contingent Notes Payable in full, we believe that our
existing working capital following such redemption would be sufficient to fund
our operations for at least the next 12 months. There can be no assurance,
however, that we will not require additional capital sooner than currently
anticipated. In addition, we are unable to predict the precise amount of future
capital that we will require and we cannot be certain that additional financing
will be available to us on acceptable terms or at all. The inability to obtain
required financing would have a material adverse effect on our business,
financial condition and results of operations. Consequently, we could be
required to significantly reduce or suspend our operations, seek a merger
partner, sell the business, seek additional financing or sell additional
securities on terms that are highly dilutive to our stockholders. See "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Description of Certain Indebtedness."
Our success depends to a significant degree upon our ability to attract and
retain, qualified management, sales, operations, marketing and technological
personnel
In particular, our success depends on the continued contributions of Stuart
Z. Levin, our Chairman and Chief Executive Officer, James B. Ramo, our
President and Chief Operating Officer, and other senior level sales,
operations, production, financial and legal officers. The competition for
qualified personnel with skills in our industry is intense and the loss of any
such persons, as well as the failure to recruit additional key personnel in a
timely manner, could adversely affect us. We cannot be certain that we will be
able to continue to attract and retain qualified personnel for the development
of our business. We maintain key man life insurance on the lives of the
Chairman and President, but not on the lives of our other key personnel. Our
failure to continue to attract and retain key personnel could have a material
adverse effect on our business, financial conditions and results of operations.
See "Management--Executive Officers and Directors."
A substantial portion of our revenues to date have been generated by PPV fees
paid by subscribers of our satellite transmitted analog programming for the C-
Band HSD market
Our revenues from such business declined in fiscal 1996, in fiscal 1998, in
fiscal 1999 and are expected to decline in the first quarter of fiscal 2000.
The C-Band HSD market faces severe competition from competing forms of content
delivery, including digital content transmitted via DBS, and has experienced no
growth over the past four years. As a result, we cannot be certain that we can
continue to generate sustained revenues from the HSD market. See "Business--C-
Band Home Satellite Dish Business."
We may face difficulties as a result of acquisitions of companies, products or
technologies
We have made and intend to continue to make investments in complementary
companies, products and/or technologies. If we buy a company, we could have
difficulty in integrating that company's personnel and
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operations. In addition, the key personnel of the acquired company may decide
not to work for us. If we make other types of acquisitions, we could have
difficulty in assimilating the acquired technology or products into our
operations. These difficulties could disrupt our ongoing business, distract our
management and employees and increase our expenses. Furthermore, we may have to
incur debt or other liabilities or issue equity securities to pay for any
future acquisitions, the issuance of which could be dilutive to our existing
stockholders.
Software that is not Year 2000 compliant may interpret January 1, 2000 as
January 1, 1900
We recognize the need to ensure that our operations, products and services
will not be adversely impacted by Year 2000 software failures. We have
established procedures for evaluating and managing the risks and costs
associated with this problem and believe that our internal computer systems,
including our accounting, sales and technical support automation systems, are
currently Year 2000 compliant. However, there can be no guarantee that our
systems or the systems of other companies on which our systems and operations
rely will be able to handle all Year 2000 problems.
In addition, although we believe that our network operations are Year 2000
compliant, we cannot be certain that our computer systems contain all necessary
date code changes. Furthermore, many of our cable operator customers and
vendors maintain their operations on systems that may be impacted by Year 2000
complications. Our failure or any failure by our cable operator customers and
vendors to ensure that their systems are Year 2000 compliant could be
detrimental to our ability to offer our products and services, which in turn
could have a material adverse effect on our business, financial condition and
results of operations.
Morgan Stanley Dean Witter has significant influence over us
PGI II and its affiliates own 89.3% of the Series B Preferred Stock, which
ownership represents 54.8% of our outstanding voting capital stock on an as-
converted basis or 43.7% of the voting capital stock on an as-converted,
diluted basis including currently outstanding options and warrants exercisable
for voting capital stock before giving effect to the Offering. The general
partner of PGI II and Morgan Stanley are both wholly owned subsidiaries of
Morgan Stanley Dean Witter, and two of our directors are employees of Morgan
Stanley. As a result of these relationships, PGI II, Morgan Stanley Dean Witter
and its affiliates have, and will continue to have, significant influence over
our management policies and our corporate affairs. See "Certain Transactions
and Related Party Transactions," "Principal Stockholders" and "Description of
Capital Stock."
Certain decisions concerning our operations or financial structure may
present conflicts of interest between the owners of capital stock and the
holders of the New Notes. For example, if we encounter financial difficulties,
or are unable to pay our debts as they mature, the interests of the holders of
capital stock might conflict with those of the holders of the New Notes. In
addition, the holders of capital stock may have an interest in pursuing
acquisitions, divestitures, financings or other transactions that, in their
judgment, could enhance their equity investment, even though such transactions
might involve risks to the holders of the New Notes.
Our Certificate of Incorporation requires us, upon demand, to redeem all of our
outstanding shares of Series B Preferred Stock in August 2002
Our Certificate of Incorporation requires us, upon demand, to redeem all of
our outstanding shares of Series B Preferred Stock in August 2002, the
Mandatory Redemption Date, for $54.4 million, unless such shares of
Series B Preferred Stock have previously been converted into our Common Stock
at the option of the holders thereof, or automatically converted upon our
initial public offering. Notwithstanding this requirement in the Certificate of
Incorporation, however, the terms of the Notes will significantly limit such a
redemption by us for cash, but will permit us to redeem the Series B Preferred
Stock with the proceeds of an equity financing. If we fail to redeem the Series
B Preferred Stock, we would continue to be in breach under our Certificate of
Incorporation from the Redemption Date until the date of any such refinancing.
Although such breach has been excluded from the cross default provisions of the
New Notes, it may trigger default provisions in other financial instruments to
which we may then be a party. We cannot be certain that holders of Series B
Preferred Stock will not take legal action against us in an attempt to enforce
their redemption right, demand that we renegotiate
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the terms of the Series B Preferred Stock or sell additional equity to finance
the redemption. Although such actions may not directly have an adverse effect
on the New Notes, they may have an adverse effect on us and a dilutive effect
on the interests of our equity holders. A substantial majority of our Series
B Preferred Stock is held by PGI II. See "Certain Transactions and Related
Party Transactions" and "Description of Capital Stock--Preferred Stock--
Redemption."
Sales by existing shareholders could depress the future market price of our
Common Stock
Future sales of shares of our Common Stock by our existing stockholders
under Rule 144 of the Securities Act or through the exercise of registration
rights or the issuance of shares of our Common Stock upon the exercise of
options or warrants could materially adversely affect the market price of
shares of our Common Stock and could materially impair our future ability to
raise capital through an offering of equity securities. No predictions can be
made as to the effect, if any, that market sales of such shares or the
availability of such shares for future sale will have on the market price of
shares of our Common Stock prevailing from time to time.
The Notes are subject to original issue discount and high-yield discount
obligation tax rules
The Notes will be treated as issued with original issue discount for U.S.
federal income tax purposes, so that holders of the Notes generally will be
required to include amounts in gross income for U.S. federal income tax
purposes in advance of receipt of the cash payments to which the income is
attributable. Furthermore, the Notes may be subject to the high yield discount
obligation rules, which will defer and may, in part, eliminate our ability to
deduct for U.S. federal income tax purposes the original issue discount
attributable to the Notes. Accordingly, our after-tax cash flow might be less
than if the original issue discount on the Notes was deductible when it
accrued. See "Certain United States Federal Income Tax Considerations" for a
more detailed discussion of the U.S. federal income tax consequences for us and
the beneficial owners of the Notes resulting from their purchase, ownership and
disposition of the Notes.
If a bankruptcy case were commenced by or against us under the Bankruptcy
Code of 1978, as amended (the "Bankruptcy Code"), after the issuance of the
Notes, the claim of a Note holder with respect to the principal amount thereof
may be limited to an amount equal to the sum of (i) the initial offering price
and (ii) that portion of the original issue discount that is not deemed to
constitute "unmatured interest" for purposes of the Bankruptcy Code. Any
original issue discount that was not amortized as of the date of any such
bankruptcy filing would constitute "unmatured interest."
Fraudulent Conveyance Risks
Under applicable provisions of the federal bankruptcy law or comparable
provisions of state fraudulent transfer law, if, at the time we issued the old
notes or made any payment in respect of the new notes, either:
(1) we received less than reasonably equivalent value or fair
consideration for such issuance; and
. we were insolvent or were rendered insolvent by such issuance; or
. were engaged or about to engage in a business or transaction for
which our assets constituted unreasonably small capital; or
. intended to incur, or believed that we would incur, debts beyond our
ability to pay our debts as they matured; or
(2) we issued the new notes or made any payment thereunder with intent to
hinder, defraud or delay any of our creditors.
then our obligations under some or all of the new notes could be voided or held
to be unenforceable by a court or could be subordinated to claims of other
creditors, or the new note holders could be required to return payments already
received.
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In particular, if we caused a subsidiary to pay a dividend in order to
enable us to make payments in respect of the new notes, and such transfer were
deemed a fraudulent transfer, the holders of the new notes could be required to
return the payment.
The measure of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, we would be considered
insolvent if:
. the sum of our debts, including contingent liabilities, was greater than
all of our assets at a fair valuation; or
. we had unreasonably small capital to conduct our business; or
. the present fair salable value of our assets were less than the amount
that would be required to pay the probable liability on our existing
debts, including contingent liabilities, as they become absolute and
mature.
We believe that we will not be insolvent at the time of or as a result of
the issuance of the new notes, that we will not engage in a business or
transaction for which its remaining assets constitute unreasonably small
capital and that we did not and do not intend to incur or believe that we will
incur debts beyond our ability to pay such debts as they mature. e cannot
assure you that a court passing on such questions would agree with our
analysis.
Under certain circumstances, our subsidiaries will be required to guarantee
our obligations under the indenture and the new notes. If any subsidiary enters
into such a guarantee and bankruptcy or insolvency proceedings are initiated by
or against that subsidiary within 90 days (or, possibly, one year) after that
subsidiary issued a guarantee or that subsidiary incurred obligations under its
guarantee in anticipation of insolvency, then all or a portion of the guarantee
could be avoided as a preferential transfer under federal bankruptcy or
applicable state law. In addition, a court could require holders of the new
noters to return all payments made within any such 90 day (or, possibly, one
year) period as preferential transfer.
Applicable bankruptcy law is likely to impair the trustee's right to foreclose
upon the pledged securities
The right of the trustee under the indenture and the pledge agreement
relating to the new notes to foreclose upon and sell the pledged securities
upon the occurrence of an event of default on the new notes is likely to be
significantly impaired by applicable bankruptcy law if a bankruptcy or
reorganization case were to be commenced by or against us or one of our
subsidiaries. Under applicable bankruptcy law, secured creditors such as the
holders of the new notes are prohibited from foreclosing upon or disposing of a
debtor's property without prior bankruptcy court approval.
Consequences to Non-Tendering Holders of Old Notes.
Upon consummation of the Exchange Offer, the Company will have no further
obligation to register the Old Notes. Thereafter, any Holder of Old Notes who
does not tender its Old Notes in the Exchange Offer, including any Holder which
is an "affiliate" (as that term is defined in Rule 405 of the Securities Act)
of the Company which cannot tender its Old Notes in the Exchange Offer, will
continue to hold restricted securities which may not be offered, sold or other
wise transferred, pledged or hypothecated except pursuant to Rule 144 and Rule
144A under the Securities Act or pursuant to any other exemption from
registration under the Securities Act relating to the disposition of
securities, provided that an opinion of counsel is furnished to the Company
that such an exemption is available. These restrictions may limit the trading
market and price for the Old Notes.
Absence of a Public Market for the New Notes and No Assurance of Active Trading
Market
We are offering the New Notes to the Holders of the Old Notes. Prior to this
Exchange Offer, there was no existing trading market for the Old Notes and
there were no existing New Notes. We do not intend to apply for listing of the
New Notes on any securities exchange or on the Nasdaq National Market. Although
the New Notes will be eligible for trading in the PORTAL Market, the New Notes
may trade at a discount from their
27
<PAGE>
initial offering price, depending upon prevailing interest rates, the market
for similar securities, our performance and other factors. Prior to the
issuance of the Old Notes, the Initial Purchaser advised us that it intended to
make a market in the Old Notes following the issuance thereof; however, the
Initial Purchaser is not obligated to do so and any such market-making
activities may be discontinued at any time without notice. Therefore, there can
be no assurance that an active market for the New Notes will develop. In
addition, the market price of the Old Notes has significantly fluctuated since
their original issuance, and we anticipate that the market for the New Notes
may similarly fluctuate. See "Description of the Old Notes--Registration
Rights" and "Description of the Old Notes--Plan of Distribution."
The form and terms of the New Notes are substantially identical to the form
and terms of the Old Notes, except that the New Notes:
. will be registered under the Securities Act;
. will not provide for registration rights;
. will not provide for payment of additional interest upon failure to
register or exchange the Old Notes, which terminates upon completion of
the Exchange Offer; and
. will not bear legends containing transfer restrictions.
The New Notes will be issued solely in exchange for an equal principal
amount of Old Notes. As of the date hereof, $200 million aggregate principal
amount of Old Notes is outstanding.
USE OF PROCEEDS
This Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement. The Company will not
receive any cash proceeds from the issuance of the New Notes offered in the
Exchange Offer. In consideration for issuing the New Notes as contemplated in
this prospectus, the Company will receive in exchange Old Notes in like
principal amount at maturity, the form and terms of which are the same in all
material respects as the form and terms of the New Notes except that the New
Notes (i) will have been registered under the Securities Act and therefore will
not be subject to certain restrictions on transfer applicable to the Old Notes
and (ii) will not be entitled to certain registration or other rights under the
Registration Rights Agreement, including the provision in the Registration
Rights Agreement for additional interest of up to 0.5% per annum upon failure
by the Company to consummate the Exchange Offer. The Old Notes surrendered in
exchange for New Notes will be retired and cancelled and cannot be reissued.
Accordingly, issuance of the New Notes will not result in any increase in the
indebtedness of the Company.
The net proceeds to us from the issuance of the Old Notes and Warrants were
approximately $193.3 million, after deducting the selling discounts and
commissions and estimated expenses. Approximately $76.7 million of the net
proceeds were used to purchase the Pledged Securities in an amount expected to
be sufficient to provide for payment in full of the first six scheduled
interest payments on the Notes. See "Description of the Old Notes--Security."
We expect to use the remaining net proceeds to fund operating expenses in
connection with the roll out and expansion of our DCTV Service and PPV Feeds
Service, for acquisitions as permitted by the Indenture, for working capital
and other general corporate purposes. We have Contingent Notes Payable totaling
approximately $28.7 million. We may renegotiate the terms of the Contingent
Notes Payable to incorporate a defined maturity and payment schedule. In
conjunction with such renegotiation, we may restructure or repay all or a
portion of the Contingent Notes Payable. Any such repayment may be financed
with a portion of the net proceeds. In the event that we are unable to
negotiate a defined maturity and payment schedule, the timing of repayment of
the Contingent Notes Payable will remain uncertain and subject to events
outside our control. See "Description of Certain Indebtedness."
Because of the number and variability of factors that will determine our use
of the net proceeds from the issuance of the Old Notes and Warrants, management
will retain a significant amount of discretion over the application of such net
proceeds. Pending the use of such net proceeds as described above, we intend to
invest such funds in short-term, interest bearing, investment grade securities
to the extent permitted by the Indenture.
28
<PAGE>
See "Risk Factors--We are highly leveraged," "--We have incurred net losses in
every fiscal year since inception," "--We anticipate that our existing capital
and cash from operations will be adequate to satisfy our capital requirements
for the next 12 months," "Description of Certain Indebtedness" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DIVIDEND POLICY
We have not paid any dividends since our inception and do not intend to pay
cash dividends on our capital stock in the foreseeable future. We anticipate
that we will retain all future earnings, if any, for use in our operations and
expansion of the business. In addition, the terms of the Indenture will
restrict our ability to pay dividends on, or make distributions in respect of,
our capital stock. See "Description of the Notes--Certain Covenants."
CAPITALIZATION
The following table sets forth our total cash and cash equivalents and
capitalization as of March 31, 1999. This table should be read in conjunction
with the financial statements and related notes thereto included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
March 31, 1999
----------------------
(dollars in thousands)
<S> <C>
Cash and cash equivalents............................... $ 84,343
Restricted cash and investments(1)...................... 67,121
=========
Short-term debt:
Current portion of capitalized leases................. 7,444
Current portion of notes payable...................... 8,228
---------
Total short-term debt............................... 15,672
---------
Long-term debt:
Capitalized leases.................................... 88,259
Notes payable......................................... 7,439
Senior notes due 2008(2).............................. 186,798
Contingent notes payable(3)........................... --
---------
Total long-term debt................................ 282,496
Series B redeemable preferred stock, $.001 par value;
12,648,107 shares authorized; 12,154,771 shares issued
and outstanding........................................ 53,047
---------
Stockholders' deficit:
Series A preferred stock, $.001 par value; 7,600,000
shares authorized; 7,499,900 shares issued and
outstanding.......................................... 8
Common stock, $.001 par value; 40,000,000 shares
authorized; 152,517 shares issued and outstanding.... --
Additional paid-in capital(2)......................... 22,747
Accumulated deficit................................... (149,931)
---------
Total stockholders' deficit......................... (127,176)
---------
Total capitalization................................ $ 224,039
=========
</TABLE>
- --------
(1) Reflects the remaining portion of the net proceeds from the issuance of the
Old Notes and Warrants used to purchase Pledged Securities to secure the
first six scheduled interest payments on the Notes. See "Description of the
Old Notes--Security."
(2) Senior Notes due 2008 and total stockholders' deficit reflect the value
ascribed to the Warrants of $14,144,812 which results in additional debt
discount that will be amortized as interest expense using the effective
interest method over the period that the Notes are outstanding. See "Use of
Proceeds."
(3) We have Contingent Notes Payable totaling approximately $28.7 million.
Interest on such notes accrues at a rate of prime plus 1%. We may
renegotiate the terms of the Contingent Notes Payable to incorporate a
defined maturity and payment schedule. In conjunction with such
renegotiation, we may restructure or repay all or a portion of the
Contingent Notes Payable. Any such repayment may be financed with a portion
of the net proceeds from the Offering. In the event that we are unable to
agree on a defined maturity and payment schedule, the timing of the
repayment of the Contingent Notes Payable will remain uncertain and subject
to events outside our control. See "Description of Certain Indebtedness."
29
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data of TVN Entertainment
Corporation as of March 31, 1998 and 1999 and for each of the three years in
the period ended March 31, 1999 have been derived from the TVN Entertainment
Corporation financial statements and notes thereto that have been audited by
PricewaterhouseCoopers LLP, independent accountants, whose report thereon is
included elsewhere in this prospectus. The following selected historical
financial data as of March 31, 1995, 1996 and 1997 and for each of the two
years in the period ended March 31, 1996 have been derived from the audited
TVN Entertainment Corporation financial statements not included herein. The
following data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
financial statements and the notes thereto and the other financial information
included elsewhere in this prospectus. The historical financial information
does not reflect the significant changes in our financial results that will
occur as a result of the ongoing rollout of our digital cable programming and
services business. A substantial portion of our revenues to date have been
generated by our C-Band HSD business. Our historical expenses have been
generated by the C-Band HSD business but have also included substantial
operating expenses, lease payments and capital investments to develop our
digital cable programming and services business, which was launched in late
1997.
<TABLE>
<CAPTION>
Year Ended March 31,
-------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue..................... $ 35,073 $ 33,001 $ 33,380 $ 30,545 $ 39,812
Operating expenses:
Cost of revenue(1)......... 29,300 28,767 18,812 20,426 31,775
Selling.................... 9,076 8,612 5,998 7,067 14,302
General and
administrative............ 3,424 3,937 5,061 5,619 8,520
Depreciation and
amortization(1)........... 425 1,384 10,534 11,984 12,253
Goodwill amortization...... (803) (803) (803) (100) 199
-------- -------- -------- -------- ---------
Total operating expenses.... 41,422 41,897 39,602 44,996 67,049
-------- -------- -------- -------- ---------
Loss from operations........ (6,349) (8,896) (6,222) (14,451) (27,237)
Interest expense............ 1,407 2,248 13,908 15,163 34,195
Interest income............. (6) (15) (63) (223) (6,472)
Other (income) and expense.. 25 (10) 54 471 (84)
-------- -------- -------- -------- ---------
Loss before extraordinary
gain....................... (7,775) (11,119) (20,121) (29,862) (54,876)
Extraordinary gain.......... -- -- 2,454 -- 1,113
-------- -------- -------- -------- ---------
Net loss.................... $ (7,775) $(11,119) $(17,667) $(29,862) $ (53,763)
======== ======== ======== ======== =========
Per Share Data:
Net loss per share
applicable to common
stockholders............... $ (11) $ (17) $ (6,001) $ (272) $ (355)
Weighted average common
shares..................... 729,180 663,443 2,944 110,237 152,517
Other Data:
EBITDA(2)................... $ (6,728) $ (8,316) $ 3,509 $ (2,567) $ (14,785)
Capital expenditures(3)..... 444 342 182 308 2,620
Ratio of earnings to fixed
charges(4)................. -- -- -- -- --
Balance Sheet Data:
Cash and cash equivalents... $ 421 $ 355 $ 765 $ 16,798 $ 84,343
Restricted cash............. -- -- -- 1,833 1,903
Restricted investments...... -- -- -- -- 65,218
Property and equipment,
net........................ 894 70,359 105,271 93,769 84,997
Total assets................ 5,321 74,637 109,072 116,740 254,725
Total debt:
Senior notes due 2008...... -- -- -- -- 186,798
Notes payable (5).......... 18,844 23,406 33,506 32,287 15,666
Capitalized leases......... -- 68,688 105,316 100,859 95,703
Series B redeemable
preferred stock............ -- -- -- 52,616 53,047
Total stockholders'
deficit.................... (28,414) (39,533) (57,187) (87,165) (127,176)
</TABLE>
30
<PAGE>
- --------
(1) Until February 1996, transponder costs were incurred pursuant to operating
leases and were reported as cost of revenue. Since then, such lease
agreements have met the criteria for capitalization and the related costs
have been recognized as depreciation and interest expense.
(2) EBITDA consists of loss before extraordinary gain, depreciation,
amortization, net interest expense and other (income) expense. EBITDA is
provided because it is a measure commonly used in the media industry. It is
not intended to represent cash flows or results of operations in accordance
with GAAP for the periods indicated.
(3) Capital expenditures exclude acquisitions financed through notes payable
and capitalized leases of $70.5 million, $45.3 million and $175,000 in
fiscal 1996, fiscal 1997 and fiscal 1998, respectively.
(4) In calculating the ratio of earnings to fixed charges, "earnings" consist
of net loss before fixed charges. Fixed charges consist of interest
expense, including such portion of rental expense that is attributed to
interest. Our earnings were insufficient to cover fixed charges for these
periods. The amount of the deficiencies were $7.8 million, $11.1 million,
$20.1 million, $29.9 million and $54.9 million for each of the five years
in the period ended March 31, 1999.
(5) Notes Payable does not include Contingent Notes Payable totaling
approximately $28.7 million. Interest on the Contingent Notes Payable
accrues at a rate of prime plus 1%. We may renegotiate the terms of the
Contingent Notes Payable following the completion of the exchange of the
Old Notes for New Notes to incorporate a defined maturity and payment
schedule. In conjunction with such renegotiation, we may restructure or
repay all or a portion of the Contingent Notes Payable. In the event that
we are unable to agree on a defined maturity and payment schedule, the
timing of the repayment of the Contingent Notes Payable will remain
uncertain and subject to events outside our control. See "Description of
Certain Indebtedness."
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and the related notes thereto included elsewhere in this prospectus.
This discussion contains forward-looking statements the accuracy of which
involves risks and uncertainties. Our actual results could differ materially
from those anticipated in the forward-looking statements for many reasons
including, but not limited to, those discussed in "Risk Factors" and elsewhere
in this prospectus. We disclaim any obligation to update information contained
in any forward-looking statement. See "Special Note Regarding Forward-Looking
Statements."
Overview
We provide the only fully interoperable, turnkey, end-to-end digital
solution that enables virtually any cable system to deliver a wide variety of
new digital programming and services to subscribers over existing cable
infrastructure. This one-stop digital cable solution combines a digital
delivery system with programming content and support services to enable cable
operators to expand the channel capacity of their existing bandwidth and
generate new sources of revenue without the need to rewire or upgrade their
existing analog cable systems. Our DCTV Service enables cable operators to
substantially enhance the variety and quality of programming choices through a
more efficient use of their cable bandwidth by utilizing industry technology
that compresses eight or more digital channels onto one analog channel. This
allows cable operators to supplement their analog programming with a new
digital tier providing NVOD movies and PPV events, CD quality digital music, an
interactive on-screen program guide, additional basic and/or premium channels,
and information, data and text services. Our turnkey implementation services
include automated ordering and authorization, customer service and billing,
engineering and marketing support, studio licensing and fee administration and
the installation of digital head-end equipment. We also serve larger cable
systems that do not require a turnkey solution with our PPV Feeds Service that
delivers digital satellite feeds of NVOD movies and PPV events. Our long-
standing relationships with key content providers, including all the major and
leading independent film studios and sports, special event and adult content
distributors, allow us to provide a broad range of popular programming. We
launched our digital cable programming and services business in late 1997.
Our efforts have historically focused on providing national satellite PPV
and related services to C-Band HSD owners. A substantial majority of our
revenues to date have been generated by PPV fees paid by our C-Band
subscribers. During the fiscal year ended March 31, 1999, over 260,000 HSD
customers purchased PPV programming from us using their home telephone or
remote control. During 1997, GI announced the introduction of its new "4DTV"
technology and receivers, a digital/analog replacement for existing analog
C-Band receivers. Although we expected a significant portion of the existing C-
band base to continue using the larger dish and to access the new digital
channels with a 4DTV receiver, the deployment of 4DTV receivers has been slower
than projected by GI. GI plans to deploy a lower cost version of the 4DTV
receiver, which it expects will increase 4DTV penetration rates when those
receivers become available. As 4DTV penetration rates increase, and as we
transition our HSD business from analog to digital, we expect to convert nine
of our transponders on G-3 from analog to digital over a two-year period, which
will enable each transponder to carry eight or more digital channels of
programming for a total of 72 or more channels. We currently anticipate that
additional revenues will be generated by providing uplink and transponder
services to other programmers with these additional digital channels.
In January 1999, we acquired substantially all of the assets of Panda
Shopping Network, or PSN, a live televised home shopping network. Upon closing,
we placed those assets into TVN Shopping, Inc., or TSI, our wholly owned
subsidiary. We currently market on PSN modern and vintage watches, modern and
estate jewelry, gemstones and precious metal coins and are the exclusive United
States distributor of Perrelet Swiss watches. We purchase unused broadcast time
or "remnant time" from local and national broadcasters, cable networks and
cable operators to distribute the PSN service.
32
<PAGE>
Our business plan contemplates that a substantial portion of future revenues
will be generated by our digital cable programming and services business which
includes the turnkey DCTV Service and the PPV Feeds Service. Our digital cable
programming and services were launched in late 1997 and have generated only
modest revenues to date. We believe that our future ability to service our
indebtedness and to achieve profitability is dependent upon our success in
generating substantial revenues from our digital cable programming and services
business. We expect to continue experiencing negative operating margins and
EBITDA while our DCTV Service and PPV Feeds Service are being marketed to cable
systems and their subscribers. We expect to realize improved operating margins
and EBITDA only as (i) the number of cable operators offering DCTV Service and
the number of larger cable operators offering PPV Feeds Service increases; (ii)
the number of subscribers to DCTV Service increases; and (iii) the buy rates of
PPV movies and events increase. The continued roll out of our digital cable
programming and services requires significant operating expenditures, in
particular selling expenses, a large portion of which will be expended before
any revenue is generated. We have experienced and expect to continue
experiencing negative operating cash flows and significant losses while we
continue to market our digital cable television services and until we can
establish a customer base of cable operators and their subscribers that will
generate revenue sufficient to cover our costs.
Revenue
A substantial portion of revenues to date have been generated by our C-Band
HSD business and have included programming revenues paid by subscribers to us
for PPV movies and events and other operating revenues, which are generated by
subscriber sign-up fees, the sale of subscriptions for third party programming
packages and the sale of uplink and transponder service. Our business plan
contemplates that a substantial portion of future revenues will be generated by
our digital cable programming and services which include DCTV Service and PPV
Feeds Service, as well as by our home shopping and electronic commerce products
and services.
Revenues from our digital cable programming and services are directly
related to the number of subscribers in cable systems offering either our DCTV
Service or PPV Feeds Service. Revenues are expected to be primarily derived
from monthly fees per digital tier subscriber charged to cable operators for
DCTV Services and from the sale of PPV programming to DCTV Service subscribers
and subscribers in cable systems offering the PPV Feeds Service.
DCTV Service subscriber revenue consists of a monthly fee charged per
digital subscriber to the cable operator. A portion of this fee may be rebated
to the cable operator based on achieving certain subscriber penetration rates
or for the cable system operator agreeing to carry a greater number of channels
of our PPV offerings. PPV revenues are derived from orders by DCTV Service
subscribers for PPV programming. We remit a percentage of the PPV revenue to
the cable operator and the content provider. PPV orders are generally paid for
by credit card with revenue being recognized once the programming is viewed.
Revenue from the PPV Feeds Service is based on a percentage of the cable
operators' gross revenue generated by the purchase of TVN PPV movies and events
by their subscribers. Cable operators provide us with monthly reports detailing
PPV purchases by their subscribers for the prior month and remit our share of
the revenue with such report.
We expect to realize revenue from both our turnkey DCTV Service and our PPV
Feeds Service pursuant to long-term affiliation agreements with cable
operators. We recognize revenues under our cable operator agreements only when
our DCTV Service or PPV Feeds Service is successfully integrated and operating
and customer billing commences. Accordingly, the recognition of revenues will
lag the announcement of a new cable operator affiliation agreement by at least
the time necessary to install the service (generally 90 days) and to achieve
meaningful penetration and/or PPV buy rates. Revenues are expected to increase
as our current and
33
<PAGE>
future cable operator customers successfully deploy DCTV Service and PPV Feeds
Service and achieve higher subscriber penetration rates.
Merchandising revenue is generated primarily by sales of merchandise to
television viewers and is related to the number of subscribers in cable systems
and viewers in television broadcast areas who receive our home shopping
service. Consumers generally pay for merchandise orders by credit card with
revenue being recognized upon shipment of the goods.
In addition to revenues from DCTV Service and PPV Feeds Service, we
currently anticipate that additional revenues will be generated by providing
uplink and transponder services via the G-3 satellite transponders that we
intend to convert from analog to digital over a two year transition period.
Operating Expenses
Operating expenses consist of Cost of Revenue; Selling; General and
Administrative; Depreciation and Amortization; and Goodwill Amortization
expenses. Our historical expenses have been generated by the C-Band HSD
business but have also included substantial operating expenses, lease payments
and capital investments to develop our digital cable programming and services
business, which was launched in the third quarter of fiscal 1998.
Cost of Revenue. Cost of revenue for the DCTV Service and PPV Feeds Service
primarily consists of program license fees, payments to cable operators, uplink
and playback service fees, per-subscriber authorization fees for set-top box
access control, communications charges related to orders for PPV movies and
events by subscribers, and salaries and related expenses of engineering and
field operations personnel. License fees for PPV programming are payable to
content providers under the terms of our license agreements and generally vary
between 30% and 55% of revenue depending on the type of content. Payments to
cable operators represent the percentage of PPV revenue shared with DCTV
Service affiliates and vary by individual agreement. Uplink and playback
services are purchased from an outside vendor pursuant to an agreement that
provides for a flat monthly fee. With respect to set-top box authorization, a
fee to maintain access control per set-top box is payable to the licensor of
the operative software pursuant to its license agreement with us. The majority
of cost of revenue for the DCTV Service and PPV Feeds Service will vary
directly with revenues (i) as subscriber PPV buy rates increase thereby causing
us to incur program license fees and access control charges related to orders
for PPV movies and events; (ii) as we are required to hire additional
engineering and field operations personnel in connection with the growth of our
digital cable programming and services business; and (iii) according to the mix
of services provided and their respective costs.
Cost of revenue for the home shopping service primarily consist of the cost
of goods sold, fulfillment costs and the cost of airtime purchased from cable
operators, cable networks and broadcast networks. The cost of goods sold are
generally between 50% and 60% of the retail price charged. Fulfillment costs
include packaging and shipping costs. The cost of airtime varies by hour,
averaging approximately $0.07 per subscriber per hour. The majority of cost of
revenue for the home shopping service will vary directly with revenue (i) as we
increase airtime purchases to achieve greater distribution, (ii) as more
consumers purchase our products, and (iii) according to the mix of product and
airtime and their respective costs.
Selling. Selling expenses for DCTV Service and PPV Feeds Service consist of
customer acquisition costs, billing expenses, customer service expenses, and
salaries and related expenses of our marketing personnel. Customer acquisition
costs include expenses associated with our marketing campaign to cable systems,
co-op advertising and marketing efforts with affiliated cable systems, rebates
to cable operators based on the achievement of penetration milestones and
advertising. These expenses are required to acquire new customers and related
revenues but are discretionary and therefore can be increased or decreased by
management in accordance with the anticipated growth in new business and
revenue. We expect to incur significant customer acquisition costs as we market
our turnkey DCTV Service and PPV Feeds Service.
34
<PAGE>
Implementing our DCTV Service requires cable operators to acquire digital
head-end and set-top box equipment. The new digital receiving equipment
required at each head-end to receive DCTV Service costs the operator
approximately $50,000. For systems serving in excess of 5,000 subscribers, TVN
generally agrees to make monthly financing payments to the operator which
approximate the operator's monthly financing payments on 80% of the digital
head-end equipment cost for so long as the affiliation agreement remains in
effect.
Billing expenses consist of subscriber maintenance fees and remittance
processing fees and vary directly with revenue. Customer service expenses
consist of payroll for call center representatives and telephone charges for
customer calls. To the extent that our subscriber base increases or decreases,
the required costs to support such subscribers would correspondingly change. We
expect to continue to incur significant customer service expenses to support
our current and future subscribers.
Selling expenses for the home shopping service consist of customer service
expenses and remittance processing costs and generally vary directly with
revenue.
General and Administrative. General and administrative expenses consist of
executive and administrative staff compensation, office expenses and
professional fees. General and administrative expenses cover a broad range of
the costs of our operations including corporate functions such as
administration, finance, legal, human resources and facilities. We anticipate
needing additional office facilities in order to support the expected growth in
demand for our services from cable operators and subscribers. We anticipate
that we can locate and acquire such additional space when and as it is needed
although we cannot be certain that such space can be acquired on terms
acceptable to us.
Depreciation and Amortization. Depreciation and amortization expenses
consist of depreciation on our capitalized transponder leases and depreciation
on equipment necessary for our digital services and are fixed with respect to
revenue. Generally, depreciation is calculated using the straight-line method
over the useful lives of the associated asset, which range from 5 to 10 years.
Goodwill Amortization. Goodwill amortization includes the amortization of
negative goodwill generated by the acquisition of our company from our
predecessor limited partnership. As of March 31, 1998, all negative goodwill
had been fully amortized. Goodwill amortization also includes the amortization
of goodwill generated by our acquisition of the assets of PSN. We have
Contingent Notes Payable totaling approximately $28.7 million. The Contingent
Notes Payable do not have a defined maturity or repayment schedule. The
resolution of this contingency and the recognition of the related liability is
anticipated to generate approximately $28.7 million in goodwill and result in
annual amortization expenses recognized over the estimated life of the goodwill
to be determined at such time.
Interest Income and Expense. Interest income will continue to be earned by
us from investing the proceeds from the issuance of equity and debt securities
until such proceeds are needed to fund the operating expenditures, in
particular selling expenses, of our business in connection with the continued
roll out of our digital cable programming and services business. Interest
income is expected to be highly variable over time. Interest expense will
consist primarily of interest accruing under the notes, capitalized leases and
other outstanding indebtedness.
Income Taxes and Net Operating Loss Carryforwards
As a result of projected operating losses and the potential inability to
recognize a benefit for deferred income tax assets, we do not foresee recording
a provision for income tax expense in the near term.
As of March 31, 1999, we had federal and state net operating loss
carryforwards ("NOLs") of approximately $141 million and $57 million,
respectively, which expire at various times in varying amounts
35
<PAGE>
beginning in the years 2004 and 2000, respectively. However, due to the
provisions of Section 382, Section 1502 and certain other provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), the utilization of a
portion of the NOLs may be limited. In addition, we are also subject to certain
state income tax provisions which may also limit the utilization of NOLs for
state income tax purposes.
Section 382 of the Code provides annual restrictions on the use of NOLs, as
well as other tax attributes, following significant changes in ownership of a
corporation's stock, as defined in the Code. Investors are cautioned that
future events beyond our control could reduce or eliminate our ability to
utilize the tax benefits of our NOLs. Future ownership changes under Section
382 could further restrict the use of the NOLs. In addition, the Section 382
limitation could reduce available NOLs to zero if we fail to satisfy the
continuity of business enterprise requirement for the two-year period following
an ownership change.
Results of Operations
The table below sets forth for the periods indicated certain data regarding
expenses expressed as a percentage of total revenues:
<TABLE>
<CAPTION>
Year Ended March 31,
-------------------------
1997 1998 1999
------ ------ -------
<S> <C> <C> <C>
Revenue................... 100.0 % 100.0 % 100.0 %
Operating expenses:
Cost of revenue......... 56.4 66.9 79.8
Selling................. 18.0 23.1 35.9
General and
administrative......... 15.2 18.4 21.4
Depreciation and
amortization........... 31.6 39.2 30.8
Goodwill amortization... (2.4) (0.3) .5
------ ------ -------
Total operating expenses.. 118.6 147.3 168.4
------ ------ -------
Loss from operations...... (18.6) (47.3) (68.4)
Interest expense.......... 41.7 49.6 85.9
Interest income........... (0.2) (0.7) (16.3)
Other (income) and
expense.................. 0.2 1.5 (.2)
------ ------ -------
Loss before extraordinary
gain..................... (60.3) (97.8) (137.8)
Extraordinary gain........ 7.4 0.0 2.8
------ ------ -------
Net loss.................. (52.9)% (97.8)% (135.0)%
====== ====== =======
</TABLE>
Fiscal Year Ended March 31, 1999 Compared with Fiscal Year Ended March 31,
1998
Revenue. Total revenue increased $9.3 million, or 30.3%, to $39.8 million in
the fiscal year ended March 31, 1999 from $30.5 million in the fiscal year
ended March 31, 1998. The increase in total revenue was primarily attributable
to $10.3 million in revenues generated in fiscal 1999 by the Marquee Mix
Service, $3.1 million in revenues generated by PSN and $1.2 million generated
by the sale of transponder time to third parties. The Marquee Mix Service had
not launched and PSN had not been acquired prior to the end of fiscal 1998. The
increase was offset by a $5.2 million decrease in PPV programming revenue and
programming package revenues generated by our HSD subscribers. The decrease is
primarily attributable to a decline in the number of active HSD subscribers.
Operating Expenses
Cost of Revenue. Cost of revenue increased $11.3 million, or 55.6%, to $31.8
million in fiscal 1999 from $20.4 million in fiscal 1998 and, as a percentage
of revenue, increased to 79.8% in fiscal 1999 from 66.9% in fiscal 1998. The
increase as a percentage of revenue is primarily due to an $8.8 million
increase in studio license fees generated by our Marquee Mix Service and $2.6
million in costs incurred by PSN, both of which commenced in fiscal 1999. The
increase was also due to increases in the cost of uplink
36
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and playback services and additional operations payroll resulting from the
launch of our digital cable programming and services, partially offset by a
decrease resulting from non-recurring transponder costs incurred in fiscal
1998.
Selling. Selling expenses increased $7.2 million, or 102.4%, to $14.3
million in fiscal 1999 from $7.1 million in fiscal 1998 and, as a percentage of
revenue, increased to 35.9% in fiscal 1999 from 23.1% in fiscal 1998. The
increase as a percentage of revenue is primarily due to an increase in
advertising agency fees, trade advertising, on-air marketing costs, and sales
department payroll, all associated with the roll out of our digital cable
programming and services.
General and Administrative. General and administrative expenses increased
$2.9 million, or 51.6%, to $8.5 million in fiscal 1999 from $5.6 million in
fiscal 1998 and, as a percentage of revenue, increased to 21.4% in fiscal 1999
from 18.4% in fiscal 1998. The increase as a percentage of revenue is primarily
due to additional payroll costs associated with the infrastructure required to
support our digital cable programming and services, costs incurred by PSN and
to a non-recurring period of free rent in fiscal 1998.
Depreciation and Amortization. Depreciation and amortization increased
$268,000 or 2.2%, to $12.3 million in fiscal 1999 from $12.0 million in fiscal
1998. The increase reflects depreciation expense recognized on assets acquired
in fiscal 1999.
Goodwill Amortization. We recognized approximately $200,000 in goodwill
amortization associated with the acquisition of PSN in fiscal 1999. Negative
goodwill arising from the acquisition of our company from our predecessor
limited partnership was fully amortized in fiscal 1998.
Interest Expense and Interest Income. Interest expense increased $19.0
million, or 125.5%, to $34.2 million in fiscal 1999 from $15.2 million in
fiscal 1998. The increase reflects interest expense recognized on the Notes
that were issued during fiscal 1999. Interest income increased to $6.5 million
in fiscal 1999 from $223,000 in fiscal 1998. The increase reflects interest
earned on the invested proceeds from the Notes.
Provision for Income Taxes. As a result of net losses and our inability to
recognize a benefit for our deferred income tax assets, we did not record a
provision for income taxes in fiscal 1999 or fiscal 1998.
Extraordinary Gain. During fiscal 1999, $1.1 million of our obligation for
transponder service was forgiven upon the early extinguishment of an $8.1
million note payable previously due December 31, 1998. No extraordinary items
were recognized by us in fiscal 1998.
Fiscal Year Ended March 31, 1998 Compared with Fiscal Year Ended March 31,
1997
Revenue. Total revenues, which consist of programming and other operating
revenues, decreased $2.9 million, or 8.5%, to $30.5 million in fiscal 1998 from
$33.4 million in fiscal 1997. Programming revenues decreased $1.5 million to
$18.9 million in 1998 from $20.4 million in 1997, which was primarily
attributable to a decrease in the number of active HSD subscribers during
fiscal 1998. Other operating revenues decreased $1.4 million to $11.6 million
in fiscal 1998 from $13.0 million in fiscal 1997 and was primarily attributable
to a decline in one-time subscription fees, merchandising and third party
package revenue offset by a slight increase in the revenue generated by the
sale of uplink and transponder service.
Operating Expenses
Cost of Revenue. Cost of revenue increased $1.6 million or 8.6%, to $20.4
million in fiscal 1998 from $18.8 million in fiscal 1997 and, as a percentage
of revenue, increased to 66.9% for fiscal 1998 from 56.4% in fiscal 1997. The
increase as a percentage of revenue is primarily attributable to an increase in
the cost of uplink and playback services and the amortization of prepaid access
control fees resulting from the launch of our digital cable programming and
services. These increases were partially offset by a decrease in transponder
costs resulting from the termination in fiscal 1998 of certain transponder
leases that were not renewed.
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<PAGE>
Selling. Selling expenses increased $1.1 million, or 17.8%, to $7.1 million
in fiscal 1998 from $6.0 million in fiscal 1997 and, as a percentage of
revenue, increased to 23.1% in fiscal 1998 from 18.0% in fiscal 1997. The
increase as a percentage of revenue is primarily due to an increase in
advertising agency fees and sales department payroll associated with the launch
of our digital cable programming and services as well as an increase in on-air
production costs and a marketing promotion, both targeted toward the HSD
subscriber base. These increases were partially offset by a decrease in bad
debt expense.
General and Administrative. General and administrative expenses increased
$558,000, or 11.0%, to $5.6 million in fiscal 1998 from $5.1 million in fiscal
1997 and, as a percentage of revenue, increased to 18.4% in 1998 from 15.2% in
fiscal 1997. The increase as a percentage of revenue is primarily due to an
increase in payroll costs necessary to accommodate the staffing requirements of
our digital cable programming and services.
Depreciation and Amortization. Depreciation and amortization increased $1.5
million, or 13.8%, to $12.0 million in fiscal 1998 from $10.5 million in fiscal
1997. The increase reflects a full year's depreciation of the G-9 transponders
in fiscal 1998 compared to only nine months' depreciation in 1997; G-9 was
capitalized in July 1996.
Goodwill Amortization. Negative goodwill amortization decreased $703,000, or
87.6% to $100,000 in fiscal 1998 from $803,000 in fiscal 1997. The decrease is
due to the amortization during fiscal 1998 of the remaining negative goodwill
balance over a two month period compared to a full year's amortization of
negative goodwill in fiscal 1997.
Interest Expense. Interest expense increased $1.3 million, or 9.0%, to $15.2
million in fiscal 1998 from $13.9 million in fiscal 1997. The increase reflects
the recognition of twelve months interest on the G-9 transponder lease in
fiscal 1998 compared to only nine months of interest in fiscal 1997; G-9 was
capitalized in July 1996. The increase was also attributable to the accrual of
twelve months of interest in fiscal 1998 on additional indebtedness that was
incurred incrementally over the last six months of fiscal 1997. Interest income
increased $160,000 or 254%, to $223,000 in fiscal 1998 from $63,000 in fiscal
1997.
Provision for Income Taxes. As a result of operating losses and our
inability to recognize a benefit for our deferred income tax assets, we did not
record a provision for income taxes in fiscal 1998 and fiscal 1997.
Extraordinary Gain. During fiscal 1997, a portion of our obligation for
consumer phone charges and transaction processing service was forgiven in
consideration for our agreement to terminate the original service contract. No
extraordinary gains were realized by us in fiscal 1998.
Liquidity and Capital Resources
Our growth has been funded through a combination of equity, debt and lease
financing. As of March 31, 1999, we had current assets of $117.3 million,
including $84.3 million of cash and cash equivalents and current liabilities of
$46.4 million, resulting in working capital of $70.9 million. We invest excess
funds in short-term, interest bearing investment grade securities until such
funds are needed to fund the capital expenditure and operating needs of our
business.
We believe that our future ability to service our indebtedness and to
achieve profitability will be dependent upon our ability to generate
substantial revenues from our digital cable programming and services and home
shopping services. We expect to continue to experience negative operating
margins and EBITDA while our DCTV Service and PPV Feeds Service are being
marketed to cable operators and their subscribers. The continued roll out of
our digital cable programming and services requires significant operating
expenditures, in particular selling expenses, a large portion of which will be
expended before any revenue is generated. We have experienced and expect to
continue to experience, negative cash flows and significant losses while we
continue to market our digital cable programming and services and establish a
sufficient revenue generating customer base of cable operators and their
subscribers. We cannot be certain that we will be able to successfully roll out
our digital cable television service or establish such a customer base. See
"Risk Factors--We are highly leveraged."
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Our cash on hand and amounts expected to be available through vendor
financing arrangements will provide sufficient funds necessary for us to expand
our DCTV Service and PPV Feeds Service as currently planned and to fund our
operating deficits for at least the next 12 months. We have Contingent Notes
Payable totaling approximately $28.7 million. The Contingent Notes Payable do
not have a defined maturity or repayment schedule. These obligations are
payable only from Available Cash Flow, as defined in the Restated Limited
Partnership Agreement dated March 7, 1991. These Contingent Notes Payable have
not been recorded as a liability in accordance with Accounting Principles Board
Opinion No. 16, "Business Combinations," because they represent contingent
consideration related to the acquisition of net assets and the outcome of the
contingency is not determinable beyond a reasonable doubt. We may renegotiate
the terms of the Contingent Notes Payable following the completion of the
exchange of the Old Notes for New Notes to incorporate a defined maturity and
payment schedule. In conjunction with such renegotiation, we may restructure or
repay all or a portion of the Contingent Notes Payable. In the event that we
are unable to agree on a defined maturity and payment schedule, the timing of
the repayment of the Contingent Notes Payable will remain uncertain and subject
to events outside our control. We will record these notes payable as
liabilities and recognize related goodwill when the contingency is resolved.
See "Risk Factors--We have incurred net losses in every fiscal year since
inception" and "Risk Factors--We anticipate that our existing capital and cash
from operations will be adequate to satisfy our capital requirements for the
next 12 months" and "Description of Certain Indebtedness."
Cash Provided By/Used For Operating Activities
Our operating activities used $2.9 million, $28.1 million and $35.4 million
in fiscal 1997, fiscal 1998 and fiscal 1999, respectively. Cash used for
operations is primarily due to net losses of $17.7 million, $29.9 million and
$53.8 million in fiscal 1997, fiscal 1998 and fiscal 1999, respectively and
increases in accounts receivable, which are partially offset by non-cash
expenses, such as depreciation and amortization, and other changes in working
capital items such as accounts payable, accrued liabilities and accrued
interest. We expect to continue to generate negative cash flow from operating
activities while we accelerate the marketing and deployment of our DCTV Service
and PPV Feeds Service. Consequently, we do not anticipate that cash provided by
operations will be sufficient to fund such marketing and deployment and other
costs of operations in the near term.
Cash Used For Investing Activities
Cash used for investing activities was $169,000, $308,000 and $68.3 million
in fiscal 1997, fiscal 1998 and fiscal 1999, respectively. Cash used for
investing activities in fiscal 1999 consists primarily of investments in
marketable securities and the proceeds of such investments to secure the first
six interest payments on the Notes. Our capital expenditures (including assets
acquired under capitalized leases and through the issuance of debt) were $45.5
million, $482,000 and $2.6 million for fiscal 1997, fiscal 1998 and fiscal
1999, respectively. We expect to incur approximately $4.5 million in capital
expenditures in fiscal 2000.
Cash Provided By/Used For Financing Activities
Cash provided by financing activities was $3.5 million, $44.4 million and
$171.3 million in fiscal 1997, fiscal 1998 and fiscal 1999, respectively. Cash
provided by financing activities includes the proceeds of equity financings and
debt arrangements that we entered into. During fiscal 1997, we received $8.0
million in proceeds from debt financings from a vendor and certain of our
stockholders. During fiscal 1998, we received $45.0 million in proceeds from an
equity financing made by PGI II, an affiliate of the Placement Agent, and
$4.5 million in proceeds from debt financings from a vendor and certain of our
stockholders. During fiscal 1999, we received $193.3 million in net proceeds
from the sale of the Notes and Warrants. We are required to make payments on
notes payable and capitalized leases of $26.8 million, $21.1 million, and
$22.0 million during fiscal 2000, fiscal 2001 and fiscal 2002, respectively,
and $89.9 million thereafter.
Year 2000 Compliance
Many computer systems and software and electronic products are coded to
accept only two-digit entries in the date code field. These code fields will
need to accept four digit entries to distinguish 21st century dates
39
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from 20th century dates. As a result, computer systems and software ("IT
Systems") and other property and equipment not directly associated with
information and billing systems ("Non-IT Systems"), such as phones, and other
office equipment used by many companies, including us, may need to be upgraded,
repaired or replaced to comply with such "Year 2000" requirements.
We have conducted an internal review of most of our internal corporate
headquarters IT Systems, including finance and operations. We have contacted
most of the vendors of our internal corporate headquarters IT Systems to
determine potential exposure to Year 2000 issues and have obtained letters from
most of such vendors assuring that they will be Year 2000 compliant by the Year
2000. Although we have determined that most of our principal internal corporate
headquarters IT Systems are Year 2000 compliant, we have also determined that
certain other such internal systems, including our accounting software, are not
Year 2000 compliant. We have purchased accounting software that is Year 2000
compliant and expect that our conversion to that software will be complete by
July 1, 1999. We are in the process of upgrading other and/or replacing such
internal systems to ensure their compliance by the Year 2000.
The Company has appointed personnel to oversee Year 2000 issues. These
employees are reviewing all IT Systems and Non-IT Systems that have not
previously been determined to be Year 2000 compliant and will attempt to
identify and implement solutions to ensure such compliance. To date, we have
not incurred significant incremental costs to remediate our Year 2000 issues as
the majority our efforts have involved an allocation of internal resources,
primarily existing personnel and the upgrade of systems and equipment made in
the ordinary course of business. We presently estimate that the total
additional cost for external resources will be immaterial. We derived these
estimates by utilizing numerous assumptions, including the assumption that we
have already identified our most significant Year 2000 issues and that the Year
2000 compliance plans of our third-party suppliers and cable operator
affiliates which currently deploy our DCTV Service, PPV Feeds Service and home
shopping services will be completed in a timely manner without cost to us.
However, these assumptions may not be accurate, and actual results could differ
materially from those anticipated.
We have been informed by key suppliers and cable operator affiliates that
currently deploy our DCTV Service, PPV Feeds Service or home shopping service
that such suppliers and cable operator affiliates are currently, or will be
Year 2000 compliant by the Year 2000. Our uplink and playback services
provider, 4MC, is investing in a state of the art facility that will be Year
2000 compliant. It expects to complete the buildout of this facility by
November 1999. Our transponder service provider, PanAmSat Corporation has
provided us with its Year 2000 compliance representation. Our provider of
digital compression and encryption technology has also provided us with
multiple statements with respect to Year 2000 compliance. We are commencing
independent testing to verify the progress and validate the representations of
our key suppliers and plan to hire additional personnel in June 1999 that will
be dedicated to this task. We have been informed that the companies that
perform billing services for certain of our cable operator affiliates may not
be fully Year 2000 compliant. We understand that these companies have devoted
resources to becoming Year 2000 compliant.
Any failure of these third parties to timely achieve Year 2000 compliance
could have a material adverse effect on our operating results, financial
condition and our ability to achieve sufficient cash flow to service our
indebtedness, including the New Notes.We could be affected through disruptions
in the operation of the enterprises with which we interact or from general
widespread problems or an economic crisis resulting from noncompliant Year 2000
systems. Despite our efforts to address the Year 2000 effect on our internal
systems and business operations, such effect could result in a material
disruption of our business or have a material adverse effect on our business,
operating results and financial condition and our ability to achieve sufficient
cash flow to service our indebtedness, including the New Notes. Should certain
of our internal or external systems fail to be Year 2000 compliant, we believe
that other third party suppliers who are Year 2000 compliant will be able to
replicate such systems. However, there can be no assurance that such suppliers
will be available to provide such services in a timely manner or that they will
be able to do so on terms acceptable to us.
40
<PAGE>
BUSINESS
TVN Entertainment Corporation
Our company provides the only fully interoperable, turnkey, end-to-end
digital solution that enables virtually any cable system to deliver a wide
variety of new digital television programming and services to subscribers over
existing cable infrastructure. In response to increasing consumer demand for
additional entertainment programming and services, the cable industry has begun
a large scale conversion from analog to digital transmission, facilitated by
recent advances in digital compression and encryption technology. In late 1997,
we launched TVN Digital Cable Television, also known as our DCTV Service. This
"one-stop" digital cable solution combines a digital delivery system with
programming content and support services to enable cable operators to expand
the channel capacity of their existing bandwidth and generate new sources of
revenue without the need to rewire or significantly upgrade their existing
analog cable systems.
Our DCTV Service enables cable operators to substantially enhance the
variety and quality of programming choices through a more efficient use of
their cable bandwidth by utilizing recent industry technology that compresses
eight or more digital channels onto one analog channel. This allows cable
operators to supplement their analog programming with:
. a new digital tier providing near-video-on-demand, or NVOD, movies and
pay-per-view, or PPV, events;
. CD quality digital music;
. an interactive on-screen program guide;
. additional basic and/or premium channels; and
. information, data and text services.
Our long-standing relationships with key content providers, including all
the major and leading independent film studios and sports, special event and
adult content distributors, allow us to provide a broad range of popular
programming. Our turnkey implementation services include:
. automated ordering and authorization;
. customer service and billing;
. engineering and marketing support;
. studio licensing and fee administration; and
. the installation of digital head-end equipment.
We believe our turnkey digital solution is particularly attractive to
smaller and medium size cable systems, including smaller, non-clustered systems
of multiple system operators, or MSOs, which may lack the scale, funding,
technical or administrative resources to economically implement a digital tier
on their own. These cable systems currently serve approximately one-third of
the estimated 65 million cable television subscribers. We also serve larger
cable systems that do not require a turnkey solution by delivering our digital
satellite feeds of NVOD movies and PPV events, know as our PPV Feeds Service.
We transmit programming via 15 transponders on two well located PanAmSat
satellites. We lease fourteen of these transponders on a long-term basis.
Digital technology adds several important advantages to analog cable
systems, including:
. increased channel capacity;
. high quality video and audio signals; and
. remote authorization of subscribers for encrypted programming, known as
"addressability".
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Demand for the breadth and quality of digital programming has fueled the
dramatic growth of the direct broadcast satellite, or DBS, industry. DBS has
been the principal vehicle available to consumers who want access to these
digital services. We believe that, given a choice, most home television viewers
will choose to receive PPV and other enhanced digital services via cable rather
than DBS because digital cable offers several key advantages including:
. digital television without the need for consumers to incur the up-front
costs of purchasing and installing satellite dish equipment;
. a broadband distribution path for a variety of future interactive
applications, such as high-speed Internet connectivity; and
. local broadcast television stations currently unavailable through DBS.
Technology advances in the cable industry have made digital transmission
possible over cable's existing analog infrastructure without requiring time
consuming and expensive upgrades to the cable plant. By 1997, General
Instrument, or GI, a leading cable equipment manufacturer, working with
CableLabs, a research and development entity funded by a consortium of cable
operators, including industry leader TCI, had successfully developed new
digital compression and encryption technology, known as DCII Technology, and
related equipment that enables cable operators to expand the channel capacity
of their existing bandwidth and add digital programming. TCI is at the
forefront in implementing DCII Technology and has installed digital equipment
in many of their owned and affiliated systems. Our one-stop DCTV Service allows
smaller and medium size cable systems to implement this digital cable approach.
Our company was founded in 1987 by current Chairman and Chief Executive
Officer, Stuart Z. Levin, to provide satellite delivered PPV movies and events
to owners of large (six to ten-foot) C-Band home satellite dishes, or HSDs. As
of March 31, 1999, we maintained a database of over 800,000 HSD subscribers,
more than 260,000 of whom purchased programming from us during the fiscal year
ended March 31, 1999. In fiscal 1998, we received a $45 million equity
investment from Princes Gate Investors II, L.P. and certain of its affiliates,
known collectively as PGI II, an affiliate of Morgan Stanley. In fiscal 1998,
we also and hired our current President and Chief Operating Officer, James B.
Ramo, formerly Executive Vice President of DirecTV, the leading provider of DBS
services, to implement our digital cable strategy.
The TVN Digital Solution
Our digital solution offers two types of service: (i) DCTV Service targeted
at smaller and medium size cable systems and (ii) PPV Feeds Service targeted at
larger cable systems.
DCTV Service
Our turnkey solution combines a digital delivery system with programming
content and support services to enable cable operators to expand the channel
capacity of their existing bandwidth and generate new sources of revenue
without undertaking a substantial and expensive upgrade of their cable plant.
DCTV Service can expand the number of video channels delivered by a typical
smaller cable system from 60 analog video channels to over 100 combined digital
and analog channels for digital subscribers. Many operators also gain the
ability to remotely address set-top boxes for the first time.
We believe our turnkey solution provides an attractive offering for cable
subscribers. The incremental price to the subscriber for DCTV Service is
determined by the cable operator and is generally $10.99 per month. PPV movies
typically cost $3.99 each and PPV events are priced individually. A typical
DCTV Service digital tier includes:
. 32 digital channels of NVOD movies and PPV events;
. a channel showing previews of currently offered films and coming
attractions;
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.adult programming;
. 40 CD quality digital music channels from DMX;
. the TV Guide interactive on-screen program guide which displays
comprehensive program listings (including each system's analog channels
and local broadcasts) and provides parental control;
. new digital basic and/or multiplexed premium channels;
. additional information, data and text services; and
. continued access to the system's analog cable and local channels.
We believe our turnkey solution is particularly attractive to smaller and
medium size cable systems, including smaller, non-clustered systems of MSOs,
which may lack the scale, funding, technical or administrative resources to
economically implement a digital tier on their own. Turnkey support services
provided for the cable operator include:
. automated ordering and authorization;
. customer service and billing;
. engineering and marketing support;
. studio licensing and fee administration; and
. the installation of digital head-end equipment.
The typical $10.99 monthly fee charged by the cable operator to subscribers
for the digital tier of programming generally more than covers the monthly DCTV
Service fee paid to us by the cable operator and the amortized cost of the
digital set-top box. PPV revenues generated from our NVOD movies and PPV events
are shared by us and the cable operator based on a percentage of the PPV
revenue. We believe that cable operators can achieve a meaningful increase in
revenue and earn an attractive return on investment by providing DCTV Service.
PPV Feeds Service
Our PPV Feeds Service transmits to cable systems the same digital NVOD
movies and PPV events included in DCTV Service. PPV Feeds Service allows cable
systems to receive content from a single source of distribution and avoid the
significant capital investment otherwise required for automated playback,
storage, scheduling and delivery of PPV programming. Cable operators receiving
PPV Feeds Service also benefit from our expertise in selecting and scheduling
PPV programming to maximize buy rates, based on our experience in delivering
PPV movies and events to the C-Band HSD market since 1991. We receive from the
cable operator a percentage of the revenue generated by cable subscribers'
purchases of TVN PPV movies and events. Our PPV Feeds Service is a highly
attractive opportunity because it generates recurring revenue and cash flow at
little incremental cost.
In addition, we also transmit three digital channels of PPV hit movies and
events that cable operators can receive in digital format at the system head-
end and then convert to analog format for delivery to their addressable
subscribers, known as our Marquee Mix Service. This service provides a
replacement for the PPV programming offered by Request Television, which ceased
operations on June 30, 1998. This service also preserves analog channels for
PPV that can be used in the future by cable operators to implement DCTV Service
or PPV Feeds Service. For Marquee Mix Service, we receive from the cable
operator a percentage of the revenue generated by cable subscribers' purchases
of TVN PPV movies and events.
Recent Cable Operator Affiliations
Following the completion of comprehensive operational testing and marketing
trials in late 1997, we formally launched our digital cable programming and
services. As of May 15, 1999, we have entered into
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agreements with or have received commitments from 63 cable operators for DCTV
Service, 5 cable operators for PPV Feeds Service and 17 cable operators for
Marquee Mix Service, as summarized below. In addition, we are in active
negotiations with 42 cable operators whose systems serve over 650,000
subscribers, approximately 365,000 for DCTV Service and approximately 285,000
for PPV Feeds Service.
DCTV Service
Currently, our DCTV Service is offered by:
. Five cable operator affiliates with systems serving over 20,000
subscribers, for an aggregate of 168,500 subscribers with access to DCTV
Service, including 38,000 in Comcast's Huntsville, Alabama system,
34,000 in various CableAmerica systems, and 93,000 in various WEHCO
systems;
. Twelve cable operator affiliates with systems serving 10,000 to 20,000
subscribers for an aggregate of 164,500 subscribers with access to DCTV
Service; and
. Forty-five cable operator affiliates with systems serving fewer than
10,000 subscribers, for an aggregate of 125,000 subscribers with access
to DCTV Service.
PPV Feeds Service
Currently, our PPV Feeds Service is offered by:
. Jones Cable, an affiliate with systems serving over 90,000 subscribers;
and
. Four cable operator affiliates with systems serving fewer than 20,000
subscribers, for an aggregate of 13,000 subscribers with access to PPV
Feeds Service
Marquee Mix Service
Currently, our Marquee Mix Service is offered by:
. Three cable operator affiliates with systems serving over 20,000
subscribers, for an aggregate of 2.3 million subscribers with access to
Marquee Mix Service, including 2.2 million Cablevision systems
subscribers;
. Two cable operator affiliates with systems serving 10,000 to 20,000
subscribers, for an aggregate of 37,000 subscribers with access to
Marquee Mix Service, and
. Twelve cable operator affiliates with systems serving fewer than 10,000
subscribers, for an aggregate of 21,900 subscribers with access to
Marquee Mix Service.
We have recently created a customized digital tier of programming for
certain Comcast cable systems that carry Viewer's Choice PPV movie service. Our
customized tier includes PPV movies and events differentiated from those
offered by Viewer's Choice, as well as the Spice and Playboy Channels. Comcast
will offer this customized digital tier of programming in seven of its systems
that serve an aggregate of 1.8 million subscribers who will have access to this
tier of service.
Our Digital Cable Strategy
Our strategy is to be the leading independent provider of digital PPV
programming and services to cable operators. Our digital cable strategy
includes the following key elements:
Expand Cable Operator Base to Maximize Potential Digital Subscribers. To
capitalize on being first to market with an economically viable comprehensive
digital cable solution, our strategy is to enter into long-term affiliation
agreements with cable operators to maximize the number of subscribers who have
access to our digital cable programming and services. Our digital solution
offers cable operators additional revenue sources at modest incremental cost
and substantially enhanced programming and services with which to attract and
retain subscribers who might otherwise seek alternative sources of digital
programming.
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Drive Subscriber Penetration by Providing Superior and Convenient
Service. Our strategy is to maximize subscriber penetration by delivering
conveniently accessed, superior digital services such as NVOD hit movies and
PPV events, CD quality digital music and information, data and text services.
By using our digital NVOD service, cable subscribers can avoid trips to a video
rental store, the risk that popular movie rentals are unavailable, late return
fees and tape rewind charges. Our digital NVOD service also provides customers
with flexibility in selecting from a wide range of popular movies and start
times and other entertainment offerings versus traditional analog PPV services.
Additional advantages for consumers include an on-screen programming and
navigational guide with parental control, all accessed by a universal remote
control. The high quality digital pictures and CD quality digital sound provide
a significantly enhanced viewing experience.
Maximize PPV Buy Rates. Based on our experience in providing PPV to the C-
Band HSD market since 1991, we select movie titles and events and schedule them
to maximize PPV buy rates. We have learned that the convenience of optimally
scheduled start times and automated telephone number identification ordering,
known as ANI, or impulse PPV ordering, known as IPPV (i.e. ordering via the
set-top remote) can significantly increase PPV buy rates. Our NVOD schedule
offers 32 channels of PPV movies with hit titles conveniently starting
approximately every 30 minutes. The combination of NVOD with ANI or IPPV
ordering allows PPV to be an impulse buy which increases buy rates. Industry
data indicates that NVOD programming is capturing a growing share of the home
video rental market. We believe that, on average, cable operators offering our
NVOD digital programming have the potential to generate PPV buy rates
comparable to those of DirecTV, which approximate two buys per subscriber per
month. Our newly developed VOD service is expected to increase PPV buy rates.
We are currently conducting an initial field trial of our VOD service in one of
our smaller affiliate's system.
Capitalize on Long-Standing Relationships with Content Providers. We have
long-standing relationships with all the major and leading independent film
studios and key sports, special event and adult programming distributors. We
believe that our proven national distribution channel makes us a very
attractive customer for content providers. We believe that the breadth and
quality of our PPV programming are valuable to cable operators because together
they can lead to growth in penetration and buy rates.
Expand PPV Feeds Service. We are one of only two companies offering
satellite delivered digital feeds of NVOD hit movies and PPV events to cable
operators. We market our PPV Feeds Service to larger cable systems that do not
require turnkey services but can benefit from our single source distribution of
PPV content. Our PPV Feeds Service allows cable systems to avoid the
significant capital investment required for playback, storage, scheduling and
delivery of digital PPV programming. The PPV Feeds Service generates a highly
attractive and recurring cash flow stream at little incremental cost to us. For
this service, we receive a percentage of the operators' gross PPV revenues from
subscribers.
Leverage Core Competencies into New Internet and Interactive Services. Our
strategy is to remain at the forefront of implementing the newest technologies
and systems that enable the delivery of digital programming and services to
cable systems. Our digital delivery system can also be enhanced to provide
additional programming and interactive services via the Internet as they become
technologically feasible and economically attractive. These services may
include:
. high speed Internet connectivity;
. IT telephone and ISP services;
. in-home shopping, banking and other consumer oriented and informational
services; and
. high definition television, or HDTV.
For example, we have entered into an agreement with Citibank to jointly
develop an interface for the delivery of home banking, electronic commerce and
transactional services over our digital cable platform to the set-top box.
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Products, Markets and Customers
DCTV Service
Our DCTV Service combines a digital delivery system with programming content
and support services to enable cable operators to offer a new digital tier to
their subscribers. DCTV Service provides cable operators with:
Content. A typical DCTV Service digital tier includes:
. 32 digital channels of NVOD movies and PPV events;
. a channel showing previews of currently offered films and coming
attractions;
. adult programming;
. 40 CD quality digital music channels from DMX(R);
. the TV Guide interactive on-screen program guide which displays
comprehensive program listings (including local broadcasts) and provides
parental control for all channels available on the system;
. new digital basic and/or multiplexed premium channels;
. additional information, data and text services; and
. continued access to the system's analog cable and local channels.
Automated Ordering and Authorization. We manage automated ordering and
authorization required to process large volumes of PPV orders.Such
authorization, known as conditional access, is the process by which
subscribers' set-top boxes are remotely authorized to descramble our encrypted
PPV movie or event programming for at least one full showing and are then
deauthorized upon program completion. Cable operators desiring to implement
their own conditional access system face substantial capital and operating
expense. The head-end equipment necessary to provide local conditional access
typically costs such cable operators $150,000 and requires ongoing support and
maintenance.
Customer Service. Our customer service facilities allow cable operators to
meet the customer service demands that accompany the increased capabilities of
DCTV Service. Subscriber orders for NVOD movies and PPV events are handled
electronically through either ANI or IPPV ordering. Cable subscriber inquiries
are handled by call centers that we operate. HSD subscriber inquiries are
handled by TicketMaster.
Billing, Reporting and Subscriber Management. The billing, reporting and
subscriber management system we use was developed by CSG and has been enhanced
in conjunction with us specifically to support DCTV Service. We currently bill
for most PPV orders via subscribers' authorized credit cards which reduces
billing costs and substantially reduces bad debt. For cable operators that wish
to provide PPV service for subscribers who do not have or do not wish to use a
credit card, we will bill the subscriber for PPV orders via a separate PPV
bill. We can also deliver PPV billing data to each cable operator that wishes
to include this information on the regular monthly bill sent to subscribers.
The billing software provides detailed management and marketing reports which
we believe are valuable to our cable operator customers.
Engineering Support. An important aspect of our DCTV Service is our
commitment to facilitate the rapid implementation of our digital service. We
are generally able to have our DCTV Service operational in a cable system
within 90 days. We arrange for the delivery, testing and installation of
preconfigured digital head-end equipment. Either TVN or subcontractor personnel
complete and test the installation and remain on site until the digital
equipment is fully operational.
Marketing. We assist cable operators in creating programming packages and
related advertising and marketing campaigns in order to maximize penetration,
buy rates and profits from DCTV Service. Working with the Friedland, Jacobs
Agency, we have developed a complete "Go Digital" campaign to provide cable
operator customers with a complete package of marketing materials designed to
drive subscriber penetration. In addition, we contribute to cooperative
advertising and marketing of DCTV Service.
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Studio Licensing and Fee Administration. We have long-standing relationships
with all the major and leading independent film studios and key sports, special
events and adult programming distributors. We believe that these relationships
are essential to obtaining the popular programming that drives subscriber
demand for our digital PPV movies and events. In addition, we provide a single
source of digital programming for cable operators. Our experience in providing
PPV movies and events to the C-Band HSD market since 1991 provides valuable
expertise in selecting and scheduling PPV programming to maximize buy rates. We
believe that the breadth and quality of our PPV programming are valuable to
cable operators because together they can lead to growth in penetration and buy
rates.
Arrangement of Financing. Implementing our DCTV Service requires cable
operators to acquire digital head-end equipment and set-top boxes. To
facilitate the purchase or lease of this equipment, we have an arrangement with
a financing entity that offers lease financing to our cable operator customers.
Financial Benefits of DCTV Service to Cable Operators
We require the cable operator to agree to a multi-year commitment to offer
our DCTV Service. During the term of the agreement, the cable operator pays us
a monthly fee per digital subscriber based on achieving certain subscriber
penetration rates and/or for the cable operator agreeing to carry a greater
number of channels of our PPV offerings. For cable operators that do not
require the full range of turnkey services, we offer these services on an "a la
carte" basis, the fees for which are determined on an individual basis
according to the services provided. Revenues from PPV movie and event
programming are shared among content providers, the cable operator and us.
To receive DCTV Service, a cable subscriber must have a DCII set-top box
which costs the cable operator approximately $300. We utilize GI's DCII
encryption/compression protocols, the accepted digital standard in the cable
industry. The monthly charge paid by subscribers for the digital tier is
generally more than sufficient to cover the cable operator's amortized cost of
DCII set-top boxes over the term of a five year TVN affiliation agreement. The
new digital equipment required at each head-end to receive DCTV Service costs
the cable operator approximately $50,000. For systems serving in excess of
5,000 subscribers, we generally agree for so long as the affiliation agreement
remains in effect to make monthly payments to the operator which approximate
the cable operator's monthly financing payments on 80% of the cost of such
digital head-end equipment. We assume no obligation, however, to third-party
financing entities.
Strategic Benefits of DCTV Service to Cable Operators
Rapid Upgrade. DCTV Service enables cable operators to rapidly upgrade their
systems to offer NVOD movies, PPV events and other digital programming. DCTV
Service provides a broad range of digital services that can be managed,
delivered, billed and analyzed by us for the cable operator and content
providers. We believe that our digital delivery system also serves as a low
cost platform for a wide range of new digital and interactive services for the
consumer, such as in-home shopping, banking and bill paying.
Neutrality. We are the only independent provider of digital cable television
programming and services. We believe that many cable operators prefer to work
with an independent service provider.
Flexibility. For MSOs and other cable operators, DCTV Service provides a
customized and scalable solution. For instance, MSOs can implement DCTV Service
on a discrete number of non-clustered systems as well as selecting from a range
of support levels depending on the needs and sizes of different systems. Our
turnkey DCTV Service offers the most comprehensive support and services. Cable
operators that desire to manage certain DCTV Service functions for themselves
can select from our turnkey services on an a la carte basis. For cable
operators seeking only a single source of satellite transmitted digital PPV
programming, we offer our PPV Feeds Service.
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Interoperability. Our digital delivery system is interoperable with
programmers and set-top boxes using industry standard DCII encryption and
compression protocols. Based on tests performed by CableLabs, our digital
transmission system will work in more than 95% of the existing cable systems
without significant upgrade to the cable plant, apart from installing the
required head-end equipment and deploying digital set-top boxes.
Benefits of DCTV Service to Cable Subscribers
The incremental price to the subscriber for the DCTV Service is determined
by the cable operator and is typically $10.99 per month. PPV movies typically
cost $3.99 each and PPV events are priced according to each local market. DCTV
Service provides NVOD capability, the primary attribute of which is that PPV
movies have multiple start times, at brief intervals. Automated ordering of TVN
PPV films utilizes either our existing ANI capabilities or IPPV technology
built into DCII set-top boxes. Movie start times are a function of how many
channels are dedicated to telecasting a particular movie and the running time
of that movie. For instance, if a hit movie is telecast in digital format on
four channels, it can start every 30 minutes on one of those channels.
Currently, our analog signal movies start approximately every two hours. The
bigger the anticipated demand for a particular PPV film, the more digital
channels that will be devoted to that film, especially during the opening week.
The convenience and attractiveness of NVOD movies for digital tier subscribers
is demonstrated in part by industry experience indicating a typical 5 times
improvement in PPV buy rates versus traditional analog PPV. One of the NVOD
features expected for a future generation DCII box is a "virtual pause"
function, which allows the customer to push a button for a brief delay in the
movie, which can then be restarted at a point just prior to the scene at which
the pause occurred. Another anticipated feature is one button VCR recording by
which the set-top box will automatically turn on a subscriber's VCR and record
programming previously selected by the subscriber using the on-screen
navigational guide. Finally, our DCTV Service protects subscribers against
technological obsolescence in that digital cable set-top boxes remain the
property of the cable operator and can be redeployed within the cable system as
new technologies become available, rather than requiring the consumer to
purchase and then replace expensive in-home equipment such as DBS satellite
systems or other hardware.
PPV Feeds Service
Our PPV Feeds Service transmits to larger cable systems the same digital
NVOD movies and PPV events included in DCTV Service. PPV Feeds Service allows
cable systems to receive content from a single source of distribution and avoid
the significant capital investment otherwise required for playback, storage,
scheduling and delivery of PPV programming. Cable operators receiving PPV Feeds
Service also benefit from our expertise in selecting and scheduling PPV
programming to maximize buy rates, based on our experience in delivering PPV
movies and events to the C-Band HSD market since 1991. We receive from the
cable operator a percentage of the gross revenue generated by cable
subscribers' purchases of TVN PPV movies and events. Our PPV Feeds Service is a
highly attractive opportunity because it generates recurring revenue and cash
flow at little incremental cost. The cable operator is responsible for
distributing, authorizing and billing our subscribers for the PPV content. On a
monthly basis, the cable operator provides us with a report of gross PPV
revenue and remits the portion payable to us. The PPV Feeds Service also helps
us establish relationships with the largest MSOs and demonstrate the earning
potential of our digital PPV content. Such relationships provide an opportunity
for us to offer our turnkey DCTV Service to the smaller, non-clustered systems
of these MSOs.
In mid-1998, we introduced our Marquee Mix Service offering three digital
channels of PPV hit movies and events that cable operators can receive in
digital format at the system head-end and then convert to analog format for
delivery to their addressable subscribers. This service provides a replacement
for Request Television's PPV service and preserves analog channels for PPV that
can be used in the future by cable operators to implement DCTV Service or PPV
Feeds Service. We receive from the cable operator a percentage of the gross
revenue generated by cable subscribers' purchases of TVN PPV movies and events.
Cablevision Systems deploys our Marquee Mix Service in cable systems serving
approximately 2.2 million subscribers. We
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have recently created a customized tier of digital programming for certain
Comcast systems which carry Viewer's Choice PPV programming. Our customized
digital tier includes hit PPV movies and events which supplement those offered
by Viewer's Choice, as well as the Playboy and Spice Channels. Comcast will
offer this customized digital tier of programming in seven of its systems
serving an aggregate of 1.8 million subscribers.
Home Shopping Services
In January 1999, we acquired substantially all of the assets of the Panda
Shopping Network, or PSN, as part of our strategy to use our infrastructure and
digital delivery system to offer home shopping programming. PSN is a live, on-
air home shopping channel specializing in merchandise such as jewelry, watches
and precious metal collectibles. PSN is currently distributed through cable
operators, DBS, broadcast networks and low-power television to more than
25,000,000 homes during certain hours.
Video-on-Demand Service
In conjunction with a manufacturer of specialty digital servers, we have
developed a video-on-demand, or VOD, service for cable operators whose systems
have hybrid fiber/coaxial cable that enables two-way communications from the
set-top box. There are currently 19,000,000 homes passed by systems equipped
with hybrid fiber/coaxial cable. VOD offers cable subscribers the ability to
start, pause, rewind and fast forward movies on demand. We will offer our VOD
services to cable operators who agree to install a digital server at their
head-end that stores and delivers our PPV content. We will provide such
content, and facilitate the installation and financing of such digital servers
for cable operators. We are currently conducting an initial field trial of our
VOD service in one of our smaller affiliate's systems.
Future Products and Services
Electronic Commerce Services via Our Digital Cable Platform and the
Internet. We believe that we can leverage our home shopping services through
their existing means of distribution and across our digital cable platform to
drive viewer traffic to a multi-featured Internet site that we intend to
develop to offer a wide range of consumer oriented electronic commerce
services, including home banking and finance, customized delivery of digital
music and healthcare information and consulting. As part of our development
effort, we have entered into an agreement with Citibank to jointly develop an
interface for the delivery of home banking, electronic commerce and
transactional services over our digital cable platform to set-top boxes with
cable modems. We have also formed a new venture, Chromazone LLC, in which we
own a 50% interest, to develop and license e-commerce engine software and
related interactive applications. Chromazone will be performing consulting and
software development services for us and Citibank to create Internet portal
sites and integrate them to effect consumer transactions via the internet and
our digital cable platform. We have also signed a memorandum of understanding
to purchase a majority interest in New Media Network, or NMN, which is a new
company formed to distribute downloadable digital music and other entertainment
products at retail locations and via the internet.
Premium Interactive Digital Services. We believe that our digital delivery
system can be enhanced to provide additional digital programming and
interactive services as they become technologically feasible and economically
attractive. These services may include high speed Internet connectivity, IP
telephony, interactive services and HDTV. We plan to enter into an arrangement
with an established Internet service provider to offer DCTV subscribers high
speed Internet access and IP telephony services over our digital cable platform
to set-top boxes equipped with cable modems.
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Cable Channel Uplink Services. As we transition our HSD business from analog
to digital, we expect to convert nine of our G-3 transponders from analog to
digital over a two year transition period. We believe that there will continue
to be substantial opportunities to use the infrastructure created for our
digital cable service to provide playback, storage, encryption, conditional
access and uplink services for new and planned digital cable channels, similar
to the services we provide for ESPN, Playboy and Guthy-Renker. New channels
have experienced great difficulty obtaining carriage on cable systems in the
analog environment, due to bandwidth constraints. Using digital compression, we
can uplink six to ten channels on one of our G-3 transponders, depending on the
compression ratio required to deliver clear pictures. We anticipate that we
will charge a monthly fee for our digital uplink services as we do now for
certain programmers, and may in certain circumstances negotiate a revenue
sharing relationship or obtain an ownership interest in the channel.
High Definition Television. To take advantage of our infrastructure for
satellite delivered digital HDTV programming, we plan to create a digital HDTV
movie library using HDTV encoding and video server equipment. Our satellite
telecast infrastructure can cost effectively be used to deliver HDTV service,
initially to our HSD customer base and later via cable as well. We believe that
current C-Band HSD owners are the most likely "early adopters" of new video
technology and will be among the first purchasers of expensive HDTV equipment.
Programming
PPV Movies
We license our PPV movies from all the major and leading independent film
studios. Since 1991, we have obtained our programming through course-of-dealing
arrangements without specific renewal provisions. To maximize the viewing
audience for their films, the studios have generally not granted exclusive PPV
rights to movies in the U.S. market. Major Hollywood movies are usually
released simultaneously to all participants in the PPV market, typically 45 to
55 days after they are released to the home video market, and approximately six
months before they are released to premium pay subscription movie programmers
such as HBO and SHOWTIME.
The typical movie license fee arrangement entitles the film studio to
receive 50% of PPV revenues from major films, and 40% to 50% from less popular
films, without minimum guarantees. Some studios have experimented with earlier
PPV release windows for certain movies in return for minimum buy rate
guarantees from PPV programmers. In general, these guarantees have been well
below the buy rates that we have typically experienced in the HSD market,
enabling us to take advantage of the early window opportunity with minimal
risk. If movies were released to the PPV market concurrently with or closer to
home video market release, we believe that PPV buy rates would increase
substantially. Although movie studios receive a much higher percentage of PPV
revenues than from home video revenues, we anticipate that so long as the home
video rental market remains a substantially larger source of revenue to the
studios than the PPV market, movies will continue to be released first to the
home video rental market and shortly thereafter to the PPV market.
We select our movie programming based on a variety of factors, the most
important of which is box office gross revenue, followed by the availability of
other film releases in the PPV window, potential appeal to our subscriber base
and the desired mix of content airing on our channels at any given time.
Sports and Special Events
We obtain nonexclusive rights to telecast special events such as
championship boxing and wrestling matches, live concerts, martial arts matches,
rodeos and other sports and entertainment events. We enjoy strong relationships
with all the major boxing and wrestling promoters, and promoters of other
sports events, major live concerts and specialty programming.
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ESPN GamePlan
In 1996 we entered into a multi-year agreement with ESPN to telecast
nationally via satellite a package of out-of-market regular season college
football games under the name "ESPN GamePlan." ESPN GamePlan offers more than
100 major college football games each season, with up to 10 each Saturday from
all the major college athletic conferences. On Saturday afternoons during the
college football season, our G-3 transponders are used to telecast the best
college football games as selected by ESPN, for a season subscription or
ordered on a pay-per-day, or PPD, basis.
We retransmit ESPN GamePlan and also perform required uplink, encryption and
authorization services for a per season fee payable to us by ESPN. Beginning in
fall 1999, we will uplink and distribute a digital version of ESPN GamePlan to
the cable market and 4DTV receiver owners, for which we will receive
transponder service fees from ESPN and a share of subscription and PPD
revenues.
Playboy and Spice Channels
The Spice Channel was formerly called AdulTVision, which we distributed to
our HSD subscribers. Spice features non-rated adult movie content created by
the Playboy Entertainment Group. Spice is available on a PPD basis in analog
signal format transmitted from one of our G-3 transponders for $6.99, or on a
monthly or quarterly subscription basis. We are the exclusive distributor of
the Spice Channel in the C-Band HSD market, for which we receive a substantial
share of the subscription and PPD revenues. We also uplink and distribute to
the cable market and 4DTV receiver owners a digitized version of Spice and the
Playboy Channel, for which we receive transponder service fees and a
substantial share of the subscription and PPD revenues.
Guthy-Renker
We have a long-standing relationship with Guthy-Renker Corporation, or GRC,
to transmit a home shopping "infomercials" created by GRC, the leading company
engaged in direct response "infomercial" home shopping. We are responsible for
playback and uplink of this channel, which is telecast in analog and digital
format. For our services, we receive a monthly fee.
The National Football League
Since 1994, we have maintained a close working relationship with the NFL to
provide NFL Sunday Ticket programming solely to the C-Band HSD market. We
provide the NFL with the use of up to ten of our transponders on the G-3
satellite for our NFL Sunday Ticket subscription package, which provides
subscribers access to a package of all the regular season Sunday afternoon NFL
games for a per season price of approximately $159. Our G-3 transponders are
uniquely attractive to the NFL because they are contiguously located (i.e.,
consecutively numbered) on a single, well positioned satellite, enabling
subscribers to use their satellite remote control to easily click from one NFL
game to another. We preempt our programming during the hours covered by the NFL
agreement. In addition to payments for transponder use during the NFL season
and distribution fees earned from subscription sales, we benefit from
promotional commercials inserted during NFL games for our films airing at the
conclusion of the NFL game telecasts.
Marketing and Sales
Marketing to Cable Operators
Our marketing efforts have been focused on highlighting the financial and
operational advantages to cable operators of installing our digital cable
solution. To date, our marketing efforts have largely consisted of
participation in industry conferences and trade shows, trade advertising and
direct contacts with cable operators. To assist in marketing our digital cable
programming and services, we have created a database of cable systems
throughout the United States that details the number of subscribers per head-
end, type of billing system used, current hardware vendor, channel capacity and
addressability. This data is supplemented with available
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knowledge of the cable operator's strategic goals and competitive issues to
formulate a proposal as to how our digital cable services best meet the needs
of a particular cable operator or MSO. Such a proposal draws from the spectrum
of our services, ranging from our turnkey DCTV Service for smaller and non-
clustered MSO cable systems to our PPV Feeds Service for larger systems.
Marketing to Cable Subscribers
As part of DCTV Service, we offer a complete marketing package for cable
operators to assist them in developing an effective marketing campaign for
promoting the digital tier to their subscribers. In our experience, a direct
mail campaign alone can generate subscriptions for DCTV Service from 5% of the
system's subscriber base. We have developed a comprehensive marketing plan
using all media for the most effective and rapid subscriber penetration. The
marketing plan includes a demographic and competitive analysis, with specific
marketing recommendations for type of media and duration.
We also assist cable operators in tailoring programming packages and
advertising and marketing campaigns in order to increase penetration and buy
rates and maximize profits from DCTV Service. We consult with many of our cable
operator affiliates on the design, marketing and introduction of digital
programming packages for subscribers. Our goal is to obtain a 12% DCTV Service
penetration rate and a 200% PPV buy rate (two buys per subscriber per month)
from cable subscribers within twelve months of launch. Our "Go Digital"
campaign, developed with the Friedland, Jacobs Agency, promotes DCTV Service
through creative 30 and 60 second video spots on existing analog cable
channels, with direct marketing materials targeted at subscribers most likely
to sign up for the digital tier and become frequent buyers of our PPV movie and
event offerings. After launch of DCTV Service, our branded print ads, many of
which highlight specific, popular PPV movies and events, are designed to
increase subscriber penetration and PPV buy rates. We may also contribute to
cooperative advertising and marketing.
Cable operators who sign up for DCTV Service receive our Launch Marketing
Kit, which includes:
. Newspaper advertisements (customizable, camera-ready ad slicks);
. Customizable 30 and 60 second cross-channel video spots;
. Customizable direct response materials;
. Telemarketing scripts;
. Subscriber channel line-up cards;
. Radio scripts, message on-hold scripts, Weather Channel crawl scripts and
billing messages;
. Monthly programming promotions;
. Press releases; and
. Customer leave-behinds introducing DCTV Service.
Technology and Operations
Network Operations
We have developed a sophisticated analog and digital technical
infrastructure comprising in-house production, playback, storage, compression,
encoding, access control and uplink capabilities. Programming originates from a
playback facility located at our Operations Center, which is then uplinked from
an immediately adjacent facility. Our analog playback, production and uplink
facilities were custom built to our specifications by 4MC. Similar facilities
to be dedicated to our digital programming are currently under construction by
4MC. 4MC operates these facilities for us. The playback and production
facilities are dedicated to us, while the uplink facility is used for us and
other 4MC clients such as the Playboy Channel and syndicated television
distributors. We own and operate the encryption and compression equipment.
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Our Operations Center maintains backup power and redundant equipment on
site. We have uninterrupted power supply from commercial batteries sufficient
for 20 minutes of operation in the event of a total power failure, and a diesel
powered generator sufficient for continuous operation thereafter. We have never
gone "off-air" due to a power malfunction or interruption, having maintained
continuous uninterrupted service even during the 1994 Los Angeles earthquake,
when the backup power supply system was utilized until local power was
restored.
Studio provided film masters are digitally processed, then stored in a
digital server for automated playback at multiple start times, which minimizes
the number and cost of playback units and personnel required to transmit NVOD
service. Our proprietary automated scheduling software allows each movie to be
shown as desired, and schedules all previews, promotions and interstitial
material (which plays at the end of a movie until our next start time).
ANI and IPPV ordering of PPV movies and events is also fully automated. We
utilize GI's conditional access service which interfaces with our software and
systems, including ANI and IPPV ordering and billing. ANI orders are placed by
the customer calling one of our sequential toll-free 800 numbers specific to
that showing. IPPV orders are placed by the customer using a remote control. In
either case, within approximately four seconds of placing an order, the movie
is descrambled by that customer's set-top box and begins playing on the
customer's television screen. The customer receives the remainder of the
current showing plus the next complete showing.
Satellite Transponder Usage
We transmit our programming content via transponders leased on two PanAmSat
C-Band satellites, G-3 and G-9, both of which have desirable geostationary
orbital positions with transmission coverage of the continental United States.
Our transponder leases, which provide us with attractive financial terms, both
expire in 2006, prior to the expiration of each satellite's expected useful
life. Currently, we transmit our digital PPV programming from five G-9
transponders, transmit our analog PPV programming from six G-3 transponders and
provide transponder capacity to third parties on four G-3 transponders. Our
leased transponders are protected in that we are entitled to replacement
satellite space if G-3 or G-9 is rendered incapable of transmitting our
signals. Cable operators receive our digital signals from G-9 via commercial C-
Band dishes installed at each head-end. Each of our five transponders on G-9
delivers multiple digital channels currently at an eight-to-one ratio or
greater, depending on the degree of signal compression. The compressed signals
are then transcoded and processed at each head-end by DCII Integrated Receiver
Transcoders, or IRTs, modulators and related digital equipment and then
transmitted via the existing cable infrastructure to each subscriber's DCII
compatible set-top box. As we transition our HSD business from analog to
digital, we expect to convert nine of the transponders on G-3 from analog to
digital over a two-year transition period, which will enable each transponder
to carry eight or more digital channels of programming for a total of 72 or
more channels.
Strategic Relationship with General Instrument
We have a long-standing cooperative business relationship with GI. A full
complement of GI digital encoders is installed at our Operations Center which
digitally compress and encrypt our PPV programming. GI provides set-top
authorization services for us and with favorable terms for the IRTs, modulators
and related head-end hardware and GI set-top boxes acquired by cable operators
entering into affiliation agreements with us.
C-Band Home Satellite Dish Business
Our company operates the only satellite transmitted, direct-to-home, multi-
channel PPV movie and event analog signal programming service for the C-Band
HSD market. Marketed as "TVN Satellite Theaters," the service creates a home
cineplex for HSD owners by programming a different movie on multiple analog
channels with continuous showings 24-hours a day. We currently telecast five
channels from G-3 showing PPV movies and events, one PPD channel showing Spice,
one preview channel during the day that is used for
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additional showings of PPV movies during the night, two home shopping channels
for which we provide uplink services and one channel subleased to a third
party.
There are an estimated 1.8 million HSD owners equipped with the secure
encryption standard used by the home satellite industry. As of March 31, 1999,
there were approximately 800,000 subscribers authorized to order PPV
programming from us using their home telephone or remote control (via the HSD
receiver's built-in VIDEOpal ordering system), more than 260,000 of whom
purchased programming from us during the fiscal year ended March 31, 1999. The
installed base of C-Band customers has been relatively static over the past two
years. With the advent of high-powered Ku-band DBS, the C-Band HSD market has
not grown due to the smaller dish size and digital features offered by DBS. We
believe, however, that the existing HSD customer base will continue to
represent a viable market for our PPV programming in the near term.
GI has introduced its new 4DTV technology and receivers, designed to serve
as a digital/analog replacement for existing analog C-Band receivers. The 4DTV
receiver allows C-Band HSD owners to receive:
. unencrypted analog and digital signals;
. analog signals encrypted in VideoCipher II Plus; and
. digitally compressed signals encrypted in DCII Technology.
C-Band HSD owners equipped with 4DTV Units are able to receive more
programming than that offered by DBS, due to the much larger channel variety
available in analog and digital C-Band. We expect a portion of the existing C-
band HSD base to acquire 4DTV receivers to access the new digital channels.
We are the sole provider of PPV movies licensed from all the major and
leading independent studios for both the analog C-Band HSD market and the C-
Band HSD market served by 4DTV digital receivers.
Competition
We operate in highly competitive markets and face intense competition from
existing and potential competitors. Our competitors include a broad range of
companies engaged in communications and home entertainment, including DBS
operators and programming providers, coaxial and wireless cable operators,
broadcast television networks, home video companies featuring VHS, DIVX and DVD
technologies, as well as companies developing new in-home entertainment
technologies, such as the VOD service being marketed by DIVA. We expect to
compete primarily against other providers of digital PPV programming, including
cable and satellite programmers. We compete on the basis of, among other
things, the breadth and quality, price, performance and convenience of our
programming and services.
We compete with companies offering digital programming direct-to-the-home
via various DBS systems. DBS offers consumers the appeal of significantly
expanded channel capacity, features such as an interactive on-screen program
guide, digital pictures without the "noise" often seen in analog video, CD
quality digital music channels and many channels of movies and sports available
on a PPV basis. Several well capitalized DBS companies pose a substantial
threat to cable operators. DirecTV, owned by Hughes Electronics, was the first
all-digital DBS company and as of April 1999 had in excess of 4.7 million
subscribers to its DBS service, according to DBS Digest, an industry
publication. Two other high power DBS companies are currently in operation:
EchoStar, which markets its digital television service under the "Dish Network"
brand name and USSB, whose DBS programming service operates in tandem with
DirecTV (which has agreed to acquire USSB) offering premium subscription
programming such as multiplexed HBO and SHOWTIME channels. A medium power DBS
service, PrimeStar, is also being acquired by DirecTV. Currently, local
programming is generally unavailable through DBS; however, pending legislation
will facilitate the ability of DBS companies to include local broadcasts in
their digital programming services.
We expect to encounter a number of challenges in competing with MSOs that
generally have large installed subscriber bases and significant investments in,
and access to, competitive programming sources. In addition, these MSOs have
the financial and technological resources to create their own digital tier of
services,
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<PAGE>
including NVOD movies. We also face the risk that the current trend of industry
consolidation will continue with the result that smaller and medium size cable
operators that might otherwise become our customers will be acquired by such
MSOs. Currently, the only available alternative for cable operators that wish
to offer digital services similar to those provided by DBS is HITS, owned and
utilized by TCI to deliver digital programming to its own cable systems, and
now offered to other cable operators as well. HITS transmits digitally
compressed programming feeds to cable operators that have the technical and
transactional infrastructure to deliver their own tier of digital programming
and services to their subscribers. TCI charges fees to cable operators for
access to HITS programming, including PPV programming. Certain telephone
companies have announced initiatives and have made significant investments to
become digital television providers. See "Risk Factors--We operate in highly
competitive markets and face intense competition from existing and potential
competitors."
Intellectual Property and Proprietary Rights
We consider our proprietary software interfaces, scheduling system, ANI
ordering system, trademarks, logos, copyrights, know-how, advertising, and
promotion design and artwork to be of substantial value and importance to our
business. We rely on a combination of trade secret, copyright and trademark
laws, confidentiality and nondisclosure agreements and other such arrangements
to protect our proprietary rights and confidential information. Our success
will depend in part on our ability to maintain copyright protection for our
proprietary information, to preserve our trade secrets and confidential
information and to operate without infringing the proprietary rights of third
parties. See "Risk Factors--We rely on a combination of trade secret, copyright
and trademark laws, confidentiality and nondisclosure agreements and other such
arrangements to protect our proprietary rights and confidential information."
Employees
As of March 31, 1999, we had 115 employees, including 18 in sales and
marketing, 80 in operations and 17 in finance, legal and administration. None
of our employees are currently represented by a labor union. We believe that
our relationship with our employees is good.
Properties
Our facilities are located in Burbank, California, where we currently lease
approximately 10,000 square feet. The term of this lease runs through July
2003. We are currently negotiating a sub-lease for approximately 14,000 square
feet at the same facility.
We anticipate that we will need additional facilities in order to support
the expected growth in demand for our services from cable operators and
subscribers. We anticipate that we can locate and acquire such additional space
when and as it is needed, although we cannot be certain that such space can be
acquired on terms acceptable to us.
Legal Proceedings
We are not a party to any litigation at the present time.
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<PAGE>
MANAGEMENT
Executive Officers and Directors
Our executive officers and directors and their ages as of March 31, 1999 are
as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Stuart Z. Levin............. 51 Chairman of the Board of Directors and Chief
Executive Officer
James B. Ramo............... 52 President, Chief Operating Officer and
Director
Arthur Fields............... 61 Senior Executive Vice President, General
Counsel, Chief Administrative Officer,
Director and Secretary
Linda Blazy................. 44 Senior Vice President, Satellite Marketing
Leo I. Bluestein, Ph.D...... 62 Chief Technical Officer
Anthony Ciesniewski......... 54 Vice President, Network Operations &
Engineering
Richard Colletto............ 46 Vice President, Programming
John McWilliams............. 36 Senior Vice President, Finance
Gregory Pasetta............. 33 Senior Vice President
Stephen C. Rockabrand....... 49 Senior Vice President
David Sears................. 43 Senior Vice President, Affiliate Sales and
Marketing
Dom Stasi................... 56 Vice President, Technology Development
Michael Wex................. 45 Senior Vice President, Shopping Services
S. Robert Levine, M.D....... 44 Director
Stephen R. Munger........... 41 Director
Martin A. Pasetta........... 66 Director
David R. Powers............. 31 Director
Michael J. Ritter........... 58 Director
Jerome H. Turk.............. 55 Director
</TABLE>
Stuart Z. Levin founded TVN in 1987 and served as President and Chief
Executive Officer from then to September 1997. In September 1997, Mr. Levin
became Chairman of the Board of Directors and Chief Executive Officer. Prior to
joining TVN, Mr. Levin founded and operated Domesticom Corporation, a company
that delivered satellite-fed pay television and pay per view programming to
hotels and apartment complexes from 1980 to 1984. In 1984, Mr. Levin began work
on the initial plan for TVN.
James B. Ramo joined TVN in September 1997 as our President and Chief
Operating Officer. From May 1993 to September 1997, Mr. Ramo served as
Executive Vice President of DirecTV, a direct broadcast satellite service that
is a unit of Hughes Electronics Corporation. From May 1990 to May 1993, Mr.
Ramo was Senior Vice President of DirecTV. From May 1986 to May 1990, Mr. Ramo
was a Vice President of Hughes Communications, Inc. Prior to joining Hughes
Communications, Mr. Ramo was Regional Vice President of Times Mirror Cable
Television, and concurrently served as President of Long Beach Cablevision Co.
of Long Beach, California. Mr. Ramo received a B.A. in Economics from the
University of California, Berkeley and an M.Sc. in Economics from the London
School of Economics.
Arthur Fields, a co-founder of TVN, joined us in January 1989 as Senior
Executive Vice President, General Counsel and Chief Administrative Officer.
Prior to joining TVN, Mr. Fields was a partner at the law firm of Ervin, Cohen
& Jessup in Beverly Hills, California. Mr. Fields received a B.S. in Pharmacy
from Columbia University and a J.D. from Loyola Law School.
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<PAGE>
Linda Blazy joined TVN in 1991 as our Vice President, Marketing, Sales &
Creative Services. From November 1995 to September 1997, Ms. Blazy served as
our Senior Vice President, Marketing, Sales & Creative Services. In September
1997, Ms. Blazy became our Senior Vice President, Consumer Marketing and in
March 1999 became our Senior Vice President, Satellite Marketing. Prior to
joining TVN in 1991, Ms. Blazy held a number of marketing and management
positions in the home video industry. Ms. Blazy received a B.S. in Marketing
from Arizona State University.
Anthony Ciesniewski joined TVN in August 1998 as Vice President, Network
Operations & Engineering. He oversees all aspects of our Digital Network
Operations Center, including day-to-day staff management and the implementation
of such technical functions as compression, encryption, access control,
automated ordering and transactional services. Mr. Ciesniewski joined TVN from
Kelly Broadcasting Co. in Sacramento, where he had been Director of Engineering
since August 1996. From September 1997 through March 1998, he was Consulting
Engineer for Ziff-Davis Publishing, where he designed their digital cable
television broadcast facility in San Francisco. From March 1986 through August
1996 he was Vice President, Engineering & Operations for Fox Tape, a division
of 20th Century Fox. Mr. Ciesniewski won a 1994 Emmy Award for Technical
Team/Studio for "NFL on Fox." He belongs to the Society of Broadcast Engineers,
the Academy of Television Arts & Sciences, and the Society of Motion Picture
and Television Engineers.
Leo I. Bluestein joined TVN on a full-time basis in April 1996 as our Chief
Technical Officer. From April 1989 to April 1996, Dr. Bluestein was a
consultant to us and a number of other companies in the areas of encryption and
conditional access technology. Dr. Bluestein was a Vice President with
responsibilities in the Government Systems and VideoCipher divisions of M/A-Com
Linkabit, Inc., a subsidiary of M/A Com, Inc., a diversified electronics
company, and was a director of the Advanced Technology Group at Oak Industries,
Inc., a pay television product company. Dr. Bluestein received a B.S. in
Electrical Engineering from the College of the City of New York, and an M.S. in
Electrical Engineering and a Ph.D. in Electrical Engineering from Columbia
University.
Rick Colletto joined TVN in January 1998 as our Vice President, Programming
and is responsible for overseeing the programming and scheduling of our digital
and analog channels. Prior to joining TVN, Mr. Colletto was Director, Video-On-
Demand for Time Warner, Inc.'s Full Service Network in Orlando, Florida from
May 1994 to December 1997. Mr. Colletto served as Marketing Director of Oceanic
Cable, a Hawaiian affiliate of Time Warner from December 1992 to May 1994. Mr.
Colletto received a B.A. in Communications from the University of Hawaii.
John McWilliams joined TVN in December 1994 as our Controller and was named
Vice President, Finance in November 1995. In August 1998, Mr. McWilliams was
named Senior Vice President, Finance and is responsible for our accounting,
financial reporting and financial planning systems, overseeing risk management
and administering our employee benefit plans. Mr. McWilliams was an independent
consultant from July 1993 to December 1994. From September 1992 to July 1993,
Mr. McWilliams was the Controller for Action Pay-Per-View, a national PPV
network. Mr. McWilliams received a B.S. in Accounting from the University of
Tennessee, Knoxville, and was certified as a public accountant in California in
1990.
Gregory Pasetta joined TVN as a Producer in June 1990 and was promoted to
Executive Producer in November 1991. From November 1992 to November 1995, Mr.
Pasetta served as our Vice President, Production. Mr. Pasetta was named Senior
Vice President, Operations & Production in November 1995. In September 1998,
Mr. Pasetta was named Senior Vice President. In that capacity, Mr. Pasetta is
responsible for oversight and direction of new business development. Prior to
joining TVN, Mr. Pasetta worked in live television production and direction.
Mr. Pasetta received a B.A. in Communication Arts from Loyola Marymount
University.
Stephen C. Rockabrand joined TVN in January 1996 as our Senior Vice
President, Programming and New Business Development and in January 1998 became
our Senior Vice President, New Business Development. In September 1998, Mr.
Rockabrand was named Senior Vice President for live and special event
programming. From 1990 to January 1996, Mr. Rockabrand served as Vice
President, Pay Television, Ancillary Markets and New Technologies at Paramount
Pictures Corporation, a motion picture and television studio.
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<PAGE>
David Sears joined TVN in December 1997 as our Senior Vice President,
Affiliate Sales and Marketing and is responsible for cable affiliate
distribution, marketing, account maintenance and trade advertising of our
digital cable services. From December 1996 to December 1997, Mr. Sears served
as Senior Vice President, Sales & Affiliate Relations at Request Television, a
national pay-per-view cable programming service. From October 1994 to December
1996, Mr. Sears was Vice President, Western Division, Affiliate Sales for
Playboy Television. From February 1990 to October 1994, Mr. Sears was Vice
President, Sales and Affiliate Relations at Action Pay-Per-View, a national PPV
network and its successor Black Entertainment Television, a cable television
network, where he was responsible for marketing Action Pay-Per-View, Black
Entertainment Network and BET On Jazz. Mr. Sears received a B.A. in Journalism
from Memphis State University.
Dom Stasi joined TVN in December 1998 as Vice President, Technology
Development and is responsible for developing video and data applications for
use in video-on-demand and interactive systems. Prior to joining TVN, Mr. Stasi
spent seven years as an engineering executive with TCI and its Liberty Media
program networks. From July 1997 to October 1998, Mr. Stasi was Vice President,
Engineering and Operations for Your Choice TV. From October 1994 to July 1997,
Mr. Stasi served as Vice President, Network Video Services for the Technology
Ventures division, and from June 1993 to October 1994, Mr. Stasi was Vice
President, Technology and Operations for Request TV. Mr. Stasi holds an
engineering degree from the State University of New York, and is a member of
the NCTA Engineering Committee, the Society of Cable Telecommunications
Engineers, and the Society of Motion Picture and Television Engineers.
Michael Wex joined TVN in February 1999 as Senior Vice President of TVN and
President & Chief Operating Officer of the wholly owned TVN Shopping, Inc.
subsidiary. Previously, Mr. Wex was President and CEO of GRTV Network from 1995
through September 1998. From January 1994 through August 1995, he was a member
of the start-up management team and consultant to S: The Shopping Network, an
interactive home shopping channel launched by Fingerhut. Mr. Wex has won
several Cable ACE awards and two Emmy Award nominations. He has a Masters
Certificate in International Interactive Communications from New York
University and a Bachelor of Arts in Communications from Goddard College.
S. Robert Levine, M.D. has been a member of TVN's Board of Directors since
October 1990. In March of 1983, Dr. Levine established the Cardiac Health and
Rehabilitation Program at New York's Mount Sinai Medical Center, and served as
our Director until October 1986. In November 1996, Dr. Levine was named
Chairman of the Progressive Policy Institute's "Health Priorities Project." Dr.
Levine is a member of the National Institute of Health's National Institute of
Diabetes, Digestive and Kidney Diseases Advisory Council, and serves as
Chairman of Government Relations and member of the Executive Committee and
International Board of the Juvenile Diabetes Foundation. Dr. Levine is also a
member of the Board of Directors of DayOne Life Management, Inc. Dr. Levine
received a B.S. in Human Development and Nutrition from Cornell University in
1975, and an M.D., summa cum laude, from the Loyola-Stritch School of Medicine
in 1979.
Stephen R. Munger has been a member of TVN's Board of Directors since
December 1997. Mr. Munger is a Managing Director, Mergers, Acquisitions and
Restructuring Department of Morgan Stanley and is Head of its Private
Investment Department. Mr. Munger joined Morgan Stanley in 1988 and served in
various capacities prior to being named Managing Director in 1993. Mr. Munger
is also a member of the Board of Directors of Wright Medical Technology, Inc.,
EconoPhone, Inc., and ImpSat Corporation. Mr. Munger received a B.A. in
Government from Dartmouth College and an M.B.A. from The Wharton School.
Martin A. Pasetta has been a member of TVN's Board of Directors since
October 1988. Mr. Pasetta retired from a 42 year career as a director and
producer of television specials and programs, including 17 years directing the
Academy Awards from 1972 to 1989. Mr. Pasetta produced and directed Inaugural
Galas for Presidents Carter and Reagan, in addition to the first U.S. satellite
television entertainment broadcast. Mr. Pasetta received an Honorary Doctorate
in Fine Arts from the University of Santa Clara.
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<PAGE>
David R. Powers has been a member of our Board of Directors since September
1997. In December 1996, Mr. Powers became a Vice President in the Private
Investment Department of Morgan Stanley. From May 1994 to December 1996, Mr.
Powers was an Associate in the Private Investment Department. From August 1992
to May 1994 Mr. Powers was an Associate in the Mergers, Acquisitions and
Restructuring Department and has served in various capacities at Morgan Stanley
since 1989. Mr. Powers received a B.A. in Mathematics and Economics from
Amherst College.
Michael J. Ritter joined our Board of Directors in May 1998. Mr. Ritter has
been retired since 1995. From 1991 until 1995, Mr. Ritter served as President
and Chief Operating Officer of Continental Cablevision, Inc. Mr. Ritter served
as a director of Continental Cablevision, Inc. from 1991 until 1996. Mr. Ritter
received a B.S. in Business from California State University, San Jose, and a
J.D. from the University of the Pacific, McGeorge School of Law.
Jerome H. Turk joined TVN's Board of Directors in October 1998. Mr. Turk has
been retired since January 1997. From November 1994 to December 1996, Mr. Turk
was a member of the Board of Directors of Fitzgeralds Gaming Corporation, most
recently as Chairman of the Board. From September 1985 to October 1988, Mr.
Turk worked for Oppenheimer & Co., most recently as a Managing Director. Mr.
Turk received a B.B.A. from Adelphi University and a J.D. from Brooklyn Law
School. Mr. Turk is a certified public accountant and a member of the bar in
the State of New York.
Director Compensation
Members of our Board of Directors do not receive compensation for their
service as directors.
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<PAGE>
Executive Compensation
Summary of Cash and Certain Other Compensation
The following table sets forth information concerning the compensation
received for services rendered to us during fiscal 1999 by our Chief Executive
Officer and our four next most highly compensated executive officers whose
total compensation in fiscal 1999 equaled or exceeded $100,000 ("Named
Executive Officers"):
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
------------
Annual Compensation Number of
--------------------------------- Securities
Other Annual Underlying
Name and Principal Positions Year Salary Bonus Compensation(1) Options(2)
- ---------------------------- ---- -------- -------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Stuart Z. Levin............. 1999 $474,577 $250,000 $41,509 --
Chairman and Chief
Executive Officer
James B. Ramo............... 1999 464,701 250,000 32,813 --
President and Chief
Operating Officer
Arthur Fields............... 1999 371,970 125,000 85,978 --
Senior Executive Vice
President, General Counsel,
Chief Administrative
Officer and Secretary
Gregory Pasetta............. 1999 187,115 35,000 -- --
Senior Vice President
David Sears................. 1999 175,000 45,000 -- 50,000
Senior Vice President,
Affiliate Sales & Marketing
</TABLE>
- --------
(1) Represents car allowance and employer paid premiums for life insurance
policies.
(2) These shares are subject to stock options granted under the 1996 Stock
Option Plan. See Table entitled "Option Grants in Last Fiscal Year" for an
explanation of the vesting provisions of such stock options.
The following table sets forth certain information for the fiscal year ended
March 31, 1999 with respect to options granted to the Named Executive Officers.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------
Potential Realizable Value
% of at Assumed Annual Rates
Total Options of Stock Price Appreciation
Granted to Exercise for Option Term(1)
Options Employees in Price Per Expiration ----------------------------
Name Granted Fiscal Year Share Date 5% 10%
- ---- ------- ------------- --------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Stuart Z. Levin......... -- -- -- -- -- --
James B. Ramo........... -- -- -- -- -- --
Arthur Fields........... -- -- -- -- -- --
Gregory Pasetta......... -- -- -- -- -- --
David Sears............. 50,000 55.6% $3.28 5/26/2008 267,139 425,374
</TABLE>
- --------
(1) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. The assumed
5% and 10% rates of stock price appreciation are mandated by the Rules of
the Securities and Exchange Commission and do not represent our estimate or
projection of
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<PAGE>
future Common Stock price. Actual gains, if any, on stock option exercises
are dependent on our future financial performance, overall conditions and
the option holder's continued employment through the vesting period and
option term. This table does not take into account any appreciation in the
fair market value of the Common Stock from the date of grant to the date of
this prospectus, other than the columns reflecting assumed rates of
appreciation of 5% and 10%.
The following table sets forth certain information with respect to the
number and value of stock options held by each Named Executive Officer as of
March 31, 1999.
Aggregate Option Exercises in Fiscal 1999 and Option Values as of March 31,
1999
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Number Underlying Unexercised In-the-Money Options
of Shares Options at March 31, 1999 at March 31, 1999(2)
Acquired Value ------------------------- -------------------------
Name on Exercise Realized($)(1) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stuart Z. Levin......... -- -- 604,179 287,528 $6,451,168 $2,988,829
James B. Ramo........... -- -- 179,933 419,842 1,844,313 4,303,381
Arthur Fields........... -- -- 358,333 41,667 1,934,280 447,920
Gregory Pasetta......... -- -- 100,000 0 1,075,000 0
David Sears............. -- -- 12,500 37,500 96,500 289,500
</TABLE>
- --------
(1) "Value Realized" is calculated on the basis of the fair market value of
the Common Stock on the date of exercise minus the exercise price, despite
the fact that none of such shares have been sold.
(2) Based upon the fair market value of $11.00 per share as of the fiscal year
end minus the exercise price.
Benefit Plans
1996 Stock Option Plan. Our 1996 Stock Option Plan (the "1996 Option Plan")
was adopted by the Board of Directors and approved by the stockholders in
January 1996. In August 1997, the Board and the stockholders approved an
increase in the number of shares reserved under the 1996 Option Plan by
600,000 shares for a total of 3,000,000 shares of Common Stock. In April 1999,
the Board approved the reservation of an additional 993,899 shares under the
1996 Option Plan, subject to stockholder approval. The 1996 Option Plan
provides for grants of incentive stock options to our employees (including
officers and employee directors) and nonstatutory stock options to our
employees, directors and consultants. The purpose of the 1996 Option Plan is
to attract and retain the best available personnel and to encourage stock
ownership by our employees, officers and consultants in order to give them a
greater personal stake in our success. The 1996 Option Plan is administered by
the Board of Directors, which determines optionees and the terms of options
granted, including the exercise price, number of shares subject to the option
and the exercisability thereof.
As of March 31, 1999, 52,417 shares of Common Stock had been issued upon
the exercise of options granted under 1996 Option Plan, options to purchase
2,681,482 shares of Common Stock at a weighted average exercise price of $0.52
per share were outstanding and 266,101 shares remained available for future
grant.
The term of an option granted under the 1996 Option Plan is stated in the
option agreement. The terms of options granted under the 1996 Option Plan
generally may not exceed ten years, and in the case of an incentive option or
nonstatutory option granted to an optionee who, at the time of grant, owns
stock representing more than 10% of our outstanding capital stock, the term of
such option may not exceed five years. Options granted under the 1996 Option
Plan generally vest and become exercisable as set forth in the option
agreement. In general, no option may be transferred by the optionee other than
by will or the laws of descent or distribution, and each option may be
exercised, during the lifetime of the optionee, only by such optionee. An
optionee whose relationship with us or any related corporation ceases for any
reason (other than by death or permanent and total disability) may exercise
options in the 90 day period following such cessation, unless such options
terminate or expire sooner (or for nonstatutory options, later), by their
terms, but only to the extent the option
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<PAGE>
had vested on such date of cessation. In the event of death or total and
permanent disability, the option may be exercised in the twelve month period
following the date of death or total and permanent disability unless such
options terminate or expire sooner (or for nonstatutory options, later), but
only to the extent the option had vested on the date of death or disability.
In the event we merge with or into another corporation, all outstanding
options may either be assumed or an equivalent option may be substituted by the
surviving entity or, if such options are not assumed or substituted, such
options shall become exercisable as to all of the shares subject to the
options, including shares as to which they would not otherwise be exercisable.
In the event that options become exercisable in lieu of assumption or
substitution, the Board of Directors shall notify optionees that all options
shall be fully exercisable for a period of 15 days, after which such options
shall terminate.
The Board of Directors determines the exercise price of options granted
under the 1996 Option Plan at the time of grant, provided that the exercise
price of all incentive stock options must be at least equal to the fair market
value of the shares on the date of grant. With respect to any participant who
owns stock possessing more than 10% of the voting rights of our outstanding
capital stock, the exercise price of any incentive stock option or any
nonstatutory stock option granted must equal at least 110% of the fair market
value on the grant date. The consideration for exercising any incentive stock
option or any nonstatutory stock option may consist of cash, check, promissory
note, delivery of already-owned shares of our Common Stock subject to certain
conditions, a reduction in the amount of any Company liability to an optionee
or any combination of the foregoing methods of payment or such other
consideration or method of payment to the extent permitted under applicable
law. No incentive stock options may be granted to a participant, which, when
aggregated with all other incentive stock options granted to such participant,
would have an aggregate fair market value in excess of $100,000 becoming
exercisable in any calendar year. The 1996 Option Plan will terminate in
January 2006, unless sooner terminated by the Board of Directors.
Limitation of Liability and Indemnification Matters
As permitted by the Delaware General Corporation Law, we have included in
our Certificate of Incorporation a provision to eliminate the personal
liability of our directors for monetary damages for breach or alleged breach of
their fiduciary duties as directors, subject to certain exceptions. In
addition, our Bylaws provide that we are required to indemnify our officers and
directors under certain circumstances, including those circumstances in which
indemnification would otherwise be discretionary, and we are required to
advance expenses to our officers and directors as incurred in connection with
proceedings against them for which they may be indemnified. We believe that our
charter provisions are necessary to attract and retain qualified persons as
directors and officers. Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors, officers or persons
controlling us pursuant to the foregoing provisions, we have been informed
that, in the opinion of the Commission, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable. At
present, we are not aware of any pending or threatened litigation or proceeding
involving any of our directors, officers, employees or agents in which
indemnification would be required or permitted.
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<PAGE>
CERTAIN TRANSACTIONS AND RELATED PARTY TRANSACTIONS
Related Party Transactions
In May 1992, we assumed the obligations of the limited partnership that was
our predecessor in interest including specific obligations to repay funds
advanced to it by certain stockholders including Stuart Z. Levin, our Chairman
and Chief Executive Officer, and S. Robert Levine, M.D., a member of our Board
of Directors. Accordingly, we have Contingent Notes Payable to (i) Stuart Z.
Levin, in the amount of $52,703, including principal and interest accrued
through March 31, 1999; and (ii) S. Robert Levine in the amount of $944,329
including principal and interest accrued through March 31, 1999. See
"Description of Certain Indebtedness."
During the period from fiscal 1993 to fiscal 1999, we have made a series of
advances to Stuart Z. Levin, our Chairman and Chief Executive Officer, and Mr.
Levin has from time to time made periodic repayments toward such advances. As
of March 31, 1999, the outstanding amount of such advances, net of repayments,
aggregated $143,000. Such advances are payable to us upon demand and do not
bear interest.
In February 1996, we effected a recapitalization pursuant to which each of
the 729,180 shares of then outstanding Common Stock was exchanged for
10.5948568 shares of Series A Preferred Stock. Prior to the recapitalization,
the only outstanding capital stock was Common Stock. The recapitalization and
related exchange of Common Stock for Preferred Stock was not a financing
transaction and did not generate any proceeds to us.
During the period from June 1996 through November 1996, we issued and sold
convertible promissory notes in the aggregate principal amount of $5.5 million
(the "Convertible Notes") to Storie Partners, L.P., which owns greater than 4%
of our voting securities, and to certain other investors. The Convertible Notes
accrued simple interest at the annual rate of 10% and were convertible upon the
consummation of a qualified equity financing occurring on or before December
31, 1998 (the "Financing") into shares of capital stock issued in connection
with the Financing. The Convertible Notes were accompanied by warrants
exercisable for the purchase of an aggregate of 500,002 shares of our capital
stock issued in connection with the Financing (the "Debt Financing Warrants").
In August 1997, we entered into an agreement (the "Securities Purchase
Agreement") with PGI II and the holders of the Convertible Notes to issue and
sell an aggregate of 5,714,442 shares of Series B-1 Preferred Stock for $2.6249
per share, 1,290,767 shares of Series B-2 Preferred Stock for $5.8105 per share
and warrants exercisable for the purchase of 500,002 shares of Series B-2
Preferred Stock at a per share price of $5.8105 (the "Series B-2 Warrants"),
2,285,727 shares of Series B-3 Preferred Stock for $6.5625 per share and
1,428,584 shares of Series B-4 Preferred Stock for $10.4999 per share.
Pursuant to the terms of the Securities Purchase Agreement, PGI II was
obligated to purchase all the shares of Series B-1 Preferred Stock and was
granted an option to purchase all of the shares of Series B-3 Preferred Stock
exercisable on or before February 28, 1998 and all of the shares of Series B-4
Preferred Stock exercisable on or before August 29, 1998. In December 1997, we
and PGI II amended the terms of the Securities Purchase Agreement to provide
that PGI II's options to purchase such shares in February 1998 and August 1998
would become absolute obligations in December 1997 and February 1998,
respectively, in consideration for our agreement to issue and sell a greater
number of shares of Series B-3 Preferred Stock and Series B-4 Preferred Stock
at a lower price per share for each such series. Specifically, the December
1997 amendment to the Securities Purchase Agreement obligated PGI II to
purchase 2,857,169 shares of Series B-4 Preferred Stock for $5.25 per share on
or before December 31, 1997 and to purchase 2,285,727 shares of Series B-3
Preferred Stock for $6.5625 per share on or before February 15, 1998. Such
purchases were subsequently consummated by PGI II. PGI II and its affiliates
own more than 5% of our voting securities. Two of our directors, Messrs. Munger
and Powers, are employees of Morgan Stanley, an affiliate of PGI II.
The 1,290,767 shares of Series B-2 Preferred Stock and the Series B-2
Warrants were issued to the holders of the Convertible Notes and Financing
Warrants. In consideration therefor, all of the Convertible Notes, including
all
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outstanding principal, were canceled and the Debt Financing Warrants were
exchanged for the Series B-2 Warrants. As a result, 946,563 shares of Series B-
2 Preferred Stock and Series B-2 Warrants exercisable for the purchase of
366,668 shares of Series B-2 Preferred Stock were acquired by Storie Partners,
L.P. On December 31, 1998, Series B-2 Warrants exercisable for 493,336 shares
of Series B-2 Preferred Stock expired unexercised in accordance with their
terms. Series B-2 Warrants exercisable for 6,666 shares of Series B-2 Preferred
Stock were exercised prior to December 31, 1998.
Employment Agreements
Stuart Z. Levin. In August 1997, Stuart Z. Levin, our Chairman of the Board
and Chief Executive Officer entered into an employment agreement with us
pursuant to which he is to receive a base salary of $450,000 for the period
September 1, 1997 through August 31, 1998, $475,000 for the period September 1,
1998 through August 31, 1999, and $500,000 for the period September 1, 1999
through August 31, 2000. The agreement provides for a bonus of $250,000 for the
fiscal year ended March 31, 1998, and for a bonus of $125,000 to $250,000 for
the fiscal years ended March 31, 1999 and March 31, 2000. The agreement is
renewable for one additional two-year period at a base salary no less than 110%
of Mr. Levin's base salary for the immediately preceding year and with a
minimum annual bonus of not less than $250,000. In connection with the
employment agreement, we also granted Mr. Levin an option to purchase 291,707
shares of Common Stock with an exercise price of $0.75 per share, which vests
20% at the end of the first year and monthly thereafter over the following four
years. The term of the option is ten years and the vesting of the option is
contingent upon Mr. Levin's continued employment with us.
If we desire to terminate Mr. Levin's employment involuntarily without
cause, we are obligated to pay Mr. Levin his base salary for the shorter of (i)
two years from the date of termination, or (ii) until the agreement terminates
on September 1, 2000. In the event of such termination, we are also obligated
to pay Mr. Levin a minimum annual bonus of $125,000 for the fiscal year in
which such termination occurs.
James B. Ramo. In August 1997, James B. Ramo, our President and Chief
Operating Officer, entered into an employment agreement with us pursuant to
which he is to receive a base salary of $450,000 for the period September 15,
1997 through September 14, 1998, $475,000 for the period September 15, 1998
through September 14, 1999, and $500,000 for the period September 15, 1999
through September 14, 2000. The agreement provides for a bonus of $250,000 for
the fiscal year ended March 31, 1998, and for a bonus of $125,000 to $250,000
for the fiscal years ended March 31, 1999 and March 31, 2000. Upon commencement
of his employment in September 1997, we paid Mr. Ramo a one-time bonus of
$500,000. The agreement is renewable for one additional two-year period at a
base salary no less than 110% of Mr. Ramo's base salary for the immediately
preceding year and with a minimum annual bonus of not less than $250,000. We
also granted Mr. Ramo an option to purchase 263,316 shares of Common Stock with
an exercise price of $0.75 per share which option vests 20% at the end of Mr.
Ramo's first year of employment and ratably thereafter on a monthly basis over
the following four years. Under the term of the employment agreement, we
granted Mr. Ramo a second option to purchase 336,459 shares of Common Stock
with an exercise price of $0.75 per share, which vests in full upon the
completion of the initial term of his employment agreement on September 15,
2000. The term of both options is ten years and the vesting of the options is
contingent upon Mr. Ramo's continued employment with us on the date of vesting.
Under the terms of the employment agreement, we granted Mr. Ramo the right,
exercisable upon the three year anniversary of the employment agreement, to
require us to cancel all or a portion of Mr. Ramo's option to purchase up to
336,459 shares of Common Stock in return for the cash payment to Mr. Ramo of up
to $2.3 million (the "Put Right"). The Put Right may only be exercised by
Mr. Ramo if he has not voluntarily terminated his employment or been terminated
involuntarily for cause prior to such three year anniversary. The Put Right may
not be exercised if prior to such anniversary we have either (i) been acquired
at a per share valuation of at least $7.59, (ii) consummated an initial public
offering at a per share price of at least $7.59, or (iii) arranged a private
resale transaction in which Mr. Ramo has the opportunity to sell at least
336,459 shares of Common Stock at a per share price of at least $7.59. We have
placed $1.8 million in an interest bearing escrow account to secure our
obligations in connection with the Put Right.
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If we desire to terminate Mr. Ramo's employment involuntarily without cause,
we are obligated to pay Mr. Ramo his base salary for the shorter of (i) two
years from the date of termination, or (ii) until the employment agreement
terminates on September 15, 2000. In addition, in the event of such
termination, (i) we are also obligated to pay Mr. Ramo a minimum annual bonus
of $125,000 for the fiscal year in which such termination occurs and (ii) Mr.
Ramo's option to purchase 336,459 shares of Common Stock shall become 100%
vested.
Arthur Fields. In August 1997, Arthur Fields, our Senior Executive Vice
President, General Counsel and Chief Administrative Officer entered into an
employment agreement with us pursuant to which he is to receive a base salary
of $350,000 for the period September 1, 1997 through August 31, 1998, $375,000
for the period September 1, 1998 through August 31, 1999, and $400,000 for the
period September 1, 1999 through August 31, 2000. The agreement provides for a
bonus of $125,000 for the fiscal year ended March 31, 1998, and for a bonus of
$62,500 to $125,000 for the fiscal years ended March 31, 1999 and March 31,
2000. The agreement is renewable for one additional two-year period at a base
salary no less than 110% of Mr. Fields' base salary for the immediately
preceding year and with a minimum annual bonus not less than $125,000.
If we desire to terminate Mr. Fields' employment involuntarily without
cause, we are obligated to pay Mr. Fields his base salary for the shorter of
(i) two years from the date of termination, or (ii) until the agreement
terminates on September 15, 2000. In the event of such termination, we are also
obligated to pay Mr. Fields a minimum annual bonus of $62,500 for the fiscal
year in which such termination occurs.
Michael Wex. In February 1999, Michael Wex, our Senior Vice President and
President and Chief Operating Officer of our wholly owned subsidiary, TVN
Shopping, Inc., or TSI, entered into an employment agreement with us pursuant
to which he is to receive a base annual salary of $225,000, $236,250, $248,063,
$260,466 and $273,489 for the twelve month periods ending March 31, 2000, 2001,
2002, 2003 and 2004, respectively. The agreement provides for an annual bonus,
payable in cash or TSI stock, of no less than $100,000 per fiscal year and up
to 150% of his then current annual salary subject to achieving certain
milestones as determined by us. The agreement is renewable for one additional
two-year period. In April 1999, we granted Mr. Wex an option to purchase
100,000 shares of Common Stock with an exercise price of $11.00 per share which
option vests 20% at the end of Mr. Wex's first year of employment and ratably
thereafter on a monthly basis over the following four years.
John McWilliams. In January 1996, John McWilliams, our Senior Vice
President, Finance, entered into a severance agreement with us pursuant to
which he is entitled to receive severance Benefits in the form of salary
continuation for six months at his then current salary in the event his
employment is terminated by us for convenience. Mr. McWilliams' current annual
salary is $150,000.
David Sears. In November 1997, David Sears, our Senior Vice President,
Affiliate Sales and Marketing, entered into an employment agreement with us
pursuant to which he is to receive a base annual salary of $170,000. The
agreement provides for a bonus of $45,000 for the fiscal year ended March 31,
1998 and an annual bonus equal to one-half of Mr. Sears' annual salary if we
attain certain sales milestones during each fiscal year. Upon commencement of
his employment in November 1997, we paid Mr. Sears a one-time bonus of $25,000.
In May 1998, we also granted Mr. Sears an option to purchase 50,000 shares of
Common Stock with an exercise price of $3.28 per share which option vests 20%
at the end of Mr. Sears' first year of employment and ratably thereafter on a
monthly basis over the following four years.
We believe that all of the transactions set forth above were made on terms
no less favorable than would be obtained for similar services provided to
unrelated third parties. Any future transactions between we and our executive
officers directors and their affiliates will be on terms no less favorable to
us than can be obtained from unaffiliated third parties, and any material
transactions with such persons will be approved by a majority of the
disinterested members of our Board of Directors.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our capital stock as of March 31, 1999, as adjusted to give effect
to the transactions contemplated in this prospectus, (i) by each of our
directors and each of the Named Executive Officers, (ii) by all directors and
executive officers as a group, and (iii) by each person who is known by us to
own beneficially more than 5% of our Common Stock on an as-converted basis.
<TABLE>
<CAPTION>
Number of Number of Percent
Shares of Shares of Ownership
Common Preferred of Voting
Beneficial Owner Stock Stock Stock(1)
---------------- --------- ---------- ---------
<S> <C> <C> <C>
Entities affiliated with Princes Gate
Investors II, L.P.(2)........................ -- 10,857,338 54.8%
1585 Broadway
New York, New York 10036
Storie Partners, L.P.......................... -- 946,563 4.8
1 Bush Street, Suite 1350
San Francisco, California 94104
Stuart Z. Levin(3)............................ 730,669 938,398 8.4
James B. Ramo(4).............................. 199,925 -- 1.0
Arthur Fields(5).............................. 366,667 397,307 3.9
Gregory Pasetta(6)............................ 100,000 -- *
David Sears(7)................................ 14,167 -- *
S. Robert Levine, M.D......................... -- 3,332,835 16.8
Stephen R. Munger(2).......................... -- 10,857,338 54.8
Martin A. Pasetta(8).......................... -- 352,883 1.8
David R. Powers(2)............................ -- 10,857,338 54.8
Melvin Rosen.................................. -- 1,165,413 5.9
Jerome H. Turk................................ -- 172,102 *
All directors and executive officers as a
group (24 persons)(9)........................ 1,738,928 16,050,863 89.8
</TABLE>
- --------
* Less than 1%.
(1) Applicable percentage of ownership is based on 152,517 shares of Common
Stock and 19,654,671 shares of Preferred Stock outstanding as of March 31,
1999, together with applicable options and warrants for each stockholder.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. Except as indicated in the footnotes to
this table and pursuant to applicable community property laws, the
stockholder named in the table has sole voting and investment power with
respect to the shares set forth opposite such stockholder's name. Shares of
Common Stock or Preferred Stock subject to options or warrants that are
presently exercisable or exercisable within 60 days of March 31, 1999, are
deemed to be beneficially owned by the person holding such options for the
purpose of computing the percentage of ownership of such person but are not
treated as outstanding for the purpose of computing the percentage of any
other person.
(2) Includes an aggregate of 8,797,318 shares of Series B-1, B-3 and B-4
Preferred Stock held by Princes Gate Investors II, L.P., an aggregate of
592,812 shares of Series B-1, B-3 and B-4 Preferred Stock held by Acorn
Partnership II, L.P., an aggregate of 586,883 shares of Series B-1, B-3 and
B-4 Preferred Stock held by PGI Investments Limited, an aggregate of
293,442 shares of Series B-1, B-4 and B-4 Preferred Stock held by Gregor
von Opel and an aggregate of 586,883 shares of Series B-1, B-3 and B-4
Preferred Stock held by Investor Investments AB. Mr. Munger and Mr. Powers,
both of whom are directors of TVN and are also employees of Morgan Stanley,
an affiliate of Princes Gate Investors II, L.P. Each disclaims beneficial
ownership of the shares held by these funds.
(3) Includes 266,196 shares of Series A Preferred Stock held by Mr. Levin's
former wife over which Mr. Levin exercises voting power but as to which Mr.
Levin disclaims beneficial ownership. Includes
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630,569 shares of Common Stock which may be acquired upon exercise of stock
options which are presently exercisable or will become exercisable within 60
days of March 31, 1999.
(4) Includes 199,925 shares of Common Stock which may be acquired upon exercise
of stock options which are presently exercisable or will become exercisable
within 60 days of March 31, 1999.
(5) Includes 397,307 shares of Series A Preferred Stock held by the Arthur and
Soni Fields Family Trust over which Mr. Fields may be deemed to have voting
and investment power. Includes 366,667 shares of Common Stock which may be
acquired upon exercise of stock options which are presently exercisable or
will become exercisable within 60 days of March 31, 1999.
(6) Includes 100,000 shares of Common Stock which may be acquired upon exercise
of stock options which are presently exercisable or will become exercisable
within 60 days of March 31, 1999.
(7) Includes 14,167 shares of Common Stock which may be acquired upon exercise
of stock options which are presently exercisable or will become exercisable
within 60 days of March 31, 1999.
(8) Includes 352,883 shares of Series A Preferred Stock held by the Pasetta
Family Trust over which Mr. Pasetta may be deemed to have voting and
investment power.
(9) Includes 1,638,828 shares of Common Stock which may be acquired upon
exercise of stock options which are presently exercisable or will become
exercisable within 60 days of March 31, 1999.
DESCRIPTION OF CERTAIN INDEBTEDNESS
On March 16, 1991, we entered into a limited partnership, TVN Entertainment,
L.P. (the "Partnership"), with MCA Satellite Services, Inc. and Centurion
Broadcast, Inc. (the "Studios") as the general partners and we as the sole
limited partner. Under the limited partnership agreement, the Studios agreed to
(i) make a combined capital contribution of $10.0 million to the Partnership
and (ii) to loan up to an additional $20.0 million, of which approximately
$16.5 million was loaned to the Partnership. Upon the dissolution of the
Partnership by mutual agreement on May 15, 1992, we acquired the Studios'
interests in the Partnership, received all Partnership assets and assumed
certain liabilities of the Partnership, including notes payable (the
"Contingent Notes Payable") to the Studios and certain of our stockholders. The
Contingent Notes Payable to such stockholders, including Stuart Z. Levin, our
Chairman and Chief Executive Officer, and S. Robert Levine, M.D., a director
and owner of more than 5% of our voting securities, arose from funds advanced
to us by such stockholders. In connection with the dissolution of the
Partnership, such obligations were required to be repaid only on a pari passu
basis with the obligations owing to the Studios. As of March 31, 1999, the
aggregate amounts of principal and interest under the Contingent Notes Payable
to the Studios and certain of our stockholders will be $26.8 million and $1.9
million, respectively (including $10.3 million and $795,000 of accrued interest
on such Contingent Notes Payable, respectively). Interest on the Contingent
Notes Payable accrues at the prime rate plus 1% and the Contingent Notes
Payable do not have a specified maturity date or repayment schedule. According
to the Restated Limited Partnership Agreement dated March 7, 1991, we are
required to repay these obligations out of "Available Cash Flow" as such term
is defined in the agreement. Since the date of such Restated Limited
Partnership Agreement, we have experienced negative cash flows from operations
and do not believe that we have generated Available Cash Flow that would
require us to repay the Contingent Notes Payable. In addition, the Contingent
Notes Payable have not been recorded as a liability in accordance with
Accounting Principles Board Opinion No. 16, "Business Combinations," because
they represent contingent consideration related to the acquisition of net
assets and the outcome of the contingency is not determinable beyond a
reasonable doubt. We may renegotiate the terms of the Contingent Notes Payable
to incorporate a defined maturity and payment schedule. In connection with such
renegotiation, we may restructure or repay all or a portion of the Contingent
Notes Payable. In the event that we are unable to agree on a defined maturity
and payment schedule, the timing of the repayment of the Contingent Notes
Payable will remain uncertain and subject to events outside our control. We
will record these Contingent Notes Payable as liabilities and recognize related
goodwill when the payment contingency is resolved.
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THE EXCHANGE OFFER
Purpose and Effect
We issued the Old Notes on July 29, 1998 in a private placement. In
connection with this issuance, we entered into the Indenture and the
registration rights agreement. These agreements require that we file a
registration statement under the Securities Act for the New Notes, the
registered notes to be issued in the Exchange Offer and, upon the effectiveness
of the registration statement, offer to you the opportunity to exchange your
Old Notes for a like principal amount of New Notes. The New Notes will be
issued without a restrictive legend and, except as set forth below, may be
reoffered and resold by you without registration under the Securities Act.
After we complete the Exchange Offer, our obligations with respect to the
registration of the Old Notes will terminate, except as provided in the last
paragraph of this section. A copy of the Indenture and the registration rights
agreement have been filed as exhibits to the registration statement of which
this prospectus is a part. As a result of the filing and the effectiveness of
the registration statement, assuming we complete the Exchange Offer by July 29,
1999, no prospective increases in the interest rate on the Old Notes upon
failure to register the Old Notes will occur.
Based on an interpretation by the staff of the Commission set forth in no-
action letters issued to third parties, if you are not our "affiliate" within
the meaning of Rule 405 under the Securities Act or a broker-dealer referred to
in the next paragraph, we believe that New Notes to be issued to you in the
Exchange Offer may be offered for resale, resold and otherwise transferred by
you, without compliance with the registration and prospectus delivery
provisions of the Securities Act. This interpretation, however, is based on
your representation to us that:
(1) the New Notes to be issued to you in the Exchange Offer are acquired in
the ordinary course of your business;
(2) you are not engaging in and do not intend to engage in a distribution
of the New Notes to be issued to you in the Exchange Offer; and
(3) you have no arrangement or understanding with any person to participate
in the distribution of the New Notes to be issued to you in the
Exchange Offer.
If you tender in the Exchange Offer for the purpose of participating in a
distribution of the New Notes to be issued to you in the Exchange Offer, you
cannot rely on this interpretation by the staff of the Commission. Under those
circumstances, you must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction. Each broker-dealer that receives New Notes in the Exchange Offer
for its own account in exchange for Old Notes that were acquired by the broker-
dealer as a result of market-making activities or other trading activities,
must acknowledge that it will deliver a prospectus meeting the requirements of
the Securities Act in connection with any resales of those New Notes. See "Plan
of Distribution."
If you will not receive freely tradeable registered notes in the Exchange
Offer or are not eligible to participate in the Exchange Offer, you can elect,
by indicating on the letter of transmittal and providing certain additional
necessary information, to have your Old Notes registered in a "shelf"
registration statement on an appropriate form pursuant to Rule 415 under the
Securities Act. In the event that we are obligated to file a shelf registration
statement, we will be required to keep the shelf registration statement
effective for a period of two years or such shorter period that will terminate
when all of the Old Notes covered by the shelf registration statement have been
sold pursuant to the shelf registration statement. Other than as set forth in
this paragraph, you will not have the right to require us to register your Old
Notes under the Securities Act. See "--Procedures For Tendering."
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<PAGE>
Consequences of Failure to Exchange
After we complete the Exchange Offer, if you have not tendered your Old
Notes, you will not have any further registration rights, except as set forth
above. Your Old Notes will continue to be subject to certain restrictions on
transfer. Therefore, the liquidity of the market for your Old Notes could be
adversely affected upon completion of the Exchange Offer if you do not
participate in the Exchange Offer. If the liquidity of the trading market for
the Old Notes is adversely affected, you may be unable to sell or transfer your
Old Notes and the value of your Old Notes may decline.
Terms of the Exchange Offer
upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept any and all Old Notes validly
tendered and not withdrawn prior to 5:00 p.m., New York City time, on the
expiration date. We will issue $1,000 principal amount of New Notes in exchange
for each $1,000 principal amount of Old Notes accepted in the Exchange Offer.
You may tender some or all of your Old Notes in the Exchange Offer. However,
Old Notes may be tendered only in integral multiples of $1,000 in principal
amount.
The form and terms of the New Notes are substantially the same as the form
and terms of the Old Notes, except that the New Notes to be issued in the
Exchange Offer will have been registered under the Securities Act and will not
bear legends restricting their transfer. The New Notes will be issued pursuant
to, and entitled to the benefits of, the Indenture. The Indenture also governs
the Old Notes. The New Notes and the Old Notes will be deemed one issue of
notes under the Indenture.
As of the date of this prospectus, $200 million aggregate principal amount
of the Old Notes were outstanding. This prospectus, together with the letter of
transmittal, is being sent to all registered holders of Old Notes as of June
15, 1999 and to others believed to have beneficial interests in the Old Notes.
You do not have any appraisal or dissenters, rights in connection with the
Exchange Offer under the General Corporation Law of the State of Delaware or
the Indenture. We intend to conduct the Exchange Offer in accordance with the
applicable requirements of the Exchange Act and the rules and regulations of
the Commission promulgated under the Exchange Act.
We will be deemed to have accepted validly tendered Old Notes when, as, and
if we have given oral or written notice of our acceptance to the exchange
agent. The exchange agent will act as our agent for the tendering holders for
the purpose of receiving the New Notes from us. If we do not accept any
tendered notes because of an invalid tender, the occurrence of certain other
events set forth in this prospectus or otherwise, we will return certificates
for any unaccepted Old Notes without expense to the tendering holder as
promptly as practicable after the expiration date.
You will not be required to pay brokerage commissions or fees or, except as
set forth below under "--Transfer Taxes," transfer taxes with respect to the
exchange of your Old Notes in the Exchange Offer. We will pay all charges and
expenses, other than certain applicable taxes, in connection with the Exchange
Offer. See "--Fees and Expenses" below.
Expiration Date; Amendments
The Exchange Offer will expire at 5:00 p.m., New York City time, on [July
29,] 1999, unless we determine, in our sole discretion, to extend the Exchange
Offer. If we extend the Exchange Offer, it will expire at the later date and
time to which it is extended. We do not intend to extend the Exchange Offer,
although we reserve the right to do so.. If we extend the Exchange Offer, we
will give oral or written notice of the extension to the exchange agent and
give each registered holder notice by means of a press release or other public
announcement of any extension prior to 9:00 a.m., New York City time, on the
next business day after the scheduled expiration date.
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We also reserve the right, in our sole discretion,
(1) to delay accepting any Old Notes or, if any of the conditions set forth
below under "--Conditions" have not been satisfied or waived, to
terminate the Exchange Offer or
(2) to amend the terms of the Exchange Offer in any manner, by giving oral
or written notice of such delay or termination to the exchange agent,
and by complying with Rule 14e-l(d) under the Exchange Act to the
extent that rule applies.
We acknowledge and undertake to comply with the provisions of Rule 14e-l(c)
under the Exchange Act, which requires us to pay the consideration offered, or
return the Old Notes surrendered for exchange, promptly after the termination
or withdrawal of the Exchange Offer. We will notify you as promptly as we can
of any extension, termination or amendment.
Procedures For Tendering
Book-entry Interests
The Old Notes were issued as global securities in fully registered form
without interest coupons. Beneficial interests in the global securities, held
by direct or indirect participants in DTC, are shown on, and transfers of these
interests are effected only through, records maintained in book-entry form by
DTC with respect to its participants.
If you hold your Old Notes in the form of book-entry interests and you wish
to tender your Old Notes for exchange pursuant to the Exchange Offer, you must
transmit to the exchange agent on or prior to the expiration date either:
(1) a written or facsimile copy of a properly completed and duly executed
letter of transmittal, including all other documents required by such
letter of transmittal, to the exchange agent at the address set forth
on the cover page of the letter of transmittal; or
(2) a computer-generated message transmitted by means of DTC's Automated
Tender Offer Program system and received by the exchange agent and
forming a part of a confirmation of book-entry transfer, in which you
acknowledge and agree to be bound by the terms of the letter of
transmittal.
In addition, in order to deliver Old Notes held in the form of book-entry
interests:
(A) a timely confirmation of book-entry transfer of your Old Notes into the
exchange agent's account at DTC pursuant to the procedure for book-
entry transfers described below under "--Book-entry Transfer" must be
received by the exchange agent prior to the expiration date; or
(B) you must comply with the guaranteed delivery procedures described
below.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT YOUR ELECTION AND RISK.
INSTEAD OF DELIVERY BY MAIL, WE RECOMMEND THAT YOU USE AN OVERNIGHT OR HAND
DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. YOU SHOULD NOT SEND
THE LETTER OF TRANSMITTAL OR OLD NOTES TO US. YOU MAY REQUEST YOUR BROKER,
DEALER, COMMERCIAL BANK, TRUST COMPANY, OR NOMINEE TO EFFECT THE ABOVE
TRANSACTIONS FOR YOU.
Certificated Old Notes
Only registered holders of certificated Old Notes may tender those Old Notes
in the Exchange Offer. If your Old Notes are certificated notes and you wish to
tender your Old Notes for exchange pursuant to the
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Exchange Offer, you must transmit to the exchange agent on or prior to the
expiration date, a written or facsimile copy of a properly completed and duly
executed letter of transmittal, including all other required documents, to the
address set forth below under "--Exchange Agent." In addition, in order to
validly tender your certificated Old Notes:
(1) the certificates representing your old notes must be received by the
exchange agent prior to the expiration date; or
(2) you must comply with the guaranteed delivery procedures described
below.
Procedures Applicable to All Holders
If you tender an Old Note and you do not withdraw the tender prior to the
expiration date, you will have made an agreement with us in accordance with the
terms and subject to the conditions set forth in this prospectus and in the
letter of transmittal.
If your Old Notes are registered in the name of a broker, dealer, commercial
bank, trust company or other nominee and you wish to tender your Old Notes, you
should contact the registered holder promptly and instruct the registered
holder to tender on your behalf. If you wish to tender on your own behalf, you
must, prior to completing and executing the letter of transmittal and
delivering your Old Notes, either make appropriate arrangements to register
ownership of the Old Notes in your name or obtain a properly completed bond
power from the registered holder. The transfer of registered ownership may take
considerable time.
Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed by an eligible institution unless:
(A) Old Notes tendered in the Exchange Offer are tendered either
(1) by a registered holder who has not completed the box entitled
"Special Registration instructions" or "Special Delivery
Instructions" on the letter of transmittal or
(2) for the account of an eligible institution; and
(B) the box entitled "Special Registration instructions" on the letter of
transmittal has not been completed.
If signatures on a letter of transmittal or a notice of withdrawal are
required to be guaranteed, the guarantee must be by a financial institution,
which includes most banks, savings and loan associations and brokerage houses,
that is a participant in the Securities Transfer Agents medallion Program, the
New York Stock Exchange medallion Program or the Stock Exchanges medallion
Program.
If the letter of transmittal is signed by a person other than you, your Old
Notes must be endorsed or accompanied by a properly completed bond power and
signed by you as your name appears on those Old Notes.
If the letter of transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations, or others acting in a fiduciary or representative capacity, those
persons should so indicate when signing. Unless we waive this requirement, in
this instance you must submit with the letter of transmittal proper evidence
satisfactory to us of their authority to act on your behalf.
We will determine, in our sole discretion, all questions regarding the
validity, form, eligibility, including time of receipt, acceptance and
withdrawal of tendered Old Notes. This determination will be final and binding.
We reserve the absolute right to reject any and all Old Notes not properly
tendered or any Old Notes our acceptance of which would, in the opinion of our
counsel, be unlawful. We also reserve the right to waive any
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defects, irregularities or conditions of tender as to particular Old Notes, our
interpretation of the terms and conditions of the Exchange Offer, including the
instructions in the letter of transmittal, will be final and binding on all
parties.
You must cure any defects or irregularities in connection with tenders of
your Old Notes within the time period we will determine unless we waive that
defect or irregularity. Although we intend to notify you of defects or
irregularities with respect to your tender of Old Notes, neither we, the
exchange agent nor any other person will incur any liability for failure to
give this notification. Your tender will not be deemed to have been made and
your notes will be returned to you if:
(1) you improperly tender your Old Notes;
(2) you have not cured any defects or irregularities in your tender; and
(3) we have not waived those defects, irregularities or improper tender.
In any such case, the exchange agent will return your Old Notes, unless
otherwise provided in the letter of transmittal, as soon as practicable
following the expiration of the Exchange Offer.
In addition, we reserve the right in our sole discretion to:
(1) purchase or make offers for, or offer registered notes for, any Old
Notes that remain outstanding subsequent to the expiration of the
Exchange Offer;
(2) terminate the Exchange Offer; and
(3) to the extent permitted by applicable law, purchase Old Notes or any
other notes in the open market, in privately negotiated transactions or
otherwise.
The terms of any of these purchases or offers could differ from the terms of
the Exchange Offer.
By tendering, you will represent to us that, among other things:
(1) the New Notes to be acquired by you in the Exchange Offer are being
acquired in the ordinary course of your business;
(2) you are not engaging in and do not intend to engage in a distribution
of the New Notes to be acquired by you in the Exchange Offer;
(3) you do not have an arrangement or understanding with any person to
participate in the distribution of the New Notes to be acquired by you
in the Exchange Offer; and
(4) you are not our "affiliate," as defined under Rule 405 of the
Securities Act.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange in the Exchange Offer will be made only after timely receipt by the
exchange agent of certificates for your Old Notes or a timely book-entry
confirmation of your Old Notes into the exchange agent's account at DTC, a
properly completed and duly executed letter of transmittal, or a computer-
generated message instead of the letter of transmittal, and all other required
documents, if any tendered Old Notes are not accepted for any reason set forth
in the terms and conditions of the Exchange Offer or if Old Notes are submitted
for a greater principal amount than you desire to exchange, the unaccepted or
non-exchanged Old Notes (or Old Notes in substitution therefor) will be
returned without expense to you, or, in the case of Old Notes tendered by book-
entry transfer into the exchange agent's account at DTC pursuant to the book-
entry transfer procedures described below, the non-exchanged Old Notes will be
credited to your account maintained with DTC, as promptly as practicable after
the expiration or termination of the Exchange Offer.
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Guaranteed Delivery Procedures
If you desire to tender your old notes and your old notes are not
immediately available or one of the situations described in the immediately
preceding paragraph occurs, you may tender if:
(1) you tender through an eligible financial institution;
(2) on or prior to 5:00 p.m., New York City time, on the expiration date,
the exchange agent receives from an eligible institution, a written or
facsimile copy of a properly completed and duly executed letter of
transmittal and notice of guaranteed delivery, substantially in the
form provided by us; and
(3) the certificates for all certificated Old Notes, in proper form for
transfer, or a book-entry confirmation, and all other documents
required by the letter of transmittal, are received by the exchange
agent within three NYSE trading days after the date of execution of the
notice of guaranteed delivery.
The notice of guaranteed delivery may be sent by facsimile transmission,
mail or hand delivery. The notice of guaranteed delivery must set forth:
(1) your name and address;
(2) the principal amount of Old Notes you are tendering; and
(3) a statement that your tender is being made by the notice of guaranteed
delivery and that you guarantee that within three New York Stock
Exchange trading days after the execution of the notice of guaranteed
delivery, the eligible institution will deliver the following documents
to the exchange agent:
(A) the certificates for all certificated Old Notes being tendered, in
proper form for transfer or a book-entry confirmation of tender;
(B) a written or facsimile copy of the letter of transmittal, or a
book-entry confirmation instead of the letter of transmittal; and
(C) any other documents required by the letter of transmittal.
Book-entry Transfer
The exchange agent will establish an account with respect to the book-entry
interests at DTC for purposes of the Exchange Offer promptly after the date of
this prospectus. You must deliver your book-entry interest by book-entry
transfer to the account maintained by the exchange agent at DTC. Any financial
institution that is a participant in DTC19 systems may make book-entry delivery
of book-entry interests by causing DTC to transfer the book-entry interests
into the exchange agent's account at DTC in accordance with DTC's procedures
for transfer.
If one of the following situations occur:
(1) you cannot deliver a book-entry confirmation of book-entry delivery of
your book-entry interests into the exchange agent's account at DTC; or
(2) you cannot deliver all other documents required by the letter of
transmittal to the exchange agent prior to the expiration date,
then you must tender your book-entry interests according to the guaranteed
delivery procedures discussed above.
Withdrawal Rights
You may withdraw tenders of your Old Notes at any time prior to 5:00 p.m.,
New York City time, on the expiration date.
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For your withdrawal to be effective, the exchange agent must receive a
written or facsimile transmission notice of withdrawal at its address set forth
below under "--Exchange Agent" prior to 5:00 p.m., New York City time, on the
expiration date.
The notice of withdrawal must:
(1) state your name;
(2) identify the specific Old Notes to be withdrawn, including the
certificate number or numbers and the principal amount of withdrawn Old
Notes;
(3) be signed by you in the same manner as you signed the letter of
transmittal when you tendered your Old Notes, including any required
signature guarantees or be accompanied by documents of transfer
sufficient for the exchange agent to register the transfer of the Old
Notes into your name; and
(4) specify the name in which the Old Notes are to be registered, if
different from yours.
We will determine all questions regarding the validity, form, and
eligibility, including time of receipt, of withdrawal notices, our
determination will be final and binding on all parties. Any Old Notes withdrawn
will be deemed not to have been validly tendered for exchange for purposes of
the Exchange Offer. Any Old Notes which have been tendered for exchange but
which are not exchanged for any reason will be returned to you without cost as
soon as practicable after withdrawal, rejection of tender, or termination of
the Exchange Offer. Properly withdrawn Old Notes may be retendered by following
one of the procedures described under "--Procedures For Tendering" above at any
time on or prior to 5:00 p.m., New York City time, on the expiration date.
Conditions
Notwithstanding any other provision of the exchange offer and subject to our
obligations under the registration rights agreement, we will not be required to
accept for exchange, or to issue New Notes in exchange for, any Old Notes and
may terminate or amend the exchange offer, if at any time before the acceptance
of any Old Notes for exchange any of the following events shall occur:
(1) any injunction, order or decree shall have been issued by any court or
any governmental agency that would prohibit, prevent or otherwise
materially impair our ability to proceed with the exchange offer; or
(2) the Exchange Offer shall violate any applicable law or any applicable
interpretation of the staff of the Commission.
These conditions are for our sole benefit and we may assert them regardless
of the circumstances giving rise to any condition, subject to applicable law.
We also may waive in whole or in part at any time and from time to time any
particular condition in our sole discretion. If we waive a condition, we may be
required in order to comply with applicable securities laws, to extend the
expiration date of the exchange offer. Our failure at any time to exercise any
of the foregoing rights will not be deemed a waiver of these rights and these
rights will be deemed ongoing rights which may be asserted at any time and from
time to time.
In addition, we will not accept for exchange any Old Notes tendered, and no
New Notes will be issued in exchange for any of those Old Notes, if at the time
the Old Notes are tendered any stop order shall be threatened by the Commission
or be in effect with respect to the registration statement of which this
prospectus is a part or the qualification of the Indenture under the Trust
Indenture Act of 1939.
The Exchange Offer is not conditioned on any minimum principal amount of Old
Notes being tendered for exchange.
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Exchange Agent
We have appointed The Bank of New York as exchange agent for the exchange
offer. Questions, requests for assistance and requests for additional copies of
the prospectus, the letter of transmittal and other related documents should be
directed to the exchange agent addressed as follows:
By Registered or Certified mail, by Hand or by overnight Courier:
The Bank of New York
101 Barclay Street-7E
Corporate Trust Services Window
Ground Floor
New York, New York 10286
Attn: Reorganization Section
<TABLE>
<C> <S>
By Facsimile: By Telephone:
(212) 571-3080 (212) 815-5942
</TABLE>
The exchange agent also acts as trustee under the Indenture.
Fees and Expenses
We will not pay brokers, dealers, or others soliciting acceptances of the
Exchange Offer. The principal solicitation is being made by mail. Additional
solicitations, however, may be made in person or by telephone by our officers
and employees.
We will pay the cash expenses to be incurred in connection with the Exchange
Offer. These are estimated in the aggregate to be approximately $ which
includes fees and expenses of the exchange agent, accounting, legal, printing
and related fees and expenses.
Transfer Taxes
You will not be obligated to pay any transfer taxes in connection with a
tender of your Old Notes for exchange unless you instruct us to register New
Notes in the name of, or request that Old Notes not tendered or not accepted in
the Exchange Offer be returned to, a person other than the registered tendering
holder, in which event the registered tendering holder will be responsible for
the payment of any applicable transfer tax.
Accounting Treatment
We will not recognize any gain or loss for accounting purposes upon the
consummation of the Exchange Offer, we will amortize the expense of the
Exchange Offer over the term of the New Notes under generally accepted
accounting principles.
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DESCRIPTION OF THE OLD NOTES
We issued Old Notes under an Indenture between our company, as issuer, and
The Bank of New York, as trustee (the "Trustee"). The following summary of
certain provisions of the Indenture is not be complete. For a complete
statement of the terms, we refer you to the Indenture. We will provide you a
copy of the Indenture upon request. Certain provisions of the Indenture are
made a part thereof by the Trust Indenture Act of 1939, as amended. Definitions
or particular terms in the Indenture supplement this summary. For definitions
of certain capitalized terms used in the following summary, see "--Certain
Definitions" below.
General
The Old Notes are unsecured (except to the extent described under "--
Security" below) unsubordinated obligations of our company, initially limited
to $200 million aggregate principal amount, and will mature on August 1, 2008.
Interest on the Old Notes accrues at the rate of 14% per annum and is payable
semiannually in arrears (to holders of record at the close of business on
January 15 or July 15 immediately preceding the Interest Payment Date) on
February 1 and August 1 of each year commencing February 1, 1999. Interest is
computed on the basis of a 360-day year of twelve 30-day months.
If by the date that is one year after the Closing Date, our company has not
consummated the Exchange Offer or any other registered Exchange Offer for the
Old Notes or caused a shelf registration statement with respect to resales of
the Old Notes to be declared effective, interest on the Old Notes (in addition
to interest otherwise accruing on the Old Notes) will accrue at the rate of
0.5% per annum and be payable in cash semiannually in arrears on February 1 and
August 1 of each year, commencing February 1, 2000, until the consummation of a
registered Exchange Offer or the effectiveness of a shelf registration
statement. See "--Registration Rights" below.
Principal of, premium, if any, and interest on the Old Notes is payable and
the Old Notes may be exchanged or transferred at the office or agency of our
company in the Borough of Manhattan, the City of New York (which initially will
be the corporate trust office of the Trustee at 101 Barclay Street, 21 West,
New York, New York 10286; Attention: Corporate Trust Trustee Administration);
provided that, at our option, payment of interest may be made by check mailed
to the holders at their addresses as they appear in the security register
maintained by the Trustee.
The Old Notes were issued only in fully registered form, without coupons, in
denominations of $1,000 of principal amount and any integral multiple thereof.
See "The Exchange Offer--Book-entry Transfer." No service charge will be made
for any registration of transfer or exchange of Old Notes, but we may require
payment of a sum sufficient to cover any transfer tax or other similar
governmental charge payable in connection therewith.
Subject to the covenants described below under "--Covenants" and applicable
law, we may issue additional Notes under the Indenture. Any Old Notes which
remain outstanding, the New Note, offered hereby, and any additional New Notes
subsequently issued would be treated as a single class for all purposes under
the Indenture.
Optional Redemption
We may redeem the Old Notes, at our option, in whole or in part, at any time
or from time to time, on or after August 1, 2003 and prior to maturity, upon
not less than 30 nor more than 60 days' prior notice mailed by first class mail
to each holder's last address as it appears in the Security Register, at the
following Redemption Prices (expressed in percentages of principal amount),
plus accrued and unpaid interest, if any, to the Redemption Date (subject to
the right of holders of record on the relevant Regular Record Date that is on
or
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prior to the Redemption Date to receive interest due on an Interest Payment
Date), if redeemed during the 12-month period commencing August 1, of the years
set forth below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2003.......................................................... 108.000%
2004.......................................................... 105.333
2005.......................................................... 102.667
2006 and thereafter........................................... 100.000
</TABLE>
In addition, at any time prior to August 1, 2001, we may use proceeds of one
or more Public Equity Offerings following which there is a Public Market to
redeem up to 35% of the principal amount of the Old Notes with the at any time
or from time to time in part, at a Redemption Price (expressed as a percentage
of principal amount thereof) of 114%; provided that
. Old Notes representing at least $130.0 million aggregate principal
amount remain outstanding after each such redemption and
. notice of such redemption is mailed within 60 days after the
consummation of the related Public Equity Offering.
In the case of any partial redemption, the Trustee will select Old Notes for
redemption in compliance with the requirements of the principal national
securities exchange, if any, on which the Old Notes are listed or, if the Old
Notes are not listed on a national securities exchange, on a pro rata basis, by
lot or by such other method as the Trustee in its sole discretion shall deem to
be fair and appropriate; provided that no Note of $1,000 in principal amount or
less shall be redeemed in part. If any Note is to be redeemed in part only, the
notice of redemption relating to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in principal amount equal
to the principal amount of the unredeemed portion thereof will be issued in the
name of the holder thereof upon cancellation of the original Note.
Sinking Fund
There are no sinking fund payments for the Old Notes.
Security
Pursuant to the Indenture, on the Closing Date, we purchased and pledged to
the Trustee as security for the benefit of the holders of the Old Notes,
Pledged Securities in an amount then expected to be sufficient to provide for
payment in full of the first six scheduled interest payments on the Old Notes
when due. We used approximately $76.7 million of the net proceeds of issuance
of the Old Notes to acquire the Pledged Securities and currently anticipates
that the remaining Amount of Pledged Securities will be sufficient to make the
first four interest payments on the New Notes.
The Pledged Securities have been pledged by us to the Trustee for your
benefit as holders of the Notes pursuant to the Pledge Agreement. The Trustee
has agreed to hold the Pledged Securities in the Pledge Account. The Pledge
Agreement provides that, immediately prior to an Interest Payment Date, we may
either deposit with the Trustee from funds otherwise available to us cash in an
amount sufficient to pay all or a part of the interest scheduled to be paid on
such date or we may notify the Trustee that it does not intend to make such a
deposit. Upon receipt of such deposit or notice, the Trustee is required to
release from the Pledge Account, if and to the extent necessary, proceeds
sufficient to pay the interest then due on the Old Notes. A failure by us to
pay any of the first six scheduled interest payments on the Notes, on the
corresponding Interest Payment Dates will constitute an immediate Event of
Default under the Indenture, with no cure or grace period. The Pledged
Securities and the Pledge Account will also provide partial security for the
repayment of principal, premium and interest on the Old Notes.
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The Pledge Agreement will provide that, upon payment by us of the first six
scheduled interest payments on the Notes, all of the remaining Pledged
Securities, if any, will be released as collateral and the Notes will
thereafter be unsecured.
Registration Rights
We have agreed with the Placement Agent, for your benefit as holder of the
Notes, to use our best efforts, at our cost, to file and cause to become
effective a registration statement with respect to a registered offer (the
"Exchange Offer") to exchange the Old Notes for an issue of unsubordinated
notes of our company (the "New Notes") with terms identical to the Old Notes
(except that the New Notes will not bear legends restricting the transfer
thereof or provide for registration rights or additional interest). Upon such
registration statement being declared effective, our company shall offer the
New Notes in return for surrender of the Old Notes. When the Exchange Offer is
completed, we will have no further obligation to register or exchange Old
Notes.
Ranking
The Indebtedness evidenced by the Old Notes ranks equally in priority of
payment with all future unsubordinated indebtedness of our company and senior
in right of payment to all existing and future subordinated indebtedness of our
company. As of March 31, 1999, we had $298.2 million of indebtedness
outstanding including the Old Notes. In addition, all existing and future
liabilities (including trade payables and indebtedness, including any
subordinated indebtedness) of our subsidiaries and all of our secured
indebtedness will be effectively senior to the Old Notes. We and our
subsidiaries may incur substantial additional Indebtedness, including secured
Indebtedness, under the Indenture.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the definition of any other capitalized term used herein for
which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Restricted Subsidiary or assumed in connection with an
Asset Acquisition by a Restricted Subsidiary and not Incurred in connection
with, or in anticipation of, such Person becoming a Restricted Subsidiary or
such Asset Acquisition; provided that Indebtedness of such Person which is
redeemed, defeased, retired or otherwise repaid at the time of or immediately
after consummation of the transactions by which such Person becomes a
Restricted Subsidiary or such Asset Acquisition shall not be Acquired
Indebtedness.
"Adjusted Consolidated Net Income" means, for any period, the aggregate net
income (or loss) of the Company and its Restricted Subsidiaries for such period
determined in conformity with GAAP; provided that the following items shall be
excluded in computing Adjusted Consolidated Net Income (without duplication):
.the net income of any Person that is not a Restricted Subsidiary,
except to the extent of the amount of dividends or other distributions
actually paid to the Company or any of its Restricted Subsidiaries by
such Person during such period;
. solely for the purposes of calculating the amount of Restricted
Payments that may be made pursuant to clause (C) of the first
paragraph of the "Limitation on Restricted Payments" covenant
described below (and in such case, except to the extent includable
pursuant to clause (i) above), the net income (or loss) of any Person
accrued prior to the date it becomes a Restricted Subsidiary, or is
merged into or consolidated with the Company or any of its Restricted
Subsidiaries or all or substantially all of the property and assets
of such Person are acquired by our company or any of its Restricted
Subsidiaries;
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. the net income of an) Restricted Subsidiary to the extent that the
declaration or payment of dividends or similar distributions by such
Restricted Subsidiary of such net income is not at the time permitted
by the operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to such Restricted Subsidiary, except to the
extent that such net income could be paid to our company or a
Restricted Subsidiary to loans, advances, intercompany transfers,
principal repayments or otherwise;
. any gains or losses (on an after-tax basis) attributable to Asset
Sales;
. except for purposes of calculating the amount of Restricted Payments
that may be made pursuant to clause (C) of the first paragraph of the
"Limitation on Restricted Payments" covenant described below, any
amount paid or accrued as dividends on Preferred Stock of our company
or any Restricted Subsidiary owned by Persons other than our company
and any of its Restricted Subsidiaries; and
. without duplication of clause (iv) above, all extraordinary gains and
extraordinary losses.
"Adjusted Consolidated Net Tangible Assets" means the total amount of assets
of our company and its Restricted Subsidiaries (less applicable depreciation,
amortization and other valuation reserves), except to the extent resulting from
write-ups of capital assets (excluding write-ups in connection with accounting
for acquisitions in conformity with GAAP), after deducting therefrom (i) all
current liabilities of our company and its Restricted Subsidiaries (excluding
intercompany items) and (ii) all goodwill, trade names, trademarks, patents,
unamortized debt discount and expense and other like intangibles, all as set
forth on the most recent quarterly or annual consolidated balance sheet of our
company and its Restricted Subsidiaries, prepared in conformity with GAAP and
filed with the Commission or provided to the Trustee pursuant to the
"Commission Reports and Reports to Holders" covenant.
"Affiliate" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Asset Acquisition" means (i) an Investment by our company or any of its
Restricted Subsidiaries in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or shall be merged into or consolidated with our
company or any of its Restricted Subsidiaries; provided that such Person's
primary business is related, ancillary or complementary to the businesses of
our company and its Restricted Subsidiaries on the date of such Investment or
(ii) an acquisition by our company or any of its Restricted Subsidiaries of the
property and assets of any Person other than our company or any of its
Restricted Subsidiaries that constitute substantially all of such Person or of
a division or line of business of such Person; provided that the property and
assets acquired are related, ancillary or complementary to the businesses of
our company and its Restricted Subsidiaries on the date of such acquisition.
"Asset Disposition" means the sale or other disposition by our company or
any of its Restricted Subsidiaries (other than to our company or another
Restricted Subsidiary) of (i) all or substantially all of the Capital Stock of
any Restricted Subsidiary or (ii) all or substantially all of the assets that
constitute a division or line of business of our company or any of its
Restricted Subsidiaries.
"Asset Sale" means any sale, transfer or other disposition (including by way
of merger or consolidation) in one transaction or a series of related
transactions by our company or any of its Restricted Subsidiaries to any Person
other than our company or any of its Restricted Subsidiaries of
. all or any of the Capital Stock of any Restricted Subsidiary,
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.all or substantially all of the property and assets of an operating
unit or business of our company or any of its Restricted Subsidiaries,
or
. any other property and assets (other than the Capital Stock or other
Investment in an Unrestricted Subsidiary) of our company or any of
its Restricted Subsidiaries outside the ordinary course of business
of our company or such Restricted Subsidiary and, in each case that
is not governed by the provisions of the Indenture applicable to
mergers, consolidations and sales of all or substantially all of the
assets of our company; provided that "Asset Sale" shall not include
(a) sales or other dispositions of inventory, receivables and other
current assets, (b) sales or other dispositions of assets for
consideration at least equal to the fair market value of the assets
sold or disposed of, to the extent that the consideration received
would constitute property or assets of the kinds described in clause
(i) (B) of the "Limitation on Asset Sales" covenant, (c) sales,
transfers or other dispositions of assets constituting Restricted
Payments permitted to be made under the "Limitation on Restricted
Payments" covenant, (d) transfers consisting of granting of Liens
permitted under the "Limitation on Liens" covenant and dispositions
of such assets in accordance with such Liens or (e) Sale and
Leaseback Transactions permitted under the "Limitation on Sale and
Leaseback Transactions" and "Limitation on Indebtedness" covenants.
"Attributable Debt" means, with respect to an operating lease included in
any Sale and Leaseback Transaction at the time of determination, the present
value (discounted at the interest rate implicit in the lease or, if not known,
at our company's incremental borrowing rate) of the obligations of the lessee
of the property subject to such lease for rental payments during the remaining
term of the lease included in such transaction, including any period for which
such lease has been extended or may, at the option of the lessor, be extended,
or until the earliest date on which the lessee may terminate such lease without
penalty or upon payment of penalty (in which case the rental payments shall
include such penalty), after excluding from such rental payments all amounts
required to be paid on account of maintenance and repairs, insurance, taxes,
assessments, water, utilities and similar charges.
"Average Life" means, at any date of determination with respect to any debt
security, the quotient obtained by dividing (i) the sum of the products of (a)
the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in the equity of such Person, whether outstanding on the
Closing Date or issued thereafter, including, without limitation, all Common
Stock and Preferred Stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present
value of the rental obligations of such Person as lessee, in conformity with
GAAP, is required to be capitalized on the balance sheet of such Person.
"Capitalized Lease Obligations" means the discounted present value of the
rental obligations under a Capitalized Lease.
"Change of Control" means such time as
. (a) prior to the occurrence of a Public Market, a -person- or "group"
(within the meaning of Sections 13(d) and 14 (d)(2) of the Exchange
Act) becomes the ultimate "beneficial owner" (as defined in Rule 13d-
3 under the Exchange Act) of Voting Stock representing a greater
percentage of the total voting power of the Voting Stock of our
company, on a fully diluted basis, than is held by the Existing
Stockholders on such date and (b) after the occurrence of a Public
Market, a "person" or "group" (within the meaning of Sections 13(d)
and 14(d)(2) of the Exchange Act) becomes the ultimate "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act) of
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more than 35% of the total voting power of the Voting Stock of our
company on a fully diluted basis, and such ownership is greater than
the percentage of the total voting power of the Voting Stock of our
company, on a fully diluted basis, than is held by the Existing
Stockholders on such date; or
. individuals who on the Closing Date constitute the Board of Directors
(together with any new directors whose election by the Board of
Directors or whose nomination by the Board of Directors for election
by our company's stockholders was approved by a vote of at least two-
thirds of the members of the Board of Directors then in office who
either were members of the Board of Directors on the Closing Date or
whose election or nomination for election was previously so approved)
cease for any reason to constitute a majority of the members of the
Board of Directors then in office.
"Closing Date" means the date on which the Old Notes are originally issued
under the Indenture.
"Collateral Agent" means the securities intermediary with which the Pledged
Account is maintained, initially the Trustee.
"Consolidated EBITDA" means, for any period, Adjusted Consolidated Net
Income for such period plus, to the extent such amount was deducted in
calculating such Adjusted Consolidated Net Income:
. Consolidated Interest Expense;
. income taxes (other than income taxes (either positive or negative)
attributable to extraordinary, and non-recurring gains or losses or
sales of assets);
. depreciation expense;
. amortization expense; and
. all other non-cash items reducing Adjusted Consolidated Net Income
(other than items that will require cash payments and for which an
accrual or reserve is, or is required by GAAP to be, made), less all
non-cash items increasing Adjusted Consolidated Net Income, all as
determined on a consolidated basis for our company and its Restricted
Subsidiaries in conformity with GAAP, provided that, if any
Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary,
Consolidated EBITDA shall be reduced (to the extent not otherwise
reduced in the calculation of Adjusted Consolidated Net Income) by an
amount equal to (A) the amount of the Adjusted Consolidated Net
Income attributable to such Restricted Subsidiary multiplied by (B)
the percentage ownership interest in the income of such Restricted
Subsidiary not owned on the last day of such period by our company or
any of its Restricted Subsidiaries.
"Consolidated Interest Expense" means, for any period, the aggregate amount
of interest in respect of Indebtedness (including, without limitation,
amortization of original issue discount on any Indebtedness and the interest
portion of any deferred payment obligation, calculated in accordance with the
effective interest method of accounting; all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing; the net costs associated with Interest Rate Agreements; and interest
expenses actually paid during such period in respect of Indebtedness that is
Guaranteed or secured by our company or any of its Restricted Subsidiaries) and
all but the principal component of rentals in respect of Capitalized Lease
Obligations paid, accrued or scheduled to be paid or to be accrued by our
company and its Restricted Subsidiaries during such period; excluding, however,
(i) any amount of such interest of any Restricted Subsidiary if the net income
of such Restricted Subsidiary is excluded in the calculation of Adjusted
Consolidated Net Income pursuant to clause (iii) of the definition thereof (but
only in the same proportion as the net income of such Restricted Subsidiary is
excluded from the calculation of Adjusted Consolidated Net Income pursuant to
clause (iii) of the definition thereof) and (ii) any premiums, fees and
expenses (and any amortization thereof) payable in connection with the offering
of the Old Notes, all as determined on a consolidated basis (without taking
into account Unrestricted Subsidiaries) in conformity with GAAP.
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"Consolidated Leverage Ratio" means, on any Transaction Date, the ratio of
. the aggregate amount of Indebtedness of our company and its
Restricted Subsidiaries on a consolidated basis outstanding on such
Transaction Date (provided that, if any Restricted Subsidiary is not
a Wholly-Owned Restricted Subsidiary, such Indebtedness of such
Restricted Subsidiary shall be reduced by an amount equal to (I) the
amount of the Indebtedness attributable to such Restricted Subsidiary
multiplied by (II) the percentage ownership interest in the income of
such Restricted Subsidiary not owned on such Transaction Date by our
company or any of its Restricted Subsidiaries) to
. the aggregate amount of Consolidated EBITDA for the then most recent
fiscal quarter for which financial statements of our company have
been filed with the Commission or provided to the Trustee pursuant to
the "Commission Reports and Reports to Holders" covenant described
below (such fiscal quarter period being the "Quarter") multiplied by
four, provided that, in making the foregoing calculation, (A) pro
forma effect shall be given to any Indebtedness to be Incurred or
repaid on the Transaction Date; (B) pro forma effect shall be given
to Asset Dispositions and Asset Acquisitions (including giving pro
forma effect to the application of proceeds of any Asset Disposition)
that occur from the beginning of the Quarter through the Transaction
Date (the "Reference Period"), as if they had occurred and such
proceeds had been applied on the first day of such Reference Period;
and (C) pro forma effect shall be given to asset dispositions and
asset acquisitions (including giving pro forma effect to the
application of proceeds of any asset disposition) that have been made
by any Person that has become a Restricted Subsidiary or has been
merged with or into our company or any Restricted Subsidiary during
such Reference Period and that would have constituted Asset
Dispositions or Asset Acquisitions had such transactions occurred
when such Person was a Restricted Subsidiary as if such asset
dispositions or asset acquisitions were Asset Dispositions or Asset
Acquisitions that occurred on the first day of such Reference Period;
provided that to the extent that clause (B) or (C) of this sentence
requires that pro forma effect be given to an Asset Acquisition or
Asset Disposition, such pro forma calculation shall be based upon the
full fiscal quarter immediately preceding the Transaction Date of the
Person, or division or line of business of the Person, that is
acquired or disposed of for which financial information is available.
"Consolidated Net Worth" means, at any date of determination, stockholders'
equity as set forth on the most recently available quarterly or annual
consolidated balance sheet of our company and its Restricted Subsidiaries
(which shall be as of a date not more than 90 days prior to the date of such
computation, and which shall not take into account Unrestricted Subsidiaries),
less any amounts attributable to Disqualified Stock or any equity security
convertible into or exchangeable for Indebtedness, the cost of treasury stock
and the principal amount of any promissory notes receivable from the sale of
the Capital Stock of our company or any of' its Restricted Subsidiaries, each
item to be determined in conformity with GAAP (excluding the effects of foreign
currency exchange adjustments under Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 52).
"Currency Agreement" means any foreign exchange contract, currency swap
agreement, currency option or other similar agreement or arrangement.
"Debt Securities" means any Indebtedness (including any Guarantee) issued in
connection with a public offering (whether or not underwritten) or a private
placement (provided such private placement is underwritten for resale pursuant
to Rule 144A, Regulation S or other exemption from registration under the
Securities Act or sold on an agency basis by a broker-dealer or one of its
Affiliates to 10 or more beneficial holders); it being understood that "Debt
Securities" shall not include commercial bank borrowings or similar borrowings,
recourse transfers of financial assets, capital leases, Attributable Debt
arising from Sale and Leaseback Transactions, issuances of Disqualified Stock
to the extent permitted to be Incurred (treating the Disqualified Stock as if
it were Indebtedness for this purpose) under the "Limitation on Indebtedness"
covenant or other
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types of borrowings incurred in a manner not customarily viewed as a
"securities offering" or Guarantees in respect of the foregoing.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is (i) required to be redeemed prior to
the Stated Maturity of the Old Notes, (ii) redeemable at the option of the
holder of such class or series of Capital Stock at any time prior to the Stated
Maturity of the Old Notes or (iii) convertible into or exchangeable for Capital
Stock referred to in clause (i) or (ii) above or Indebtedness having a
scheduled maturity prior to the Stated Maturity of the Old Notes, provided that
any Capital Stock that would not constitute Disqualified Stock but for
provisions thereof giving holders thereof the right to require such Person to
repurchase or redeem such Capital Stock upon the occurrence of an "asset sale"
or "change of control" occurring prior to the Stated Maturity of the Old Notes
shall not constitute Disqualified Stock if the "asset sale" or "change of
control" provisions applicable to such Capital Stock are no more favorable to
the holders of such Capital Stock than the provisions contained in "Limitation
on Asset Sales" and "Repurchase of Old Notes upon a Change of Control"
covenants described below and such Capital Stock specifically provides that
such Person will not repurchase or redeem any such stock pursuant to such
provision prior to the Company's repurchase of such Old Notes as are required
to be repurchased pursuant to the "Limitation on Asset Sales" and "Repurchase
of Old Notes upon a Change of Control" covenants described below.
"Existing Stockholders" means Princes Gate Investors II, L.P. and its
Affiliates, Stuart Z. Levin and S. Robert Levine.
"fair market value" means the price that would be paid in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, as determined in
good faith by the Board of Directors, whose determination shall be conclusive
if evidenced by a resolution of the Board of Directors; provided that for
purposes of the eighth item of the second paragraph of the "Limitation on
Indebtedness" covenant, (x) the fair market value of any security registered
under the Exchange Act shall be the average of the closing prices, regular way,
of such security for the 20 consecutive trading days immediately preceding the
sale of Capital Stock and (y) in the event the aggregate fair market value of
any other property (other than cash or cash equivalents) received by the
Company exceeds $10 million, the fair market value of such property shall be
determined by a nationally recognized investment banking firm and set forth in
their written opinion a copy of which shall be delivered to the Trustee.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Closing Date, including, without limitation,
those set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations contained or referred to in
the Indenture shall be computed in conformity with GAAP applied on a consistent
basis, except that calculations made for purposes of determining compliance
with the terms of the covenants and with other provisions of the Indenture
shall be made without giving effect to (i) the amortization of any expenses
incurred in connection with the offering of the Old Notes and (ii) except as
otherwise provided, the amortization of any amounts required or permitted by
Accounting Principles Board Opinion Nos. 16 and 17.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and,
without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness of
such other Person (whether arising by virtue of partnership arrangements, or by
agreements to keep-well, to purchase assets, goods, securities or services
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(unless such purchase arrangements are on arm's-length terms and are entered
into in the ordinary course of business), to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for purposes
of assuring in any other manner the obligee of such Indebtedness of me payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part), provided that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Incur" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness,
including an "Incurrence" of Acquired Indebtedness, provided that neither the
accrual of interest nor the accretion of original issue discount shall be
considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication);
. all indebtedness of such Person for borrowed money;
. all obligations of such Person evidenced by bonds, debentures, notes
or other similar instruments;
. all obligations of such Person in respect of letters of credit or
other similar instruments (including reimbursement obligations with
respect thereto);
. all obligations of such Person to pay the deferred and unpaid
purchase price of property or services, which purchase price is due
more than six months after the date of placing such property in
service or taking delivery and title thereto or the completion of
such services, except Trade Payables;
. all Capitalized Lease Obligations of such Person;
. all Attributable Debt of such Person with respect to any Sale and
Leaseback Transaction to which such Person is a lessee;
. the maximum fixed redemption or repurchase price of Disqualified
Stock of such Person at the date of determination;
. all Indebtedness of other Persons secured by a Lien on any asset of
such Person, whether or not such Indebtedness is assumed by such
Person; provided that the amount of such Indebtedness shall be the
lesser of (A) the fair market value of such asset at such date of
determination and (B) the amount of such Indebtedness;
. all Indebtedness of other Persons Guaranteed by such Person to the
extent such Indebtedness is Guaranteed by such Person; and
. to the extent not otherwise included in this definition, net
obligations of such Person under Currency Agreements and Interest
Rate Agreements. For purposes of the preceding sentence, the maximum
fixed repurchase price of any Disqualified Stock that does not have a
fixed repurchase price shall be calculated in accordance with the
terms of such Disqualified Stock as if such Disqualified Stock were
repurchased on any date on which Indebtedness shall be required to be
determined pursuant to the Indenture; provided that if such
Disqualified Stock is not then permitted to be repurchased, the
repurchase price shall be the book value of such Disqualified Stock.
The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as
described above and, with respect to contingent obligations, the
maximum liability upon the occurrence of the contingency giving rise
to the obligation; provided that (A) the amount outstanding at any
time of any Indebtedness issued with original issue discount is the
face amount of such Indebtedness less the remaining unamortized
portion of the original issue discount of such Indebtedness at the
time of its issuance as determined in conformity with GAAP, (B) money
borrowed and set aside at the time of the Incurrence of any
Indebtedness in order to prefund the payment of the interest on such
Indebtedness shall not be deemed to be
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"Indebtedness" and (C) Indebtedness shall not include any liability for
federal, state, local or other taxes.
"Interest Rate Agreement" means interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, option or future contract or other similar
agreement or arrangement.
"Investment" in any Person means any direct or indirect advance, loan or
other extension of credit (including, without limitation, by way of Guarantee
or similar arrangement; but excluding (x) advances to customers (including
distributors) in the ordinary course of business that are, in conformity with
GAAP, recorded as accounts receivable on the balance sheet of our company or
its Restricted Subsidiaries and (y) advances to suppliers in the ordinary
course of business that are, in conformity with GAAP, recorded as prepaid
expenses on the balance sheet of our company or its Restricted Subsidiaries)
or capital contribution to (by means of any transfer of cash or other property
to others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, bonds, notes,
debentures or other similar instruments issued by, such Person and shall
include:
. the designation of a Restricted Subsidiary as an Unrestricted
Subsidiary; and
. the fair market value of the Capital Stock (or any other Investment),
held by our company or any of its Restricted Subsidiaries, of (or in)
any Person that has ceased to be a Restricted Subsidiary, including
without limitation, by reason of any transaction permitted by clause
(iii) of the "Limitation on the Issuance and Sale of Capital Stock of
Restricted Subsidiaries" covenant; provided that the fair market value
of the Investment remaining in any Person that has ceased to be a
Restricted Subsidiary shall not exceed the aggregate amount of
Investments previously made in such Person valued at the time such
Investments were made less the net reduction of such Investments. For
purposes of the definition of "Unrestricted Subsidiary," and the
"Limitation on Restricted Payments" covenant described below,
--"Investment" shall include the fair market value of the assets (net
of liabilities (other than liabilities to the Company or any of its
Restricted Subsidiaries)) of any Restricted Subsidiary at the time
that such Restricted Subsidiary is designated an Unrestricted
Subsidiary,
--the fair market value of the assets (net of liabilities (other than
liabilities to our company or any, of its Restricted Subsidiaries))
of any Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary shall be considered
a reduction in outstanding Investments and (iii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at
its fair market value at the time of such transfer.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including, without limitation, any conditional sale or
other title retention agreement or lease in the nature thereof or any
agreement to give any security interest).
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the proceeds
of such Asset Sale in the form of cash or cash equivalents, including payments
in respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations are financed
or sold with recourse to our company or any Restricted Subsidiary) and
proceeds from the conversion of other property received when converted to cash
or cash equivalents, net of:
. brokerage commissions and other fees and expenses (including fees and
expenses of counsel, accountants and investment bankers and other
professionals) related to such Asset Sale,
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. provisions for all taxes (whether or not such taxes will actually be
paid or are payable) as a result of such Asset Sale without regard to
the consolidated results of operations of our company and its
Restricted Subsidiaries, taken as a whole;
. payments made to repay Indebtedness or any other obligation
outstanding at the time of such Asset Sale that either (A) is secured
by a Lien on the property or assets sold or (B) is required to be
paid as a result of such sale; and
. appropriate amounts to be provided by our company or any Restricted
Subsidiary as a reserve against any liabilities associated with such
Asset Sale, including, without limitation, pension and other post-
employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as determined in conformity with
GAAP and (b) with respect to any issuance or sale of Capital Stock,
the proceeds of such issuance or sale in the form of cash or cash
equivalents, including payments in respect of deferred payment
obligations (to the extent corresponding to the principal, but not
interest, component thereof) when received in the form of cash or
cash equivalents (except to the extent such obligations are financed
or sold with recourse to our company or any Restricted Subsidiary)
and proceeds from the conversion of other property received when
converted to cash or cash equivalents, net of attorney's fees,
accountants' fees, underwriters' or placement agents' fees, discounts
or commissions and brokerage, consultant and other fees incurred in
connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"Offer to Purchase" means an offer to purchase Notes by our company from the
holders commenced by mailing a notice to the Trustee and each holder stating:
. the covenant pursuant to which the offer is being made and that all
Old Notes validly tendered in accordance with the terms of the Offer
to Purchase will be accepted for payment on a pro rata basis;
. the purchase price and the date of purchase (which shall be a
Business Day no earlier than 30 days nor later than 60 days from the
date such notice is mailed) (the "Payment Date");
. that any Note not tendered will continue to accrue interest pursuant
to its terms;
. that, unless our company defaults in the payment of the purchase
price, any Note accepted for payment pursuant to the Offer to
Purchase shall cease to accrue interest on and after the Payment
Date;
. that holders electing to have a Note purchased pursuant to the Offer
to Purchase will be required to deliver the Note, together with the
form entitled "Option of the Holder to Elect Purchase" on the reverse
side of the Note completed, to the Paying Agent at the address
specified in the notice no later than the close of business on the
Business Day immediately preceding the Payment Date;
. that holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the
third Business Day immediately preceding the Payment Date, a
telegram, facsimile transmission or letter setting forth the name of
such holder, the principal amount of Old Notes delivered for purchase
and a statement that such holder is withdrawing its election to have
such Old Notes purchased; and
. that holders whose Old Notes are being purchased only in part will be
issued new Old Notes equal in principal amount to the principal
amount of the unpurchased portion of the Old Notes surrendered;
provided that each Note purchased and each new Note issued shall be
in a principal amount of $1,000 or integral multiples thereof. On or
prior to the Payment Date, the Company shall (i) accept for payment
on a pro rata basis Old Notes or portions thereof tendered pursuant
to an Offer to Purchase; (ii) deposit with the Paying Agent money
sufficient to pay the purchase price of all Old Notes or portions
thereof so accepted; and (iii) deliver, or cause to be delivered, to
the Trustee all Old Notes or portions thereof so accepted together
with an Officers' Certificate
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specifying the Old Notes or portions thereof accepted for payment by
our company. The Paying Agent shall promptly mail to the holders of
Old Notes so accepted payment each in an amount equal to the purchase
price, and the Trustee shall promptly authenticate and mail to such
holder a new Note equal in principal amount to any unpurchased portion
of the Note surrendered; provided that each Note purchased and each
new Note issued shall be in a principal amount of $1,000 or integral
multiples thereof. Our company will publicly announce the results of
an Offer to Purchase as soon as practicable after the Payment Date.
The Trustee shall act as the Paying Agent for an Offer to Purchase.
Our company will comply with Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such
laws and regulations are applicable, in the event that our company is
required to repurchase Old Notes pursuant to an Offer to Purchase.
"Permitted Investment" means (i) an Investment in our company or a
Restricted Subsidiary or a Person which will, upon the making of such
Investment, become a Restricted Subsidiary or be merged or consolidated with or
into or transfer or convey all or substantially all its assets to, our company
or a Restricted Subsidiary; provided that such Person's primary business is
related, ancillary or complementary to the businesses of our company and its
Restricted Subsidiaries on the date of such Investment; (ii) Temporary Cash
Investments; (iii) payroll, travel, relocation and similar advances to cover
matters that are expected at the time of such advances ultimately to be treated
as expenses in accordance with GAAP; (iv) loans or advances to employees made
in the ordinary course of business that do not in the aggregate exceed $1.0
million at any time outstanding; (v) Investments in Unrestricted Subsidiaries
in an aggregate amount not to exceed $10.0 million; provided each such
Unrestricted Subsidiary's primary business is related, ancillary or
complementary to the businesses of our company and its Restricted Subsidiaries
on the dates of such Investments; and (vi) Investments received in satisfaction
of judgments or as part of or in connection with the bankruptcy, winding up or
liquidation of a Person, except if such Investment is received in consideration
for an Investment made in such Person in connection with or in anticipation of
such bankruptcy, winding up or liquidation.
"Permitted Liens" means
. Liens for taxes, assessments, governmental charges or claims that are
being contested in good faith by appropriate legal proceedings
promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made;
. statutory and common law Liens of landlords and carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen or other
similar Liens arising in the ordinary course of business and with
respect to amounts not yet delinquent or being contested in good
faith by appropriate legal proceedings promptly instituted and
diligently conducted and for which a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall
have been made;
. Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and
other types of social security;
. Liens incurred or deposits made to secure the performance of tenders,
bids, leases, statutory or regulatory obligations, bankers' acceptances,
surety and appeal bonds, government contracts, performance and return-of-
money bonds and other obligations of a similar nature incurred in the
ordinary course of business (exclusive of obligations for the payment of
borrowed money);
. easements, rights-of-way, municipal and zoning ordinances and similar
charges, encumbrances, title defects or other irregularities that do
not materially interfere with the ordinary course of business of the
Company or any of its Restricted Subsidiaries;
. Liens (including extensions and renewals thereof) upon real or
personal property acquired after the Closing Date; provided that (a)
such Lien is created solely for the purpose of securing Indebtedness
Incurred, in accordance with the "Limitation on Indebtedness"
covenant described below, to
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finance the cost (including, without limitation, the cost of design,
development, construction, acquisition, transportation, installation,
improvement or integration) of the real or personal property subject
thereto and such Lien is created prior to, at the time of or within
six months after the later of the acquisition, the completion of
construction or the commencement of full operation of such property,
(b) the principal amount of the Indebtedness secured by such Lien does
not exceed 100% of such cost and (c) any such Lien shall not extend to
or cover any property other than such item of property and any
improvements on such property and any proceeds (including insurance
proceeds) and products thereof and attachments and accessions thereto;
. leases or subleases granted to others that do not materially
interfere with the ordinary course of business of our company and its
Restricted Subsidiaries, taken as a whole;
. Liens encumbering property or assets under construction arising from
progress or partial payments by a customer of our company or its
Restricted Subsidiaries relating to such property or assets;
. any interest or title of a lessor in the property subject to any
Capitalized Lease or operating lease;
. Liens arising from filing Uniform Commercial Code financing
statements regarding leases or other Uniform Commercial Code
financing statements for precautionary purposes relating to
arrangements not constituting Indebtedness;
. Liens on property of, or on shares of Capital Stock or Indebtedness
of, any Person existing at the time such Person becomes, or becomes a
part of, any Restricted Subsidiary; provided that such Liens do not
extend to or cover any property or assets of our company or any
Restricted Subsidiary other than the property or assets acquired and
any proceeds (including insurance proceeds) and products thereof and
attachments and accessions thereto;
. Liens in favor of our company or any Restricted Subsidiary;
. Liens arising from the rendering of a final judgment or order against
our company or any Restricted Subsidiary that does not give rise to
an Event of Default;
. Liens securing reimbursement obligations with respect to letters of
credit that encumber documents and other property relating to such
letters of credit and the products and proceeds thereof;
. Liens in favor of customs and revenue authorities arising as a matter
of law to secure payment of customs duties in connection with the
importation of goods;
. Liens encumbering customary initial deposits and margin deposits, and
other Liens that are within the general parameters customary in the
industry and incurred in the ordinary course of business, in each
case, securing Indebtedness under Interest Rate Agreements and
Currency Agreements and forward contracts, options, future contracts,
futures options or similar agreements or arrangements designed solely
to protect our company or any of its Restricted Subsidiaries from
fluctuations in interest rates, currencies or the price of
commodities;
. Liens arising out of conditional sale, title retention, consignment
or similar arrangements for the sale of goods entered into by our
company or any of its Restricted Subsidiaries in the ordinary course
of business in accordance with the past practices of the Company and
is Restricted Subsidiaries prior to the Closing Date;
. Liens on or sales of receivables;
. any interest or title of licensor in the property subject to a
license;
. Liens in favor of the Trustee arising under the Indenture;
. Liens on the Capital Stock of Unrestricted Subsidiaries; and
. Liens that secure Indebtedness with an aggregate principal amount not
in excess of $10 million at any time outstanding.
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"Pledge Agreement" means the Collateral Pledge and Security Agreement dated
as of the Closing Date, by and among our company, the Trustee and the
Collateral Agent, governing the pledge of the Pledged Securities and the
disbursement of funds from the Pledged Account as such agreement may be
amended, restated, supplemented or otherwise modified from time to time.
"Pledge Account" means an account established and maintained with the
Trustee for the deposit of the Pledged Securities pursuant to the terms of the
Pledge Agreement.
"Public Equity Offering" means an underwritten primary public offering of
Common Stock of our company pursuant to an effective registration statement
under the Securities Act.
A "Public Market" shall be deemed to exist if (i) a Public Equity Offering
has been consummated and (ii) at least 15% of the total issued and outstanding
Common Stock of our company has been distributed by means of an effective
registration statement under the Securities Act or sales pursuant to Rule 144
under the Securities Act.
"Restricted Subsidiary" means any Subsidiary of our company other than an
Unrestricted Subsidiary.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
pursuant to which our company or any of its Restricted Subsidiaries sells or
transfers any of its assets or properties (whether owned on the Closing Date or
acquired thereafter) and then or thereafter leases such assets or properties or
any part thereof or any other assets or properties which our company, or its
Restricted Subsidiaries, intends to use for substantially the same purpose or
purposes as the assets or properties sold or transferred.
"Significant Subsidiary" means, at any date of determination, any Restricted
Subsidiary that, together with its Subsidiaries, (i) for the most recent fiscal
year of our company, accounted for more than 10% of the consolidated revenues
of our company and its Restricted Subsidiaries or (ii) as of the end of such
fiscal year, was the owner of more than 10% of the consolidated assets of our
company and its Restricted Subsidiaries, all as set forth on the most recently
available consolidated financial statements of our company for such fiscal
year.
"Specified Date" means any Redemption Date, any Payment Date for an Offer to
Purchase or any date on which the Old Notes first become due and payable after
an Event of Default.
"S&P" means Standard & Poor's Ratings Services, a division of The McGraw-
Hill Companies, Inc, and its successors.
"Stated Maturity" means (i) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final
installment of principal of such debt security is due and payable and (ii) with
respect to any scheduled installment of principal of or interest on any debt
security, the date specified in such debt security as the fixed date on which
such installment is due and payable.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the voting power
of the outstanding Voting Stock is owned, directly or indirectly, by such
Person and one or more other Subsidiaries of such Person, (ii) any limited
partnership of which such Person is a general partner or (iii) any other Person
over which any combination of such Person and its other Subsidiaries, directly
or indirectly, has the power, by contract or otherwise, to direct or cause the
direction of policies, management and affairs generally.
"Temporary Cash Investment" means any of the following:
. direct obligations of the United States of America or any agency
thereof or obligations fully and unconditionally guaranteed by the
United States of America or any agency thereof,
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. time deposit accounts, certificates of deposit and money market
deposits maturing within 360 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws
of the United States of America, any state thereof or any foreign
country recognized by the United States of America, and which bank or
trust company has capital, surplus and undivided profits aggregating
in excess of $50.0 million (or the foreign currency equivalent
thereof) and has outstanding debt which is rated "A" (or an
equivalent rating) or higher by at least one nationally recognized
statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by a registered
broker dealer or mutual fund distributor,
. repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in the first item above
entered into with a bank meeting the qualifications described in the
second item above,
. commercial paper, maturing not more than 270 days after the date of
acquisition, issued by a corporation (other than an Affiliate of our
company) organized and in existence under the laws of the United
States of America, any state thereof or any foreign country
recognized by the United States of America with a rating at the time
as of which any investment therein is made of "P-1" (or higher)
according to Moody's or "A-1" (or higher) according to S&P,
. auction-rate preferred stocks of any corporation maturing not later
than 45 days after the acquisition thereof, with a rating at the time
of acquisition of not less than "AAA" according to S&P or "Aaa"
according to Moody's,
. corporate debt obligations maturing within 12 months after the date
of acquisition, with a rating on the date of acquisition not less
than "AAA" or "A-1" according to S&P or "Aaa" or "P-l" according to
Moody's,
. securities with maturities of one year or less from the date of
acquisition issued or fully and unconditionally guaranteed by any
state, commonwealth or territory of the United States of America, or
by any political subdivision or taxing authority thereof, and rated
at least "A" by S&P or Moody's, and
. mutual funds required to invest at least 90% of their funds in
investments of the types described in the first and second items
above.
"Trade Payables" means, with respect to any Person, any accounts payable or
any other indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person or any of its Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods or
services.
"Transaction Date" means, with respect to the Incurrence of any Indebtedness
by our company or any of its Restricted Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment, the
date such Restricted Payment is to be made.
"Unrestricted Subsidiary" means (i) any Subsidiary of our company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below; and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Restricted
Subsidiary (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary owns any
Capital Stock of, or owns or holds any Lien (other than a Permitted Lien) on
any property of, our company or any Restricted Subsidiary, provided that (A)
any Guarantee by the Company or any Restricted Subsidiary of any Indebtedness
of the Subsidiary being so designated shall be deemed an "Incurrence" of such
Indebtedness and an "Investment" by our company or such Restricted Subsidiary
(or both, it applicable) at the time of such designation; (B) either (I) the
Subsidiary to be so designated has total assets of $1,000 or less or (II) if
such Subsidiary has assets greater than $1,000, such designation would be
permitted under the "Limitation on Restricted Payments" covenant described
below and (C) if applicable, the Incurrence of Indebtedness and the Investment
referred to in clause (A) of this proviso would be permitted
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under the "Limitation on Indebtedness" and "Limitation on Restricted Payments"
covenants described below. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that (i) no
Default or Event of Default shall have occurred and be continuing at the time
of or after giving effect to such designation and (ii) all Liens and
Indebtedness of such Unrestricted Subsidiary outstanding immediately after such
designation would, if Incurred at such time, have been permitted to be Incurred
(and shall be deemed to have been Incurred) for all purposes of the Indenture.
Any such designation by the Board of Directors shall be evidenced to the
Trustee by promptly filing with the Trustee a copy of the resolution of the
Board of Directors giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
provisions.
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which the full
faith and credit of the United States of America is pledged or (ii) obligations
of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America, the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United
States of America, which, in either case, are not callable or redeemable at the
option of the issuer thereof at any time prior to the Stated Maturity of the
Old Notes, and shall also include a depository receipt issued by a bank or
trust company as custodian with respect to any such U.S. Government Obligation
or a specific payment of interest on or principal of any such U.S. Government
Obligation held by such custodian for the account of the holder of a depository
receipt; provided that (except as required by law) such custodian is not
authorized to make any deduction from the amount payable to the holder of such
depository receipt from any amount received by the custodian in respect of the
U.S. Government Obligation or the specific payment of interest on or principal
of the U.S. Government Obligation.
"Voting Stock" means with respect to any Person, Capital Stock of any class
or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person, the
ownership of all of the outstanding Capital Stock of such Subsidiary (other
than any director's qualifying shares or Investments by foreign nationals
mandated by applicable law) by such Person or one or more Wholly Owned
Subsidiaries of such Person.
Covenants
Limitation on Indebtedness
(a) We will not, and will not permit any of our Restricted Subsidiaries to,
Incur any Indebtedness (other than the Old Notes and Indebtedness existing on
the Closing Date); provided that we may Incur Indebtedness, and any Restricted
Subsidiary may Incur Acquired Indebtedness, if, after giving effect to the
Incurrence of such Indebtedness and the receipt and application of the proceeds
therefrom, the Consolidated Leverage Ratio would be greater than zero and less
than 6:1.
Notwithstanding the foregoing, we and any Restricted Subsidiary (except as
specified below) may Incur each and all of the following:
. Indebtedness (including any Indebtedness under one or more revolving
credit or working capital facilities) of the Company in an aggregate
principal amount outstanding at any time not to exceed the greater of
(A) the sum of (I) 80% of the consolidated book value of the accounts
receivable of our company and its Restricted Subsidiaries and (II)
60% of the consolidated book value of the inventory of the Company
and its Restricted Subsidiaries in each case as determined from the
financial statement of our company for the then most recent fiscal
quarter which has been filed with the Commission or provided to the
Trustee pursuant to the "Commission Reports and Reports to Holders"
covenant described below and (B) $25.0 million;
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. Indebtedness owed (A) to our company evidenced by a promissory note
or (B) to any Restricted Subsidiary; provided that any event which
results in any such Restricted Subsidiary ceasing to be a Restricted
Subsidiary or any subsequent transfer of such Indebtedness (other
than to our company or another Restricted Subsidiary) shall be
deemed, in each case, to constitute an Incurrence of such
Indebtedness not permitted by this item;
. Indebtedness issued in exchange for, or the net proceeds of which are
used to refinance or refund, then outstanding Indebtedness (other
than Indebtedness Incurred under the first, second, fourth, sixth,
ninth or tenth clause of this paragraph) and any refinancings thereof
in a principal amount not to exceed the principal amount so
refinanced or refunded (plus premiums, accrued interest, fees and
expenses) unless the Incurrence of such excess is otherwise permitted
by this covenant; provided that Indebtedness the proceeds of which
are used to refinance or refund the Old Notes or Indebtedness that is
pari passu with, or subordinated in right of payment to, the Old
Notes shall only be permitted under this clause (iii) if (A) in case
the Old Notes are refinanced in part or the Indebtedness to be
refinanced is pari passu with the Old Notes, such new Indebtedness,
by its terms or by the terms of any agreement or instrument pursuant
to which such new Indebtedness is outstanding, is expressly, made
pari passu with, or subordinate in right of payment to, the remaining
Old Notes, (B) in case the Indebtedness to be refinanced is
subordinated in right of payment to the Old Notes, such new
Indebtedness, by its terms or by the terms of any agreement or
instrument pursuant to which such new Indebtedness is issued or
remains outstanding, is expressly made subordinate in right of
payment to the Old Notes at least to the extent that the Indebtedness
to be refinanced is subordinated to the Old Notes and (C) such new
Indebtedness, determined as of the date of Incurrence of such new
Indebtedness, does not mature prior to the Stated Maturity of the
Indebtedness to be refinanced or refunded, and the Average Life of
such new Indebtedness is at least equal to the remaining Average Life
of the Indebtedness to be refinanced or refunded; and provided
further that in no event may Indebtedness of our company, be
refinanced by means of any Indebtedness of any Restricted Subsidiary,
pursuant to this item;
. Indebtedness (A) in respect of performance; surety or appeal bonds
provided in the ordinary course of business; (B) under Currency
Agreements and Interest Rate Agreements, provided that such
agreements (a) are designed solely to protect our company or its
Restricted Subsidiaries against fluctuations in foreign currency
exchange rates or interest rates and (b) do not increase the
Indebtedness of the obligor outstanding at any time other than as a
result of fluctuations in foreign currency exchange rates or interest
rates or by reason of fees, indemnities and compensation payable
thereunder; and (C) arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations,
or from Guarantees or letters of credit, surety bonds or performance
bonds securing any obligations of our company or any of its
Restricted Subsidiaries pursuant to such agreements, in any case
Incurred in connection with the disposition of any business, assets
or Restricted Subsidiary (other than Guarantees of Indebtedness
Incurred by any Person acquiring all or any portion of such business,
assets or Restricted Subsidiary for the purpose of financing such
acquisition), in a principal amount not to exceed the gross proceeds
actually received by our company or any Restricted Subsidiary in
connection with such disposition;
. Indebtedness of our company or any Restricted Subsidiary, to the
extent the net proceeds thereof are promptly (A) used to purchase Old
Notes tendered in an Offer to Purchase made as a result of a Change
in Control or (B) deposited to defease the Old Notes as described
below under "Defeasance";
. Guarantees of the Old Notes and Guarantees of Indebtedness of our
company by any Restricted Subsidiary, provided the Guarantee of such
Indebtedness is permitted by and made in accordance with the
"Limitation on Issuance of Guarantees by Restricted Subsidiaries"
covenant described below;
. Indebtedness Incurred to finance the cost (including the cost of
design, development, acquisition, construction, installation,
improvement, transportation or integration) to acquire equipment,
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inventory or network assets (including acquisitions by way of
Capitalized Lease and acquisitions of the Capital Stock of a Person
that becomes a Restricted Subsidiary to the extent of the fair market
value of the equipment, inventory or network assets so acquired) by the
Company or a Restricted Subsidiary after the Closing Date;
. Indebtedness of our company not to exceed, at any one time
outstanding, two times the sum of (A) the Net Cash Proceeds received
by our company after the Closing Date from the issuance and sale of
its Capital Stock (other than Disqualified Stock) to a Person that is
not a Restricted Subsidiary of our company, to the extent such Net
Cash Proceeds have not been used pursuant to clause (C)(2) of the
first paragraph or the third, fourth, sixth or seventh clause of the
second paragraph of the "Limitation on Restricted Payments" covenant
described below to make a Restricted Payment and (B) 80% of the fair
market value of property (other than cash and cash equivalents)
received by the Company after the Closing Date from the sale of its
Capital Stock (other than Disqualified Stock) to a Person that is not
a Restricted Subsidiary of the Company, to the extent such sale of
Capital Stock has not been used pursuant to the third, fourth, sixth
or seventh clause of the second paragraph of the "Limitation on
Restricted Payments" covenant described below to make a Restricted
Payment: provided that such Indebtedness does not mature prior to the
Stated Maturity of the Old Notes and has an Average Life longer than
the Old Notes;
. Indebtedness of our company, in an aggregate principal amount
outstanding at any time not to exceed $1.0 million. Incurred in
connection with the repurchase of shares of Capital Stock of the
Company, options on any such shares or related stock appreciation
rights held by employees, former employees, directors or former
directors (or their estates or beneficiaries under their estates),
upon death, disability, retirement or termination of employment;
provided that such Indebtedness, by its terms, (A) is expressly made
subordinate in right of payment to the Old Notes, and (B) provides
that no payments of principal (including by way of sinking fund,
mandatory redemption or otherwise (including defeasance)), may be made
while any of the Old Notes are outstanding; and
. Indebtedness of our company (in addition to Indebtedness permitted
under the preceding clauses in an aggregate principal amount
outstanding at any time not to exceed $55.0 million, less any amount
of such Indebtedness permanently repaid as provided under the
"Limitation on Asset Sales" covenant described below.
(b) Notwithstanding any other provision of this "Limitation on
Indebtedness" covenant, the maximum amount of Indebtedness that our company or
a Restricted Subsidiary may Incur pursuant to this "Limitation on
Indebtedness" covenant shall not be deemed to be exceeded, with respect to any
outstanding Indebtedness due solely to the result of fluctuations in the
exchange rates of currencies.
(c) For purposes of determining any particular amount of Indebtedness under
this "Limitation on Indebtedness" covenant, (1) Guarantees, Liens or
obligations with respect to letters of credit supporting Indebtedness
otherwise included in the determination of such particular amount shall not be
included and (2) any Liens granted pursuant to the equal and ratable
provisions referred to in the "Limitation on Liens" covenant described below
shall not be treated as Indebtedness. For purposes of determining compliance
with this "Limitation on Indebtedness" covenant, in the event that an item of
Indebtedness meets the criteria of more than one of the types of Indebtedness
described in the above clauses, our company, in its sole discretion, shall
classify and may, from time to time, reclassify, such item of Indebtedness and
only be required to include the amount and type of such Indebtedness in one of
such clauses.
Limitation on Restricted Payments
Our company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly,
. declare or pay any dividend or make any distribution on or with
respect to its Capital Stock (other than (x) dividends or
distributions payable solely in shares of its Capital Stock (other
than Disqualified Stock) or in options, warrants or other rights to
acquire shares of such Capital Stock
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and (y) pro rata dividends or distributions on Common Stock of
Restricted Subsidiaries held by minority stockholders) held by Persons
other than our company or any of its Restricted Subsidiaries,
. purchase, redeem, retire or otherwise acquire for value any shares of
Capital Stock of (A) our company or an Unrestricted Subsidiary
(including options, warrants or other rights to acquire such shares
of Capital Stock) held by any Person or (B) a Restricted Subsidiary
(including options, warrants or other rights to acquire such shares
of Capital Stock) held by any Affiliate of our company (other than a
Wholly Owned Restricted Subsidiary) or any holder (or any Affiliate
of such holder) of 5% or more of the Capital Stock of our company,
. make any voluntary or optional principal payment, or voluntary or
optional redemption, repurchase, defeasance, or other acquisition or
retirement for value, of Indebtedness of our company that is
subordinated in right of payment to the Old Notes, or
. make any Investment, other than a Permitted Investment, in any Person
(such payments or any other actions described in clauses (i) through (iv)
above being collectively "Restricted Payments") if, at the time of, and
after giving effect to, the proposed Restricted Payment: (A) a Default or
Event of Default shall have occurred and be continuing, (B) our company
could not Incur at least $1.00 of Indebtedness under the first paragraph
of the "Limitation on Indebtedness" covenant or (C) the aggregate amount
of all Restricted Payments (the amount, if other than in cash, to be
determined in good faith by the Board of Directors, whose determination
shall be conclusive and evidenced by a resolution of the Board of
Directors) made after the Closing Date shall exceed the sum of (1) the
aggregate amount of the Consolidated EBITDA (or, if Consolidated EBITDA is
negative, minus the amount by which Consolidated EBITDA is less than zero)
less 1.5 times Consolidated Interest Expense, in each case accrued on a
cumulative basis during the period (taken as one accounting period)
beginning on the first day of the fiscal quarter immediately following the
Closing Date and ending on the last day of the last fiscal quarter
preceding the Transaction Date for which reports have been filed with the
Commission or provided to the Trustee pursuant to the "Commission Reports
and Reports to Holders" covenant plus (2) the aggregate Net Cash Proceeds
received by our company after the Closing Date from the issuance and sale
permitted by the Indenture of its Capital Stock (other than Disqualified
Stock) to a Person who is not a Restricted Subsidiary of our company,
including an issuance or sale permitted by the Indenture of Indebtedness
of our company for cash subsequent to the Closing Date upon the conversion
of such Indebtedness into Capital Stock (other than Disqualified Stock) of
our company, or from the issuance to a Person who is not a Restricted
Subsidiary of our company of any options, warrants or other rights to
acquire Capital Stock of our company (in each case, exclusive of any
Disqualified Stock or any options, warrants or other rights that are
redeemable at the option of the holder, or are required to be redeemed,
prior to the Stated Maturity of the Old Notes), in each case except to the
extent such Net Cash Proceeds are used to Incur Indebtedness pursuant to
clause (viii) of the second paragraph under the "Limitation on
Indebtedness" covenant plus (3) an amount equal to the net reduction in
Investments (other than reductions in Permitted Investments) in any Person
resulting from payments of interest on Indebtedness, dividends,
distributions, repayments of loans or advances, or other transfers of
assets, in each case to our company or any Restricted Subsidiary or from
the Net Cash Proceeds from the sale of any such Investment (except, in
each case, to the extent any such payment or proceeds are included in the
calculation of Adjusted Consolidated Net Income), or from redesignations
of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each
case as provided in the definition of "Investments"), not to exceed, in
each case, the amount of Investments previously made by our company or any
Restricted Subsidiary in such Person or Unrestricted Subsidiary.
The foregoing provision shall not be violated by reason of:
. the payment of any dividend within 60 days after the date of
declaration thereof if, at said date of declaration, such payment
would comply with the foregoing paragraph;
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. the redemption, repurchase, defeasance or other acquisition or
retirement for value of Indebtedness that is subordinated in right of
payment to the Old Notes, including premium, if any, and accrued and
unpaid interest, with the proceeds of, or in exchange for,
Indebtedness Incurred under clause (iii) of the second paragraph of
part (a) of the "Limitation on Indebtedness" covenant;
. the repurchase, redemption or other acquisition of Capital Stock of
our company or an Unrestricted Subsidiary (or options, warrants or
other rights to acquire such Capital Stock) in exchange for, or out
of the proceeds of, a substantially concurrent offering of, shares of
Capital Stock (other than Disqualified Stock) of the Company (or
options, warrants or other rights to acquire such Capital Stock);
. the making of any principal payment or the repurchase, redemption,
retirement, defeasance or other acquisition for value of Indebtedness
of our company which is subordinated in right of payment to the Old
Notes in exchange for, or out of the proceeds of a substantially
concurrent offering of shares of the Capital Stock (other than
Disqualified Stock) of our company (or options, warrants or other
rights to acquire such Capital Stock);
. payments or distributions to dissenting stockholders pursuant to
applicable law, pursuant to or in connection with a consolidation,
merger or transfer of assets that complies with the provisions of the
Indenture applicable to mergers, consolidations and transfers of all
or substantially all of the property and assets of our company;
. Investments in any Person the primary business of which is related,
ancillary or complementary to the business of our company and its
Restricted Subsidiaries on the date of such Investments, provided
that the aggregate amount of Investments made pursuant to this clause
(vi) does not exceed the sum of (x) $30.0 million plus (y) the amount
of Net Cash Proceeds received by our company after the Closing Date
from the sale of its Capital Stock (other than Disqualified Stock) to
a Person who is not a Restricted Subsidiary of the Company, except to
the extent such Net Cash Proceeds are used to Incur Indebtedness
pursuant to the eighth clause under the "Limitation on Indebtedness"
covenant or to make Restricted Payments pursuant to clause (C)(2) of
the first paragraph, or the third or fourth clause of this paragraph,
of this "Limitation on Restricted Payments" covenant, plus (z) the
net reduction in Investments made pursuant to this clause
(vi) resulting from distributions on or repayments of such
Investments or from the Net Cash Proceeds from the sale of any such
Investment (except in each case to the extent any such payment or
proceeds is included in the calculation of Consolidated EBITDA) or
from such Person becoming a Restricted Subsidiary (valued in each
case as provided in the definition of "Investments"); provided that
the net reduction in any Investment shall not exceed the amount of
such Investment;
. Investments acquired in exchange for Capital Stock (other than
Disqualified Stock) of our company;
. the declaration or payment of dividends on the Common Stock of the
Company following a Public Equity Offering of such Common Stock of up
to 6.0% per annum of the Net Cash Proceeds received by our company in
such Public Equity Offering; (ix) repurchases of Warrants pursuant to
a Repurchase Offer; (x) any purchase of any fractional share of
Common Stock of our company in connection with an exercise of the
Warrants; or
. repurchases of Capital Stock of our company from employees, former
employees, directors, former directors, consultants or former
consultants of our company (or their estates or beneficiaries under
their estates) upon their death, disability, retirement, or
termination of employment; provided that the aggregate amount of such
repurchases shall not exceed $1.0 million in any calendar year or
$5.0 million in the aggregate; provided that, except in the case of
clauses (i) and (iii), no Default or Event of Default shall have
occurred and be continuing or occur as a consequence of the actions
or payments set forth therein.
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Each Restricted Payment permitted pursuant to the preceding paragraph (other
than the Restricted Payment referred to in clause (ii) thereof, an exchange of
Capital Stock for Capital Stock or Indebtedness referred to in clause (iii) or
(iv) thereof and an Investment referred to in clause (vi) thereof), and the Net
Cash Proceeds from any issuance of Capital Stock referred to in clauses (iii)
and (iv) thereof, shall be included in calculating whether the condition of
clause (C) of the first paragraph of this "Limitation on Restricted Payments"
covenant have been met with respect to any subsequent Restricted Payments. In
the event the proceeds of an issuance of Capital Stock of the Company are used
for the redemption, repurchase or other acquisition of the Old Notes, or
Indebtedness that is pari passu with the Old Notes, then the Net Cash Proceeds
of such issuance shall be included in clause (C) of the first paragraph of this
"Limitation on Restricted Payments" covenant only to the extent such proceeds
are not used for such redemption, repurchase or other acquisition of
Indebtedness.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
The Company will not, and will not permit any Restricted Subsidiary to,
create or otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions permitted by
applicable law on any Capital Stock of such Restricted Subsidiary owned by our
company or any other Restricted Subsidiary, (ii) pay any Indebtedness owed to
our company or any other Restricted Subsidiary, (iii) make loans or advances to
our company or any other Restricted Subsidiary or (iv) transfer any of its
property or assets to our company or any other Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions:
. existing on the Closing Date in the Indenture or any other agreements
in effect on the Closing Date, and any extensions, refinancings,
renewals or replacements of such agreements, provided that the
encumbrances and restrictions in any such extensions, refinancings,
renewals or replacements are no less favorable in any material
respect to the holders than those encumbrances or restrictions that
are then in effect and that are being extended, refinanced, renewed
or replaced;
. existing under or by reason of applicable law;
. existing with respect to any Person or the property or assets of such
Person acquired by our company or any Restricted Subsidiary, existing
at the time of such acquisition and not incurred in contemplation
thereof, which encumbrances or restrictions are not applicable to any
Person or the property or assets of any Person other than such Person
or the property or assets of such Person so acquired, and any
extensions, refinancings, renewals or replacements of agreements of
such Person existing at the time of such acquisition; provided, that
the encumbrances and restrictions in any such extensions,
refinancings, renewals or replacements do not extend to any Person or
the property or assets of any Person other than such Person or the
property and assets of such Person so acquired;
. in the case of the fourth clause of the first paragraph of this
"Limitation on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries" covenant, (A) that restrict in a customary
manner the subletting, assignment or transfer of any property or
asset that is subject to a lease, license, conveyance or contract or
similar property or asset, (B) existing by virtue of any transfer of,
agreement to transfer, option or right with respect to, or Lien on,
any property or assets of our company or any Restricted Subsidiary
not otherwise prohibited by the Indenture or (C) arising or agreed to
in the ordinary course of business, not relating to any Indebtedness,
and that do not, individually or in the aggregate, detract from the
value of property or assets of the Company or any Restricted
Subsidiary in any manner material to our company or any Restricted
Subsidiary;
. with respect to a Restricted Subsidiary and imposed pursuant to an
agreement that has been entered into for the sale or disposition of
all or substantially all of the Capital Stock of, or property and
assets of, such Restricted Subsidiary; or
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. contained in the terms of any Indebtedness or any agreement pursuant
to which such Indebtedness was issued if (A) the encumbrance or
restriction is not materially more disadvantageous to the holders of
the Old Notes than is customary in comparable financings (as
determined by our company) and (B) our company determines that any
such encumbrance or restriction is not reasonably expected to
materially affect our company's ability to make principal or interest
payments on the Old Notes. Nothing contained in this "Limitation on
Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant shall prevent our company or any Restricted
Subsidiary from (1) creating, incurring, assuming or suffering to
exist any Liens otherwise permitted in the "Limitation on Liens"
covenant or (2) restricting the sale or other disposition of property
or assets of the Company or any of its Restricted Subsidiaries that
secure Indebtedness of our company or any of its Restricted
Subsidiaries.
Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries
Our company will not sell, and will not permit any Restricted Subsidiary,
directly or indirectly, to issue or sell, any shares of Capital Stock of a
Restricted Subsidiary (including options, warrants or other rights to purchase
shares of such Capital Stock) except (i) to our company or a Wholly Owned
Restricted Subsidiary; (ii) issuances of director's qualifying shares or sales
to foreign nationals of shares of Capital Stock of foreign Restricted
Subsidiaries, to the extent required by applicable law; (iii) if, immediately
after giving effect to such issuance or sale, such Restricted Subsidiary would
no longer constitute a Restricted Subsidiary and any Investment in such Person
remaining after giving effect to such issuance or sale would have been
permitted to be made under the "'Limitation on Restricted Payments" covenant if
made on the date of such issuance or sale; (iv) issuances or sales of Common
Stock of a Restricted Subsidiary; provided that the Company or such Restricted
Subsidiary applies the Net Cash Proceeds, if any, of any such sale in
accordance with clause (A) or (B) of the "Limitation on Asset Sales" covenant
described below or (v) issuances or sales of Disqualified Stock if the
"Limitation on Indebtedness" covenant would permit the Disqualified Stock to be
issued or sold (treating the Disqualified Stock as Indebtedness for such
purpose).
Limitation on Issuances of Guarantees by Restricted Subsidiaries
Our company will not permit any Restricted Subsidiary to (x) directly or
indirectly Guarantee any Indebtedness of our company which is pari passu with
or subordinate in right of payment to the Old Notes ("Guaranteed Indebtedness")
or (y) issue any Debt Securities (other than Indebtedness Incurred pursuant to
the fifth clause of the "Limitation on Indebtedness" covenant), unless (i) such
Restricted Subsidiary simultaneously executes and delivers a supplemental
indenture to the Indenture providing for a Guarantee (a "Subsidiary Guarantee")
of payment of the Old Notes by such Restricted Subsidiary and (ii) such
Restricted Subsidiary waives and will not in any manner whatsoever claim or
take the benefit or advantage of, any rights of reimbursement, indemnity or
subrogation or any other rights against our company or any other Restricted
Subsidiary as a result of any payment by such Restricted Subsidiary under its
Subsidiary Guarantee; provided that this paragraph shall not be applicable to
any Guarantee of any Restricted Subsidiary that existed at the time such Person
became a Restricted Subsidiary and was not Incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary. If the
Guaranteed Indebtedness is (A) pari passu with the Old Notes, then the
Guarantee of such Guaranteed Indebtedness shall be pari passu with, or
subordinated to, the Subsidiary Guarantee or (B) subordinated to the Old Notes,
then the Guarantee of such Guaranteed Indebtedness shall be subordinated to the
Subsidiary Guarantee at least to the extent that the Guaranteed Indebtedness is
subordinated to the Old Notes.
Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary may provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or
transfer, to any Person not an Affiliate of our company, of all of our
company's and each Restricted Subsidiary's Capital Stock in, or all or
substantially all the assets of, such Restricted Subsidiary (which sale,
exchange or transfer is not prohibited by the Indenture) or (ii) the release or
discharge of the Guarantee which
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resulted in the creation of such Subsidiary Guarantee, except a discharge or
release by or as a result of payment under such Guarantee.
Limitation on Transactions with Stockholders and Affiliates
We will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, enter into, renew or extend any transaction (including, without
limitation, the purchase, sale, lease or exchange of property or assets, or the
rendering of any service) with any holder (or any Affiliate of such holder) of
5.0% or more of any class of Capital Stock of our company or with any Affiliate
of our company or any Restricted Subsidiary, except upon fair and reasonable
terms no less favorable to our company or such Restricted Subsidiary than could
be obtained, at the time of such transaction or, if such transaction is
pursuant to a written agreement, at the time of the execution of the agreement
providing therefor, in a comparable arm's-length transaction with a Person that
is not such a holder or an Affiliate.
The foregoing limitation does not limit, and shall not apply to
. transactions (A) approved by a majority of the disinterested members
of the Board of Directors or (B) for which the Company or a
Restricted Subsidiary delivers to the Trustee a written opinion of a
nationally recognized investment banking firm (including, without
limitation, the Placement Agent and its Affiliates) stating that the
transaction is fair to our company or such Restricted Subsidiary from
a financial point of view;
. any transaction solely between our company and any of its Wholly
Owned Restricted Subsidiaries or solely between Wholly Owned
Restricted Subsidiaries;
. the payment of reasonable and customary regular fees to directors of
our company who are not employees of our company;
. any payments or other transactions pursuant to any tax-sharing
agreement between our company and any other Person with which our
company files a consolidated tax return or with which our company is
part of a consolidated group for tax purposes;
. transactions between our company or any of its Restricted
Subsidiaries and a non-Wholly Owned Restricted Subsidiary or an
Unrestricted Subsidiary on a cost, rather than fair market value,
basis, or on other terms of the kind customarily employed to allocate
charges among members of a consolidated group of entities, in any
such case that are fair and reasonable to our company or such
Restricted Subsidiary; provided that the aggregate fair market value
of the consideration subject to such transactions does not exceed
$1.0 million in any calendar year;
. payment of fees to the Placement Agent or its Affiliates for
financial, advisory, consulting or investment banking services that
the Board of Directors deems to be advisable or appropriate
(including, without limitation, the payment of any underwriting
discounts or commissions or placement agency fees in connection with
the issuance and sale of securities); or
. any Restricted Payments not prohibited by the "Limitation on
Restricted Payments" covenant. Notwithstanding the foregoing, any
transaction or series of related transactions covered by the first
paragraph of this "Limitation on Transactions with Stockholders and
Affiliates" covenant and not covered by the second and third items of
this paragraph, (a) the aggregate amount of which exceeds $5.0
million in value, must be approved or determined to be fair in the
manner provided for in subclause (A) or (B) of the first item above
and (b) the aggregate amount of which exceeds $10.0 million in value,
must be determined to be fair in the manner provided for in clause
(i)(B) above.
Limitation on Liens
We will not, and will not permit any Restricted Subsidiary to, create,
incur, assume or suffer to exist any Lien on any of its assets or properties of
any character, or any shares of Capital Stock or Indebtedness
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of any Restricted Subsidiary, without making effective provision for all of the
Old Notes and all other amounts due under the Indenture to be directly secured
equally and ratably with (or, if the obligation or liability to be secured by
such Lien is subordinated in right of payment to the Old Notes, prior to) the
obligation or liability secured by such Lien.
The foregoing limitation does not apply to (i) Liens existing on the Closing
Date; (ii) Liens granted after the Closing Date on any assets or Capital Stock
of our company or its Restricted Subsidiaries created in favor of the holders;
(iii) Liens with respect to the assets of a Restricted Subsidiary granted by
such Restricted Subsidiary to our company or a Wholly Owned Restricted
Subsidiary to secure Indebtedness owing to our company or such other Restricted
Subsidiary; (iv) Liens securing Indebtedness which is Incurred to refinance
secured Indebtedness which is permitted to be Incurred under the third clause
of the second paragraph of the "Limitation on Indebtedness" covenant; provided
that such Liens do not extend to or cover any property or assets of our company
or any Restricted Subsidiary other than the property or assets securing the
Indebtedness being refinanced; (v) Liens on the Capital Stock of, or any
property or assets of, a Restricted Subsidiary securing Indebtedness of such
Restricted Subsidiary permitted under the "Limitation on Indebtedness"
covenant; (vi) Liens securing (A) obligations under revolving credit, working
capital or similar facilities Incurred under clause (i), or (B) Indebtedness
Incurred under the seventh clause of the second paragraph of the "Limitation on
Indebtedness" covenant; or (vii) Permitted Liens.
Limitation on Sale and Leaseback Transactions
We will not, and will not permit any Restricted Subsidiary to, enter into
any Sale and Leaseback Transaction.
The foregoing restriction does not apply to any Sale and Leaseback
Transaction if (i) the lease is for a period, including renewal rights, of not
in excess of three years; (ii) the lease secures or relates to industrial
revenue or pollution control bonds; (iii) the transaction is solely between our
company and any Wholly Owned Restricted Subsidiary or solely between Wholly
Owned Restricted Subsidiaries; or (iv) our company or such Restricted
Subsidiary, within 12 months after the sale or transfer of any assets or
properties is completed, applies an amount not less than the net proceeds
received from such sale in accordance with clause (A) or (B) of the first
paragraph of the "Limitation on Asset Sales" covenant described below.
Limitation on Asset Sales
The Company will not, and will not permit any Restricted Subsidiary to,
consummate any Asset Sale, unless (i) the consideration received by our company
or such Restricted Subsidiary is at least equal to the fair market value of the
assets sold or disposed of and (ii) at least 75% of the consideration received
consists of any combination of cash or Temporary Cash Investments or the
assumption of unsubordinated Indebtedness of our company or Indebtedness of any
Restricted Subsidiary, provided that our company or such Restricted Subsidiary
is irrevocably and unconditionally released from all liability under such
Indebtedness. In the event and to the extent that the Net Cash Proceeds
received by our company or any of its Restricted Subsidiaries from one or more
Asset Sales occurring on or after the Closing Date in any period of 12
consecutive months exceed 10% of Adjusted Consolidated Net Tangible Assets
(determined as of the date closest to the commencement of such 12-month period
for which a consolidated balance sheet of the Company and its Subsidiaries has
been filed with the Commission or provided to the Trustee pursuant to the
"Commission Reports and Reports to Holders" covenant), then our company shall
or shall cause the relevant Restricted Subsidiary to (i) within 12 months after
the date Net Cash Proceeds so received exceed 10% of Adjusted Consolidated Net
Tangible Assets (A) apply an amount equal to such excess Net Cash Proceeds to
permanently repay unsubordinated Indebtedness of the Company, or any Restricted
Subsidiary providing a Subsidiary Guarantee pursuant to the "Limitation on
Issuances of Guarantees by Restricted Subsidiaries" covenant described above or
Indebtedness of any other Restricted Subsidiary, in each case owing to a Person
other than our company or any of its Restricted Subsidiaries or (B) invest an
equal amount, or the amount not so applied pursuant to clause (A) (or enter
into a definitive agreement committing to so invest within 12 months after the
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date of such agreement), in property or assets (other than current assets) of a
nature or type or that are used in a business (or in a Person having property
and assets of a nature or type, or engaged in a business) similar or related to
the nature or type of the property and assets of, or the business of, and its
Restricted Subsidiaries existing on the date of such investment and (ii) apply
(no later than the end of the 12-month period referred to in clause (i)) such
excess Net Cash Proceeds (to the extent not applied (or committed to be
applied) pursuant to clause (i)) as provided in the following paragraph of this
"Limitation on Asset Sales" covenant. The amount of such excess Net Cash
Proceeds required to be applied (or to be committed to be applied) during such
12-month period as set forth in clause (i) of the preceding sentence and not
applied as so required by the end of such period shall constitute "Excess
Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to
this "Limitation on Asset Sales" covenant totals at least $5.0 million, our
company must commence, not later than the fifteenth Business Day of such month,
and consummate an Offer to Purchase from the holders on a pro rata basis an
aggregate principal amount of Old Notes equal to the Excess Proceeds on such
date, at a purchase price equal to 100% of the principal amount of the Old
Notes on the relevant Payment Date, plus, in each case, accrued interest, if
any, to the Payment Date.
Repurchase of Old Notes upon a Change of Control
Our company must commence, within 30 days of the occurrence of a Change of
Control, and thereafter consummate an Offer to Purchase for all Old Notes then
outstanding, at a purchase price equal to 101% of the principal amount thereof
on the relevant Payment Date, plus accrued interest, if any, to the Payment
Date.
There can be no assurance that our company will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of Old Notes) required by the foregoing covenant (as
well as may be contained in other securities of our company which might be
outstanding at the time). The above covenant requiring our company to
repurchase the Old Notes will, unless consents are obtained, require our
company to repay all indebtedness then outstanding which by its terms would
prohibit such Note repurchase, either prior to or concurrently with such Note
repurchase.
Commission Reports and Reports to Holders
At all times from and after the earlier of (i) the date of the commencement
of an Exchange Offer or the effectiveness of the Shelf Registration Statement
(the "Registration") and (ii) the date that is one year after the Closing Date,
in either case, whether or not the Company is then required to file reports
with the Commission, our company shall file with the Commission all such
reports and other information as it would be required to file with the
Commission by Sections 13(a) or 15(d) under the Exchange Act if it were subject
thereto. Our company shall supply the Trustee and each holder or shall supply
to the Trustee for forwarding to each such holder, without cost to such holder,
copies of such reports and other information. At all times prior to the earlier
of the date of the Registration and the date that is one year after the Closing
Date, our company shall supply the Trustee and each holder or shall supply to
the Trustee for forwarding to each such holder, without cost to such holder,
quarterly and annual reports substantially equivalent to those which would be
required by the Exchange Act. In addition, at all times prior to the sale of
the Old Notes pursuant to an effective registration statement, upon the request
of any holder or any prospective purchaser of the Old Notes designated by a
holder, the Company shall supply to such holder or such prospective purchaser
the information required under Rule 144A under the Securities Act.
Events of Default
The following events are defined as "Events of Default" in the Indenture:
(a) default in the payment of principal of (or premium, if any, on) any Note
when the same becomes due and payable at maturity, upon acceleration,
redemption or otherwise; (b) default in the payment of interest on any Note
when the same becomes due and payable, and such default continues for a period
of 30 days or a failure by our company to
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make any of the first six scheduled interest payments on the Old Notes on the
applicable Interest Payment Date; (c) default in the performance or breach of
the provisions of the Indenture applicable to mergers, consolidations and
transfers of all or substantially all of the assets of our company or the
failure to make or consummate an Offer to Purchase in accordance with the
"Limitation on Asset Sales" or "Repurchase of Notes upon a Change of Control"
covenant; (d) our company defaults in the performance of or breaches any other
covenant or agreement of our company in the Indenture or under the Old Notes
(other than a default specified in clause (a), (b) or (c) above) and such
default or breach continues for a period of 30 consecutive days after written
notice by the Trustee or the holders of 25% or more in aggregate principal
amount of the Old Notes; (e) there occurs with respect to any issue or issues
of Indebtedness of our company or any Significant Subsidiary having an
outstanding principal amount of $10.0 million or more in the aggregate for all
such issues of all such Persons, whether such Indebtedness now exists or shall
hereafter be created, (I) an event of default that has caused the holder
thereof to declare such Indebtedness to be due and payable prior to its Stated
Maturity and such Indebtedness has not been discharged in full or such
acceleration has not been rescinded or annulled within 30 days of such
acceleration and/or (II) the failure to make a principal payment at the final
(but not any interim) fixed maturity and such defaulted payment shall not have
been made, waived or extended within 30 days of such payment default; (f) any
final judgment or order (not covered by insurance) for the payment of money in
excess of $10.0 million in the aggregate for all such final judgments or orders
against all such Persons (treating any deductibles, self-insurance or retention
as not so covered) shall be rendered against our company or any Significant
Subsidiary and shall not be paid or discharged, and there shall be any period
of 30 consecutive days following entry of the final judgment or order that
causes the aggregate amount for all such final judgments or orders outstanding
and not paid or discharged against all such Persons to exceed $10.0 million
during which a stay of enforcement of such final judgment or order by reason of
a pending appeal or otherwise, shall not be in effect; (g) a court having
jurisdiction in the premises enters a decree or order for (A) relief in respect
of our company or any Significant Subsidiary in an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, (B) appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator or similar official of our company or any Significant
Subsidiary or for all or substantially all of the property, and assets of our
company or any Significant Subsidiary or (C) the winding up or liquidation of
the affairs of our company or any Significant Subsidiary and, in each case,
such decree or order shall remain unstayed and in effect for a period of 60
consecutive days; (h) our company or any Significant Subsidiary (A) commences a
voluntary case under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, or consents to the entry of an order for relief in
an involuntary case under any such law, (B) consents to the appointment of or
taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of our company or any Significant Subsidiary
or for all or substantially all of the property and assets of our company or
any Significant Subsidiary or (C) effects any general assignment for the
benefit of creditors or (i) the Pledge Agreement shall cease to be in full
force and effect or to be enforceable in accordance with its terms, except as
provided therein.
If an Event of Default (other than an Event of Default specified in clause
(g) or (h) above that occurs with respect to our company) occurs and is
continuing under the Indenture, the Trustee or the holders of at least 25% in
aggregate principal amount of the Old Notes then outstanding, by written notice
to our company (and to the Trustee if such notice is given by the holders),
may, and the Trustee at the request of such holders shall, declare the
aggregate principal amount of, premium, if any, and accrued interest on the Old
Notes to be immediately due and payable. Upon a declaration of acceleration,
such principal amount, premium, if any, and accrued interest shall be
immediately due and payable. In the event of a declaration of acceleration
because an Event of Default set forth in clause (e) above has occurred and is
continuing, such declaration of acceleration shall be automatically rescinded
and annulled if the event of default triggering such Event of Default pursuant
to clause (e) shall be remedied or cured by our company or the relevant
Significant Subsidiary or waived by the holders of the relevant Indebtedness
within 60 days after the declaration of acceleration with respect thereto. If
an Event of Default specified in clause (g) or (h) above occurs with respect to
our company, the principal amount of, premium, if any, and accrued interest on
the Old Notes then outstanding shall ipso facto become and be immediately due
and payable without any declaration or other act on the part of the Trustee or
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any holder. The holders of at least a majority in aggregate principal amount of
the outstanding Old Notes, by written notice to our company and to the Trustee,
may waive all past defaults and rescind and annul a declaration of acceleration
and its consequences if (i) all existing Events of Default, other than the
nonpayment of the principal amount of, premium, if any, and interest on the Old
Notes that have become due solely by such declaration of acceleration, have
been cured or waived and (ii) the rescission would not conflict with any
judgment or decree of a court of competent jurisdiction. For information as to
the waiver of defaults, see "--Modification and Waiver" below.
The holders of at least a majority in aggregate principal amount of the
outstanding Old Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or the Indenture, that may involve the
Trustee in personal liability, or that the Trustee determines in good faith may
be unduly prejudicial to the rights of holders of Old Notes not joining in the
giving of such direction and may take any other action it deems proper that is
not inconsistent with any such direction received from holders of Old Notes. A
holder may not pursue any remedy with respect to the Indenture or the Old Notes
unless: (i) the holder gives the Trustee written notice of a continuing Event
of Default; (ii) the holders of at least 25% in aggregate principal amount of
outstanding Old Notes make a written request to the Trustee to pursue the
remedy; (iii) such holder or holders offer the Trustee indemnity satisfactory
to the Trustee against any costs, liability or expense; (iv) the Trustee does
not comply with the request within 60 days after receipt of the request and the
offer of indemnity; and (v) during such 60-day period, the holders of a
majority in aggregate principal amount of the outstanding Old Notes do not give
the Trustee a direction that is inconsistent with the request. However, such
limitations do not apply to the right of any holder of a Note to receive
payment of the principal amount of, premium, if any, or interest on, such Note
or to bring suit for the enforcement of any such payment, on or after the due
date expressed in the Old Notes, which right shall not be impaired or affected
without the consent of such holder.
The Indenture requires certain officers of our company to certify, on or
before a date not more than 90 days after the end of each fiscal year, that a
review has been conducted of the activities of our company and its Restricted
Subsidiaries and our company's and its Restricted Subsidiaries' performance
under the Indenture and that our company has fulfilled all obligations
thereunder, or, if there has been a default in the fulfillment of any such
obligation, specifying each such default and the nature and status thereof. Our
company will also be obligated to notify the Trustee of any default or defaults
in the performance of any covenants or agreements under the Indenture.
Consolidation, Merger and Sale of Assets
Our company will not consolidate with, merge with or into, or sell, convey,
transfer, lease or otherwise dispose of all or substantially all of its
property and assets (as an entirety or substantially an entirety in one
transaction or a series of related transactions) to, any Person or permit any
Person to merge with or into our company unless:
. our company shall be the continuing Person, or the Person (if other
than our company) formed by such consolidation or into which our
company is merged or that acquired or leased such property, and
assets of our company shall be a corporation organized and validly
existing under the laws of the United States of America or any
jurisdiction thereof and shall expressly assume, by a supplemental
indenture, executed and delivered to the Trustee, all of the
obligations of our company on all of the Old Notes and under the
Indenture;
. immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing;
. immediately after giving effect to such transaction on a pro forma
basis, our company or any Person becoming the successor obligor of
the Old Notes (including any Person which would, after giving effect
to the merger or consolidation, properly classify our company as a
subsidiary in
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accordance with GAAP, and which expressly guarantees the obligations of
our company under the Old Notes through a supplemental indenture) shall
have a Consolidated Net Worth equal to or greater than 90% of the
Consolidated Net Worth of our company immediately prior to such
transaction;
. immediately after giving effect to such transaction on a pro forma
basis, our company, or any Person becoming the successor obligor of
the Old Notes (including any Person which would, after giving effect
to the merger or consolidation, properly classify our company as a
subsidiary in accordance with GAAP, and which expressly guarantees the
obligations of our company under the Old Notes through a supplemental
indenture) as the case may be, shall have a Consolidated Leverage
Ratio not greater than 110% of the Consolidated Leverage Ratio of our
company immediately prior to the transaction, provided, however, that
the fourth item shall not apply to a consolidation or merger with or
into a Wholly Owned Restricted Subsidiary with a positive net worth;
and
. our company delivers to the Trustee an Officers' Certificate
(attaching the arithmetic computations to demonstrate compliance with
the third and fourth items above) and an Opinion of Counsel, in each
case stating that such consolidation, merger or transfer and such
supplemental indenture comply with this provision and that all
conditions precedent provided for herein relating to such transaction
have been complied with; provided, however, that the third and fourth
items above do not apply if, in the good faith determination of the
Board of Directors of our company, whose determination shall be
evidenced by a resolution of the Board of Directors, the principal
purpose of such transaction is to change the state of incorporation of
the Company; provided further that, in connection with any such merger
or consolidation, no consideration (other than Capital Stock (other
than Disqualified Stock) in the surviving Person or our company) shall
be issued or distributed to the stockholders of our company; and
provided further that any such transaction shall not have as one of
its purposes the evasion of the foregoing limitations.
Defeasance
Defeasance and Discharge. The Indenture provides that our company will be
deemed to have paid and will be discharged from any and all obligations in
respect of the Old Notes on the 123rd day after the deposit referred to below,
and the provisions of the Indenture will no longer be in effect with respect
to the Old Notes (except for, among other matters, certain obligations to
register the transfer or exchange of the Old Notes, to replace stolen, lost or
mutilated Old Notes, to maintain paying agencies and to hold monies for
payment in trust) if, among other things, (A) our company has deposited with
the Trustee, in trust, money and/or U.S. Government Obligations that through
the payment of interest and principal in respect thereof in accordance with
their terms will provide money in an amount sufficient to pay the principal
of, premium, if any, and accrued interest on the Old Notes on the Stated
Maturity of such payments in accordance with the terms of the Indenture and
the Old Notes, (B) our company has delivered to the Trustee:
. either (x) an Opinion of Counsel to the effect that holders will not
recognize income, gain or loss for federal income tax purposes as a
result of our company's exercise of its option under this "Defeasance"
provision and will be subject to federal income tax on the same amount
and in the same manner and at the same times as would have been the
case if such deposit, defeasance and discharge had not occurred, which
Opinion of Counsel must be based upon (and accompanied by a copy of) a
ruling of the Internal Revenue Service to the same effect unless there
has been a change in applicable federal income tax law after the
Closing Date such that a ruling is no longer required or (y) a ruling
directed to the Trustee received from the Internal Revenue Service to
the same effect as the aforementioned Opinion of Counsel; and
. an Opinion of Counsel to the effect that the creation of the
defeasance trust does not violate the Investment Company Act of 1940
and after the passage of 123 days following the deposit (assuming that
none of the holders of the Old Notes are insiders of our company
within the
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meaning of Section 101(31) of the United States Bankruptcy Code) the
trust fund will not be subject to the effect of Section 547 of the
United States Bankruptcy Code or Section 15 of the New York Debtor and
Creditor Law, (C) immediately after giving effect to such deposit on a
pro forma basis, no Event of Default, or event that after the giving
of notice or lapse of time or both would become an Event of Default,
shall have occurred and be continuing on the date of such deposit or
during the period ending on the 123rd day after the date of such
deposit, and such deposit shall not result in a breach or violation
of, or constitute a default under, any other agreement or instrument
to which our company or any of its Subsidiaries is a party or by which
our company or any of its Subsidiaries is bound and (D) if at such
time the Old Notes are listed on a national securities exchange, our
company has delivered to the Trustee an Opinion of Counsel to the
effect that the Old Notes will not be delisted as a result of such
deposit, defeasance and discharge.
Defeasance of Certain Covenants and Certain Events of Default. The Indenture
further provides that the provisions of the Indenture will no longer be in
effect with respect to the third and fourth clauses under "Consolidation,
Merger and Sale of Assets" and all the covenants described herein under
"Covenants," clause (c) under "Events of Default" with respect to such the
third and fourth items under "Consolidation, Merger and Sale of Assets," clause
(d) under "Events of Default" with respect to such other covenants and clauses
(e) and (f) under "Events of Default" shall be deemed not to be Events of
Default upon, among other things, the deposit with the Trustee, in trust, of
money and/or U.S. Government Obligations that through the payment of interest
and principal in respect thereof in accordance with their terms will provide
money in an amount sufficient to pay the principal of, premium, if any, and
accrued interest on the Old Notes on the Stated Maturity of such payments in
accordance with the terms of the Indenture and the Old Notes, the satisfaction
of the provisions described in clauses (B)(ii), (C) and (D) of the preceding
paragraph and the delivery by our company to the Trustee of an Opinion of
Counsel to the effect that, among other things, the holders will not recognize
income, gain or loss for federal income tax purposes as a result of such
deposit and defeasance of certain covenants and Events of Default and will be
subject to federal income tax on the same amount and in the same manner and at
the same times as would have been the case if such deposit and defeasance had
not occurred.
Defeasance and Certain Other Events of Default. In the event our company
exercises its option to omit compliance with certain covenants and provisions
of the Indenture with respect to the Old Notes as described in the immediately
preceding paragraph and the Old Notes are declared due and payable because of
the occurrence of an Event of Default that remains applicable, the amount of
money and/or U.S. Government Obligations on deposit with the Trustee will be
sufficient to pay amounts due on the Old Notes at the time of their Stated
Maturity but may not be sufficient to pay amounts due on the Old Notes at the
time of the acceleration resulting from such Event of Default. However, our
company will remain liable for such payments.
Modification and Waiver
Modifications and amendments of the Indenture may be made by our company and
the Trustee with the consent of the holders of not less than a majority in
aggregate principal amount of the outstanding Old Notes; provided, however,
that no such modification or amendment may, without the consent of each holder
affected thereby, (i) change the Stated Maturity of the principal of, or any
installment of interest on, any Note, (ii) reduce the principal amount of, or
premium, if any, or interest on, any Note, (iii) change the place or currency
of payment of principal of, or premium, if any, or interest on, any Note, (iv)
impair the right to institute suit for the enforcement of any payment on or
after the Stated Maturity (or, in the case of a redemption, on or after the
Redemption Date) of any Note, (v) reduce the above-stated percentage of
outstanding Old Notes the consent of whose holders is necessary to modify or
amend the Indenture, (vi) waive a default in the payment of principal of,
premium, if any, or interest on the Old Notes or (vii) reduce the percentage or
aggregate principal amount of outstanding Old Notes the consent of whose
holders is necessary for waiver of compliance with certain provisions of the
Indenture or for waiver of certain defaults.
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No Personal Liability of Incorporators, Stockholders, Officers, Directors, or
Employees
The Indenture provides that no recourse for the payment of the principal of,
premium, if any, or interest on any of the Old Notes or for any claim based
thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of our company in the Indenture, or in any of
the Old Notes or because of the creation of any Indebtedness represented
thereby, shall be had against any incorporator, stockholder, officer, director,
employee or controlling person of our company or of any successor Person
thereof. Each holder, by accepting the Old Notes, waives and releases all such
liability.
Concerning the Trustee
The Indenture provides that, except during the continuance of a Default, the
Trustee will not be liable, except for the performance of such duties as are
specifically set forth in such Indenture. If an Event of Default has occurred
and is continuing, the Trustee will use the same degree of care and skill in
its exercise of the rights and powers vested in it under the Indenture as a
prudent person would exercise under the circumstances in the conduct of such
person's own affairs.
The Indenture and provisions of the Trust Indenture Act of 1939, as amended,
incorporated by reference therein contain limitations on the rights of the
Trustee, should it become a creditor of our company, to obtain payment of
claims in certain cases or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The Trustee is permitted
to engage in other transactions; provided, however, that if it acquires any
conflicting interest, it must eliminate such conflict or resign.
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DESCRIPTION OF THE NEW NOTES
The terms of the New Notes will be identical in all material respects to
those of the Old Notes, except that the New Notes (i) will have been registered
under the Securities Act and therefore will not be subject to certain
restrictions on transfer applicable to the Old Notes and (ii) will not be
entitled to certain registration rights under the Registration Rights
Agreement, including the provision for Additional Interest of up to 0.5% on the
Old Notes. Holders of Old Notes should review the information set forth under
"Summary--Certain Consequences of a Failure to Exchange Old Notes" and "--Terms
of New Notes."
FORM OF NEW NOTES
The certificates representing the New Notes will be issued in fully
registered form, without coupons. Except as described in the next paragraph,
the New Notes will be deposited with, or on behalf of, DTC, and registered in
the name of Cede & Co., as DTC's nominee in the form of a global note. Holders
of the New Notes will own book-entry interests in the global note evidenced by
records maintained by DTC.
Book-entry interests may be exchanged for certificated notes of like tenor
and equal aggregate principal amount, if:
(1) DTC notifies us that it is unwilling or unable to continue as
depositary or we determine that DTC is unable to continue as
depositary and we fail to appoint a successor depositary within 90
days;
(2) we provide for the exchange pursuant to the terms of the Indenture;
or
(3) we determine that the book-entry interests will no longer be
represented by global notes and we execute and deliver to the
Trustee instructions to that effect.
As of the date of this prospectus, no certificated notes are issued and
outstanding.
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DESCRIPTION OF CAPITAL STOCK
The following summary of the terms of our capital stock does not purport to
be complete and is qualified in our entirety by reference to the actual terms
of the capital stock contained in our Amended and Restated Certificate of
Incorporation.
Our Certificate of Incorporation, as amended to date (the "Certificate of
Incorporation") authorizes the issuance of 40,000,000 shares of Common Stock,
$.001 par value per share, and 20,248,107 shares of Preferred Stock, $.001 par
value per share. The following series of Preferred Stock have been designated
in the Certificate of Incorporation: Series A Preferred Stock (the "Series A
Preferred"), Series B-1 Preferred Stock (the "Series B-1 Preferred"), Series B-
2 Preferred (the "Series B-2 Preferred"), Series B-3 Preferred Stock (the
"Series B-3 Preferred") and Series B-4 Preferred (the "Series B-4 Preferred").
The Series B-1 Preferred, Series B-2 Preferred, Series B-3 Preferred and the
Series B-4 Preferred are collectively referred to herein as the "Series B
Preferred." As of March 31, 1999, there were four holders of record of Common
Stock and twenty-four holders of record of Preferred Stock. The following table
sets forth, with respect to each series of Preferred Stock and the Common Stock
as of March 31, 1999, the number of shares designated, the number of shares
outstanding, the number of shares subject to outstanding options and warrants
and our total fully diluted capitalization:
<TABLE>
<CAPTION>
Common Stock
Outstanding
Shares on a
Issuable Diluted, As
Authorized Outstanding Under Options Converted
Class/Series Shares Shares and Warrants Basis(2)
------------ ---------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Preferred Stock
Series A Preferred...... 7,600,000 7,499,900 -- 7,499,900
Series B-1 Preferred.... 5,714,442 5,714,442 -- 5,714,442
Series B-2 Preferred.... 1,790,769 1,297,433 -- 1,297,433
Series B-3 Preferred.... 2,285,727 2,285,727 -- 2,285,727
Series B-4 Preferred.... 2,857,169 2,857,169 -- 2,857,169
---------- ---------- --------- ----------
Total Preferred Stock... 20,248,107 19,654,671 -- 19,654,671
Common Stock............ 40,000,000 152,517 2,881,482(1) 3,033,999
---------- ---------- --------- ----------
Total Common and
Preferred Stock........ 60,248,107 19,807,188 2,881,482 22,688,670
========== ========== ========= ==========
</TABLE>
- --------
(1) Includes warrants to purchase 200,000 shares of Common Stock at an exercise
price of $8.49, 2,681,482 shares issuable in connection with options
granted under the 1996 Stock Option Plan with a weighted average exercise
price of $0.52 per share but excludes 266,101 shares issuable in connection
with options available for future grant under the 1996 Stock Option Plan.
(2) All shares of Preferred Stock are currently convertible into Common Stock
on a one-for-one basis.
Common Stock
The holders of our Common Stock are entitled to receive dividends when and
if declared by the Board of Directors, provided that no dividend or
distribution may be declared or paid on any shares of Common Stock unless all
dividend preferences of the Preferred Stock have been declared and set aside or
paid. Upon a liquidation, dissolution, merger or sale of substantially all of
our assets, all assets remaining after the payment of liabilities and the
liquidation preferences of any outstanding shares of Preferred Stock will be
distributed ratably among the holders of Common Stock based upon the number of
shares of Common Stock then held by each holder. The holders of our Common
Stock are entitled to one vote for each share held of record on all matters
submitted to a vote of stockholders. Our Common Stock has no preemptive or
other subscription rights, and there are no redemption or sinking fund
provisions applicable to the Common Stock. All outstanding shares of our Common
Stock are fully paid and non-assessable.
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As of March 31, 1999, there were 152,517 shares of Common Stock outstanding
held by four stockholders of record. As of March 31, 1999, options to purchase
an aggregate of 2,681,482 shares of Common Stock were also outstanding. See
"Management--1996 Stock Option Plan."
Preferred Stock
Dividends. The holders of Series B Preferred are entitled to receive
dividends when, as and if dividends are declared by the Board of Directors out
of funds legally available for the payment of dividends on each outstanding
share of Common Stock or Series A Preferred Stock in an amount equal to the
dividends paid on each share of the Common Stock or Series A Preferred Stock
multiplied by a fraction equal to the Liquidation Preference of each share of
Series B Preferred Stock, divided by the liquidation preference of the Series A
Preferred or Common Stock (assumed to be $.001), as the case may be. Dividends
on the Series B Preferred Stock are not cumulative. The holders of the Series A
Preferred Stock are entitled to dividends at the rate of $0.25 per annum per
share, payable prior and in preference to any payment of any dividend on the
Common Stock, when and as declared by the Board of Directors. Dividends on the
Series A Preferred are not cumulative. Dividends must be paid in order of
preference to the Series B Preferred (on a pari passu basis), to the Series A
Preferred and Common Stock.
Liquidation. A Liquidation event is defined as any voluntary or involuntary
liquidation, dissolution or winding up of the corporation. The sale, lease,
conveyance, exchange or transfer of all or substantially all of our property or
assets or a merger or consolidation of the corporation are not Liquidation
events with respect to the Series B Preferred. Payments made pursuant to a
Liquidation must be made in full to each series of Preferred Stock in the
following order of preference: Series B-1 Preferred, Series B-2 Preferred,
Series B-3 Preferred and Series B-4 Preferred (on a pari passu basis) and then
the Series A Preferred. Thereafter, any remaining assets shall be distributed
ratably among the holders of Common Stock.
Redemption. The Series B Preferred Stock is subject to mandatory redemption
on August 29, 2002 or, at the option of the holder, upon a change in control of
our company. A change in control with respect to redemption means such time as
a person or group becomes the beneficial owner (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934, as amended) of our capital stock having
voting power that is more than the voting power of the Series B Preferred Stock
on that date. There are no sinking fund provisions applicable to the Preferred
Stock. The Series A Preferred Stock is not redeemable.
Conversion. The Preferred Stock is convertible by the holder at any time
into Common Stock at the rate of our initial conversion price divided by the
conversion price then in effect. The initial conversion prices of the Series A
Preferred, Series B-1 Preferred, Series B-2 Preferred, Series B-3 Preferred and
Series B-4 Preferred are $2.50, $2.7343, $5.8105, $6.8359 and $5.4687 per
share, respectively. The conversion price of the Preferred Stock is subject to
adjustment for stock splour, stock dividends, consolidations, combinations,
reclassifications and other like events. The conversion prices of the Series B-
1 Preferred, Series B-2 Preferred, Series B-3 Preferred and Series B-4
Preferred Stock may also be subject to adjustment for certain dilutive issues
of stock at a price per share below the applicable conversion price of such
respective series of Preferred Stock, based on the weighted average dilution to
such series. The Series A Preferred and Series B Preferred are automatically
convertible into Common Stock in the event of the closing of a registered
public offering of Common Stock with aggregate gross proceeds of at least $7.5
million in the case of the Series A Preferred and $25 million in the case of
the Series B Preferred.
Voting. The holders of Preferred Stock are entitled to notice of any
stockholders' meeting in accordance with our Bylaws and are entitled to vote
together with the holders of Common Stock as a class. The holders of Preferred
Stock are entitled to the number of votes equal to the number of shares of
Common Stock into which such shares are convertible.
Other Restrictive Covenants. The Certificate of Incorporation provides that
so long as shares of the Series B Preferred are outstanding, we may not (i)
declare or pay any dividend on any other class or series of
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shares of our capital stock or (ii) purchase or redeem shares of our capital
stock, except the repurchase of Common Stock from employees in an amount less
than $250,000. Further, our Certificate of Incorporation provides that, without
the approval of the directors elected by the holders of the Series B-1
Preferred Stock, Series B-3 Preferred Stock and Series B-4 Preferred Stock (the
"PGI Stock"), we may not create, authorize or issue any securities or
reclassify any shares of capital stock into any securities that rank senior to
or on a parity with the Series B Preferred Stock with respect to dividends or
upon our liquidation or dissolution. Without the approval of holders of at
least a majority of the shares of PGI Stock then outstanding, we may not amend,
modify or appeal the terms of the Series B Preferred Stock in our Certificate
of Incorporation.
Board Representation Rights. In any election of directors, the Certificate
of Incorporation provides that the holders of the Series B-1 Preferred, Series
B-3 Preferred and B-4 Preferred are entitled to elect one director as long as
any such shares are outstanding. If the Series B-1 Preferred, Series B-3
Preferred and Series B-3 Preferred outstanding have an aggregate Liquidation
Preference of at least $7.5 million, $15.0 million or $30.0 million, the
holders of such shares leave the right to elect two directors, three directors
and four directors, respectively. All other directors will be elected by the
holders of the Preferred Stock and Common Stock voting together as one class on
an as-converted basis.
In the event of a Special Trigger Event (as defined below) when any PGI
Stock is outstanding, the number of directors constituting the Board of
Directors shall be immediately adjusted to permit the holders of a majority of
the shares of PGI Stock then outstanding to immediately appoint a majority of
the directors. Such rights shall continue until such time as all Special
Trigger Events shall be cured and no longer of any force or effect. A "Special
Trigger Event" shall be deemed to occur if (i) we have not, prior to August 29,
2000, completed an initial public offering generating gross proceeds to us in
excess of $25 million; (ii) we are in default with a creditor or trade partner
with respect to a liability or obligation of at least $50,000 for thirty days;
(iii) we breach any covenant or agreement contained in the Certificate of
Incorporation or the operative agreements pursuant to which the Series B
Preferred Stock were issued; or (iv) we becomes the subject of a voluntary or
involuntary bankruptcy, insolvency or similar proceeding.
Registration Rights. Pursuant to the Securityholders' Agreement dated as of
August 29, 1997, between us and the holders of Series B Preferred Stock
(collectively, the "Series B Holders"), the Series B Holders are entitled to
certain rights with respect to the registration of the Common Stock issuable
upon conversion of their shares ("Registrable Securities") under the Securities
Act. If we propose to register any of our securities under the Securities Act,
the Series B Holders are entitled to notice of such proposed registration and
the opportunity to include shares of Registrable Securities therein; provided,
however, that we and the underwriter of any such offering have the right to
limit or completely exclude shares proposed to be registered. At any time, if
Series B Holders holding at least 20% of the Registrable Securities which
constitutes at least 1% of our then outstanding Common Stock request that we
file a registration statement for the sale of shares having an anticipated sale
price of at least $10.0 million, we are required to use our best efforts to
cause such shares to be registered, subject to certain conditions and
limitations. Series B Holders are limited to one such demand registration in
any six month period. In the event of any limitation by the underwriter, the
number of securities that may be included in such registration will be
allocated on a pro rata basis. Further, the Series B Holders may require us to
register all or a portion of their Registrable Securities pursuant to Rule 415
promulgated under the Securities Act, provided that the request is made by the
holders of at least 20% of the Registrable Securities and subject to certain
other conditions and limitations.
Other Rights. Any holder of at least 150,000 shares of the Series B
Preferred Stock is entitled to certain annual and quarterly financial
information from us and also has certain rights of access and inspection. The
information rights terminate upon the earlier of (i) a registered public
offering of our Common Stock, or (ii) an acquisition of our company where the
surviving corporation is subject to the reporting requirements of the Exchange
Act.
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Transfer Agent and Registrar
The Transfer Agent and Registrar for our Common Stock and Preferred Stock is
Wilson Sonsini Goodrich & Rosati, P.C.
Delaware Law and Certain Charter Provisions
Certain Provisions of the Certificate of Incorporation and Bylaws. Our
Certificate of Incorporation provides for cumulative voting for the election of
directors. Cumulative voting provides that each share of stock normally having
one vote is entitled to a number of votes equal to the number of directors to
be elected. A stockholder may then cast all such votes for a single candidate
or may allocate them among as many candidates as the stockholder may choose. In
the absence of cumulative voting, the holders of a majority of the shares
present or represented at a meeting in which directors are to be elected would
have the power to elect all the directors to be elected at such meeting, and no
person could be elected without the support of holders of a majority of the
shares present or represent at such meeting. Section 141 of the Delaware
General Corporation Law provides that a director elected by cumulative voting
generally may not be removed without cause if the number of votes cast against
removal would be sufficient to elect such director under cumulative voting.
Under Delaware law, a special meeting of stockholders may be called by the
Board of Directors or by any other person authorized to do so in the
Certificate of Incorporation or the Bylaws. Our Bylaws authorize the Board of
Directors, the Chairman of the Board or the President (or any Vice President in
the Chairman's or President's absence) or stockholders holding in the aggregate
a majority of our outstanding shares to call a special meeting of stockholders.
Under Delaware law and our Bylaws, stockholders may execute an action by
written consent in lieu of a stockholder meeting. Delaware law permits a
corporation to eliminate such actions by written consent. Elimination of
written consents of stockholders may lengthen the amount of time required to
take stockholder actions since certain actions by written consent are not
subject to the minimum notice requirement of a stockholders' meeting. The
elimination of stockholders' written consents, however, deters hostile takeover
attempts. Without the availability of stockholder's actions by written consent,
a holder or group of holders controlling a majority in interest of our capital
stock would not be able to amend our Bylaws or remove directors pursuant to a
stockholder's written consent. Any such holder or group of holders would have
to call a stockholders' meeting and wait until the notice periods determined by
the Board of Directors pursuant to our Bylaws prior to taking any such action.
Certain Provisions of Delaware Law
We are subject to Section 203 of the Delaware General Corporation Law
("Section 203"), a provision that, in general, prohibits a publicly held
Delaware corporation from engaging in various "business combination"
transactions with any "interested stockholder" for a period of three years
after the date of the transaction in which the person became an "interested
stockholder," unless (i) prior to such date, the Board of Directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder, (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned by (a) persons who are directors and also
officers and (b) employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer, or (iii) on or subsequent
to such date the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders by the affirmative
vote of at least 66 2/3% of the outstanding voting stock which is not owned by
the interested stockholder. Section 203 defines business combination to
include: (i) any merger or consolidation involving the corporation and the
interested stockholder; (ii) any sale, transfer, pledge or other disposition
involving the interested stockholder of 10% or more of the assets of the
corporation;
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(iii) subject to certain exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the corporation to the
interested stockholder; (iv) any transaction involving the corporation that has
the effect of increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested stockholder; or
(v) the receipt of the interested stockholder of the benefit of any loans,
advances guarantees, pledges or other financial Benefits provided by or through
the corporation. In general, Section 203 defines an interested stockholder as
an entity or person who, together with affiliates and associates, beneficially
owns (or within three years did beneficially own) 15% or more of a
corporation's voting stock. The statute could prohibit or delay mergers or
other takeover or change in control attempts with respect to us and,
accordingly, may discourage attempts to acquire us.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a general summary of the material U.S. federal
income tax considerations resulting from the Exchange Offer and to the
ownership of the New Notes. The discussion of the federal income tax
consequences set forth below is based upon the Internal Revenue Code of 1986,
as amended (the "Code"), and judicial decisions and administrative
interpretations thereunder, as of the date hereof, and such authorities may be
repealed, revoked or modified so as to result in federal income tax
consequences different from those discussed below. There can be no assurance
that the Internal Revenue Service (the "IRS") will not successfully challenge
one or more of the tax consequences described herein, and the Company has not
obtained, nor does it intend to obtain, a ruling from the IRS or an opinion of
counsel with respect to the U.S. federal income tax consequences of acquiring
or holding New Notes. The discussion below pertains only to U.S. Holders,
except as described below under the caption "Tax Treatment of the Ownership and
Disposition of New Notes by Non-U.S. Holders." As used herein, a U.S. Holder
means (i) citizens or residents (within the meaning of Section 7701 (b) of the
Code) of the U.S. (ii) corporations, partnerships or other entities created in
or under the laws of the U.S. or any political subdivision thereof, (iii)
estates the income of which is subject to U.S. federal income taxation
regardless of its source, (iv) trusts subject to the primary supervision of a
court within the U.S. and the control of a U.S. person as described in Section
7701 (a)(30) of the Code, and (v) any other person whose income or gain from
the New Notes is effectively connected with the conduct of a U.S. trade or
business. In addition, the discussion relies upon the description provided to
the Company by the DTC, Euroclear and Cedel of their depository procedures and
the procedures of their participants and Indirect Participants in maintaining a
book entry system reflecting the beneficial ownership of the New Notes.
This discussion does not purport to deal with all aspects of U.S. federal
income taxation that may be relevant to a particular Holder in light of the
Holder's circumstances (for example, persons subject to the alternative minimum
tax provisions of the Code). Also, it is not intended to be wholly applicable
to all categories of investors, some of which (such as dealers in securities,
banks, insurance companies, tax-exempt organizations, and persons holding New
Notes as part of a hedging or conversion transaction or straddle or persons
deemed to sell New Notes under the constructive sale provisions of the Code)
may be subject to special rules. The discussion below is premised upon the
assumption that the New Notes and Old Notes are held (or would be held if
acquired) as capital assets within the meaning of Section 1221 of the Code and
constitute indebtedness for tax purposes. This summary does not discuss the tax
considerations applicable to subsequent purchasers. The discussion also does
not discuss any aspect of state, local or foreign law.
EACH HOLDER TENDERING OLD NOTES OR PROSPECTIVE PURCHASERS OF NEW NOTES ARE
STRONGLY URGED TO CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO ITS PARTICULAR
TAX SITUATION INCLUDING THE TAX EFFECTS OF ANY STATE, LOCAL, FOREIGN, OR OTHER
TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.
Exchange of Notes
The exchange of Old Notes for New Notes pursuant to the Exchange Offer
should not be a taxable exchange for U.S. federal income tax purposes.
Accordingly, a Holder should have the same adjusted issue price, adjusted basis
and holding period in the New Notes as it had in the Old Notes immediately
before the exchange.
The New Notes
Original Issue Discount
The New Notes will be treated as issued with original issue discount
("OID"), which each Holder will be required to include in its gross income as
described below. Except as provided below in the section entitled "Applicable
High-Yield Discount Obligations," a Holder must include OID (to the extent
there is not offsetting acquisition or bond premium) in income as ordinary
interest income as it accrues on the basis of a
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constant yield to maturity. Generally, OID must be included in income in
advance of the receipt of cash representing such income.
The amount of OID with respect to a New Note will be equal to the excess of
the stated redemption price at maturity over the issue price of the Old Note
exchanged for such New Note. The stated redemption price at maturity of a New
Note will equal the sum of all payments other than any "qualified stated
interest" payments. Qualified stated interest is stated interest that is
unconditionally payable in cash or in property (other than debt instruments of
the issuer) at least annually at a single fixed rate. Because interest on the
New Notes will not be payable prior to August 1, 2003, none of the payments on
the New Notes will constitute qualified stated interest. Accordingly, all
payments on the New Notes will be treated as part of their stated redemption
price at maturity.
Because the Old Notes were issued as part of an investment unit, the issue
price of each investment unit was allocated between the Old Note and the
warrant constituting an investment unit based on their relative fair market
values on the issue date. Although the Company's allocation is not binding on
the IRS, a holder of a unit must use the Company's allocation unless the holder
discloses on its federal income tax return for the year in which the unit was
acquired that it plans to use an allocation that is inconsistent with the
Company's allocation.
A Holder must include in gross income, for all days during its taxable year
in which it holds such New Note, the sum of the "daily portions" of original
issue discount. The "daily portions" are determined by allocating to each day
in an "accrual period" (generally the period between interest payments or
compounding dates) a pro rata portion of the original issue discount that
accrued during such accrual period. The amount of original issue discount that
will accrue during an accrual period is the product of the "adjusted issue
price" of the New Note at the beginning of the accrual period and its yield to
maturity (determined on the basis of compounding at the end of each accrual
period and properly adjusted for the length of the particular accrual period).
The adjusted issue price of a New Note is the sum of the issue price of an Old
Note, plus prior accruals of original issue discount, reduced by the total
payments made with respect to such New Note in all prior periods and on the
first day of the current accrual period. Each payment on a New Note will be
treated as a payment of original issue discount to the extent that original
issue discount has accrued as of the date such payment is due and has not been
allocated to prior payments, and any excess will be treated as a payment of
principal.
There are several circumstances under which the Company could make a payment
on a New Note that would affect the yield to maturity of a New Note, including
the redemption or repurchase of a New Note (as described under "Description of
the Old Notes"). According to Treasury Regulations, the possibility of a change
in the yield will not be treated as affecting the amount of interest income
(including original issue discount) recognized by a holder (or the timing of
such recognition) if the likelihood of the change, as of the date the debt
obligations are issued, is remote. The Company intends to report on the basis
that the likelihood of any change in the yield on the New Notes is remote.
The Company is required to furnish certain information to the IRS, and will
furnish annually to record Holders of a New Note, information with respect to
original issue discount accruing during the calendar year. That information
will be based upon the adjusted issue price of the New Note as if the Holder
were the original Holder of the New Note.
Election to Treat All Interest as Original Issue Discount
A Holder may elect to treat all "interest" on any New Note as original issue
discount and calculate the amount includable in gross income under the method
described above. For this purpose, "interest" includes stated and unstated
interest, original issue discount, acquisition discount, market discount and de
minimis market discount, as adjusted by any acquisition premium. The election
is to be made for the taxable year in which the Holder acquired the note and
may not be revoked without the consent of the IRS.
113
<PAGE>
Acquisition Premium
To the extent a Holder had acquisition premium with respect to an Old Note,
the Holder generally will have acquisition premium with respect to a New Note.
A Holder will reduce the original issue discount otherwise includable for each
accrual period by an amount equal to the product of (i) the amount of such
original issue discount otherwise includable for such period, and (ii) a
fraction, the numerator of which is the acquisition premium and the denominator
of which is the excess of the amounts payable on the New Note after the
purchase date over the adjusted issue price.
Sale, Exchange or Retirement of the New Notes
Upon the sale, exchange or retirement of a New Note, the Holder generally
will recognize gain or loss equal to the difference between the amount realized
on the sale, exchange or retirement (which does not include any amount
attributable to accrued but unpaid interest including market discount) and the
Holder's adjusted tax basis in the New Note. A Holder's adjusted tax basis in
the New Note will equal the Holder's cost for the Old Note exchanged therefor
or the Holder's cost for the New Note itself increased by any original issue
discount included in income by such Holder with respect to such New Note and
decreased by any payments received thereon other than qualified stated
interest.
Gain or loss realized on the sale, exchange or retirement of a New Note will
be capital, and will be long-term if at the time of sale, exchange or
retirement the New Note has been held for more than one year (including the
holding period of the Old Note exchanged therefor by the Holder). The maximum
rate of tax on long-term capital gains on most capital assets held by an
individual for more than one year is 20%. The deductibility of capital losses
is subject to limitations.
Market Discount
As described above, any gain or loss on a disposition of a New Note would
generally be capital gain or loss. However, a subsequent purchaser of a New
Note who did not acquire the New Note (or an Old Note exchanged for a New Note)
at its original issue, and who acquires such New Note (or such Old Note, as the
case may be) at a price that is less than the adjusted issue price (as
determined under the original issue discount rules described above), may be
required to treat the New Note as a "market discount bond". Any recognized gain
on a disposition of the New Note would then be treated as ordinary income to
the extent that it does not exceed the "accrued market discount" on the New
Note which has not previously been included in income.
In general, any market discount will be considered to accrue ratably during
the period from the date of acquisition to the maturity date of the New Note.
In addition, there are rules deferring the deduction of all or part of the
interest expense on indebtedness incurred or continued to purchase or carry
such bond, and permitting a Holder to elect to include accrued market discount
in income on a current basis.
Applicable High-Yield Discount Obligations
The New Notes will be subject to the "applicable high yield discount
obligation" provisions of the Code. Because the yield of the New Notes is at
least five percentage points above the applicable federal rate and the New
Notes are issued with "significant original issue discount," otherwise
deductible interest and original issue discount will not be deductible with
respect thereto until such interest is actually paid. In addition, because the
yield of the New Notes is more than six percentage points above the applicable
federal rate, (i) a portion of such interest corresponding to the yield in
excess of six percentage points above the applicable federal rate will not be
deductible by the Company at any time, and (ii) a corporate Holder may be
entitled to treat the portion of the interest that is not deductible by the
Company as a dividend for purposes of qualifying for the dividends received
deduction provided for by the Code, subject to applicable limitations. In such
event, corporate Holders should consult with their own tax advisors as to the
applicability of the dividends received deduction and the relevant exceptions.
114
<PAGE>
Tax Treatment of the Ownership and Disposition of New Notes by Non-U.S. Holders
The following discussion is a general summary of certain U.S. federal income
and estate tax considerations of the ownership and disposition of New Notes by
Non-U.S. Holders. As used herein, a Non-U.S. Holder means any Holder other than
a U.S. Holder.
Withholding Tax on Payments of Principal and Interest on New Notes
The payment of principal and interest on a New Note to a Non-U.S. Holder
will not be subject to U.S. federal withholding tax pursuant to the "portfolio
interest exception," provided that (i) the Non-U.S. Holder does not actually or
constructively own 10% or more of the total voting power of all voting stock of
the Company and is not a controlled foreign corporation that is related to the
Company within the meaning of the Code and (ii) the beneficial owner of the New
Notes certifies to the Company or its agent, under penalties of perjury, that
it is not a U.S. Holder and provides its name and address on U.S. Treasury Form
W-8 (or a suitable substitute form) or a securities clearing organization, bank
or other financial institution that holds customers' securities in the ordinary
course of its trade or business (a "financial institution") and holds the New
Notes certifies under penalties of perjury that such a Form W-8 (or suitable
substitute form) has been received from the beneficial owner by it or by a
financial institution between it and the beneficial owner and furnishes the
payor with a copy thereof. Treasury Regulations that will be effective January
1, 2001 (the "Withholding Regulations") provide alternative methods for
satisfying the certification requirement described in (ii) above. The
Withholding Regulations will generally require, in the case of New Notes held
by a foreign partnership, that the certificate described in (ii) above be
provided by the partners rather that by the foreign partnership, and that the
partnership provide certain information including a U.S. tax identification
number. Holders of Notes should consult their top advisors concerning the
possible application of the Withholding Regulations to any payments made on or
with respect to the Notes.
Gain on Disposition of the Notes
Non-U.S. Holders generally will not be subject to U.S. federal income tax on
gain realized on the sale, exchange or redemption of New Notes, unless in the
case of an individual Non-U.S. Holder (i) such Holder is present in the U.S.
for 183 days or more in the year of such sale, exchange or redemption and
certain other conditions are met, or (ii) such Holder is a former citizen or
resident of the United States subject to certain rules relating to that status.
Federal Estate Tax
New Notes held by an individual who is not a citizen or resident of the
United States for federal estate tax purposes at the time of his or her death
will not be subject to U.S. federal estate tax if the interest on the New Notes
qualifies for the portfolio interest exemption under the rules described above.
Information Reporting and Backup Withholding
In general, information reporting requirements will apply to payments of
principal and interest on a New Note and payments on the proceeds of the sale
of a New Note to certain noncorporate U.S. Holders, and a 31% backup
withholding tax may apply to such payments if the Holder (i) fails to furnish
or certify its correct taxpayer identification number to the payor in the
manner required, (ii) is notified by the IRS that it has failed to report
payments of interest and dividends properly, or (iii) under certain
circumstances, fails to certify that it has not been notified by the IRS that
it is subject to backup withholding for failure to report interest and dividend
payments. Certain Holders (including, among others, all corporations) are not
subject to the backup withholding and reporting requirements.
The Company must report annually to the IRS and to each Non-U.S. Holder any
interest that is subject to withholding, or that is exempt from U.S.
withholding tax pursuant to a tax treaty, or interest that is exempt
115
<PAGE>
from U.S. tax under the portfolio interest exception. Copies of these
information returns may also be made available under the provisions of a
specific treaty or agreement to the tax authorities of the country in which the
Non-U.S. Holder resides.
The backup withholding and additional information reporting requirements
also apply to non-corporate Non-U.S. Holders. Treasury Regulations, however,
provide that backup withholding and additional information reporting will not
apply to payments of principal on the New Notes by the Company to a Non-U.S.
Holder if the Holder certifies as to its Non-U.S. status under penalties of
perjury or otherwise establishes an exemption (provided that neither the
Company nor its Paying Agent has actual knowledge that the Holder is a U.S.
person or that the conditions of any other exception are not, in fact,
satisfied).
The payment of portfolio interest and of the proceeds from the disposition
of New Notes to or through the U.S. office of any broker, U.S. or foreign, will
be subject to information reporting and possible backup withholding unless the
owner certifies as to its Non-U.S. Holder status under penalty of perjury or
otherwise establishes an exemption, provided that the broker does not have
actual knowledge that the Holder is a U.S. person or that the conditions of any
other exemption are not, in fact, satisfied. The payment of portfolio interest
and of the proceeds from the disposition of a New Note to or through a non-U.S.
office of a broker that is either a U.S. person or a "U.S. related person" will
be subject to information reporting (but currently not backup withholding)
unless the broker has documentary evidence in the files that the owner is a
Non-U.S. Holder and the broker has no knowledge to the contrary. Backup
withholding and information reporting will not apply to payments made through
foreign offices of a broker that is not a U.S. person or a U.S. related person
(absent actual knowledge that the payee is U.S. person). For purposes of this
paragraph, a "U.S. related person" is (i) a "controlled foreign corporation"
for U.S. federal income tax purposes, or (ii) a foreign person 50% or more of
whose gross income from all sources for the three-year period ending with the
close of its taxable year preceding the payment (or for such part of the period
that the broker has been in existence) is effectively connected with the
conduct of a U.S. trade or business. Effective for payments after December 31,
2000 the Withholding Regulations expand the number of foreign intermediaries
that are potentially subject to information reporting, modify certain of the
documentation requirements and provide certain presumptions under which a Non-
U.S. Holder will be subject to backup withholding and information reporting
unless the Non-U.S. Holder provides a certification as to its Non-U.S. Holder
status. Holders of the New Notes should consuslt their tax advisors concerning
the application of the Withholding Regulations to their particular situations.
Any amounts withheld under the backup withholding rules from a payment to a
U.S. or Non-U.S. Holder will be allowed as a refund or a credit against such
Holder's U.S. federal income tax liability, provided that the requisite
procedures are followed.
116
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes in the exchange offer for its own
account must acknowledge that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resales of such
notes. We reserve the right in our sole discretion to purchase or make offers
for, or to offer New Notes for, any Old Notes or any other notes that remain
outstanding subsequent to the expiration of the exchange offer pursuant to this
prospectus or otherwise and, to the extent permitted by applicable law,
purchase Old Notes or any other notes in the open market, in privately
negotiated transaction or otherwise. This prospsectus or otherwise and, to the
extent permitted by applicable law, purchase Old Notes or any other notes in
the open market, in privately negotiated transactions or otherwise. This
prospectus, as it may be amended or supplemented from time to time, may be used
by all persons subject to the Prospectus delivery requirements of the
Securities Act, including broker-dealers in connection with resales of New
Notes received in the exchange offer, where such notes were acquired as a
result of market-making activities or other trading activities and may be used
by us to purchase any notes outstanding after expiration of the exchange offer.
We have agreed that, for a period of 180 days after the expiration of the
exchange offer, it will make this prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale.
We will not receive any proceeds from any sale of New Notes by broker-
dealers. New Notes received by broker-dealers in the exchange offer for their
own account may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the New Notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissons or concessions from any such broker-dealer and/or the
purchasers of any such New Notes. Any broker-dealer that resells New Notes
received by it in the Exchange Offer for its own account and any broker or
dealer that participates in a distribution of any such New Notes may be deemed
to be an "underwriter" within the meaning of the Securities Act and any profit
on any such resale of such New Notes and any commissions or concessions
received by any such Persons may be deemed to be underwriting compensation
under the Securities Act. The letter of transmittal states that, by
acknowledging that it will deliver and by delivering a prospectus meeting the
requirements of the Securities Act, a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the expiration of the Exchange Offer, we will
promptly send additional copies of this Prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the letter of transmittal. We have agreed to pay all expenses incident to
the Exchange Offer, other than commissions or concessions of any brokers or
dealers.
LEGAL MATTERS
The validity of the New Notes offered hereby will be passed upon for us by
special bond counsel Irell & Manella, LLP, Los Angeles, California.
EXPERTS
The consolidated financial statements of TVN Entertainment Corporation and
subsidiaries as of March 31, 1998 and 1999 and for each of the three years in
the period ended March 31, 1999 included in this prospectus have been so
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
117
<PAGE>
ADDITIONAL INFORMATION
A registration statement on Form S-4 with respect to the New Notes offered
hereby (together with all amendments, exhibits and schedules thereto, the
"Registration Statement") has been filed with the Commission under the
Securities Act. This prospectus does not contain all of the information
contained in such Registration Statement, certain portions of which have been
omitted pursuant to the rules and regulations of the Commission. For further
information with respect to TVN and the New Notes offered hereby, reference is
made to the Registration Statement. Statements contained in this prospectus
regarding the contents of any contract or any other documents are not
necessarily complete and, in each instance, reference is hereby made to the
copy of such contract or document filed as an exhibit to the Registration
Statement. The Registration Statement may be inspected without charge at the
Securities and Exchange Commission's principal office in Washington, D.C., and
copies of all or any part thereof may be obtained from the Public Reference
Section, Securities and Exchange Commission, Washington, D.C. 20549, upon
payment of the prescribed fees.
118
<PAGE>
TVN ENTERTAINMENT CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants......................................... F-2
Financial Statements:
Consolidated Balance Sheets as of March 31, 1998 and 1999............... F-3
Consolidated Statements of Operations for the Three Years Ended March
31, 1999............................................................... F-4
Consolidated Statements of Stockholders' Deficit for the Three Years
Ended March 31, 1999................................................... F-5
Consolidated Statements of Cash Flows for the Three Years Ended March
31, 1999............................................................... F-6
Notes to Consolidated Financial Statements.............................. F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
TVN Entertainment Corporation:
In our opinion, the accompanying balance sheets and the related statements of
operations, of stockholders' deficit and of cash flows present fairly, in all
material respects, the financial position of TVN Entertainment Corporation and
subsidiaries (the "Company") at March 31, 1998 and 1999 and the results of
their operations and their cash flows for each of the three years in the period
ended March 31, 1999 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Los Angeles, California
May 12, 1999
F-2
<PAGE>
TVN ENTERTAINMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
as of March 31, 1998 and March 31, 1999
<TABLE>
<CAPTION>
1998 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 16,797,856 $ 84,343,386
Restricted short-term investments.................... -- 25,908,619
Trade and other accounts receivable, less allowance
for doubtful accounts of $159,475 and $426,662 at
March 31, 1998 and March 31, 1999, respectively..... 2,699,230 5,614,571
Inventory............................................ -- 807,251
Prepaid expenses and other current assets............ 1,501,764 656,251
------------ ------------
Total current assets............................... 20,998,850 117,330,078
Restricted cash........................................ 1,833,203 1,903,302
Restricted investments................................. -- 39,308,808
Property and equipment, net............................ 93,769,406 84,997,429
Goodwill, net.......................................... -- 4,584,446
Other assets, net...................................... 138,782 6,600,907
------------ ------------
Total assets....................................... $116,740,241 $254,724,970
============ ============
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable..................................... $ 2,038,886 $ 4,496,324
Accrued liabilities.................................. 3,790,225 9,444,939
License fees payable................................. 6,899,711 8,320,933
Deferred revenue and advances........................ 1,520,638 1,140,273
Accrued interest..................................... 3,893,563 7,284,257
Current portion of capitalized leases................ 5,583,011 7,443,612
Current portion of notes payable..................... 23,187,232 8,227,534
------------ ------------
Total current liabilities.......................... 46,913,266 46,357,872
Capitalized leases..................................... 95,276,373 88,258,995
Notes payable.......................................... 9,099,892 7,438,721
Senior notes due 2008.................................. -- 186,798,175
------------ ------------
Total liabilities.................................. 151,289,531 328,853,763
Commitments and contingencies..........................
Series B redeemable convertible preferred stock;
liquidation value: $54,413,732........................ 52,615,586 53,047,313
Stockholders' deficit:
Series A convertible preferred stock, liquidation
value: $18,749,750; 7,600,000 shares authorized;
7,499,900 shares issued and outstanding at March 31,
1998 and March 31, 1999............................. 7,500 7,500
Common stock, $.001 par value, 40,000,000 shares
authorized; 152,517 shares issued and outstanding at
March 31, 1998 and March 31, 1999................... 153 153
Additional paid-in-capital........................... 8,995,254 22,747,071
Accumulated deficit.................................. (96,167,783) (149,930,830)
------------ ------------
Total stockholders' deficit........................ (87,164,876) (127,176,106)
------------ ------------
Total liabilities & stockholders' deficit.......... $116,740,241 $254,724,970
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
TVN ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Years Ended March 31, 1999
<TABLE>
<CAPTION>
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Revenue............................. $ 33,379,943 $ 30,544,909 $ 39,811,828
Operating expenses:
Cost of revenue................... 18,810,852 20,426,049 31,775,248
Selling........................... 5,998,117 7,066,546 14,301,858
General and administrative........ 5,061,464 5,619,035 8,519,858
Depreciation and amortization..... 10,534,094 11,984,277 12,252,437
Goodwill amortization............. (802,560) (100,320) 199,323
------------ ------------ ------------
Total operating expenses............ 39,601,967 44,995,587 67,048,724
------------ ------------ ------------
Loss from operations................ (6,222,024) (14,450,678) (27,236,896)
Interest expense.................... 13,907,952 15,163,123 34,194,980
Interest income..................... (62,825) (222,508) (6,472,425)
Other (income) and expense.......... 53,779 471,157 (83,501)
------------ ------------ ------------
Loss before extraordinary gain...... (20,120,930) (29,862,450) (54,875,950)
Extraordinary gain.................. 2,454,381 -- 1,112,903
------------ ------------ ------------
Net loss............................ (17,666,549) (29,862,450) (53,763,047)
Accretion of Series B redeemable
convertible preferred stock........ -- (115,527) (392,995)
------------ ------------ ------------
Net loss applicable to common
stockholders....................... $(17,666,549) $(29,977,977) $(54,156,042)
============ ============ ============
Basic and diluted net loss per share
applicable to common stockholders:
Net loss applicable to common
stockholders before extraordinary
gain............................... $ (6,835) $ (272) $ (362)
Extraordinary gain.................. 834 -- 7
------------ ------------ ------------
Net loss applicable to common
stockholders....................... $ (6,001) $ (272) $ (355)
============ ============ ============
Weighted average shares............. 2,944 110,237 152,517
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
TVN ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
For the Three Years Ended March 31, 1999
<TABLE>
<CAPTION>
Series A
Convertible
Preferred Stock Common Stock Additional
------------------ ------------------ Paid-in Accumulated
Outstanding Amount Outstanding Amount Capital Deficit Total
----------- ------ ----------- ------ ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of March 31,
1996................... 7,599,900 $7,600 100 $ -- $ 9,097,729 $ (48,638,784) $ (39,533,455)
Exercise of stock
options................ -- -- 50,417 51 12,554 -- 12,605
Net loss................ -- -- -- -- -- (17,666,549) (17,666,549)
--------- ------ ------- ---- ----------- ------------- -------------
Balance as of March 31,
1997................... 7,599,900 7,600 50,517 51 9,110,283 (66,305,333) (57,187,399)
Conversion of preferred
stock.................. (100,000) (100) 100,000 100 -- -- --
Exercise of stock
options................ -- -- 2,000 2 498 -- 500
Accretion of Series B
redeemable convertible
preferred stock........ -- -- -- -- (115,527) -- (115,527)
Net loss................ -- -- -- -- -- (29,862,450) (29,862,450)
--------- ------ ------- ---- ----------- ------------- -------------
Balance as of March 31,
1998................... 7,499,900 7,500 152,517 153 8,995,254 (96,167,783) (87,164,876)
Accretion of Series B
redeemable convertible
preferred stock........ -- -- -- -- (392,995) -- (392,995)
Issuance of warrants in
connection with senior
notes.................. -- -- -- -- 14,144,812 -- 14,144,812
Net loss................ -- -- -- -- -- (53,763,047) (53,763,047)
--------- ------ ------- ---- ----------- ------------- -------------
Balance as of March 31,
1999................... 7,499,900 $7,500 152,517 $153 $22,747,071 $(149,930,830) $(127,176,106)
========= ====== ======= ==== =========== ============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
TVN ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Years Ended March 31, 1999
<TABLE>
<CAPTION>
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................. $(17,666,549) $(29,862,450) $(53,763,047)
Adjustments to reconcile net loss to
net cash used for operating
activities:
Depreciation and amortization...... 10,534,094 11,984,277 12,252,997
Goodwill amortization.............. (802,560) (100,320) 199,324
Provision for doubtful accounts.... 850,646 120,102 752,662
Debt forgiveness................... (2,454,381) -- (1,112,903)
Gain on sale of asset.............. (22,259) -- --
Amortization of discount on senior
notes............................. -- -- 942,987
Amortization of debt issuance
costs............................. -- -- 446,499
Change in assets and liabilities,
net of acquisition:
Restricted cash................... -- (1,833,203) (70,099)
Accounts receivable............... (7,813) (425,121) (4,455,675)
Inventory......................... -- -- (422,430)
Prepaid expenses and other current
assets........................... (325,869) (1,034,276) 1,065,771
Other assets...................... 29,550 35,153 (197,212)
Accounts payable.................. 2,811,942 (514,966) (605,885)
Accrued liabilities............... 1,717,263 490,910 5,112,266
License fees payable.............. (1,366,368) (4,278,634) 1,421,222
Deferred revenue and advances..... 2,317,366 (3,762,979) (380,365)
Accrued interest.................. 1,448,309 1,090,018 3,390,694
------------ ------------ ------------
Net cash used for operating
activities.......................... (2,936,629) (28,091,489) (35,423,194)
Cash flows from investing activities:
Purchases of property and
equipment......................... (181,932) (307,841) (2,620,364)
Disposals of property and
equipment......................... 13,009 -- --
Purchases of restricted
investments....................... -- -- (76,745,180)
Proceeds from maturities of
restricted investments............ -- -- 11,527,753
Acquisition of Panda Shopping
Network, net of cash acquired..... -- -- (484,955)
------------ ------------ ------------
Net cash used for investing
activities.......................... (168,923) (307,841) (68,322,746)
Cash flows from financing activities:
Net proceeds from issuance of
preferred stock................... -- 45,000,059 38,732
Additions to notes payable......... 8,000,000 4,500,000 --
Repayments of capitalized leases... (3,473,377) (4,456,553) (5,607,739)
Repayments of notes payable........ (1,023,523) (611,667) (16,428,112)
Exercise of stock options.......... 12,605 500 --
Net proceeds from issuance of
senior notes...................... -- -- 193,288,589
------------ ------------ ------------
Net cash provided by financing
activities.......................... 3,515,705 44,432,339 171,291,470
------------ ------------ ------------
Net increase in cash and cash
equivalents......................... 410,153 16,033,009 67,545,530
Cash and cash equivalents at the
beginning of year................... 354,694 764,847 16,797,856
------------ ------------ ------------
Cash and cash equivalents at the end
of year............................. $ 764,847 $ 16,797,856 $ 84,343,386
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
TVN ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Years Ended March 31, 1999
Supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Cash paid during the year for:
Interest................................. $12,331,476 $14,172,886 $30,012,234
</TABLE>
Supplemental schedule of noncash investing and financing activities:
During 1997, the Company incurred a capital lease obligation of $40,101,074
for property and equipment (see note 10).
During 1997 and 1998, the Company incurred notes payable of $5,212,723 and
$174,553, respectively for property and equipment (see note 7).
Additions to notes payable in 1998 include $1,884,445 previously classified
as trade accounts payable and $333,444 previously classified as accrued
interest (see note 7).
During 1998, the Company converted notes payable of $7,500,000 to Series B
Redeemable Convertible Preferred Stock (see note 11).
During 1999, the Company completed a private placement of 200,000 Units,
each of which consists of one 14% Senior Note (the "Notes") due 2008 and one
warrant to purchase initially 10.777 shares of the Company's common stock. The
warrants were recorded at a value of $14,144,812 and were deducted from the
face value of the Notes (see note 8).
Additions to other assets in 1999 include $6,711,411 of capitalized closing
costs deducted from the proceeds related to the private placement of the Notes
(see note 8).
During 1999, the Company assumed $3.4 million in net liabilities and forgave
$948,000 in trade receivables in connection with an acquisition (see note 5).
F-7
<PAGE>
TVN ENTERTAINMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Business
TVN Entertainment Corporation (the "Company") owns and operates a national,
satellite transmitted, multi-channel, pay-per-view television programming
network, providing analog and digital entertainment programming to C-band
satellite dish owners and to cable system operators and their subscribers. The
Company's analog service currently consists of nine channels of programming,
featuring five encrypted pay-per-view channels, one unencrypted promotional
channel and three channels utilized for third party programming. The Company's
digital service currently consists of thirty-two encrypted pay-per-view
channels, one unencrypted promotional channel, forty digital music channels, an
interactive on-screen programming guide and complementary transactional
services including billing, collection, customer service, remittance processing
and studio license fee administration. Analog and digital subscribers order
movies and events for a pay-per-view fee, using either an automatic number
identification (ANI) phone ordering system or an electronic impulse store and
forward ordering system.
The Company also owns and operates a national, satellite transmitted, home
shopping television network, providing an analog and digital home shopping
service to subscribers of cable operators and cable networks and viewers of
broadcast networks (see note 5). The Company's home shopping service primarily
sells collectibles.
The Company was a development stage enterprise from its incorporation in
1987 until March 5, 1991. On March 6, 1991 the Company entered into a limited
partnership, TVN Entertainment L. P. (the "Partnership"), comprised of itself
as a limited partner and two general partners. The Partnership was an operating
entity and was accounted for on the equity basis during the period from March
6, 1991 to May 15, 1992.
On May 15, 1992, the Company acquired the general partners' interests in the
Partnership, which was dissolved pursuant to a partnership dissolution
agreement which provided that the Company receive all partnership assets and
assume certain liabilities as of the dissolution date for an effective purchase
price of $1. These liabilities include notes payable to the former general
partners and certain Company stockholders totaling $16,502,539 and $1,080,000,
respectively. Interest accrues on these obligations at prime plus 1% and
totaled $10,313,437 and $795,152, respectively at March 31, 1999. Repayment of
these loans and related accrued interest (collectively the "Contingent Debt")
will be made on a pari passu basis out of available cash flow, as defined in
the Restated Limited Partnership Agreement dated March 7, 1991. The dissolution
agreement provides that the Company will not make any distributions or pay any
dividends in respect of its capital stock or other equity interests prior to
the payment in full to TVN's former general partners and will not subordinate
these obligations to other debt.
Because payment of these liabilities is dependent upon available cash flow,
this debt represents contingent consideration related to the acquisition of net
assets. The Company has had negative operating cash flows and payment of these
liabilities does not appear to be probable at this time. Accordingly, these
amounts have not been recorded as a liability in accordance with Accounting
Principles Board Opinion No. 16, "Business Combinations", because the outcome
of the contingency is not determinable beyond a reasonable doubt. The Company
will record these liabilities and related goodwill when the contingency is
resolved.
The acquisition of the former general partners' interests is accounted for
under the purchase method of accounting. The purchase method required the
recognition of negative goodwill of $4,012,803 which was amortized on a
straight line basis over a five year period.
2. Summary of Significant Accounting Policies
Basis of Presentation
Since inception, the Company has incurred operating losses. In addition,
although the Company has working capital of approximately $70,972,000, it has a
total stockholders' deficit of approximately $127,176,000 at March 31, 1999.
Management intends to fund future losses, if any, through the offering of
F-8
<PAGE>
TVN ENTERTAINMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
additional debt and/or equity securities and ultimately, through the attainment
of positive operating cash flows.
The Company plans to attain positive operating cash flows with the rollout
of TVN Digital Cable Television, a comprehensive package of turn-key digital
services. This package offers cable operators digitally compressed programming
and related interactive, transactional and management services, including
national 800# ANI ordering, billing, collection, studio license fee
administration and complete marketing and management reports.
The ability of the Company to ultimately achieve positive operating cash
flows is uncertain. The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern and do not include
any adjustments that might result from the outcome of this uncertainty.
Consolidation
The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries. All intercompany balances and transactions
have been eliminated in consolidation.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash, Cash Equivalents and Restricted Cash
The Company considers all highly liquid temporary investments (money market,
certificates of deposit, commercial paper and government issued securities)
with original maturities of three months or less to be cash equivalents.
Restricted cash consists of amounts held in escrow to fund certain of the
Company's obligations under an employment agreement (see note 12).
Restricted short-term and long-term investments
Restricted short-term and long-term investments consist of marketable
securities (see note 4) held in custody to fund the next five scheduled
interest payments on the Notes due 2008 (see note 8). The marketable securities
consist principally of federal agency notes with original maturity dates
greater than three months. All marketable securities are classified as held to
maturity securities under the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" and are stated at amortized cost plus accrued interest.
Concentration of Credit Risk
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and trade receivables.
The Company's cash is deposited in major financial institutions, thereby
limiting credit risk. However, the Company's deposits with a single financial
institution as of the respective balance sheet dates exceed the maximum amount
of $100,000 insured by the FDIC.
F-9
<PAGE>
TVN ENTERTAINMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company's trade accounts receivable are routinely assessed for
collectability from its pay-per-view subscribers. As a consequence,
concentration of credit risk is limited.
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, short and long-term
investments, accounts receivable, accounts payable, and accrued expenses,
approximate fair values because of the short maturities of these instruments.
As a result of uncertainties surrounding the Company's financial condition,
including its ability to borrow at commercially reasonable rates, estimation of
the fair value of the Company's long-term debt instruments is not practicable.
Inventory
Inventory is stated at the lower of cost (using first-in, first-out method)
or market.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization is
recorded using the straight-line method over the useful lives, estimated at
between five and seven years for office furniture and equipment, seven years
for digital equipment, and ten years for assets under capitalized leases. Upon
retirement or other disposal, the asset cost and related accumulated
depreciation and amortization are removed from the accounts and the net amount,
less any proceeds, is charged or credited to operations. Repairs and
maintenance are charged to operations when incurred. The carrying value of
property and equipment is periodically reviewed by management, and impairment
losses, if any, are recognized when the expected nondiscounted future operating
cash flows derived from such assets are less than their carrying value.
Goodwill
Goodwill is the excess of the purchase price over the fair value of assets
acquired in connection with the acquisition of Panda Shopping Network ("PSN").
The Company amortizes goodwill on a straight-line basis over the estimated
period of benefit, currently five years. On an annual basis the Company reviews
the recoverability of goodwill based primarily upon cash flow forecasts. The
Company has not recognized any impairment losses as of March 31, 1999.
Revenue Recognition
Programming revenues are recognized when subscribers view movies and events.
Sign-up revenues are recorded when customers are enrolled as subscribers by the
Company or its agents. Merchandising revenues are recognized when products are
shipped, at which point reserves are established for estimated returns. Revenue
received from subscription sales, advances against merchandising revenue and
amounts received from other programmers for uplink/playback and transponder
services is deferred and recognized as earned.
License fees payable to producers are accrued on the basis of the
contractual license terms and are charged to expense as the related revenues
are recorded.
Research and Development
Research and development costs are expensed as incurred and totaled
$1,172,000 during the year ended March 31, 1999. Expenses were not significant
for each of the years ended March 31, 1997 and 1998.
F-10
<PAGE>
TVN ENTERTAINMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Advertising
The Company reports the cost of all advertising as expenses in the period in
which those costs are incurred. The Company shares portions of certain
distributors' advertising expenses through co-op advertising arrangements.
Advertising expense was $495,890, $848,585 and $1,380,412 for the years
ended March 31, 1997, 1998 and 1999, respectively.
Stock-based Compensation
The Company grants incentive stock options for a fixed number of common
shares to employees, with an exercise price equal to or greater than the fair
value of the shares at the date of grant. The Company has elected to measure
compensation expense related to employee stock options in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", and has provided the additional required disclosures as if the fair
value based method of accounting, as defined by SFAS No. 123, "Accounting for
Stock-Based Compensation", had been applied.
Net Loss Applicable to Common Stockholders
Basic and diluted net loss applicable to common stockholders is computed
using the weighted average number of shares of common stock outstanding. Common
equivalent shares related to stock options, warrants and preferred stock are
excluded from the computation when their effect is antidilutive.
Income Taxes
Income tax expense, if any, represents the taxes payable for the year and
the changes during the year in deferred tax assets and liabilities. Deferred
income taxes are determined based on the difference between the financial
reporting and tax bases of assets and liabilities using enacted rates in effect
during the year in which the differences are expected to reverse. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized.
Reclassifications
Certain reclassifications have been made to the prior year financial
statements to conform to the 1999 presentation.
Comprehensive Income
Effective April 1, 1998, the Company adopted the provisions of SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from non-owner sources. To date, the Company has not had any
transactions that are required to be reported in comprehensive income.
Segments
Effective April 1, 1998, the Company adopted the provisions of SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS No.
131 establishes standards for the way
F-11
<PAGE>
TVN ENTERTAINMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
companies report information about operating segments in annual financial
statements. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. The Company has
determined that it does not have any separately reportable business segments as
of March 31, 1999. The Company will continue to evaluate its operations to
determine the existence of reportable business segments in the future.
3. Concentrations of Business Risk
The Company leases its transponders from one supplier under the terms of two
ten year capital leases (see note 10). Although there are a limited number of
transponders available for the Company's use in the event of default by this
supplier, management believes that other suppliers could provide similar
transponder service. A change in suppliers, however, could result in less
favorable terms for the service and/or could cause a delay in distribution,
either of which would have an adverse affect on the Company's financial
condition, results of operations and cash flows.
The Company receives uplink and playback service from one supplier under the
terms of a five year service agreement. While several other suppliers could
provide similar service, an abrupt termination of this service could result in
less favorable terms for the service and/or could cause a delay in
distribution, either of which would have an adverse affect on the Company's
financial condition, results of operations and cash flows.
The Company receives transaction processing service from one supplier under
the terms of a long term service agreement (see note 10). While several other
suppliers could provide similar service, an abrupt termination of this service
could result in a billing delay which would have an adverse affect on the
Company's financial condition, results of operations and cash flows.
4. Investments
Investments are comprised primarily of U.S. Treasury securities with
maturities of up to 3 years and are stated at amortized cost plus accrued
interest. Securities classified on the balance sheet as restricted short-term
and long-term investments have been placed in escrow to fund the next five
scheduled interest payments on the Notes (see note 8) and are invested in
compliance with the Company's bond indenture which restricts the type, quality
and maturity of these investments.
5. Acquisition
On January 18, 1999, the Company acquired certain assets of PSN, a 24 hour
home shopping video network, for aggregate consideration of $500,000 in cash,
the forgiveness of $948,000 in trade accounts receivable and the assumption of
$3.4 million in net liabilities. The acquisition has been accounted for as a
purchase. The excess of purchase consideration over net tangible assets
acquired of approximately $4.8 million has been allocated to goodwill which is
being amortized on a straight-line basis over 5 years.
F-12
<PAGE>
TVN ENTERTAINMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following summarized unaudited pro forma financial information assumes
the PSN acquisition occurred at the beginning of each period:
<TABLE>
<CAPTION>
March 31,
--------------------------
1998 1999
------------ ------------
<S> <C> <C>
Revenue............................................ $ 44,690,101 $ 50,980,891
Net loss applicable to common stockholders......... $(32,797,819) $(57,556,541)
Basic and diluted net loss per share applicable to
common stockholders:
Net loss applicable to common stockholders......... $ (298) $ (377)
Weighted average shares ........................... 110,237 152,517
6. Property and Equipment
Property and equipment at March 31, consist of the following:
<CAPTION>
1998 1999
------------ ------------
<S> <C> <C>
Equipment.......................................... $ 8,573,360 $ 11,405,466
Assets under capitalized leases.................... 110,607,862 111,051,931
Office furniture and fixtures...................... 167,268 371,950
------------ ------------
Total.............................................. 119,348,490 122,829,347
Less, accumulated depreciation including capital
lease amortization of $22,000,380 and $33,061,167
at March 31, 1998 and 1999, respectively.......... (25,579,084) (37,831,918)
------------ ------------
$ 93,769,406 $ 84,997,429
============ ============
</TABLE>
F-13
<PAGE>
TVN ENTERTAINMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Notes Payable
Notes payable at March 31, consist of the following:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Notes payable collateralized by equipment with
a net book value of $3,371,466 at March 31,
1999. Principal and interest at 10% payable in
eighty four equal installments beginning June
1, 1997....................................... $ 6,261,024 $ 5,456,483
Notes payable, collateralized by a right to use
the Company's customer list on a limited
basis. Principal and accrued interest at 10%
was due but unpaid on March 31, 1999.......... 5,000,000 5,000,000
Refinanced trade payable. Principal and
interest at 10% payable monthly in sixty equal
installments beginning March 31, 1998......... 4,658,154 4,289,626
Notes payable. Principal and accrued interest
averaging 7.84% payable in the first quarter
of fiscal 2000................................ -- 920,146
Refinanced trade payable. Principal and
interest at 5% payable in $50,000 monthly
installments through November 1, 1998 with the
unpaid balance payable December 31, 1998...... 8,251,278 --
Debt agreement with former general partners,
unsecured. Principal and interest at 8%
payable in $50,000 monthly installments
through December 15, 1998 with the unpaid
balance payable December 31, 1998............. 6,416,668 --
Note payable, unsecured. Interest payable at a
variable rate not to exceed 10%. Accrued and
unpaid interest payments due December 31, 1996
and 1997, with the unpaid principal and
interest payable December 31, 1998............ 1,700,000 --
----------- -----------
Total notes payable............................ $32,287,124 $15,666,255
Current portion of notes payable............... (23,187,232) (8,227,534)
----------- -----------
Total long term notes payable.................. $ 9,099,892 $ 7,438,721
=========== ===========
</TABLE>
The note payable for $5,456,483 represents a refinancing of the purchase of
one video scrambling system and the original financing to purchase five digital
encoding systems and related equipment.
The notes payable for $5,000,000 represent a cash financing for the Company
and will become immediately due and payable in the event that the Company
raises any equity capital or receives any cash infusion outside the ordinary
course of business.
The refinanced trade payables for $4,289,626 represent the Company's
obligations for uplink, playback and other services rendered through August 19,
1997. To the extent that any portion of this obligation is unpaid at the time
of an initial public offering (IPO) by the Company, it shall either be paid in
full upon the closing of an IPO of the Company's stock in excess of $50 million
or converted to equity at a price equal to the IPO price, concurrently with and
as part of such IPO.
The notes payable totalling $920,146 represent bank financing for the
Company to fund operations that were assumed upon acquisition of the assets of
PSN (see note 5).
F-14
<PAGE>
TVN ENTERTAINMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The refinanced trade payable for $8,251,278 represented the unpaid portion
of the Company's obligation for the use of eleven satellite transponders
through February 1996. In August 1998, the Company realized an extraordinary
gain of $1.1 million upon the early extinguishment of this note previously due
December 31, 1998 (see note 9).
The note payable for $1,700,000 represented the unpaid portion of the
Company's obligation for consumer phone charges and transaction processing
services rendered through August 31, 1996. A portion of the obligation was
forgiven upon execution of the note. The principal and accrued interest were
paid in full during the fiscal year ended March 31, 1999.
The weighted average interest rate on notes payable was 8.37%, 8.32% and
9.87% for the years ended March 31, 1997, 1998 and 1999, respectively.
Maturities of the Company's notes payable at March 31, are as follows:
<TABLE>
<S> <C>
2001........................................................... $ 1,835,168
2002........................................................... 2,027,334
2003........................................................... 2,140,650
2004........................................................... 1,220,137
Thereafter..................................................... 215,432
-----------
$ 7,438,721
===========
</TABLE>
8. Senior Notes due 2008
In July 1998, the Company completed a private placement of 200,000 Units at
a price of $1,000 per unit, each of which consists of one 14% Senior Note (the
"Notes") due 2008 and one warrant to purchase initially 10.777 shares of the
Company's common stock, $0.001 par value, at an exercise price of $0.01 per
share, subject to adjustment. Interest on the Notes accrues at the rate of 14%
per annum and is payable semiannually in arrears on February 1 and August 1
each year, commencing February 1, 1999.
The Notes are not collateralized except to the extent of the first six
scheduled interest payments (see note 2) and rank equally in right of payment
with all existing and future unsubordinated indebtedness and senior in right of
payment to all existing and future subordinated indebtedness of the Company.
The Indenture contains certain convenants including limitations on future
indebtedness, payments of dividends and other distributions, liens,
transactions with affiliates, mergers and acquisitions, sales of assets and
conditions of borrowing.
The Notes are redeemable at the option of the Company, in whole or in part,
at any time on or after August 1, 2003, at redemption prices defined by the
Indenture, plus accrued and unpaid interest. In addition, at any time prior to
August 1, 2001, the Company may redeem up to 35% of the aggregate principal
amount of the Notes, with the net proceeds of one or more public equity
offerings at 114% of the principal amount thereof plus accrued interest.
The Company estimated the fair value of the warrants at $14,144,812 which
was recorded as a discount to the face amount of the Notes and is being
amortized as additional interest expense using the effective interest method
over the term of the Notes. The warrants may be exercised at any time
commencing July 1999 and prior to the maturity date of the Notes.
9. Extraordinary Gain
During 1997, a portion of the Company's obligation for consumer phone
charges and transaction processing service was forgiven in consideration of the
Company's agreement to terminate the original service contract.
F-15
<PAGE>
TVN ENTERTAINMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During 1999, a portion of the Company's obligation for the use of
transponder service through February 1996 was forgiven upon the early
extinguishment of the remaining debt.
10. Commitments and Contingencies
Capitalized Leases
In October 1994, the Company entered into a noncancelable capital lease
agreement for eight primary C-Band transponders and one reserve C-Band
transponder commencing February 1996, at escalating rates throughout its term.
The future minimum lease payments are discounted using an interest rate of 12%
over the ten year lease term.
In November 1995, the Company entered into a noncancelable capital lease
agreement for five primary C-Band transponders commencing July 1996, at
escalating rates throughout its term. The future minimum lease payments are
discounted using an interest rate of 12% over the ten year lease term.
In January 1999, the Company assumed certain noncancelable lease obligations
for operating equipment and software upon acquiring the assets of PSN (see note
5).
The future minimum lease payments at March 31, are as follows:
<TABLE>
<S> <C>
2000.......................................................... $18,541,734
2001.......................................................... 19,221,797
2002.......................................................... 19,929,634
2003.......................................................... 20,761,067
2004.......................................................... 21,592,500
Thereafter.................................................... 43,937,500
-----------
Total minimum obligations..................................... 143,984,232
Less interest................................................. (48,281,625)
-----------
Present value of minimum obligations.......................... 95,702,607
Less current portion.......................................... (7,443,612)
-----------
Long-term obligations at March 31, 1999....................... $88,258,995
===========
</TABLE>
Operating Leases
Rent expense was $6,001,319, $6,987,364 and $6,858,333 for the years ended
March 31, 1997, 1998 and 1999, respectively.
Office
The Company leases its Burbank headquarters under an operating lease that
expired August 1, 1998. The Company has the option to extend the lease for an
additional five years on the same terms and conditions, except that the base
rent for the option period shall be fair rental or as mutually agreed upon by
the lessor and the Company, provided the Company is not in default on the
existing lease. The Company has exercised its option to extend the lease and is
in negotiations with its landlord regarding the amount of the base rent.
Commitments
In June 1997, the Company entered into an agreement to obtain certain
services and a license for digital set-top authorizations of cable affiliate
subscribers. Fees for such services are calculated on a monthly basis at
varying rates throughout the seven year term. The minimum license fee during
the remaining term of the agreement is $1,200,000 per year, payable in advance
on or before the first day of each such license term year.
F-16
<PAGE>
TVN ENTERTAINMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In June 1997, the Company entered into an agreement to obtain transaction
processing and print and mail services. The minimum fee for these services
aggregates approximately $1,600,000, payable monthly over the remaining 39
months of the agreement.
The Company's minimum commitments and contingencies under its employment
agreements aggregated approximately $4,200,000 and $3,800,000, respectively at
March 31, 1999. The Company has set aside restricted cash totaling
approximately $1,900,000 as of March 31, 1999 to meet a portion of these
commitments, and is required to do so through September 2002 unless the
contingency is eliminated prior to that date.
Contingencies
See note 1 for a discussion of the Contingent Debt.
11. Redeemable Convertible Preferred Stock
At March 31, 1999, the Company had authorized 12,648,107 shares of Series B
Redeemable Convertible Preferred Stock with a par value of $.001 per share,
12,154,771 of which are issued and outstanding. The Series B Preferred was
issued in four subseries, with original liquidation preferences equal to:
$2.7343 per share for the 5,714,442 shares of Series B1 Preferred; $5.8105 per
share for the 1,297,433 shares of Series B2 Preferred; $6.8359 per share for
the 2,285,727 shares of Series B3 Preferred; and $5.4687 per share for
2,857,169 shares of Series B4 Preferred.
The Series B Preferred is a senior security and shall rank, with respect to
dividends and distribution upon the liquidation, dissolution or winding-up of
the Company, senior to all classes or series of Common Stock and any other
Capital Stock of the Company, including, without limitation, any series of
Preferred Stock hereafter authorized by the Board of Directors and the Series A
Convertible Preferred Stock.
The Series B Preferred is entitled to dividends, if earned and declared, in
an amount equal to the dividends paid on each share of Common or Series A
Preferred, respectively, multiplied by a fraction equal to the liquidation
preference of each share of Series B Preferred divided by the liquidation
preference of the Series A Preferred or the Common Stock, respectively. The
liquidation preference with respect to the Common Stock shall be deemed to
equal $.001 per share. All such dividends are payable on any date that
dividends are paid on the Common or Series A Preferred.
The Series B Preferred is convertible, at the option of the holder, into
Common Stock subject to a conversion ratio that may be adjusted from time to
time, as defined by the Certificate of Designations of the Series B Preferred.
The Series B Preferred is not permitted to vote on matters required or
permitted to be voted upon by the stockholders of the Company subject to
certain exceptions.
The Company is required to redeem the Series B Preferred on August 27, 2002
or, at the option of the holders of the Series B Preferred upon a change of
control of the Company at a price equal to the liquidation preference of the
shares, all as defined in the Certificate of Designations of the Series B
Preferred.
12. Stockholders' Equity
Common Stock
In August 1997, the Company's Board of Directors (the "Board") , through an
amendment and restatement of the Company's Certificate of Incorporation,
increased the number of authorized shares of
F-17
<PAGE>
TVN ENTERTAINMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
common stock from 10,000,000 to 40,000,000 and increased the number of shares
reserved for issuance under its stock option plan from 2,400,000 to 3,000,000.
Preferred Stock
The total number of shares of Preferred Stock that the Company has the
authority to issue is 20,248,107 shares, $.001 par value. The Board of
Directors of the Company is authorized to determine the rights, preferences,
privileges and restrictions granted to or imposed upon any undesignated shares
of Preferred, and to increase or decrease (but not below the number of shares
of any such series then outstanding) the number of shares of any such series
subsequent to the issue of shares of that series. The Board of Directors is
authorized to determine the designation and par value of any series and to fix
the number of shares of any series.
Series A Convertible Preferred Stock
At March 31, 1999, the Company had authorized 7,600,000 shares of Series A
Preferred Stock, 7,499,900 of which are issued and outstanding. The Series A
Preferred is entitled to noncumulative annual dividends, if earned and
declared, commencing February 28, 1996 at the rate of $.25 per share payable
prior and in preference to any payment or any dividend on the Common Stock.
After dividends in the total amount of $.25 per share on the Series A Preferred
have been declared and paid or set apart in any year, if the Board of Directors
elects to declare additional dividends in that year, such additional dividends
shall be declared equally on the Common and Series A Preferred, with the
holders of the Series A Preferred to receive amounts equal to the dividends
declared on the Common into and to which the Series A is convertible. The
Series A Preferred is convertible, at the option of the holder, into Common
Stock at the rate of one share of Common Stock for each share of Series A
Preferred, has voting rights equal to those of the Common Stockholders, and
votes with the Common Stock. Seven million six hundred thousand shares of
Common Stock are reserved for conversion of the Series A Preferred Stock.
Warrants
In August 1997, the Company amended and substituted warrants originally
issued in June 1996, for warrants to purchase 500,002 shares of Series B2
Convertible Preferred Stock, 6,666 of which were exercised at $5.8105 per
share. The remaining warrants to purchase 493,336 shares expired on December
31, 1998.
In August 1997, the Company amended and substituted a warrant originally
issued in December 1996, for a warrant to purchase 200,000 shares of Common
Stock. The warrant is exercisable at $8.49 per share and expires on July 1,
1999.
Employee Stock Option Plan
The Company adopted a stock option plan (the "Plan") in 1996 that provides
for awards to be made in respect to a maximum of 3,000,000 shares of the
Company's Common Stock. Awards may be made as grants of incentive stock options
and nonstatutory stock options. Participants in the Plan who own stock
representing more than 10% of the voting power of all classes of stock at the
date of grant, may be issued an incentive or a nonstatutory stock option having
an exercise price that shall be no less than 110% of the fair market per share
at the date of grant. Participants in the Plan who own stock representing 10%
or less of the voting power of all classes of stock at the date of grant, may
be issued an incentive or a nonstatutory stock option having an exercise price
that shall be no less than 100% of the fair market per share at the date of
grant. Options granted under the Plan vest ratably over five years and have a
maximum term of ten years unless terminated sooner in accordance with the Plan.
F-18
<PAGE>
TVN ENTERTAINMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Under the terms of an agreement between the Company and one of its
employees, 336,459 option shares are subject to the employee's right to require
the Company to cancel all or a portion of such shares in return for a cash
payment to the employee of up to $2.3 million (the "Put Right"). The Put Right
may be exercised by the employee only if he has not terminated his employment
or been terminated involuntarily for cause prior to September 15, 2000. The Put
Right may not be exercised if prior to September 15, 2000, the Company has
either been acquired, consummated an initial public offering or arranged a
private resale transaction, any of which would provide the employee with an
opportunity to sell his shares at a per share price of $7.59. The value of the
Put Right is being recognized as compensation expense over the three year term
of the related employment agreement.
A summary of the status of the Company's employee stock options, as of March
31, 1997, 1998 and 1999, and the changes during the years then ended is as
follows:
<TABLE>
<CAPTION>
Wgtd. Avg.
Shares Exer. Price
--------- -----------
<S> <C> <C>
Outstanding at March 31, 1996....................... 1,875,000 $0.25
Granted--price greater than fair value.............. 75,000 0.25
Exercised........................................... (50,417) 0.25
Canceled............................................ (149,583) 0.25
--------- -----
Outstanding at March 31, 1997....................... 1,750,000 $0.25
Granted--price greater than fair value.............. 891,482 0.75
Exercised........................................... (2,000) 0.25
Canceled............................................ (28,000) 0.25
--------- -----
Outstanding at March 31, 1998....................... 2,611,482 $0.42
Granted--price greater than fair value.............. 90,000 3.28
Exercised........................................... -- --
Canceled............................................ (20,000) 0.25
--------- -----
Outstanding at March 31, 1999....................... 2,681,482 $0.52
========= =====
</TABLE>
<TABLE>
<CAPTION>
1997 1998 1999
------- --------- ---------
<S> <C> <C> <C>
Options exercisable at year end................ 847,500 1,207,500 1,755,528
Options available for future grants............ 599,583 336,101 266,101
</TABLE>
The compensation expense associated with the Plan did not result in a
material difference from the reported net loss for the years ended December 31,
1997, 1998, and 1999. The fair value for these awards was estimated at the date
of grant using a minimum value option pricing model with the following
assumptions for 1997, 1998 and 1999: risk free interest rate of between 5.8%
and 6.5%, no dividend yield, no volatility factor, and an expected average life
of 5 years. The effects of applying SFAS No. 123 are not indicative of future
amounts and additional awards in future years are anticipated.
The following table summarizes information about stock options outstanding
at March 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------- -------------------------
Wgtd. Avg. Wgtd. Wgtd.
Range of Remaining Avg. Avg.
Exercise Number Contractual Exer. Number Exer.
Price Outstanding Life Price Outstanding Price
-------- ----------- ----------- ----- ----------- -----
<C> <C> <C> <C> <S> <C>
$0.25--$0.75 2,591,482 7.38 0.42 1,734,028 0.33
$3.28 90,000 9.16 $3.28 21,500 $3.28
</TABLE>
F-19
<PAGE>
TVN ENTERTAINMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. Earnings Per Share
The following table sets forth the computation of basic and diluted net loss
per share applicable to common stockholders for the years ended March 31, 1997,
1998 and 1999:
<TABLE>
<CAPTION>
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Numerator:
Net loss....................... $(17,666,549) $(29,862,450) $(53,763,047)
Accretion of redeemable Series
B preferred stock............. -- (115,527) (392,995)
------------ ------------ ------------
Net loss applicable to common
stockholders.................. $(17,666,549) $(29,977,977) $(54,156,042)
============ ============ ============
Denominator:
Weighted average shares........ 2,944 110,237 152,517
============ ============ ============
Basic and diluted net loss
applicable to common
stockholders.................... $ (6,001) $ (272) $ (355)
============ ============ ============
</TABLE>
The computation for diluted number of shares excludes preferred stock,
unexercised stock options and warrants which are antidilutive. The number of
such shares were 9,916,568, 22,959,489 and 24,691,553 for the years ended March
31, 1997, 1998 and 1999, respectively.
14. Income Taxes
As a result of net operating losses, the Company has not recorded a
provision for income taxes. The primary components of temporary differences
which give rise to deferred taxes at March 31, are as follows:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward................ $28,486,970 $51,347,400
Allowance for doubtful amounts................. 63,757 170,665
Deferred revenue............................... 208,255 176,109
Refinanced trade payables...................... 5,755,045 1,715,850
Accrued license fees........................... 2,413,258 1,664,187
Accrued liabilities............................ 142,151 153,388
Depreciation and amortization.................. -- 421,042
----------- -----------
Deferred tax asset............................... 37,069,436 55,648,641
Less: valuation allowance...................... (36,530,006) (55,648,641)
----------- -----------
Net deferred tax asset......................... 539,430 --
Deferred tax liabilities:
Depreciation and amortization.................. (539,430) --
----------- -----------
Deferred tax liabilities......................... (539,430) --
----------- -----------
Net deferred tax................................. $ -- $ --
=========== ===========
</TABLE>
Due to the uncertainty surrounding the realization of net operating loss
carryforwards and other net deferred tax assets resulting from continued
operating losses, the Company provided a full valuation allowance against its
deferred tax assets.
F-20
<PAGE>
TVN ENTERTAINMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At March 31, 1999, the Company had available federal and state net operating
loss carryforwards of approximately $141 million and $57 million, which begin
to expire in the years 2004 and 2000, respectively. Because the Company
experienced a change in ownership during 1998 within the meaning of Section 382
of the Internal Revenue Code, the Company's ability to utilize its net
operating loss carryforwards may be limited.
15. Subsequent Events (unaudited)
In April 1999, the Company entered into a memorandum of understanding to
purchase 60% of a start-up company that is developing and plans to deploy a
system of state-of-the-art technology to deliver and sell entertainment
products such as music, movies and games. The estimated cost of $6 million will
be paid by the Company with a combination of cash and services to be rendered
over a three year period. The Company anticipates that this transaction will be
accounted for as a purchase.
F-21
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Article XI of our Amended and Restated Certificate of Incorporation provides
for the indemnification of our directors to the fullest extent permissible
under Delaware law.
Article VI of our Bylaws provides for the indemnification of our officers,
directors, employees and agents if such person acted in good faith and in a
manner reasonably believed to be in and not opposed to the best interest of the
corporation, and, with respect to any criminal action or proceeding the
indemnified party had no reason to believe his conduct was unlawful.
Section 145 of the Delaware General Corporation Law permits us to include in
its charter documents, and in agreements between the corporation and its
directors and officers, provisions expanding the scope of indemnification
beyond that specifically provided by the current law.
We maintain liability insurance coverage for our directors and officers.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1 Placement Agreement dated July 24, 1998 by and between TVN and
Morgan Stanley & Co. Incorporated.
3.1 Amended and Restated Certificate of Incorporation, as amended, of
TVN, as currently in effect.
3.2 Bylaws, as currently in effect.
4.1 Securityholder Agreement dated as of August 29, 1997 among TVN,
Princes Gate Investors II, L.P., Storie Partners, L.P., Wenonah
Development Corp., Jerome H. Turk and Carole Turk. Family Trust and
PG Investors II, Inc. as Agent.
4.2 Amendment to Securityholders Agreement dated as of December 19, 1997
among TVN, Princes Gate Investors II, L.P., Storie Partners, L.P.,
Wenonah Development Corp., Jerome H. Turk and Carole Turk Family
Trust and PG Investors II, Inc. as Agent.
4.3 Indenture dated as of July 29, 1998, by and between TVN and The Bank
of New York, including form of 14% Senior Discount Note Due 2008.
4.4 Warrant Agreement dated as of July 29, 1998 between TVN and The Bank
of New York.
4.5 Warrant Registration Rights Agreement dated as of July 29, 1998
among TVN and Morgan Stanley & Co. Incorporated.
4.6++ Specimen 14% Senior Discount Note Due 2008.
4.7 Notes Registration Rights Agreement dated as of July 29, 1998
between TVN and Morgan Stanley & Co. Incorporated.
5.1 Opinion of Irell & Manella LLP.
10.1+ Transponder Lease Agreement for Galaxy IIIR dated as of October 21,
1994 between Hughes Communications Galaxy, Inc. and TVN.
10.2 Galaxy IIIR Transponder Service Agreement dated October 21, 1994
between Hughes Communications Satellite Services, Inc. and TVN.
10.3+ Transponder Lease Agreement for Galaxy IX dated as of November 29,
1995 between Hughes Communications Galaxy, Inc. and TVN.
10.4 Galaxy IX Transponder Service Agreement dated November 29, 1995
between Hughes Communications Satellite Services, Inc. and TVN.
10.5 1996 Stock Option Plan and related option agreement, as currently in
effect.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.6+ Service and License Agreement dated June 9, 1997 between National
Digital Television, Inc., doing business as Headend in the Sky(R)
("HITS") and TVN.
10.7 CSG Master Subscriber Management System Agreement dated June 30,
1997 between CSG Systems, Inc. and TVN.
10.8 Employment Agreement entered into between TVN and Stuart Z. Levin.
10.9 Employment Agreement entered into between TVN and James Ramo.
10.10 Employment Agreement entered into between TVN and Arthur Fields.
10.11 Employment Agreement entered into between TVN and Michael Wex.
10.12 Employment Agreement entered into between TVN and John McWilliams.
10.13 Employment Agreement entered into between TVN and David Sears.
10.14 Memorandum of Understanding Between TVN Entertainment Corporation
and New Media Network, Inc. dated April 9, 1999.
21.1 Subsidiaries of TVN.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Irell & Manella LLP (Included in Exhibit 5.1).
24.1 Power of Attorney (Included on page II-5).
25.1 Statement of Eligibility of Trustee.
27.1 Financial Data Schedules.
99.1 Form of Letter of Transmittal with respect to Exchange Offer.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Exchange Agent Agreement.
</TABLE>
- --------
+ Confidential treatment has been requested for portions of these agreements.
Omitted portions have been filed separately with the Commission.
++ To be filed by amendment.
(b) Financial Statement Schedules
Schedules not listed above have been omitted because the information to be
set forth therein is not applicable or is shown in the financial statements or
Notes thereto.
Item 22. Undertaking
1. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that
in the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than our
payment of expenses incurred or paid by one of our directors, officers or
controlling persons in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, we will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
2. We hereby undertake to respond to requests for information that is
incorporated by reference into the Prospectus pursuant to Items 4, 10(b), 11 or
13 of this Form, within one business day of receipt of such request, and to
send the incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed subsequent to the
effective date of the Registration Statement through the date of responding to
the request.
3. We hereby undertake to supply by means of a post-effective amendment all
information concerning a transaction, and the company being acquired involved
therein, that was not the subject of and included in this Registration
Statement when it became effective.
II-2
<PAGE>
4. We hereby undertake:
(a) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(d) If we are a foreign private issuer, to file a post-effective
amendment to the registration statement to include any financial statements
required by (S)210.3-19 of this chapter at the start of any delayed
offering or throughout a continuous offering. Financial statements and
information otherwise required by Section 10(a)(3) of the Act need not be
furnished, provided that we include in the prospectus, by means of a post-
effective amendment, financial statements required pursuant to this
paragraph (d) and other information necessary to ensure that all other
information in the prospectus is at least as current as the date of those
financial statement. Notwithstanding the foregoing, with respect to
registration statements on Form F-3, a post-effective amendment need not be
filed to include financial statements and information required by Section
10(a)(3) of the Act or (S)210.3-19 of this chapter if such financial
statements and information are contained in periodic reports filed with or
furnished to the Commission by us pursuant to section 13 or section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference
in the Form F-3.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, we have
duly caused this Registration Statement to be signed on our behalf by the
undersigned, thereunto duly authorized, in the City of Burbank, State of
California on May 20, 1999.
TVN Entertainment corporation
By: /s/ Stuart Z. Levin
-----------------------------------
Stuart Z. Levin
Chairman of the Board, Chief
Executive Officer (Principal
Executive Officer)
II-4
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each such person whose signature
appears below constitutes and appoints, jointly and severally, Stuart Z. Levin
and Arthur Fields as their attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any amendments to this
Registration Statement on Form S-4 (including post-effective amendments), to
sign any registration statement for the same offering covered by this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) promulgated under the Securities Act of 1933, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, thereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutions, may do or
cause to be done by virtue hereof. Pursuant to the requirements of the
Securities Act of 1933, as amended, this Registration Statement has been signed
by the following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ Stuart Z. Levin Chairman of the Board May 20, 1999
___________________________________ of Directors and Chief
Stuart Z. Levin Executive Officer
(Principal Executive
Officer)
/s/ James B. Ramo President, Chief May 20, 1999
___________________________________ Operating Officer and
James B. Ramo Director
/s/ Arthur Fields Senior Executive Vice May 20, 1999
___________________________________ President, General
Arthur Fields Counsel, Chief
Administrative
Officer, Director and
Secretary
/s/ John McWilliams Senior Vice President, May 20, 1999
___________________________________ Finance (Principal
John McWilliams Financial and
Accounting Officer)
/s/ S. Robert Levine Director May 20, 1999
___________________________________
S. Robert Levine, M.D.
/s/ Stephen R. Munger Director May 20, 1999
___________________________________
Stephen R. Munger
/s/ Martin A. Pasetta Director May 20, 1999
___________________________________
Martin A. Pasetta
/s/ David R. Powers Director May 20, 1999
___________________________________
David R. Powers
/s/ Michael J. Ritter Director May 20, 1999
___________________________________
Michael J. Ritter
/s/ Jerome H. Turk Director May 20, 1999
___________________________________
Jerome H. Turk
</TABLE>
II-5
<PAGE>
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1 Placement Agreement dated July 24, 1998 by and between TVN and
Morgan Stanley & Co. Incorporated.
3.1 Amended and Restated Certificate of Incorporation, as amended, of
TVN, as currently in effect.
3.2 Bylaws, as currently in effect.
4.1 Securityholder Agreement dated as of August 29, 1997 among TVN,
Princes Gate Investors II, L.P., Storie Partners, L.P., Wenonah
Development Corp., Jerome H. Turk and Carole Turk. Family Trust and
PG Investors II, Inc. as Agent.
4.2 Amendment to Securityholders Agreement dated as of December 19, 1997
among TVN, Princes Gate Investors II, L.P., Storie Partners, L.P.,
Wenonah Development Corp., Jerome H. Turk and Carole Turk Family
Trust and PG Investors II, Inc. as Agent.
4.3 Indenture dated as of July 29, 1998, by and between TVN and The Bank
of New York, including form of 14% Senior Discount Note Due 2008.
4.4 Warrant Agreement dated as of July 29, 1998 between TVN and The Bank
of New York.
4.5 Warrant Registration Rights Agreement dated as of July 29, 1998
among TVN and Morgan Stanley & Co. Incorporated.
4.6++ Specimen 14% Senior Discount Note Due 2008.
4.7 Notes Registration Rights Agreement dated as of July 29, 1998
between TVN and Morgan Stanley & Co. Incorporated.
5.1 Opinion of Irell & Manella LLP.
10.1+ Transponder Lease Agreement for Galaxy IIIR dated as of October 21,
1994 between Hughes Communications Galaxy, Inc. and TVN.
10.2 Galaxy IIIR Transponder Service Agreement dated October 21, 1994
between Hughes Communications Satellite Services, Inc. and TVN.
10.3+ Transponder Lease Agreement for Galaxy IX dated as of November 29,
1995 between Hughes Communications Galaxy, Inc. and TVN.
10.4 Galaxy IX Transponder Service Agreement dated November 29, 1995
between Hughes Communications Satellite Services, Inc. and TVN.
10.5 1996 Stock Option Plan and related option agreement, as currently in
effect.
10.6+ Service and License Agreement dated June 9, 1997 between National
Digital Television, Inc., doing business as Headend in the Sky(R)
("HITS") and TVN.
10.7 CSG Master Subscriber Management System Agreement dated June 30,
1997 between CSG Systems, Inc. and TVN.
10.8 Employment Agreement entered into between TVN and Stuart Z. Levin.
10.9 Employment Agreement entered into between TVN and James Ramo.
10.10 Employment Agreement entered into between TVN and Arthur Fields.
10.11 Employment Agreement entered into between TVN and Michael Wex.
10.12 Employment Agreement entered into between TVN and John McWilliams.
10.13 Employment Agreement entered into between TVN and David Sears.
10.14 Memorandum of Understanding Between TVN Entertainment Corporation
and New Media Network, Inc. dated April 9, 1999.
21.1 Subsidiaries of TVN.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Irell & Manella LLP (Included in Exhibit 5.1).
24.1 Power of Attorney (Included on page II-5).
25.1 Statement of Eligibility of Trustee.
27.1 Financial Data Schedules.
99.1 Form of Letter of Transmittal with respect to Exchange Offer.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Exchange Agent Agreement.
</TABLE>
- --------
+ Confidential treatment has been requested for portions of these agreements.
Omitted portions have been filed separately with the Commission.
++ To be filed by amendment.
<PAGE>
EXHIBIT 1.1
EXECUTION COPY
TVN ENTERTAINMENT CORPORATION
Placement Agreement
-------------------
July 24, 1998
Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036-8293
Ladies and Gentlemen:
TVN Entertainment Corporation, a Delaware corporation (the "Company"),
proposes to issue and sell to you (the "Placement Agent") 200,000 Units (the
"Units"). Each Unit will consist of (i) one 14% Senior Note due 2008 of the
Company (collectively the "Notes" and each a "Note") issued pursuant to the
provisions of an Indenture to be dated as of July 29, 1998 (the "Indenture")
between the Company and The Bank of New York, as trustee (the "Trustee"), and
(ii) one Warrant (each a "Warrant" and collectively the "Warrants") entitling
the holder thereof to purchase initially 10.777 shares (the "Warrant Shares") of
common stock, par value $0.001 per share, of the Company (the "Common Stock")
from the Company at an exercise price of $0.01 per share, subject to adjustment
as provided in the Warrant Agreement (as defined below). The Warrants will be
issued pursuant to the provisions of a Warrant Agreement to be dated as of the
Closing Date (as defined in Section 4) (the "Warrant Agreement") between the
Company and The Bank of New York, as warrant agent (the "Warrant Agent"),
substantially in the form attached hereto as Exhibit A. The Units, Notes and
Warrants are collectively referred to herein as the "Securities."
The Units will be offered without being registered under the
Securities Act of 1933, as amended (the "Securities Act"), to qualified
institutional buyers in compliance with the exemption from registration provided
by Rule 144A under the Securities Act.
The Company will purchase, with a portion of the proceeds of the
issuance and sale of the Units, and pledge pursuant to a Collateral Pledge and
Security Agreement (the "Pledge Agreement") to be dated as of the Closing Date,
among the Company, the Trustee and The Bank of New York, as collateral agent
(the "Collateral Agent"), to the Trustee as security for the benefit of the
holders of the Notes, a portfolio of U.S. government securities in an amount
expected to be sufficient to provide for payment in full of the first six
scheduled interest payments on the Notes.
<PAGE>
2
The Placement Agent and its direct and indirect transferees will be
entitled to the benefits of a Registration Rights Agreement relating to the
Notes (the "Notes Registration Rights Agreement"), dated the date hereof and to
be substantially in the form attached hereto as Exhibit B-1.
The Placement Agent and its direct and indirect transferees will be
entitled to the benefits of a Registration Rights Agreement relating to the
Warrants (the "Warrant Registration Rights Agreement"), dated the date hereof
and to be substantially in the form attached hereto as Exhibit B-2.
The Placement Agent and its direct and indirect transferees will be
entitled to the benefits of the Pledge Agreement, to be substantially in the
form of Exhibit E.
In connection with the sale of the Units, the Company has prepared a
preliminary private placement memorandum dated July 8, 1998 (the "Preliminary
Memorandum") and will prepare a final private placement memorandum (the "Final
Memorandum" and, with the Preliminary Memorandum, each a "Memorandum") setting
forth or including a description of the terms of the Units, Notes, Warrants and
the Common Stock, the terms of the offering and a description of the Company and
its business.
1. Representations and Warranties. The Company represents and
------------------------------
warrants to, and agrees with, the Placement Agent that as of the date hereof:
(a) The Preliminary Memorandum does not contain and the Final Memorandum,
in the form used by the Placement Agent to confirm sales and on the Closing Date
(as defined in Section 4), will not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading,
except that the representations and warranties set forth in this Section 1(a) do
not apply to statements or omissions in either Memorandum based upon information
relating to the Placement Agent furnished to the Company in writing by the
Placement Agent expressly for use therein.
(b) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the State of Delaware, has the
corporate power and authority to own its property and to conduct its business as
described in each Memorandum and is duly qualified to transact business and is
in good standing in each jurisdiction in which the conduct of its business or
its ownership or leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good standing would not have
a material adverse effect on the Company and its subsidiaries, taken as a whole.
(c) Each subsidiary of the Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the jurisdiction of
its incorporation, has the
<PAGE>
3
corporate power and authority to own its property and to conduct its business as
described in each Memorandum and is duly qualified to transact business and is
in good standing in each jurisdiction in which the conduct of its business or
its ownership or leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good standing would not have
a material adverse effect on the Company and its subsidiaries, taken as a whole;
all of the issued shares of capital stock of each subsidiary of the Company have
been duly and validly authorized and issued, are fully paid and non-assessable
and are owned directly by the Company, free and clear of all liens,
encumbrances, equities or claims.
(d) This Agreement has been duly authorized, executed and delivered by the
Company.
(e) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the section titled
"Capitalization" in the Final Memorandum. The shares of Common Stock
outstanding prior to the issuance of the Notes have been duly authorized and are
validly issued, fully paid and nonassessable. Since March 31, 1998, the Company
has only granted options to purchase 90,000 shares of Common Stock of the
Company.
(f) The Notes have been duly authorized by the Company and, when executed,
authenticated and delivered in accordance with the Indenture and paid for by the
Placement Agent in accordance with the terms of this Agreement, will be valid
and binding obligations of the Company, enforceable in accordance with their
terms, except as the enforcement thereof may be limited by (i) bankruptcy,
insolvency (including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or similar laws relating to or affecting
enforcement of creditors' rights, (ii) general principles of equity (regardless
of whether enforcement is considered in a proceeding in equity or at law) or
(iii) applicable public policy considerations, and will be entitled to the
benefits of the Indenture.
(g) The Warrants have been duly authorized by the Company and, when
executed by the Company and countersigned by the Warrant Agent as provided in
the Warrant Agreement, and delivered to and paid for by the Placement Agent in
accordance with the terms of this Agreement, will be valid and binding
obligations of the Company, enforceable in accordance with their terms, except
as the enforcement thereof may be limited by (i) bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or similar laws relating to or affecting enforcement
of creditors' rights, (ii) general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law) or (iii)
applicable public policy considerations, and will be entitled to the benefits of
the Warrant Agreement.
(h) The shares of Common Stock issuable upon exercise of the Warrants (the
"Warrant Shares") have been duly authorized and reserved for issuance by the
Company and, when issued and delivered upon exercise of the Warrants in
accordance with the terms of the
<PAGE>
4
Warrants and the Warrant Agreement, will be validly issued, fully paid and
nonassessable and the issuance of the Warrant Shares will not be subject to any
preemptive or similar rights.
(i) The Indenture has been duly authorized by the Company and, when
executed and delivered by the Company and the Trustee, will be a valid and
binding obligation of the Company, enforceable in accordance with its terms,
except as the enforcement thereof may be limited by (i) bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or similar laws relating to or affecting enforcement
of creditors' rights, (ii) general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law) or (iii)
applicable public policy considerations.
(j) The Warrant Agreement has been duly authorized by the Company and, when
executed and delivered by the Company and the Warrant Agent, will be a valid and
binding agreement of the Company, enforceable against the Company in accordance
with its terms, except as the enforcement thereof may be limited by (i)
bankruptcy, insolvency (including, without limitation, all laws relating to
fraudulent transfers), reorganization, moratorium or similar laws relating to or
affecting enforcement of creditors' rights, (ii) general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law) or (iii) applicable public policy considerations.
(k) Each of the Notes Registration Rights Agreement and the Warrant
Registration Rights Agreement (collectively, the "Registration Rights
Agreements") has been duly authorized by the Company and, when executed and
delivered by the Company, will be a valid and binding agreement of the Company
enforceable against the Company in accordance with its terms, except as the
enforcement thereof may be limited by (i) bankruptcy, insolvency (including,
without limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or similar laws relating to or affecting enforcement of creditors'
rights, (ii) general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law) or (iii) applicable public
policy considerations.
(l) The Pledge Agreement has been duly authorized by the Company and, when
executed and delivered by the Company, the Trustee and the Collateral Agent,
will be a valid and binding agreement of the Company enforceable against the
Company in accordance with its terms, except as the enforcement thereof may be
limited by (i) bankruptcy, insolvency (including, without limitation, all laws
relating to fraudulent transfers), reorganization, moratorium or similar laws
relating to or affecting enforcement of creditors' rights, (ii) general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law) or (iii) applicable public policy
considerations.
(m) The execution and delivery by the Company of, and the performance by
the Company of its obligations under, this Agreement, the Registration Rights
Agreements, the
<PAGE>
5
Indenture, the Notes, the Warrant Agreement, the Warrants, the Pledge Agreement
and the issuance, sale and delivery of the Units, the Notes and the Warrants and
the issuance of the Warrant Shares by the Company upon exercise of the Warrants
in accordance with the terms of the Warrants and the Warrant Agreement will not
contravene any provision of applicable law or the certificate of incorporation
or by-laws of the Company or any agreement or other instrument binding upon the
Company or any of its subsidiaries that is material to the Company and its
subsidiaries, taken as a whole, or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Company or any
subsidiary, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by the Company of its obligations under this Agreement, the
Registration Rights Agreements, the Indenture, the Notes, the Warrant Agreement,
the Warrants, the Pledge Agreement and the issuance, sale and delivery of the
Units, the Notes and the Warrants and the issuance of the Warrant Shares upon
exercise of the Warrants in accordance with the terms of the Warrants and the
Warrant Agreement, except such as may be required by the securities or Blue Sky
laws of the various states in connection with the offer and sale of the Units,
Notes or Warrants and by Federal and state securities laws with respect to the
Company's obligations under the Registration Rights Agreements.
(n) There has not occurred any material adverse change, or any development
involving a prospective material adverse change, in the condition, financial or
otherwise, or in the earnings, business or operations of the Company and its
subsidiaries, taken as a whole, from that set forth in the Final Memorandum.
(o) There are no legal or governmental proceedings pending or, to the
knowledge of the Company, threatened to which the Company or any of its
subsidiaries is a party or to which any of the properties of the Company or any
of its subsidiaries is subject other than proceedings accurately described in
all material respects in each Memorandum and proceedings that would not
reasonably be expected to have a material adverse effect on the Company and its
subsidiaries, taken as a whole, or on the power or ability of the Company to
perform its obligations under this Agreement, the Registration Rights
Agreements, the Indenture, Notes, Warrant Agreement, Warrants, Warrant Shares or
the Pledge Agreement or to consummate the transactions contemplated by the Final
Memorandum.
(p) The Company and its subsidiaries (i) are in compliance with any and
all applicable foreign, federal, state and local laws and regulations relating
to the protection of human health and safety, the environment or hazardous or
toxic substances or wastes, pollutants or contaminants ("Environmental Laws"),
(ii) have received all permits, licenses or other approvals required of them
under applicable Environmental Laws to conduct their respective businesses and
(iii) are in compliance with all terms and conditions of any such permit,
license or approval, except where such noncompliance with Environmental Laws,
failure to receive required permits, licenses or other approvals or failure to
comply with the terms and conditions
<PAGE>
6
of such permits, licenses or approvals would not, singly or in the aggregate,
have a material adverse effect on the Company and its subsidiaries, taken as a
whole.
(q) There are no costs or liabilities associated with Environmental Laws
(including, without limitation, any capital or operating expenditures required
for clean-up, closure of properties or compliance with Environmental Laws or any
permit, license or approval, any related constraints on operating activities and
any potential liabilities to third parties) which would, singly or in the
aggregate, have a material adverse effect on the Company and its subsidiaries,
taken as a whole.
(r) The Company is not, and after giving effect to the offering and sale
of the Securities and the application of the net proceeds thereof as described
in the Final Memorandum, will not be an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended.
(s) Neither the Company nor any affiliate (as defined in Rule 501(b) of
Regulation D under the Securities Act, an "Affiliate") of the Company (other
than the Placement Agent or Princes Gate Investors II, L.P., as to which the
Company makes no representation or warranty) has directly, or through any agent,
(i) sold, offered for sale, solicited offers to buy or otherwise negotiated in
respect of, any security (as defined in the Securities Act) which is or will be
integrated with the sale of the Units, Notes, Warrants or Warrant Shares in a
manner that would require the registration under the Securities Act of the
Units, Notes, Warrants or Warrant Shares or (ii) engaged in any form of general
solicitation or general advertising (as those terms are used in Regulation D
under the Securities Act) in connection with the offering of the Units, Notes,
Warrants or Warrant Shares or in any manner involving a public offering within
the meaning of Section 4(2) of the Securities Act.
(t) Subject to Sections 3 and 4 and assuming the accuracy of the
representations and warranties of the Placement Agent set forth in Section 7, it
is not necessary in connection with the offer, sale and delivery of the Units,
Notes or Warrants to the Placement Agent in the manner contemplated by this
Agreement to register the Units, Notes or Warrants under the Securities Act or
to qualify the Indenture under the Trust Indenture Act of 1939, as amended.
(u) The Securities satisfy the requirements set forth in Rule 144A(d)(3)
under the Securities Act.
(v) The terms of the Units, Warrants, Warrant Agreement, Notes, Indenture
and Warrant Shares conform in all material respects to the respective
descriptions thereof contained in the Final Memorandum under the headings
"Description of the Units," "Description of the Warrants," "Description of the
Notes," and "Description of Capital Stock," respectively.
<PAGE>
7
(w) The Company has all necessary consents, authorizations, approvals,
orders, certificates and permits of and from, and has made all declarations and
filings with, all federal, state, local and other governmental authorities and
all courts and other tribunals, to own, lease, license and use its properties
and assets and to conduct its business in the manner described in each
Memorandum, except to the extent that the failure to obtain such consents,
authorizations, approvals, orders, certificates and permits or to make such
filings would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(x) Subsequent to the dates as of which information is given in the
Preliminary Memorandum, (i) the Company has not incurred any material liability
or obligation, direct or contingent, nor entered into any material transaction
not in the ordinary course of business; (ii) the Company has not purchased any
of its outstanding capital stock, nor declared, paid or otherwise made any
dividend or distribution of any kind on its capital stock; and (iii) there has
not been any change in the capital stock, short-term debt or long-term debt of
the Company, except in each case as described in the Final Memorandum.
(y) The Company has good and marketable title in fee simple to all real
property and good and marketable title to all personal property owned by it
which is material to its business, in each case free and clear of all liens,
encumbrances and defects except such as do not materially affect the value of
such property and do not interfere with the use made and proposed to be made of
such property by the Company; and any real property and buildings held under
lease by the Company are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere with the
use made and proposed to be made of such property and buildings by the Company.
(z) The Company owns or possesses, or can acquire on reasonable terms, all
licenses, inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures), trademarks, service marks and trade names, and to the Company's
knowledge, all patents and patent rights necessary to carry on its respective
business in all material respects as described in each Memorandum, and, except
as set forth in each Memorandum, the Company has not received any correspondence
relating to any of the foregoing or notice of infringement of or conflict with
asserted rights of others with respect to any of the foregoing which the Company
believes would, singly or in the aggregate, have a material adverse effect on
the Company and its subsidiaries, taken as a whole.
(aa) No material labor dispute with the employees of the Company exists,
or, to the knowledge of the Company, is imminent; and the Company is not aware
of any existing, threatened or imminent labor disturbance by the employees of
any of its principal suppliers, manufacturers or contractors that could
reasonably be expected to result in any material adverse effect on the Company
and its subsidiaries, taken as a whole.
<PAGE>
8
(bb) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the business in which it is engaged for corporations similarly
situated and of comparable financial condition; the Company has not been refused
any insurance coverage sought or applied for; and the Company has no reason to
believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business at a cost that would not have a
material adverse effect on the Company and its subsidiaries, taken as a whole.
(cc) The Company possesses all certificates, authorizations and permits
issued by the appropriate federal, state or foreign regulatory authorities
necessary to conduct its respective business, except to the extent that the
failure to possess such certificates, authorizations and permits would not have
a material adverse effect on the Company and its subsidiaries, taken as a whole,
and the Company has not received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization or permit
which, if the subject of an unfavorable decision, ruling or finding, would
result in material adverse effect on the Company and its subsidiaries, taken as
a whole.
(dd) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(ee) The Company is, and upon consummation of the transactions contemplated
by this Agreement will be, solvent. As used herein, the term "solvent" means,
with respect to the Company on a particular date, that on such date (i) the fair
market value of the assets of the Company is greater than the total amount of
liabilities (including contingent liabilities) of the Company, (ii) the present
fair salable value of the assets of the Company is greater than the amount that
will be required to pay the probable liabilities of the Company on its debts as
they become absolute and matured, (iii) the Company is able to pay its debts and
other liabilities, including contingent obligations, as they mature and (iv) the
Company does not have an unreasonably small capital for the business or any
transactions in which it is engaged or about to be engaged.
(ff) The accountants who certified the financial statements and supporting
schedules included in each Memorandum are independent certified public
accountants with respect to the Company and its subsidiaries within the meaning
of Regulation S-X under the Securities Act.
<PAGE>
9
(gg) The financial statements, together with the related schedules and
notes, included in each Memorandum present fairly the financial position of the
Company at the dates indicated and the statement of operations, stockholders'
equity and cash flows of the Company for the periods specified; said financial
statements have been prepared in conformity with generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout the periods
involved. The selected financial data and the summary financial information
included in each Memorandum present fairly the information shown therein and
have been compiled on a basis consistent with that of the audited financial
statements included in the Final Memorandum.
(hh) The authorized, issued and outstanding capital stock of the Company is
as set forth in each Memorandum in the column entitled "Actual" under the
caption "Capitalization" (except for subsequent issuances, if any, pursuant to
this Agreement, pursuant to the employee benefit plan referred to each
Memorandum or pursuant to the exercise of convertible securities or options
referred to in each Memorandum). The shares of issued and outstanding capital
stock of the Company have been duly authorized and validly issued and are fully
paid and non-assessable and are free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equity. None of the outstanding
shares of the capital stock of the Company was issued in violation of the
preemptive or other similar rights of any security holder of the Company.
(ii) All United States federal income tax returns of the Company required
by law to be filed have been filed and all taxes shown by such returns or
otherwise assessed, which are due and payable, have been paid, except
assessments against which appeals have been or will be promptly taken and as to
which adequate reserves in accordance with GAAP have been provided. The Company
has filed all other tax returns that are required to have been filed by it
pursuant to applicable foreign, state, local or other law except insofar as the
failure to file such returns would not result in a material adverse effect on
the Company and its subsidiaries, taken as a whole, and has paid all taxes due
pursuant to such returns or pursuant to any assessment received by the Company,
except for such taxes, if any, as are being contested in good faith and as to
which adequate reserves in accordance with GAAP have been provided. The
charges, accruals and reserves on the books of the Company in respect of any
income and corporation tax liability for any years not finally determined are
adequate to meet any assessments or re-assessments for additional income tax for
any years not finally determined, except to the extent of any inadequacy that
would not result in a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(jj) Except as disclosed in the Offering Memorandum, there are no persons
with registration right or other similar rights to have any securities
registered by the Company under the Securities Act.
(kk) No part of the proceeds of the sale of the Units, Notes or Warrants
will be used for any purpose that violates the provisions of any of Regulation
G, T, U or X of the Board of
<PAGE>
10
Governors of the Federal Reserve System or any other applicable regulation of
such Board of Governors.
(ll) The Units, Notes and Warrants are eligible for resale pursuant to Rule
144A and will not be, at the Closing Date (as defined in Section 4), of the same
class as securities listed on a national securities exchange registered under
Section 6 of the Securities Exchange Act of 1934 (the "Exchange Act"), or quoted
in a U.S. automated interdealer quotation system.
(mm) Any certificate signed by any officer of the Company delivered to the
Placement Agent or to counsel for the Placement Agent shall be deemed a
representation and warranty by the Company to the Placement Agent as to the
matters covered thereby.
2. Agreements to Sell and Purchase. The Company hereby agrees to
-------------------------------
sell to the Placement Agent, and the Placement Agent, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agrees to purchase from the Company the respective number of
Units set forth in Schedule I hereto opposite its name at a purchase price of
$970.00 per Unit (the "Purchase Price") plus accrued interest on the Notes, if
any, from July 29, 1998 to the date of payment and delivery.
The Company hereby agrees that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the Placement Agent, it will not,
during the period ending 90 days after the date of the Final Memorandum, (i)
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (ii) enter into any swap or other arrangement
that transfers to another, in whole or in part, any of the economic consequences
of ownership of the Common Stock, whether any such transaction described in
clause (i) or (ii) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise. The foregoing sentence shall not apply
to (A) the sale of the Units, Notes, Warrants or Warrant Shares under this
Agreement or (B) the issuance by the Company of any shares of Common Stock upon
the exercise of an option or warrant or the conversion of a security outstanding
on the date hereof of which the Placement Agent has been advised in writing.
The Company hereby agrees that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the Placement Agent, it will not,
during the period beginning on the date hereof and continuing to and including
the Closing Date, offer, sell, contract to sell or otherwise dispose of any debt
or preferred stock of the Company or warrants to purchase debt or preferred
stock of the Company substantially similar to the Units, Notes, Warrants or
Warrant Shares (other than the sale of the Units, Notes, Warrants or Warrant
Shares under this Agreement.)
<PAGE>
11
3. Terms of Offering. The Placement Agent will make an offering of
-----------------
the Units purchased by the Placement Agent hereunder on the terms to be set
forth in the Final Memorandum as soon as practicable after this Agreement is
entered into as in your judgment is advisable.
4. Payment and Delivery. Payment for the Units shall be made to the
--------------------
Company in Federal or other funds immediately available in New York City against
delivery of such Units for the respective accounts of the Placement Agent at
10:00 a.m., New York City time, on July 29, 1998, or at such other time on the
same or such other date, not later than [________], 1998, as shall be designated
in writing by you. The time and date of such payment are hereinafter referred
to as the "Closing Date."
Certificates for the Units, Notes and Warrants shall be in definitive
or global form, as specified by you, and registered in such names and in such
denominations as you shall request in writing not less than one full business
day prior to the Closing Date. The certificates evidencing the Units, Notes and
Warrants shall be delivered to you on the Closing Date for the account of the
Placement Agent, with any transfer taxes payable in connection with the transfer
of the Units, Notes or Warrants to the Placement Agent duly paid, against
payment of the purchase price therefor.
5. Conditions to the Placement Agent's Obligations. The obligations
-----------------------------------------------
of the Placement Agent under this Agreement to purchase the Units on the Closing
Date will be subject to the following conditions:
(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date there shall not have occurred any change, or any
development involving a prospective change, in the condition, financial or
otherwise, or in the earnings, business or operations, of the Company and its
subsidiaries, taken as a whole, from that set forth in the Final Memorandum
(exclusive of any amendments or supplements thereto subsequent to the date of
this Agreement) that, in your judgment, is material and adverse and that makes
it, in your judgment, impracticable to market the Units on the terms and in the
manner contemplated in the Final Memorandum.
(b) You shall have received on the Closing Date a certificate, dated
the Closing Date and signed by an executive officer of the Company, to the
effect set forth in clause (a) above and to the effect that the representations
and warranties of the Company contained in this Agreement are true and correct
as of the Closing Date and that the Company has complied with all of the
agreements and satisfied all of the conditions on its part to be performed or
satisfied on or before the Closing Date.
The officer signing and delivering such certificate may rely upon the
best of his or her knowledge as to proceedings threatened.
<PAGE>
12
(c) You shall have received on the Closing Date an opinion of Wilson
Sonsini Goodrich & Rosati, Professional Corporation, counsel for the Company,
dated the Closing Date, in the form of Exhibit C hereto.
(d) You shall have received on the Closing Date an opinion of Shearman
& Sterling, counsel for the Placement Agent, dated the Closing Date, in form and
substance satisfactory to you, and such counsel shall have received such
documents and information as they may reasonably request to enable them to pass
upon such matters.
(e) You shall have received on each of the date hereof and the Closing
Date a letter, dated the date hereof or the Closing Date, as the case may be, in
form and substance satisfactory to you, from the Company's independent public
accountants, containing statements and information of the type ordinarily
included in accountants' "comfort letters" with respect to the financial
statements and certain financial information contained in the Final Memorandum;
provided that the letter delivered on the Closing Date shall use a "cut-off
date" not earlier than the date hereof.
(f) The "lock-up" agreements, each substantially in the form of
Exhibit D hereto, between you and certain shareholders, officers and directors
of the Company relating to sales and certain other dispositions of shares of
common stock or certain other securities, delivered to you on or before the date
hereof, shall be in full force and effect on the Closing Date.
(g) The Placement Agent and its counsel shall have been furnished with
such other documents and certificates as they shall reasonably request.
6. Covenants of the Company. In further consideration of the
------------------------
agreements of the Placement Agent contained in this Agreement, the Company
covenants as follows:
(a) To furnish to you in New York City, without charge, prior to 10:00
a.m. New York City time on the business day next succeeding the date of this
Agreement and during the period mentioned in Section 6(c), as many copies of the
Final Memorandum and any supplements and amendments thereto as you may
reasonably request.
(b) Before amending or supplementing either Memorandum, to furnish to you
a copy of each such proposed amendment or supplement and not to use any such
proposed amendment or supplement to which you reasonably object.
(c) If, during such period after the date hereof and prior to the date on
which all of the Units shall have been sold by the Placement Agent, any event
shall occur or condition exist as a result of which it is necessary in the
opinion of counsel to the Placement Agent to make the statements therein, in the
light of the circumstances when such Memorandum is delivered to a purchaser, not
misleading, or if, in the opinion of counsel to the Placement Agent it is
necessary
<PAGE>
13
to amend or supplement such Memorandum to comply with applicable law, forthwith
to prepare and furnish, at its own expense, to the Placement Agent, either
amendments or supplements to such Memorandum so that the statements in such
Memorandum as so amended or supplemented will not, in the light of the
circumstances when such Memorandum is delivered to a purchaser, be misleading or
so that such Memorandum, as so amended or supplemented, will comply with
applicable law.
(d) To use its best efforts to qualify the Units, Notes and Warrants for
offer and sale under the securities or Blue Sky laws of such jurisdictions as
you shall reasonably request.
(e) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incident to the performance of its obligations under this Agreement,
including: (i) the fees, disbursements and expenses of the Company's counsel and
the Company's accountants in connection with the issuance and sale of the Units
and all other fees or expenses in connection with the preparation of each
Memorandum and all amendments and supplements thereto, including all printing
costs associated therewith, and the delivering of copies thereof to the
Placement Agent, in the quantities herein above specified, (ii) all costs and
expenses related to the transfer and delivery of the Units to the Placement
Agent, including any transfer or other taxes payable thereon, (iii) the cost of
printing or producing any Blue Sky or legal investment memorandum in connection
with the offer and sale of the Units under state securities laws and all
expenses in connection with the qualification of the Units for offer and sale
under state securities laws as provided in Section 6(d) hereof, including filing
fees and the reasonable fees and disbursements of counsel for the Placement
Agent in connection with such qualification and in connection with the Blue Sky
or legal investment memorandum, (iv) all document production charges and
expenses of counsel to the Placement Agent (but not including its fees for
professional services) in connection with the preparation of this Agreement, (v)
the fees and expenses, if any, incurred in connection with the admission of the
Units, Notes, Warrants or Warrant Shares for trading in PORTAL or any
appropriate market system, (vi) the costs and charges of the Trustee, the
Warrant Agent and any transfer agent, registrar or depositary, (vii) the cost of
the preparation, issuance and delivery of the Units, (viii) the costs and
expenses of the Company relating to investor presentations on any "road show"
undertaken in connection with the marketing of the offering of the Units,
including, without limitation, expenses associated with the production of road
show slides and graphics, fees and expenses of any consultants engaged in
connection with the road show presentations with the prior approval of the
Company, travel and lodging expenses of the representatives and officers of the
Company and any such consultants, and the cost of any aircraft chartered in
connection with the road show, and (ix) all other costs and expenses incident to
the performance of the obligations of the Company hereunder for which provision
is not otherwise made in this Section. It is understood, however, that except
as provided in this Section, Section 8, and the last paragraph of Section 10,
the Placement Agent will pay all of their costs and expenses, including fees and
disbursements of their counsel, transfer taxes payable on resale of any of the
Units by them and any advertising expenses connected with any offers they may
make.
<PAGE>
14
(f) Neither the Company nor any Affiliate (except the Placement Agent and
Princes Gate Investors II, L.P., as to which the Company makes no covenants)
will sell, offer for sale or solicit offers to buy or otherwise negotiate in
respect of any security (as defined in the Securities Act) which could be
integrated with the sale of the Units, Notes or Warrants in a manner which would
require the registration under the Securities Act of the Units, the Notes or the
Warrants.
(g) Not to solicit any offer to buy or offer or sell the Units, Notes,
Warrants or Warrant Shares by means of any form of general solicitation or
general advertising (as those terms are used in Regulation D under the
Securities Act) or in any manner involving a public offering within the meaning
of Section 4(2) of the Securities Act.
(h) While any of the Units, the Notes or the Warrants remain outstanding,
to make available, upon request, to any seller of the Units, Notes, Warrants or
Warrant Shares the information specified in Rule 144A(d)(4) under the Securities
Act, unless the Company is then subject to Section 13 or 15(d) of the Exchange
Act.
(i) During the period of two years after the Closing Date, the Company
will not, and will not permit any of its affiliates (as defined in Rule 144
under the Securities Act) (other than the Placement Agent and Princes Gate
Investors II, L.P., as to which the Company makes no covenants) to resell any of
the Units, Notes, Warrants or Warrant Shares which constitute "restricted
securities" under Rule 144 that have been reacquired by any of them.
(j) To use its best efforts to permit the Units, Notes, Warrants and
Warrant Shares to be designated PORTAL securities in accordance with the rules
and regulations adopted by the National Association of Securities Dealers, Inc.
relating to trading in the PORTAL Market.
7. Offering of Securities; Restrictions on Transfer. (a) The
------------------------------------------------
Placement Agent represents and warrants that it is a qualified institutional
buyer as defined in Rule 144A under the Securities Act (a "QIB"). The Placement
Agent agrees with the Company that (i) it will not solicit offers for, or offer
or sell, the Units, Notes or Warrants by any form of general solicitation or
general advertising (as those terms are used in Regulation D under the
Securities Act) or in any manner involving a public offering within the meaning
of Section 4(2) of the Securities Act and (ii) it will solicit offers for Units,
Notes or Warrants only from, and will offer Units, Notes or Warrants only to,
persons that it reasonably believes to be QIBs.
(b) The Placement Agent represents, warrants, and agrees with respect to
offers and sales outside the United States that:
(i) it understands that no action has been or will be taken in any
jurisdiction by the Company that would permit a public offering of the
Units, Notes or Warrants, or possession or distribution of either
Memorandum or any other offering or publicity
<PAGE>
15
material relating to the Units, Notes or Warrants, in any country or
jurisdiction where action for that purpose is required;
(ii) the Placement Agent will comply with all applicable laws and
regulations in each jurisdiction in which it acquires, offers, sells or
delivers Units, Notes or Warrants or has in its possession or distributes
either Memorandum or any such other material, in all cases at its own
expense; and
(iii) the Units, the Notes and the Warrants have not been and will
not be registered under the Securities Act and may not be offered or sold
within the United States or to, or for the account or benefit of, U.S.
persons except in accordance with Rule 144A under the Securities Act or
pursuant to another exemption from the registration requirements of the
Securities Act.
8. Indemnification and Contribution. (a) The Company agrees to
--------------------------------
indemnify and hold harmless the Placement Agent, and each person, if any, who
controls the Placement Agent within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, or is under common control
with, or is controlled by, such Placement Agent, from and against any and all
losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred by the Placement Agent or any such
controlling of affiliated person in connection with defending or investigating
any such action or claim) caused by any untrue statement or alleged untrue
statement of a material fact contained in either Memorandum (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact necessary to make the statements therein in light of the
circumstances under which they were made not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
or omission or alleged untrue statement or omission based upon information
relating to the Placement Agent furnished to the Company in writing by the
Placement Agent through you expressly for use therein.
(b) The Placement Agent agrees to indemnify and hold harmless the
Company, its directors, its officers and each person, if any, who controls the
Company within the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act to the same extent as the foregoing indemnity from the
Company to the Placement Agent, but only with reference to information relating
to the Placement Agent furnished to the Company in writing by the Placement
Agent through you expressly for use in either Memorandum or any amendments or
supplements thereto.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to either paragraph (a) or (b) above, such
person (the "indemnified party") shall promptly notify the person against whom
such indemnity may be sought (the "indemnifying party") in writing and the
<PAGE>
16
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the fees and expenses of more than one separate firm (in addition
to any necessary local counsel) for all such indemnified parties and that all
such fees and expenses shall be reimbursed as they are incurred. Such firm
shall be designated in writing by Morgan Stanley & Co. Incorporated in the case
of parties indemnified pursuant to paragraph (a) above and by the Company in the
case of parties indemnified pursuant to paragraph (b) above. The indemnifying
party shall not be liable for any settlement of any proceeding effected without
its written consent, but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, if at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by the second
and third sentences of this paragraph, the indemnifying party agrees that it
shall be liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than 30 days after
receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party in accordance
with such request prior to the date of such settlement. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
(d) To the extent the indemnification provided for in paragraph (a) or
(b) of this Section 8 is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages or liabilities, then each indemnifying
party under such paragraph, in lieu of indemnifying such indemnified party
thereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages or liabilities (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company, on the one hand, and the Placement Agent, on the other hand, from the
offering of the Units, Notes and Warrants or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
<PAGE>
17
above but also the relative fault of the Company on the one hand and the
Placement Agent on the other hand in connection with the statements or omissions
that resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Placement Agent on the other hand in connection
with the offering of the Units, Notes and Warrants shall be deemed to be in the
same respective proportions as the net proceeds from the offering of the Units,
Notes and Warrants (before deducting expenses) received by the Company and the
total discounts and commissions received by the Placement Agent in respect
thereof bear to the aggregate offering price of the Units, Notes and Warrants.
The relative fault of the Company on the one hand and of the Placement Agent on
the other hand shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company or by the Placement Agent and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
(e) The Company and the Placement Agent agree that it would not be
just or equitable if contribution pursuant to this Section 8 were determined by
pro rata allocation or by any other method of allocation that does not take
- --- ----
account of the equitable considerations referred to in paragraph (d) above. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in paragraph (d) above shall be
deemed to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 8, the Placement Agent shall not be required to
contribute any amount in excess of the amount by which the total price at which
the Units, Notes and Warrants resold by it in the initial placement of the
Units, Notes and Warrants were offered to investors exceeds the amount of any
damages that the Placement Agent has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The remedies provided
for in this Section 8 are not exclusive and shall not limit any rights or
remedies which may otherwise be available to any indemnified party at law or in
equity.
(f) The indemnity and contribution provisions contained in this
Section 8 and the representations, warranties and other statements of the
Company contained in this Agreement shall remain operative and in full force and
effect regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of any Placement Agent or any person
controlling any Placement Agent or by or on behalf of the Company, its officers
or directors or any person controlling the Company and (iii) acceptance of and
payment for any of the Units, Notes and Warrants.
<PAGE>
18
9. Termination. This Agreement shall be subject to termination by
-----------
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses (a)(i) through (iv), such event singly or
together with any other such event makes it, in your judgment, impracticable to
market the Units, Notes and Warrants on the terms and in the manner contemplated
in the Final Memorandum.
10. Effectiveness; Defaulting Placement Agents. This Agreement shall
------------------------------------------
become effective upon the execution and delivery hereof by the parties hereto.
If this Agreement shall be terminated by the Placement Agent because
of any failure or refusal on the part of the Company to comply with the terms or
to fulfill any of the conditions of this Agreement, or if for any reason the
Company shall be unable to perform its obligations under this Agreement, the
Company will reimburse the Placement Agent for all out-of-pocket expenses
(including the fees and disbursements of its counsel) reasonably incurred by the
Placement Agent in connection with this Agreement or the offering contemplated
hereunder.
11. Notices. All notices and other communications under this
-------
Agreement shall be in writing and mailed, delivered or sent by facsimile
transmission to: if sent to the Placement Agent, Morgan Stanley & Co.
Incorporated, 1585 Broadway, New York, New York 10036, attention: High Yield New
Issues Group, facsimile number (212) 761-0587 and if sent to the Company, to
2901 West Alameda Avenue, 7/th/ Floor, Burbank, California 91505, attention:
Arthur Fields, Esq., facsimile number (818) 526-5000.
12. Counterparts. This Agreement may be signed in any number of
------------
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
13. Applicable Law. This Agreement shall be governed by and
--------------
construed in accordance with the laws of the State of New York.
14. Headings. The headings of the sections of this Agreement have
--------
been inserted for convenience of reference only and shall not be deemed a part
of this Agreement.
<PAGE>
19
Please confirm your agreement to the foregoing by signing in the space
provided below for that purpose and returning to us a copy hereof, whereupon
this Agreement shall constitute a binding agreement between us.
Very truly yours,
TVN ENTERTAINMENT
CORPORATION
By: /s/ Arthur Fields
---------------------------------------
Name: Arthur Fields
Title: Senior Executive Vice President
Agreed, July 24, 1998
MORGAN STANLEY & CO.
INCORPORATED
By: /s/ David J. Frey
-----------------------
Name: David J. Frey
Title: Vice President
<PAGE>
SCHEDULE I
Number Units
Placement Agent To Be Purchased
--------------- ---------------------
Morgan Stanley & Co. Incorporated....... 200,000
Total.............................. 200,000
<PAGE>
EXHIBIT C
---------
Opinion of Counsel
for the Company
The opinion of the counsel for the Company to be delivered pursuant to
Section 5(c) of the Placement Agreement shall be to the effect that:
(A) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property
and to conduct its business as described in the Final Memorandum, and is
duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that
the failure to be so qualified or be in good standing would not have a
material adverse effect on the Company and its subsidiaries, taken as a
whole;
(B) Each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to
own its property and to conduct its business as described in the Final
Memorandum and is duly qualified to transact business and is in good
standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good standing would not
have a material adverse effect on the Company and its subsidiaries, taken
as a whole; all of the issued shares of capital stock of each subsidiary of
the Company have been duly and validly authorized and issued, are fully
paid and non-assessable, and are owned directly by the Company, free and
clear of all liens, encumbrances, equities or claims.
(C) The Placement Agreement has been duly authorized, executed and
delivered by the Company;
(D) Each of the Registration Rights Agreements have been duly
authorized, executed and delivered by the Company and (assuming the due
authorization, execution and delivery thereof by the Placement Agent) is a
valid and binding agreement of the Company in accordance with its terms,
except as the enforcement thereof may be limited by (i) bankruptcy,
insolvency (including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or similar laws relating to or
affecting enforcement of creditors' rights, (ii) general principles of
equity (regardless of whether enforcement is considered in a proceeding in
equity or at law) or (iii) applicable public policy considerations.
C-1
<PAGE>
(E) The Notes are in the form contemplated by the Indenture and have
been duly authorized by the Company and when executed by the Company and
authenticated by the trustee (assuming the due authorization, execution and
delivery of the Indenture by the Trustee) and delivered in accordance with
the Indenture and paid for by the Placement Agent in accordance with the
terms of the Placement Agreement, will be valid and binding obligations of
the Company, enforceable in accordance with their terms, except as the
enforcement thereof may be limited by (i) bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or similar laws relating to or affecting
enforcement of creditors' rights, (ii) general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity
or at law) or (iii) applicable public policy considerations, and will be
entitled to the benefits of the Indenture.
(F) The Indenture has been duly authorized, executed and delivered by
the Company and (assuming the due authorization, execution and delivery of
the Indenture by the Trustee) is a valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms,
except as the enforcement thereof may be limited by (i) bankruptcy,
insolvency (including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or similar laws relating to or
affecting enforcement of creditors' rights, (ii) general principles of
equity (regardless of whether enforcement is considered in a proceeding in
equity or at law) or (iii) applicable public policy considerations.
(G) The Warrants are in the form contemplated by the Warrant Agreement
and have been duly authorized by the Company and when executed by the
Company and countersigned by the Warrant Agent as provided in the Warrant
Agreement (assuming the due authorization, execution and delivery of the
Warrant Agreement by the Warrant Agent), and delivered to and paid for by
the Placement Agent in accordance with the terms of the Placement
Agreement, will be valid and binding obligations of the Company,
enforceable in accordance with their terms, except as the enforcement
thereof may be limited by (i) bankruptcy, insolvency (including, without
limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or similar laws relating to or affecting enforcement of
creditors' rights, (ii) general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law) or (iii)
applicable public policy considerations, and will be entitled to the
benefits of the Warrant Agreement.
(H) The Warrant Agreement has been duly authorized, executed and
delivered by the Company and (assuming the due authorization, execution and
delivery of the Warrant Agreement by the Warrant Agent) is a valid and
binding agreement of the Company, enforceable against the Company in
accordance with its terms, except as the enforcement thereof may be limited
by (i) bankruptcy, insolvency (including, without limitation, all laws
relating to fraudulent transfers), reorganization, moratorium or similar
laws relating to or affecting enforcement of creditors' rights, (ii)
general principles of
<PAGE>
equity (regardless of whether enforcement is considered in a proceeding in
equity or at law) or (iii) applicable public policy considerations.
(I) The Warrant Shares have been duly authorized and reserved for
issuance by the Company and, when issued and delivered upon exercise of the
Warrants in accordance with the terms of the Warrants and the Warrant
Agreement, will be validly issued, fully paid and nonassessable and will
not be subject to any preemptive or similar rights.
(J) The Pledge Agreement has been duly authorized, executed and
delivered by the Company and (assuming the due authorization, execution and
deliver of the Pledge Agreement by the Collateral Agent) is a valid and
binding agreement of the Company enforceable against the Company in
accordance with its terms, except as the enforcement thereof may be limited
by (i) bankruptcy, insolvency (including, without limitation, all laws
relating to fraudulent transfers), reorganization, moratorium or similar
laws relating to or affecting enforcement of creditors' rights, (ii)
general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law) or (iii) applicable public
policy considerations.
(K) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in each Memorandum.
(L) The shares of Common Stock outstanding on the date hereof have
been duly authorized and are validly issued, fully paid and non-assessable.
(M) The execution and delivery by the Company of, and the performance
by the Company of its obligations under, the Placement Agreement, the
Registration Rights Agreements, the Indenture, the Notes, the Warrant
Agreement, the Warrants and the Pledge Agreement and the issuance, sale and
delivery of the Units, the Notes and the Warrants and the issuance of the
Warrant Shares upon exercise of the Warrants in accordance with the terms
of the Warrants and the Warrant Agreement will not contravene any provision
of applicable law or the certificate of incorporation or by-laws of the
Company or, to such counsel's knowledge, any agreement or other instrument
binding upon the Company or any of its subsidiaries or, to such counsel's
knowledge, any judgment, order or decree of any governmental body, agency
or court having jurisdiction over the Company or any of its subsidiaries,
and no consent, approval, authorization or order of, or qualification with,
any governmental body or agency is required for the performance by the
Company of its obligations under the Placement Agreement, the Registration
Rights Agreements, the Indenture, the Notes, the Warrant Agreement, the
Warrants and the Pledge Agreement and the issuance, sale and delivery of
the Units, the Notes and the Warrants and the issuance of the Warrant
Shares upon exercise of the Warrants in accordance with the terms of the
Warrants and the Warrant Agreement, except such as may be required by the
securities or Blue Sky laws of the various states in
C-3
<PAGE>
connection with the offer and sale of the Units, Notes or Warrants and by
Federal and state securities laws with respect to the Company's obligations
under the Notes Registration Rights Agreement and Warrant Registration
Rights Agreement.
(N) To such counsel's knowledge, there is not pending or threatened
any legal or governmental proceedings to which the Company or any of its
subsidiaries is a party or to which any of the properties of the Company or
any of its subsidiaries is subject other than proceedings fairly summarized
in all material respects in each Memorandum and proceedings that would not
have a material adverse effect on the Company and its subsidiaries, taken
as a whole, or on the power or ability of the Company to perform its
obligations under the Placement Agreement, the Registration Rights
Agreements, the Indenture, the Notes, the Warrant Agreement, the Warrants
and the Pledge Agreement or to consummate the transactions contemplated by
the Final Memorandum.
(O) The Company is not and, after giving effect to the sale of the
Units, Notes and Warrants and the application of the net proceeds therefrom
as described in the Final Memorandum, will not be, an "investment company"
or an entity "controlled" by an "investment company," as such terms are
defined in the Investment Company Act of 1940, as amended.
(P) Based upon the representations, warranties, and agreements of the
Company in Sections 1(p), 1(v), 6(f), 6(g) and 6(i) of the Placement
Agreement and of the Placement Agent in Section 7 of the Placement
Agreement, it is not necessary in connection with the offer, sale and
delivery of the Units, the Notes or the Warrants to the Placement Agent
under the Placement Agreement or in connection with the initial resale of
the Units, the Notes or the Warrants by the Placement Agent in accordance
with Section 6 of the Placement Agreement to register the Units, the Notes
or the Warrants under the Securities Act or to qualify the Indenture under
the Trust Indenture Act of 1939, as amended, it being understood that no
opinion is expressed as to any subsequent resale of any Units, Notes or
Warrants.
(Q) The statements in the Final Memorandum under the captions "Risk
Factors--Original Issue Discount", "Description of the Units", "Description
of the Notes","Description of the Warrants", "Description of Capital
Stock", "Private Placement" and "Transfer Restrictions", insofar as such
statements constitute a summary of the legal matters, documents or
proceedings referred to therein, fairly present the information
respectively called for with respect to such legal matters, documents or
proceedings and fairly summarize in all material respects the matters
respectively referred to therein.
(R) Such counsel is of the opinion that the statements in the Final
Memorandum, under the caption "Certain Federal Income Tax Considerations"
are accurate and fairly summarize the matters referred to therein.
C-4
<PAGE>
(S) While we have not performed any independent check or verification
of the information contained in the Final Memorandum (except with respect
to paragraphs (P) and (Q) above), we have participated in the drafting and
preparation of each of the Memoranda (and any amendments or supplements
thereto) and in the course of such participation, nothing has come to our
attention that leads us to believe that, except for financial statements,
financial data and schedules as to which we express no belief, the Final
Memorandum contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
C-5
<PAGE>
EXHIBIT D
FORM OF LOCK-UP LETTER
July 24, 1998
Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co. Incorporated
("MORGAN STANLEY") proposes to enter into a Placement Agreement (the "PLACEMENT
AGREEMENT") with TVN Entertainment Corporation, a Delaware corporation (the
"COMPANY"), providing for the offering (the "OFFERING") by the Morgan Stanley
(the "PLACEMENT AGENT"), of 200,000 Units (the "Units"), each Unit consisting of
one 14% Senior Note due 2008 with a principal amount of $1,000 (collectively the
"Notes") and one Warrant (each a "Warrant" and collectively, the "Warrants")
entitling the holder thereof to purchase 10.777 shares of Common Stock, par
value $0.001 per share, of the Company.
To induce the Placement Agent to continue its efforts in connection
with the Offering, the undersigned hereby agrees that, without the prior written
consent of Morgan Stanley on behalf of the Placement Agent, it will not, during
the period commencing on the date hereof and ending 90 days after the date of
the final offering memorandum relating to the Offering (the "FINAL MEMORANDUM"),
(1) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, lend, or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or (2) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of the Common Stock, whether any such transaction
described in clause (1) or (2) above is to be settled by delivery of Common
Stock or such other securities, in cash or otherwise. The foregoing sentence
shall not apply to transactions relating to shares of Common Stock or other
securities acquired in open market transactions after the completion of the
Offering. In addition, the undersigned agrees that, without the prior written
consent of Morgan Stanley on behalf of the Placement Agent, it will not, during
the period commencing on the date hereof and ending 90 days after the date of
the Final Memorandum, make any demand for or exercise any right with respect to,
the registration of any shares of
D-1
<PAGE>
Common Stock or any security convertible into or exercisable or exchangeable for
Common Stock.
Whether or not the Offering actually occurs depends on a number of
factors, including market conditions. Any Offering will be made only pursuant
to a Placement Agreement, the terms of which are subject to negotiation between
the Company and the Placement Agent.
Very truly yours,
_____________________
Name:
_____________________
(Address)
D-2
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
TVN ENTERTAINMENT CORPORATION
TVN Entertainment Corporation, a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), does hereby certify that:
(1) The name of the corporation is TVN Entertainment Corporation. TVN
Entertainment Corporation was originally incorporated under the name Touchtone
Video Network, Inc., and the original Certificate of Incorporation of the
corporation was filed with the Secretary of State of the State of Delaware on
October 31, 1988.
(2) The Amended and Restated Certificate of Incorporation in the form
attached hereto as Exhibit A was duly proposed and approved by the Board of
Directors of the Corporation. In lieu of a meeting of the stockholders, written
consent has been given for the adoption of said Amended and Restated Certificate
of Incorporation pursuant to the applicable provisions of Sections 228, 242 and
245 of the General Corporation Law of the State of Delaware, and written notice
of the taking of such corporate action has been given as provided in said
Section 228.
IN WITNESS WHEREOF, TVN Entertainment Corporation, has caused this
Certificate of Officers to be signed by Stuart Levin, its President, and
attested by Arthur Fields, its Secretary, on February 28, 1996.
TVN ENTERTAINMENT CORPORATION
By: /s/ Stuart Levin
-----------------------------------
Stuart Levin, President
ATTEST:
By: /s/ Arthur Fields
------------------------------
Arthur Fields, Secretary
<PAGE>
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
TVN ENTERTAINMENT CORPORATION
TVN Entertainment Corporation, a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), certifies that:
A. The name of the Corporation is TVN Entertainment Corporation. TVN
Entertainment Corporation was originally incorporated under the name Touchtone
Video Network, Inc. and the original Certificate of Incorporation was filed with
the Secretary of State of the State of Delaware on October 19, 1989.
B. Pursuant to Sections 242 and 245 of the General Corporation Law of the
State of Delaware, this Amended and Restated Certificate restates, integrates
and further amends the provisions of the Corporation's Certificate of
Incorporation, as amended.
C. The text of the Certificate of Incorporation, as amended is restated
and further amended to read as follows:
ONE. The name of this Corporation is TVN Entertainment Corporation.
---
TWO. The address of the Corporation's registered office in the State
---
of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at such
office is Corporation Trust Company.
THREE. The nature of the business or purposes to be conducted by this
-----
Corporation is to engage in any lawful act or activity for which a corporation
may be organized under the General Corporation Law of Delaware.
FOUR. This corporation is authorized to issue two classes of shares
----
to be designated respectively Preferred Shares ("Preferred") and Common Shares
("Common"). The total number of shares of Preferred this corporation shall have
authority to issue is 7,600,000 shares, $.001 par value, and the total number of
shares of Common this corporation shall have authority to issue is 10,000,000
shares, $.001 par value. The Preferred shall be designated as a single series,
namely, Series A, consisting of 7,600,000 shares ("Series A Preferred Stock").
Upon the filing of this Amended and Restated Certificate of
Incorporation each outstanding share of Common Stock shall be converted into and
reconstituted as 10.5948568 shares of Series A Preferred Stock. No fractional
shares will be issued upon such conversion and reconstitution; any fractional
shares will be rounded to the nearest whole share.
The Corporation shall from time to time in accordance with the laws of
the State of Delaware increase the authorized amount of its Common Stock if at
any time the number of shares of Common Stock remaining unissued and available
for issuance shall not be sufficient to permit
<PAGE>
conversion of the Preferred Stock. Holders of capital stock shall have no pre-
emptive rights with respect to any authorized but unissued shares of Common
Stock.
The rights, preferences, privileges and restrictions granted to or
imposed on the Common Stock and Series A Preferred are as follows:
I. Dividends. The holders of the Series A Preferred shall be
---------
entitled to receive, when and as declared by the Board of Directors, out of any
funds legally available therefor, dividends at the rate of twenty five cents
($.25) per annum per share, on each outstanding share of Series A Preferred, and
no more, payable prior and in preference to any payment of any dividend on
Common shares of the Corporation. No dividends or other distributions shall be
made with respect to the Common shares, other than dividends payable solely in
Common Stock, until all dividends on the Series A Preferred have been declared
and paid or set apart. Such dividends shall not be cumulative and no right to
such dividends shall accrue to holders of Series A Preferred unless declared by
the Board of Directors. After dividends in the total amount of $.25 per share on
the Series A Preferred shall have been declared and paid or set apart in any
year, if the Board of Directors shall elect to declare additional dividends in
that year, out of funds legally available therefor, such additional dividends
shall be declared equally on the Common and the Series A Preferred, with the
holders of Series A Preferred to receive amounts equal to the dividends declared
on the number of shares of Common into and to which each share of Series A
Preferred is then convertible.
II. Liquidation Preference.
----------------------
A. In the event of any liquidation, dissolution or winding
up of the Corporation, either voluntary or involuntary, the holders of the
Series A Preferred shall be entitled to receive $2.50 for each outstanding share
of Series A Preferred prior to and in preference to any distribution of any of
the assets or surplus funds of the Corporation to the holders of the Common
Stock by reason of their ownership of such Series A Preferred (the "Liquidation
Preference").
B. If upon the occurrence of such event, the assets and
funds thus distributed among the holders of the Series A Preferred shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amount, then the entire assets and funds of the Corporation legally
available for distribution shall be distributed among the holders of the Series
A Preferred in proportion to the aggregate preferential amount of all shares of
Series A Preferred then held by them bears to the aggregate preferential amount
of all shares of Series A Preferred outstanding as of the date of the
distribution upon the occurrence of such event.
C. In the event of any liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary, after payment has been
made to the holders of the Series A Preferred of the full amounts to which they
shall be entitled as aforesaid, the holders of Common Stock shall be entitled to
share ratably in the remaining assets, based on the number of shares of Common
Stock held.
-2-
<PAGE>
III Voting Rights. The holders of shares of Series A Preferred
-------------
and Common Stock shall have the following voting rights:
A. Except as required by law or as otherwise provided
herein, the holders of shares of the Series A Preferred and the holders of
shares of Common Stock shall vote together as one class on all matters submitted
to a vote of stockholders of the Corporation, including the election of
directors, and shall have no special voting rights.
B. Each holder of shares of Series A Preferred shall be
entitled to the number of votes equal to the number of shares of Common Stock,
rounded to the nearest whole number, into which such shares of Series A
Preferred could be converted on the record date for the determination of the
stockholders entitled to vote. Fractional votes by the holders of the Series A
Preferred shall not, however, be permitted and any fractional voting rights
shall be rounded to the nearest whole number.
IV. Conversion. The holders of the Series A Preferred shall
----------
have conversion rights as follows (the "Conversion Rights"):
A. Right to Convert. Subject to the adjustment provisions
----------------
of this Section IV, each share of Series A Preferred shall be convertible, at
the option of the holder and without payment of additional consideration, at any
time after the date of issuance of such share at the office of the Corporation
or any transfer agent for such stock, into such number of fully paid and
nonassessable shares of Common Stock, as is determined by dividing $2.50 by the
Series A Conversion Price, determined as hereinafter provided, in effect at the
time of the conversion. The initial price at which shares of Common Stock shall
be deliverable upon conversion of shares of each series of Series A Preferred
(the "Series A Conversion Price") shall be $2.50. The initial Series A
Conversion Price shall be subject to adjustment as hereinafter provided.
B. Automatic Conversion. Each share of Series A Preferred
--------------------
shall automatically be converted into shares of Common Stock at the then
effective Conversion Price:
(1) In the case of Series A Preferred, upon the
affirmative vote of the holders of a majority of the outstanding Series A
Preferred voting separately as a class to cause all outstanding shares of Series
A Preferred to be converted.
(2) In the case of the Series A Preferred, upon the
closing of a firm commitment underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
covering the offer and sale of equity securities for the account of the
Corporation to the public at (i) a per share public offering price of not less
than $2.50 (prior to underwriter commissions and offering expenses) and (ii) an
aggregate price (prior to underwriter's commissions and offering expenses) of
not less than $7,500,000.00. In the event of the automatic conversion of the
Series A Preferred upon a public offering as aforesaid, the person(s) entitled
to receive the Common Stock issuable upon such conversion of the Series A
Preferred shall not be deemed to have converted such Series A Preferred until
immediately prior to the closing of such sale of securities.
-3-
<PAGE>
C. Mechanics of Conversion. No fractional shares of
-----------------------
Common Stock shall be issued upon conversion of the Series A Preferred. In lieu
of any fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Conversion Price. Before any holder of Series A Preferred shall be
entitled to convert the same into full shares of Common Stock and to receive
certificates therefor, he shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Corporation or of any transfer
agent for the Series A Preferred, and shall give written notice to the
Corporation at such office that he elects to convert the same; provided,
however, that in the event of an automatic conversion pursuant to Section IV.B,
the outstanding shares of Series A Preferred shall be converted automatically
without any further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the Corporation or its
transfer agent, and provided further that the Corporation shall not be obligated
to issue certificates evidencing the shares of Common Stock issuable upon such
automatic conversion unless the certificates evidencing such shares of Series A
Preferred are either delivered to the Corporation or its transfer agent as
provided above, or the holder notifies the Corporation or its transfer agent
that such certificates have been lost, stolen or destroyed and executes an
agreement satisfactory to the Corporation to indemnify the Corporation from any
loss incurred by it in connection with such certificates. The Corporation
shall, as soon as practicable after such delivery, or such agreement and
indemnification in the case of a lost certificate, issue and deliver at such
office to such holder of Series A Preferred, a certificate or certificates for
the number of shares of Common Stock to which he shall be entitled as aforesaid
and a check payable to the holder in the amount of any cash amounts payable as
the result of a conversion into fractional shares of Common Stock. Such
conversion shall be deemed to have been immediately prior to the close of
business on the date of such surrender of the shares of Series A Preferred to be
converted, or in the case of automatic conversion on the date of closing of the
offering, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on such date.
D. Adjustments to Conversion Price.
-------------------------------
(1) Adjustments for Subdivisions, Combinations or
---------------------------------------------
Consolidation of Common Stock. In the event the outstanding shares of Common
- -----------------------------
Stock shall be subdivided (by stock split, stock dividends or otherwise), into a
greater number of shares of Common Stock, the Conversion Price then in effect
shall, concurrently with the effectiveness of such subdivision, be
proportionately decreased. In the event the outstanding shares of Common Stock
shall be combined or consolidated, by reclassification or otherwise, into a
lesser number of shares of Common Stock, the Conversion Price then in effect
shall, concurrently with the effectiveness of such combination or consolidation,
be proportionately increased.
(2) Adjustments for Stock Dividends and Other
-----------------------------------------
Distributions. In the event the Corporation at any time or from time to time
makes, or fixes a record date for the determination of holders of Common Stock
entitled to receive any distribution (excluding any repurchases of securities by
the Corporation not made on a pro-rata basis from all holders of any class of
the Corporation's securities) payable in property or in securities of the
Corporation other than shares of Common Stock, and other than as otherwise
adjusted in this Section IV or as provided in Section I,
-4-
<PAGE>
then and in each such event the holders of Series A Preferred shall receive at
the time of such distribution, the amount of property or the number of
securities of the Corporation that they would have received had their Series A
Preferred been converted into Common stock on the date of such event.
(3) Adjustments for Reclassification, Exchange and
----------------------------------------------
Substitution. Except as provided in Section II upon any liquidation, dissolution
or winding up of the Corporation, if the Common Stock issuable upon conversion
of the Series A Preferred shall be changed into the same or a different number
of shares of any other class or classes of stock, whether by capital
reorganization, reclassification or otherwise (other than a subdivision or
combination of shares provided for above), the Conversion Price then in effect
shall, concurrently with the effectiveness of such reorganization or
reclassification, be proportionately adjusted such that the Series A Preferred
shall be convertible into, in lieu of the number of shares of Common Stock which
the holders would otherwise have been entitled to receive, a number of shares of
such other class or classes of stock equivalent to the number of shares of
Common Stock that would have been subject to receipt by the holders upon
conversion of the Series A Preferred immediately before that exchange.
E. No Impairment. The Corporation will not, by amendment
-------------
of its Amended and Restated Certificate of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed under
this certificate by the Corporation, but will at all times in good faith assist
in the carrying out of all the provisions of Section IV and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Series A Preferred against impairment.
F. Certificate as to Adjustments. Upon the occurrence of
-----------------------------
each adjustment or readjustment of the Conversion Price pursuant to Section IV,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms of this certificate and cause
independent public accountants selected by the Corporation to verify such
computation and prepare and furnish to each holder of Series A Preferred a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Corporation
shall, upon the written request at any time of any holder of Series A Preferred,
furnish or cause to be furnished to such holder a like certificate setting forth
(i) such adjustments and readjustments, (ii) the Conversion Price at the time in
effect, and (iii) the number of shares of Common Stock and the amount, if any,
of other property that at the time would be received upon the conversion of the
Series A Preferred.
G. Notices of Record Date. In the event of any taking by
----------------------
the Corporation of a record of the holders of any class of securities for the
purpose of determining the holders of such securities who are entitled to
receive any dividend or other distribution whether in cash, property, stock or
other securities, or any right to subscribe for, purchase, or otherwise acquire
any shares of stock of any class or any other securities or property, or to
receive any other right, the Corporation shall mail to each holder of Series A
Preferred at least twenty (20) days prior to the date specified in such notice,
a notice specifying the date on which any such record is to be taken for the
purpose of such dividend, distribution, or rights, and the amount and character
of such dividend, distribution, or right.
-5-
<PAGE>
H. Reservation of Stock Issuable Upon Conversion. The
---------------------------------------------
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of the Series A Preferred such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Series A Preferred. If at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the Series A Preferred,
the Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose.
I. Notices. Any notice required by the provisions of
-------
Section IV to be given to the holders of shares of Series A Preferred shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his address appearing on the books of the
Corporation.
J. Status of Converted Shares. In the event any shares of
--------------------------
Series A Preferred shall be converted pursuant to Section IV, the shares so
converted shall be canceled and shall not be reissuable by the Corporation.
V. Redemption. The shares of Series A Preferred shall not be
----------
redeemable.
VI. Protection Provisions. This Corporation shall not without
---------------------
first obtaining the affirmative vote or written consent of the holders of not
less than fifty percent (50%) of the outstanding Common Stock and Series A
Preferred, voting together as a single class (on an as converted basis):
A. amend or repeal any provision of the Corporation's
Amended and Restated Certificate of Incorporation or amend or repeal any
provision of the charter document of any subsidiary;
B. authorize a merger, consolidation, recapitalization or
reorganization of the Corporation in which the stockholders of this
Corporation shall own less than fifty percent (50%) of the voting
securities of the surviving corporation, or authorize the sale of all or
substantially all of the assets of the Corporation, or otherwise liquidate,
wind up or dissolve the Corporation;
C. declare or pay any dividend; or
D. form or establish any subsidiary of the Corporation,
authorize a merger, consolidation, recapitalization, reorganization of a
subsidiary in which the stockholders of such subsidiary immediately prior
to the consummation of such transaction would own less than fifty percent
(50%) of the voting securities of the surviving corporation, or authorize
the sale of all or substantially all of the assets of any subsidiary or
otherwise liquidate, wind up or dissolve a subsidiary.
-6-
<PAGE>
FIVE. The Corporation is to have perpetual existence.
----
SIX. In furtherance and not in limitation of the powers conferred
---
by statute, the Board of Directors is expressly authorized to make, alter, amend
or repeal the Bylaws of the Corporation.
SEVEN. The number of directors of the Corporation shall be not less
-----
than five (5) nor more than nine (9). The exact number of directors shall be as
set forth in the Bylaws of the Corporation.
EIGHT. Subject to the voting rights of any class or series of stock,
-----
vacancies existing in the Board of Directors for any reason, and any
directorships resulting from any increase in the authorized number of directors,
may be filled between annual meetings of stockholders by the Board of Directors
acting according to the procedures for the filling of vacancies set forth in the
Bylaws of the Corporation.
NINE. At all elections of directors of the Corporation, if any
----
holder of stock of this Corporation entitled to vote at an election of directors
shall have given the Corporation notice in accordance with the manner therefor
set forth in the Corporation's Bylaws of such holder's intention to cumulate his
or her votes for the election of directors, then each holder of stock or of any
class or classes or of a series or series thereof shall be entitled to as many
votes as shall equal the number of votes which (except for this provision as to
cumulative voting) such holder would be entitled to cast for the election of
directors with respect to his or her shares of stock multiplied by the number of
directors to be elected by such holder, and the holder may cast all of such
votes for a single director or may distribute them among the number of directors
to be voted for, or for any two or more of them as such holder may see fit.
TEN. Meetings of stockholders may be held within or without the
---
State of Delaware, as the Bylaws may provide. The books of the Corporation may
be kept (subject to any provision contained in the statutes) outside the State
of Delaware at such place or places as may be designated from time to time by
the Board of Directors or in the Bylaws of the Corporation.
ELEVEN. To the fullest extent permitted by the Delaware General
------
Corporation Law, a director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent such exception from liability or
limitation thereof is not permitted under the Delaware Corporation Law as the
same exists or may hereafter be amended. Neither any amendment nor repeal of
this Section ELEVEN, nor the adoption of any provision of this Amended and
Restated Certificate of Incorporation inconsistent with this Section ELEVEN,
shall eliminate or reduce the effect of this Section ELEVEN in respect of any
matter occurring, or any cause of action, suit or claim that, but for this
Section ELEVEN, would accrue or arise, prior to such amendment, repeal or
adoption of an inconsistent provision.
TWELVE. Except as set forth in Section FOUR above, the Corporation
------
reserves the right to amend, alter, change or repeal any provision contained in
this Amended and Restated Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
-7-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
TVN ENTERTAINMENT CORPORATION
TVN Entertainment Corporation, a corporation duly organized and existing
under the General Corporation Law of the State of Delaware (the "Corporation"),
DOES HEREBY CERTIFY THAT:
1. The amendment to the Corporation's Certificate of Incorporation set
forth below was duly adopted by the Board of Directors of the Corporation in
accordance with the provisions of Section 242 of the General Corporation Law of
the State of Delaware and has been consented to in writing by the stockholders,
and written notice has been given, in accordance with Section 228 of the General
Corporation Law of the State of Delaware.
2. Article FOUR of the Corporation's Certificate of Incorporation is
amended as follows:
The first paragraph of Article FOUR, which currently reads:
"This corporation is authorized to issue two classes of shares to be
designated respectively Preferred Shares ("Preferred") and Common Shares
("Common"). The total number of shares of Preferred this corporation shall have
authority to issue is 7,600,000 shares, $.001 par value, and the total number of
shares of Common this corporation shall have authority to issue is 10,000,000
shares, $.001 par value. The Preferred shall be designated as a single series,
namely, Series A, consisting of 7,600,000 shares ("Series A Preferred Stock")."
is hereby amended in its entirety to read:
"This corporation is authorized to issue two classes of shares to be
designated respectively Preferred Shares ("Preferred") and Common Shares
("Common"). The total number of shares of Preferred this corporation shall have
authority to issue is 18,819,522 shares, $.001 par value, and the total number
of shares of Common this corporation shall have authority to issue is 40,000,000
shares, $.001 par value. The Preferred Stock may be issued from time to time in
one or more series. Of the authorized Preferred, 7,600,000 shares shall be
designated as Series A ("Series A Preferred Stock") and the remaining authorized
shares of Preferred are undesignated. The Board of Directors of this
Corporation is authorized to determine the rights, preferences, privileges and
restrictions granted to or imposed upon any undesignated shares of Preferred,
and within the limitations or restrictions stated in any resolution or
resolutions of the Board of Directors originally designating the shares
constituting any series, to increase or decrease (but not below the number of
shares of any such series then outstanding) the number of shares of any such
series subsequent to the issue of shares of that series, to determine the
designation and par value of any series and to fix the number of shares of any
series. Any shares of undesignated Preferred hereafter designated by the Board
of Directors pursuant to this Article as senior securities (the "Senior
<PAGE>
Preferred Stock") shall rank, with respect to dividends and distributions upon
the liquidation, dissolution or winding-up of the Corporation, senior to all
classes or series of Common Stock, the Series A Preferred Stock and any other
class or series of stock that provides that it shall be junior to the Senior
Preferred Stock (collectively "Junior Securities")."
3. Item I of Article FOUR of the Corporation's Certificate of
Incorporation is hereby amended in its entirety and replaced by the following:
I. Dividends.
---------
A. The holders of the Series A Preferred shall be entitled
to receive, when and as declared by the Board of Directors, out of any funds
legally available therefor, dividends at the rate of twenty five cents ($.25)
per annum per share, on each outstanding share of Series A Preferred, and no
more, payable prior and in preference to any payment of any dividend on Common
shares of the Corporation. No dividends or other distributions shall be made
with respect to the Common shares, other than dividends payable solely in Common
Stock, until all dividends on the Series A Preferred have been declared and paid
or set apart. Such dividends shall not be cumulative and no right to such
dividends shall accrue to holders of Series A Preferred unless declared by the
Board of Directors. After dividends in the total amount of $.25 per share on the
Series A Preferred shall have been declared and paid or set apart in any year,
if the Board of Directors shall elect to declare additional dividends in that
year, out of funds legally available therefor, such additional dividends shall
be declared equally on the Common and the Series A Preferred, with the holders
of Series A Preferred to receive amounts equal to the dividends declared on the
number of shares of Common into and to which each share of Series A Preferred is
then convertible.
B. Beginning on the original date of issuance of any
shares of Senior Preferred Stock, the holders of such Senior Preferred Stock
shall be entitled to receive dividends on each outstanding share of Senior
Preferred Stock when, as and if dividends are declared by the Board of
Directors, out of funds legally available for the payment of dividends, on each
outstanding share of Common Stock or Series A Preferred, respectively, in an
amount equal to the dividends paid on each share of the Common Stock or Series A
Preferred, respectively, multiplied by a fraction equal to the liquidation
preference each share of the Senior Preferred Stock divided by the liquidation
preference of the Series A Preferred, as set forth in Item II below, or Common
Stock, respectively. For such purpose only, the liquidation preference of the
Common Stock shall be deemed equal to $.001 per share. All such dividends shall
be payable to the holders of Senior Preferred Stock on any date that dividends
are paid on the Series A Preferred or Common Stock, as the case may be.
C. So long as any shares of Senior Preferred Stock are
outstanding, the Corporation (i) shall not declare, pay or set apart for payment
any dividend on any Junior Securities, or make any payment on account of, or set
apart for payment money for a sinking or other similar fund for, the purchase,
redemption or other retirement of, any of the Junior Securities or any warrants,
rights, calls or options exercisable for or convertible into any of the Junior
-2-
<PAGE>
Securities, and (ii) shall not purchase or redeem any of the Junior Securities,
or any warrants, rights, calls or options exercisable for or convertible into
any of the Junior Securities, except for the repurchase of Common Stock or
options therefore, in each case issued to employees of the Corporation or any
subsidiary thereof, for aggregate consideration not to exceed $250,000."
4. Item II of Article FOUR of the Corporation's Certificate of
Incorporation is hereby amended to add the following:
"D. Upon any voluntary or involuntary liquidation,
dissolution or winding-up of the Corporation, the holders of Senior Preferred
Stock will be entitled to receive out of the assets of the Corporation available
for distribution to the holders of its capital stock, whether such assets are
surplus or earnings, an amount in cash equal to the liquidation preference of
such Senior Preferred Stock, before any payment shall be made or any assets
distributed to the holders of any of the Junior Securities."
5. Article SEVEN of the Corporation's Certificate of Incorporation is
hereby amended in its entirety and replaced by the following:
"The number of directors of the Corporation shall be not less than
five (5) nor more than ten (10). The exact number of directors shall be as set
forth in the Bylaws of the Corporation."
-3-
<PAGE>
IN WITNESS WHEREOF, TVN Entertainment Corporation has caused this
Certificate to be executed by Stuart Z. Levin, its authorized officer, on this
28th day of August, 1997.
/s/ Stuart Z. Levin
______________________________________
Stuart Z. Levin, President
(Certificate of Amendment of Certificate of Incorporation of TVN Entertainment
Corporation)
-4-
<PAGE>
CERTIFICATE OF VOTING POWERS, DESIGNATIONS, PREFERENCES
AND RELATIVE PARTICIPATING, OPTIONAL OR OTHER SPECIAL
RIGHTS AND QUALIFICATIONS, LIMITATIONS
AND RESTRICTIONS THEREOF OF THE
SERIES B CONVERTIBLE PREFERRED STOCK
OF TVN ENTERTAINMENT CORPORATION
__________________________
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
__________________________
I, Arthur Fields, Secretary of TVN Entertainment Corporation (the
"Corporation"), a corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware, in accordance with the
provisions of Section 151 of the General Corporation Law of the State of
Delaware, DO HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of Directors by
the Certificate of Incorporation as amended of said Corporation (the
"Certificate of Incorporation"), said Board of Directors, at a meeting duly
called and held on August 27, 1997, adopted a resolution providing for the
issuance of 11,219,522 authorized shares of Series B Convertible Preferred
Stock, which resolution is as follows:
WHEREAS, the Board of Directors is authorized, within the limitations
and restrictions stated in the Certificate of Incorporation, as amended, to fix
by resolution or resolutions the designation of each series of preferred stock
and the powers, designations, preferences and relative participating, optional
or other rights, if any, or the qualifications, limitations or restrictions
thereof, including, without limiting the generality of the foregoing, such
provisions as may be desired concerning voting, redemption, dividends,
dissolution or the distribution of assets, conversion or exchange, and such
other subjects or matters as may be fixed by resolution or resolutions of the
Board of Directors under the General Corporation Law of Delaware; and
<PAGE>
2
WHEREAS, it is the desire of the Board of Directors, pursuant to its
authority as aforesaid, to authorize and fix the terms of a series of preferred
stock and the number of shares constituting such series;
NOW, THEREFORE, BE IT RESOLVED, that there is hereby authorized such
series of preferred stock on the terms and with the provisions herein set forth:
I. Certain Definitions. (a) As used herein, the following terms shall have
-------------------
the following meanings (with terms defined in the singular having comparable
meanings when used in the plural and vice versa), unless the context otherwise
requires:
"Affiliate", as applied to any Person, means any other Person directly
or indirectly controlling, controlled by, or under common control with,
such Person and "Affiliated" has a meaning correlative with the foregoing.
For purposes of this definition, "control" (including, with correlative
meaning, the terms "controlling", "controlled by" and "under common control
with"), as applied to any Person, means the ownership, directly or
indirectly, of more than 10 percent of the outstanding voting securities of
such Person or other ownership interests having ordinary voting power to
elect a majority of the board of directors of such Person or other entity
performing similar functions.
"Board of Directors" means the Board of Directors of the Corporation.
"Business Day" means a day other than a Saturday, Sunday or other day
on which commercial banks in New York City are authorized or required by
law to close .
"Capital Stock" means any and all shares, interests, participations,
rights or other equivalents (however designated) of corporate stock.
"Change of Control" means such time as a "person" or "group" (within
the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) becomes the
ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act) of Capital Stock having voting power that is more than the voting
power of the Series B Stock held by the Holders on such date.
"Commission" means the Securities and Exchange Commission and any
successor agency having similar powers.
<PAGE>
3
"Common Stock" means the Common Stock, par value $.001 per share, of
the Corporation and any other class of common stock hereafter authorized by
the Corporation from time to time.
"Convertible Notes" means the 10% Convertible Notes of the Corporation
issued to Storie Partners, L.P.
"Corporation" means TVN Entertainment Corporation, a Delaware
corporation.
"Director" means a member of the Board of Directors.
"Dividend Payment Date" means any Redemption Date and any other date
on which dividends in arrears may be paid.
"Dividend Record Date" means, with respect to the dividend payable on
each Dividend Payment Date, the close of business on the fifteenth day
immediately preceding such Dividend Payment Date, or such other record date
as may be designated by the Board of Directors with respect to the dividend
payable on such Dividend Payment Date; provided, however, that such record
date may not be more than 60 days or less than ten days prior to such
Dividend Payment Date.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"fair market value" means the price at which an informed and willing
seller, under no compulsion to sell, would sell to an informed and willing
buyer, under no compulsion to buy, with no discount for illiquidity or lack
of control.
"Holder" means a registered holder of shares of Series B1 Stock,
Series B3 Stock or Series B4 Stock.
"Initial Public Offering" means the first registration of Common Stock
after the date hereof under the Securities Act, using forms S-1, S-2 or S-3
or any successor forms.
"Key Creditors" means each creditor of the Corporation or its
Subsidiaries that, together with its Affiliates, is owed $200,000 or more
by the Corporation and/or its Subsidiaries, including, without limitation,
PanAmSat Corporation, NextLevel Systems of Delaware, Inc., AT&T
Communications, Inc., Four Media Corporation, Universal Pay Television,
Inc. (including MCA Satellite Services, Inc.), The Walt Disney Company,
Electronic Data Systems Corporation, Viacom, Inc. (including PVI
<PAGE>
4
Transmission Inc., PVI Sales and Marketing Inc., Centurion Satellite
Broadcast, Inc. and Paramount Pictures Corporation) and Col-Star, Inc.
"Liquidation Preference" means the Original Liquidation Preference,
plus an amount equal to all accumulated and unpaid dividends from and after
the Dividend Payment Date on which such dividends were to be paid. The
Liquidation Preference of a share of Series B Stock will increase by the
amount of dividends that accumulate on such share on a Dividend Payment
Date and will decrease only to the extent such dividends are actually paid,
all as provided in Article IV hereof.
"Mandatory Redemption Date" means August 29, 2002.
"Original Issue Date" means the date on which shares of Series B
Convertible Preferred Stock are first issued by the Corporation.
"Person" means any individual, partnership, corporation, business
trust, joint stock company, limited liability company, trust,
unincorporated association, joint venture, governmental authority or other
entity of whatever nature.
"PGI Stock" means Series B1 Stock, Series B3 Stock and Series B4
Stock.
"Preferred Stock" means any and all shares, interests, participations
or other equivalents of the Corporation's preferred stock, including any
such security with any priority over Common Stock with respect to dividends
or upon liquidation or similar events.
"Redemption Price" means, with respect to any share of Series B Stock,
the Liquidation Preference of such share.
"Securities Act" means the Securities Act of 1933, as amended from
time to time, or any successor statute.
"Securities Purchase Agreement" means the Securities Purchase
Agreement, dated as of August 29, 1997 between the Corporation and Princes
Gate Investors II, L.P.
"Securityholders Agreement" means the Securityholders Agreement, dated
as of August 29, 1997, among the Corporation, Princes Gate Investors II,
L.P., PG Investors II, Inc., Storie Partners, L.P., Wenonah Development
Corp. and Jerome H. Turk and Carole Turk Family Trust.
<PAGE>
5
"Storie Holders" means registered holders of Series B2 Stock.
"Special Trigger Event" shall be deemed to occur if (i) the
Corporation has not, prior to the third anniversary of the Initial Closing,
completed an Initial Public Offering underwritten by an investment bank of
national standing and generating gross proceeds to the Corporation which
exceed $25 million; (ii) the Corporation is in default with a creditor or
trade partner, including, but not limited to, any of the Key Creditors,
with respect to a liability or obligation of at least $50,000 for thirty
days; (iii) the Corporation breaches any covenant or agreement contained in
the Securities Purchase Agreement, the Securityholders Agreement or in this
Certificate of Designations and such breach has not been cured within ten
days thereof; (iv) a court having jurisdiction in the premises enters a
decree or order for (A) relief in respect of the Corporation or any of its
Subsidiaries in an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, (B) appointment
of a receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of the Corporation or any of its Subsidiaries or for all
or substantially all of the property and assets of the Corporation or any
of its Subsidiaries or (C) the winding up or liquidation of the affairs of
the Corporation or any of its Subsidiaries; (v) the Corporation or any of
its Subsidiaries (A) commences a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
consents to the entry of an order for relief in an involuntary case under
any such law, (B) consents to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official of the Corporation or any of its Subsidiaries or for all or
substantially all of the property and assets of the Corporation or any of
its Subsidiaries or (C) effects any general assignment for the benefit of
creditors; or (vi) if the Chief Operating Officer of the Corporation hired
on the date PGI Stock is first issued ceases to be employed by the
Corporation on a full-time basis at all times during the one year period
after such issuance, except in the event of such person's death or
disability or with the approval of the Directors elected by the Holders,
and the Corporation shall not have replaced such Chief Operating Officer
within 30 days of such cessation with a person reasonably acceptable to the
Directors elected by the Holders; provided that with respect to the events
referred to in items (ii), (iii) and (vi) above, a Special Trigger Event
shall be deemed not to have occurred unless (A) the Corporation shall have
failed to give written notice of the occurrence of such event to the Agent
and the Storie Holders within five days of such occurrence or (B) the Agent
or holders of 25% or more of the Series B Stock shall have given the
Corporation written notice declaring such event to be a Special Trigger
Event.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than fifty percent (50%)
of the total voting power of shares of Capital Stock entitled (without
regard to the occurrence of any
<PAGE>
6
contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of such Person or a
combination thereof.
"Warrants" means warrants to purchase Series B2 Stock, issued on the
Original Issue Date.
(b) Each of the following terms is defined in the Section opposite
such term:
Term Section
---- -------
Common Equivalents VIII
constituent entity VIII
Conversion Agent VIII
Conversion Date VIII
Conversion Ratio VIII
Junior Securities III
non-electing share VIII
Original Liquidation Preferences II
Redemption Date VI(C)
Redemption Notice VI(C)
resulting entity IX
Series A Stock III
Series B Stock II
Series B1 Stock II
Series B2 Stock II
Series B3 Stock II
Series B4 Stock II
II. Designation.
-----------
The series of preferred stock authorized hereunder shall be designated
as the "Series B Convertible Preferred Stock" and is referred to herein as the
"Series B Stock." The number of shares constituting such series shall be
11,219,522. The par value of the Series B Stock shall be $.001 per share of
Series B Stock. The Series B Stock shall be issued in four subseries, with
original liquidation preferences (the "Original Liquidation Preferences") equal
to: $2.7343 per share for the first 5,714,442 shares of Series B Stock purchased
by the Holders ("Series B1 Stock"); $5.8105 per share for the 1,790,769 shares
of Series B Stock acquired by the Storie Holders ("Series B2 Stock"); $6.8359
per share for the next 2,285,727 shares of Series B Stock purchased by the
Holders ("Series B3 Stock"); and $10.9374 per
<PAGE>
7
share for the next 1,428,584 shares of Series B Stock purchased by the Holders
("Series B4 Stock").
III. Ranking.
-------
The Series B Stock shall be a senior security, as such term is used in
Article FOUR of the Corporation's Certificate of Incorporation and shall rank,
with respect to dividends and distributions upon the liquidation, dissolution or
winding-up of the Corporation, senior to all classes or series of Common Stock
and any other Capital Stock of the Corporation (collectively referred to as
"Junior Securities"), including, without limitation, (A) any series of Preferred
Stock hereafter created by the Board of Directors and (B) the Series A Preferred
Stock, $.001 par value per share of the Corporation (the "Series A Stock").
IV. Dividends.
---------
(A) Beginning on the Original Issue Date, Holders and Storie Holders
shall be entitled to receive dividends on each outstanding share of Series B
Stock, when, as and if dividends are declared by the Board of Directors, out of
funds legally available for the payment of dividends, on each outstanding share
of Common Stock or Series A Stock, in an amount equal to the dividends paid on
each share of the Common Stock or Series A Stock, multiplied by a fraction equal
to the Liquidation Preference of each share of Series B Stock divided by the
liquidation preference of each share of such Series A Stock or Common Stock, as
the case may be. For such purpose only, the liquidation preference of the Common
Stock shall be deemed to be equal to $.001 per share. All such dividends shall
be payable to Holders and Storie Holders on any date that dividends are paid on
the Series A Stock or Common Stock, as the case may be.
(B) Each dividend paid on the Series B Stock shall be payable to
Holders and Storie Holders of record as their names shall appear in the stock
ledger of the Corporation on the Dividend Record Date for such dividend, except
that dividends in arrears for any past Dividend Payment Date may be declared and
paid at any time without reference to such regular Dividend Payment Date to
Holders and Storie Holders of record on a later dividend record date determined
by the Board of Directors.
(C) All dividends paid with respect to shares of the Series B Stock
shall be paid pro rata to the Holders and Storie Holders entitled thereto based
upon the Liquidation Preference of the Series B Stock held by each such Holder
and Storie Holder on the relevant Dividend Record Date.
<PAGE>
8
(D) So long as any shares of the Series B Stock are outstanding, the
Corporation (i) shall not declare, pay or set apart for payment any dividend on
any Junior Securities, or make any payment on account of, or set apart for
payment money for a sinking or other similar fund for, the purchase, redemption
or other retirement of, any of the Junior Securities or any securities,
warrants, rights, calls or options exchangeable or exercisable for or
convertible into any of the Junior Securities, and (ii) shall not itself and
shall not permit any of its Subsidiaries to purchase or redeem any of the Junior
Securities, or any securities, warrants, rights, calls or options exchangeable
or exercisable for or convertible into any of the Junior Securities, except for
the repurchase of Common Stock or options therefor, in each case issued to
employees of the Corporation or any Subsidiary thereof, for aggregate
consideration not to exceed $250,000.
V. Payment on Liquidation.
----------------------
(A) Upon any voluntary or involuntary liquidation, dissolution or
winding-up of the Corporation, Holders and Storie Holders will be entitled to
receive out of the assets of the Corporation available for distribution to the
holders of its Capital Stock, whether such assets are capital, surplus or
earnings, an amount in cash equal to the Liquidation Preference, before any
payment shall be made or any assets distributed to the holders of any of the
Junior Securities. Except as set forth in the preceding sentence, Holders and
Storie Holders shall not be entitled to any distribution in the event of
voluntary or involuntary liquidation, dissolution or winding-up of the
Corporation. If upon any voluntary or involuntary liquidation, dissolution or
winding-up of the affairs of the Corporation, the assets of the Corporation are
not sufficient to pay in full the liquidation payments payable to the Holders
and Storie Holders, then the Holders and Storie Holders shall share equally and
ratably in any distribution of assets in proportion to the full liquidation
preferences of the Series B Stock held by them, determined as of the date of
such voluntary or involuntary liquidation, dissolution or winding-up, to which
they are entitled.
(B) For the purposes of this Article V only, neither the sale, lease,
conveyance, exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all of the property or assets of the
Corporation nor the consolidation or merger of the Corporation with or into one
or more corporations shall be deemed to be a liquidation, dissolution or
winding-up of the Corporation.
<PAGE>
9
VI. Redemption.
----------
(A) Mandatory Redemption. On the Mandatory Redemption Date, the
--------------------
Corporation shall redeem from any source of funds legally available therefor, in
the manner provided in Article VI(C) below, all of the shares of the Series B
Stock then outstanding at a redemption price, in cash, equal to the Redemption
Price. The Corporation shall use its best efforts to cause funds to be legally
available for the payment of the Redemption Price prior to the Redemption Date.
(B) Redemption at the Option of Holders and Storie Holders upon a
-------------------------------------------------------------
Change of Control. Upon the occurrence of a Change of Control, each Holder and
- -----------------
Storie Holder shall have the right to require the Corporation to promptly redeem
all or any shares of the Series B Stock at a redemption price, in cash, equal to
the Redemption Price.
(C) Procedure for Redemption. (i) Not more than sixty (60) and not
------------------------
less than thirty (30) days prior to the Mandatory Redemption Date and within
three days of any Change of Control, written notice (the "Redemption Notice")
shall be given by the Corporation to each Holder and Storie Holder by facsimile
and by first-class mail, postage prepaid, to each Holder and Storie Holder at
such Holder's or Storie Holder's address as the same appears on the stock ledger
of the Corporation; provided, however, that no failure to give such notice nor
any deficiency therein shall affect the validity of the procedure for the
redemption of any shares of Series B Stock to be redeemed except as to the
Holders and Storie Holders to whom the Corporation has failed to give such
notice or except as to the Holders and Storie Holders whose notice was
defective. The Redemption Notice shall state:
(a) the Redemption Price;
(b) the date fixed for redemption (the "Redemption Date");
(c) in the case of a redemption pursuant to Article VI(A), that the
Holder or Storie Holder is to surrender to the Corporation, at the place or
places, which shall be designated in such Redemption Notice, its
certificates representing the shares of Series B Stock to be redeemed;
(d) the name of any bank or trust company performing the duties
referred to in Article VI(C)(v) below; and
(e) If there has occurred a Change of Control, a statement to that
effect and reasonable procedures for the Holder or Storie Holder to follow
if it wishes the Corporation to redeem its Series B Stock.
<PAGE>
10
(ii) On or before the Redemption Date, each Holder and Storie Holder
of Series B Stock to be redeemed shall surrender the certificate or certificates
representing such shares of Series B Stock to the Corporation, in the manner and
at the place designated in the Redemption Notice, and on the Redemption Date the
full Redemption Price for such shares shall be payable in cash to the Person
whose name appears on such certificate or certificates as the owner thereof, and
each surrendered certificate shall be returned to authorized but unissued
shares. In the event that less than all of the shares represented by any such
certificate are redeemed, a new certificate shall be issued representing the
unredeemed shares.
(iii) Unless the Corporation defaults in the payment in full of the
applicable Redemption Price, dividends on the Series B Stock called for
redemption shall cease to accumulate on the day prior to the Redemption Date,
and the Holders and Storie Holders of such shares shall cease to have any
further rights with respect thereto on the Redemption Date, other than the right
to receive the Redemption Price.
(iv) If a Redemption Notice shall have been duly given, and if, on
or before the Redemption Date specified therein, all funds necessary for such
redemption shall have been set aside by the Corporation, separate and apart from
its other funds, in trust for the pro rata benefit of the Holders and Storie
Holders of the Series B Stock called for redemption so as to be and continue to
be available therefor, then, notwithstanding that any certificate for shares so
called for redemption shall not have been surrendered for cancellation, all
shares so called for redemption shall no longer be deemed outstanding, and all
rights with respect to such shares shall forthwith on such Redemption Date cease
and terminate, excepting only the right of the Holders and Storie Holders
thereof to receive the amount payable on redemption thereof, without interest.
(v) If a Redemption Notice shall have been duly given or if the
Corporation shall have given to the bank or trust company hereinafter referred
to irrevocable authorization promptly to give such notice, and if on or before
the Redemption Date specified therein the funds necessary for such redemption
shall have been irrevocably deposited by the Corporation with such bank or trust
company in trust for the pro rata benefit of the Holders and Storie Holders of
the Series B Stock called for redemption, then, notwithstanding that any
certificate for shares so called for redemption shall not have been surrendered
for cancellation, from and after the time of such deposit, all shares so called,
or to be so called pursuant to such irrevocable authorization, for redemption
shall no longer be deemed to be outstanding and all rights with respect of such
shares shall forthwith cease and terminate, excepting only the right of the
Holders and Storie Holders thereof to receive from such bank or trust company at
any time after the time of such deposit the funds so deposited, without
interest. The aforesaid bank or trust company shall be organized and in good
standing under the laws of the United States of America or of the State of New
York, shall be doing business in the Borough of Manhattan, The City of New York,
shall have capital, surplus and undivided profits aggregating at least
<PAGE>
11
$100,000,000 according to its last published statement of condition, and shall
be identified in the Redemption Notice. Any interest accrued on such funds shall
be paid to the Corporation from time to time. Any funds so set aside or
deposited, as the case may be, and unclaimed at the end of three years from such
Redemption Date shall, to the extent permitted by law, be released or repaid to
the Corporation, after which repayment the Holders and Storie Holders of the
shares to be redeemed shall look only to the Corporation for payment thereof.
VII. Voting Rights.
-------------
(A) Holders and Storie Holders, except as otherwise required under
Delaware law and as set forth below, shall not be entitled or permitted to vote
on any matter required or permitted to be voted upon by the stockholders of the
Corporation.
(B) Without the approval of the Directors elected by the Holders of
the shares of PGI Stock then outstanding, the Corporation will not (i) create,
authorize or issue any securities or any warrants, rights, calls or options
exercisable or exchangeable for or convertible into, or any obligations
evidencing the right to purchase or acquire, any securities, including in
connection with a merger, consolidation or other reorganization or (ii)
reclassify any Junior Securities into any securities that rank senior to or on a
parity with the Series B Stock with respect to dividends or upon liquidation or
dissolution of the Corporation or any securities, warrants, rights, calls or
options exercisable or exchangeable for or convertible into, or any obligations
evidencing the right to purchase or acquire, any securities that rank senior to
or on a parity with the Series B Stock with respect to dividends or upon
liquidation or dissolution of the Corporation; provided that, notwithstanding
the foregoing, the Corporation may issue stock options to employees of the
Corporation or its Subsidiaries for up to an aggregate of 100,000 shares of
Common Stock, each having an exercise price equal to at least the fair market
value of the shares subject to such options on the date of grant, as determined
by the Board of Directors, and options to purchase up to an aggregate of 599,775
shares of Common Stock, with an exercise price of $0.75 per such share, granted
to the Chief Operating Officer of the Corporation.
(C) Without the approval of Holders of at least a majority of the
shares of PGI Stock then outstanding, voting or consenting, as the case may be,
separately as a single class, given in person or by proxy, either in writing or
by resolution adopted at an annual or special meeting called for the purpose,
the Corporation will not amend, modify or repeal this Certificate of
Designations. The authorization or consummation of a transaction that results in
the PGI Stock being converted or exchanged for or becoming shares of a resulting
entity (as such term is defined in Article IX) shall constitute an amendment,
modification or repeal of this Certificate of Designations for purposes of this
Article VII.
<PAGE>
12
(D) (i) In the event of a Special Trigger Event when any PGI stock is
outstanding, the number of Directors constituting the Board of Directors shall
be immediately adjusted to permit the Holders of a majority of the shares of PGI
Stock then outstanding, voting or consenting, as the case may be, separately as
a single class, to immediately appoint a majority of the Directors (and to
remove and replace such Directors).
(ii) The right of the Holders of PGI Stock to vote pursuant to Article
VII(D) (i) to appoint a majority of the Directors (and to remove and replace
such Directors) upon the occurrence of a Special Trigger Event as aforesaid,
shall be effective immediately upon the sending of a written notice thereof to
the Corporation by the Agent and shall continue until such time as all Special
Trigger Events shall be cured and no longer of any force or effect.
(E) The Holders of a majority of the shares of PGI Stock then
outstanding, voting separately as a single class, shall also be entitled to
appoint one Director (and to remove and replace such Director) if any PGI Stock
is outstanding; two Directors (and to remove and replace such Directors) if PGI
stock having a Liquidation Preference of at least $7.5 million is outstanding;
three Directors (and to remove and replace such Directors) if PGI Stock having a
Liquidation Preference of at least $15.0 million is outstanding; and four
Directors (and to remove and replace such Directors) if PGI Stock having a
Liquidation Preference of at least $30.0 million is outstanding. Any
appointment, removal or replacement referred to in this Article VII(E) shall be
effective immediately upon the sending by Holders of a majority of the shares of
PGI Stock outstanding of a written notice to the Corporation.
(F) In connection with any vote by the holders of shares of Common
Stock, the Holders and Storie Holders shall be entitled to vote with the holders
of Common Stock as a class. Each share of Series B Stock shall be entitled to
such number of votes that would attach to the number of shares of Common Stock
that would have been issued had such shares of Series B Stock been converted
into Common Stock immediately prior to the record date (or if no record date is
set, then the date of any vote or consent) in respect of such vote.
(G) Any vacancy occurring in the office of a director elected by the
Holders of PGI Stock may be filled by the departing director unless and until
such vacancy shall be filled by the Holders of PGI Stock.
VIII. Conversion.
----------
(A) General Rights. Each share of Series B Stock shall be
--------------
convertible, at any time, at the option of the Holder thereof (but if such share
is called for redemption pursuant to Article VI, then only to and including but
not after the close of the business on the fifth Business Day preceding the date
fixed for such redemption, provided that no default by
<PAGE>
13
the Corporation in the payment of the Redemption Price shall have occurred and
be continuing on the date fixed for such redemption in which case such right of
conversion shall be reinstated), into that number of fully paid and non-
assessable shares of Common Stock of the Corporation (calculated as to each
conversion to the nearest 1/100th of a share) obtained by multiplying the number
of the shares of Series B Stock surrendered for conversion by the Conversion
Ratio (as defined below) then in effect (such date of conversion, a "Conversion
Date").
The conversion ratio (the "Conversion Ratio") shall initially be one
share of Common Stock per share of Series B Stock (1/1).
In order to exercise the conversion privilege, a Holder shall
surrender the certificate(s) representing such shares, accompanied by transfer
instrument(s) satisfactory to the Corporation and sufficient to transfer the
Series B Stock being converted to the Corporation free of any adverse interest,
at any of the offices or agencies maintained for such purpose by the conversion
agent designated by the Corporation (the "Conversion Agent") and shall give
written notice to the Corporation that the Holder elects to convert such shares.
The initial Conversion Agent shall be the Corporation. Such notice shall also
state the name(s), together with address(es), in which the certificate(s) for
shares of Common Stock shall be issued. As promptly as practicable after the
surrender of such shares of Series B Stock as aforesaid, the Corporation shall
issue and deliver at the office of such Conversion Agent to such Holder, or on
such Holder's written order, certificate(s) representing the number of full
shares of Common Stock issuable upon the conversion of such shares in accordance
with the provisions hereof, and any fractional interest in respect of a share of
Common Stock arising upon such conversion shall be settled as provided for
below. Certificates will be issued representing the balance of any remaining
shares of Series B Stock in any case in which fewer than all of the shares of
Series B Stock represented by a certificate are converted. Each conversion shall
be deemed to have been effected immediately prior to the close of business on
the date on which shares of Series B Stock shall have been surrendered as
aforesaid, and the Person(s) in whose name(s) any certificate(s) for shares of
Common Stock shall be issuable upon such conversion shall be deemed to have
become the holder(s) of record of the Common Stock represented thereby at such
time, unless the stock transfer books of the Corporation shall be closed on the
date on which shares of Series B Stock are so surrendered for conversion, in
which event such conversion shall be deemed to have been effected immediately
prior to the close of business on the next succeeding day on which such stock
transfer books are open, and such person(s) shall be deemed to have become such
holder(s) of record of the Common Stock at the close of business on such later
day. In either circumstance, such conversion shall be at the Conversion Ratio in
effect on the date upon which such share shall have been surrendered to the
Corporation.
<PAGE>
14
The dividend payable on a share of Series B Stock on a Dividend
Payment Date shall be payable to the Holder of record of such share at the close
of business on the Dividend Record Date applicable thereto, notwithstanding the
conversion of such share after such Dividend Record Date and prior to the
opening of business on such Dividend Payment Date or the default by the
Corporation in the payment of the dividend due on such Dividend Payment Date.
Except as provided in the next sentence, shares of Series B Stock surrendered
for conversion during the period from the close of business on any Dividend
Record Date to the opening of business on the Dividend Payment Date with respect
to such dividend shall be accompanied by payment in immediately available funds
or other funds acceptable to the Corporation of an amount equal to the dividend
payable on such Dividend Payment Date on the shares of Series B Stock being
surrendered for conversion. The dividend with respect to a share of Series B
Stock called for redemption on a Redemption Date during the period from and
including a Dividend Record Date to and including the Dividend Payment Date
shall be payable on such Dividend Payment Date to the Holder of record of such
share on such Dividend Record Date notwithstanding the conversion of such share
of Series B Stock after the close of business on such Dividend Record Date and
prior to the opening of business on such Dividend Payment Date, and the Holder
converting such share of Series B Stock need not include a payment of such
dividend amount upon surrender of such share of Series B Stock for conversion.
Except as provided in this paragraph, no payment or adjustment shall be made
upon any conversion on account of any dividends accrued on shares of Series B
Stock surrendered for conversion or on account of any dividends on the Common
Stock issued upon conversion.
No fractional interest in a share of Common Stock shall be issued by
the Corporation upon the conversion of any share(s) of Series B Stock. Any
fractional interest in a share of Common Stock resulting from conversion of any
share(s) of Series B Stock shall be paid in cash (computed to the nearest cent)
based on the current market price of the Common Stock (calculated as provided in
subsection (f) below) on the day prior to the date on which such share or shares
of Series B Stock are surrendered for conversion in the manner set forth above.
If more than one certificate representing shares of Series B Stock shall be
surrendered for conversion at one time by the same holder, the number of full
shares issuable upon conversion thereof shall be computed on the basis of the
aggregate number of shares of Series B Stock represented by such certificates
which are to be converted.
The Conversion Ratio shall be adjusted from time to time as follows:
(a) In case the Corporation shall pay or make a dividend or other
distribution on any class of capital stock of the Corporation in Common
Stock or securities exchangeable, convertible or exercisable for Common
Stock, the Conversion Ratio in effect at the opening of business on the day
following the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution
<PAGE>
15
shall be increased by multiplying the denominator of such Conversion Ratio
by a fraction the numerator of which shall be the number of shares of
Common Stock outstanding at the close of business on the date fixed for
such determination and the denominator of which shall be the sum of such
number of shares and the total number of shares represented by such
dividend or other distribution, such increase to become effective
immediately after the opening of business on the day following the date
fixed for such determination. For the purposes of this subsection (a), the
number of shares of Common Stock at any time outstanding shall not include
shares held in the treasury of the Corporation. The Corporation will not
pay any dividend or make any distribution on shares of Common Stock held in
the treasury of the Corporation.
(b) In case the Corporation shall issue Common Stock or securities
exchangeable, convertible or exercisable for Common Stock ("Common
Equivalents") at a price per share less than the then current market price
per share (determined as provided in subsection (f) below) of the Common
Stock on the date of issuance of the Common Stock or Common Equivalents,
the Conversion Ratio in effect at the opening of business on such date
shall be increased by multiplying the denominator of such Conversion Ratio
by a fraction the numerator of which shall be the number of shares of
Common Stock and Common Equivalents outstanding at the close of business on
the date immediately preceding such issuance date plus the number of shares
of Common Stock and Common Equivalents which the aggregate of the offering
price of the total number of shares of Common Stock and Common Equivalents
so offered for subscription, purchase or acquisition would purchase at such
current market price and the denominator of which shall be the number of
shares of Common Stock and Common Equivalents outstanding at the close of
business on such date plus the number of shares of Common Stock and Common
Equivalents so offered for subscription, purchase or acquisition, such
increase to become effective immediately after the opening of business on
the day following such date. For the purposes of this subsection (b), the
number of shares of Common Stock at any time outstanding shall not include
shares held in the treasury of the Corporation. The Corporation will not
issue any Common Equivalents in respect of shares of Common Stock held in
the treasury of the Corporation.
(c) In case the outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, the numerator
of the Conversion Ratio in effect at the opening of business on the day
following the day upon which such subdivision becomes effective shall be
increased, and, conversely, in case the outstanding shares of Common Stock
shall each be combined into a smaller number of shares of Common Stock, the
numerator of the Conversion Ratio in effect at the opening of business on
the day following the day upon which such combination becomes effective
shall be reduced. Such increase or reduction shall result in the Series
<PAGE>
16
B Stock (and each subseries thereof) being convertible into the same
percentage of the Common Stock immediately after such subdivision or
combination as it was convertible into immediately prior to such
subdivision or combination and such reduction or increase, as the case may
be, and shall become effective immediately after the opening of business on
the day following the day upon which such subdivision or combination
becomes effective.
(d) In case the Corporation shall, by dividend or otherwise,
distribute to all holders of its Common Stock (i) capital stock of the
Corporation, (ii) evidences of its indebtedness and/or (iii) cash or other
assets of the Corporation (excluding (x) any Common Stock, rights or
warrants referred to in subsection (b) above, and (y) any dividend or
distribution referred to in subsection (a) above), then in each case, the
Conversion Ratio in effect at the opening of business on the day following
the date fixed for the determination of holders of Common Stock entitled to
receive such distribution shall be increased by multiplying the numerator
of such Conversion Ratio by a fraction the denominator of which shall be
the current market price per share (determined as provided in subsection
(f) below) of the Common Stock on such date of determination (or, if
earlier, on the date on which the Common Stock goes "ex-dividend" in
respect of such distribution) less the then fair market value as determined
by the Board of Directors (whose determination shall be described in a
statement filed with the Conversion Agent) of the portion of the assets,
capital stock or evidences of indebtedness so distributed (and for which an
adjustment to the Conversion Ratio has not previously been made pursuant to
the terms of this Article VIII) applicable to one share of Common Stock,
and the numerator shall be such current market price per share of the
Common Stock, such adjustment to become effective immediately after the
opening of business on the day following such date of determination.
(e) The reclassification or change of Common Stock into securities
including securities other than Common Stock (other than any
reclassification upon a consolidation or merger to which subsection (i)
below applies) shall be deemed to involve (i) a distribution of such
securities other than Common Stock to all holders of Common Stock (and the
effective date of such reclassification shall be deemed to be "the date
fixed for the determination of holders of Common Stock entitled to receive
such distribution" within the meaning of subsection (d) above), and (ii) a
subdivision or combination, as the case may be, of the number of shares of
Common Stock outstanding immediately prior to such reclassification into
the number of shares of Common Stock outstanding immediately thereafter
(and the effective date of such reclassification shall be deemed to be "the
day upon which such subdivision becomes effective" or "the day upon which
such combination becomes effective," as the case
<PAGE>
17
may be, and "the day upon which such subdivision or combination becomes
effective" within the meaning of subsection (c) above).
(f) For the purpose of any computation under subsection (b) or (d)
above, the current market price per share of Common Stock on any day shall
be deemed to be the average of the closing prices of the Common Stock for
the twenty preceding consecutive trading days; (provided that, in the case
of clause (d), if the period between the date of the public announcement of
the dividend or distribution and the date for the determination of holders
of Common Stock entitled to receive such dividend or distribution (or, if
earlier, the date on which the Common Stock goes "ex-dividend" in respect
of such dividend or distribution) shall be less than twenty trading days,
the period shall be such lesser number of trading days but, in any event,
not less than five trading days ) or, if the Common Stock is not then
traded, the fair market value of a share of Common Stock as determined by
an investment bank of national standing selected by Holders of a majority
of the shares of outstanding Series B Stock and reasonably acceptable to
the Corporation.
(g) No adjustment in the Conversion Ratio shall be required unless
such adjustment would require an increase or decrease of at least 1% of
such ratio; provided, however, that any adjustments which by reason of this
clause (g) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment and provided further that
adjustments shall be required and made in accordance with the provisions of
this Article VIII (other than this clause (g)) not later than such time as
may be required in order to preserve the tax free nature of a distribution
to the holders of shares of Common Stock. Anything in this clause (g) to
the contrary notwithstanding, the Corporation shall be entitled, at its
option, to make such increases in the Conversion Ratio, in addition to
those required by this Article VIII, as it in its discretion shall
determine to be advisable in order that any stock dividend, subdivision or
combination of shares, distribution of capital stock or rights or warrants
to purchase stock or securities, or distribution of evidences of
indebtedness or assets (other than cash dividends or distributions paid
from earnings) or other event shall be a tax free distribution for federal
income tax purposes or for any other reason. All calculations under this
clause (g) shall be made to the nearest cent.
(h) Whenever the Conversion Ratio is adjusted as herein provided, the
Corporation shall promptly mail a certificate of a firm of independent
public accountants setting forth the Conversion Ratio after such adjustment
and setting forth a brief statement of the facts requiring such adjustment
and the manner of computing same, which certificate shall constitute
conclusive evidence, absent manifest error, of the correctness of such
adjustment. The certificate shall be mailed to the Agent and
<PAGE>
18
each Storie Holder at its last address as the same appears on the stock
transfer books of the Corporation and to the Conversion Agent.
(i) In case of (i) any consolidation of the Corporation with, or
merger of the Corporation into, any other entity, (ii) any merger of
another entity into the Corporation (other than a merger which does not
result in any reclassification, conversion, exchange or cancellation of
outstanding shares of Common Stock) or (iii) any sale or transfer of all or
substantially all of the assets of the Corporation, each Holder and Storie
Holder shall have the right thereafter to convert each share of Series B
Stock only into the kind and amount of securities, cash and other property
receivable upon such consolidation, merger, sale or transfer by a holder of
the number of shares of Common Stock into which one share of Series B Stock
might have been converted immediately prior to such consolidation, merger,
sale or transfer, assuming such holder of Common Stock is not an entity
with which the Corporation consolidated or into which the Corporation
merged or which merged into the Corporation or to which such sale or
transfer was made, as the case may be (a "constituent entity"), or an
Affiliate of a constituent entity and failed to exercise its rights of
election, if any, as to the kind or amount of securities, cash or other
property receivable upon such consolidation, merger, sale or transfer
(provided that if the kind or amount of securities, cash and other property
receivable upon such consolidation, merger, sale or transfer is not the
same for each share of Common Stock held immediately prior to such
consolidation, merger, sale or transfer by other than a constituent entity
or an Affiliate thereof and in respect of which such rights of election
shall not have been exercised ("non-electing share"), then for the purpose
of this subsection (i) the kind and amount of securities, cash and other
property receivable upon such consolidation, merger, sale or transfer by
each non-electing share shall be deemed to be the kind and amount so
receivable per share by a plurality of the non-electing shares). If
necessary, appropriate adjustment shall be made in the application of the
provisions set forth herein with respect to the rights and interests
thereafter of the Holders and the Storie Holders, to the end that the
provisions set forth herein shall thereafter correspondingly be made
applicable, as nearly as may reasonably be, in relation to any shares of
stock or other securities or property thereafter deliverable on the
conversion of the shares. Any such adjustment shall be evidenced by a
certificate of independent public accountants and a notice of such
adjustment filed and mailed in the manner set forth in subsection (h) above
and containing the information set forth in such subsection (h), and any
adjustment so certified, shall for all purposes hereof conclusively be
deemed to be an appropriate adjustment, absent manifest error. The above
provisions shall similarly apply to successive consolidations, mergers,
sales or transfers.
(j) If Series B3 Stock having an aggregate Liquidation Preference of
at least $15.625 million is not issued on or prior to the date that is six
months and ten days
<PAGE>
19
after the Original Issue Date, the numerator of the Conversion Ratio with
respect to the Series B2 Stock shall be increased by multiplying it by a
fraction, the numerator of which is 5.8105 and the denominator of which is
85% of the average implied purchase price per share of Common Stock for all
issuances of Common Stock or Common Equivalents by the Corporation (other
than issuances or exercises of stock options held by employees of the
Corporation or its Subsidiaries) during the period from the date that is
six months after the Original Issue Date and the date that is 12 months
after the Original Issue Date; provided that in no event shall such
denominator be less than 2.7343 nor greater than 5.8105. In the event there
are no such issuances during such period, such denominator shall be 5.8105.
Such adjustment shall be effective one year and ten days after the Original
Issue Date. Notwithstanding any other provisions of this Certificate of
Designations, an adjustment pursuant to this clause (j) shall not result in
any adjustment pursuant to any other provision of this Article VIII, except
as set forth in clause (k) below.
(k) In the event that the Convertible Notes, Warrants and Series B2
Stock become convertible or exercisable into more than 1,790,769 shares of
Common Stock, the numerator of the Conversion Ratio with respect to the PGI
Stock shall be increased by 0.0009114 (or pro rata portion thereof) for
each 10,000 shares of Common Stock (or portion thereof) above 1,790,769
shares into which the Convertible Notes or Series B2 Stock becomes
convertible. Notwithstanding any other provision of this Certificate of
Designations, an adjustment pursuant to this clause (k) shall not result in
any adjustment pursuant to any other provision of this Article VIII.
(l) In case:
(i) the Corporation shall take any action that would
result in an adjustment to the Conversion Ratio; or
(ii) of any consolidation, merger or share exchange to which
the Corporation is a party and for which approval of any
stockholders of the Corporation is required, or of the
sale or transfer of all or substantially all of the assets
of the Corporation; or
(iii) of the voluntary or involuntary dissolution, liquidation
or winding-up of the Corporation;
then the Corporation shall cause to be filed with any Conversion Agent and shall
cause to be mailed to each Holder at its last address as the same appears on the
books of the Corporation, at least 15 days prior to the applicable record or
effective date hereinafter specified, a notice stating (A) the date on which a
record is to be taken for the purpose of such actions, or, if the
<PAGE>
20
record is not to be taken, the date as of which the holders of Common Stock of
record are to be determined, or (B) the date on which such consolidation,
merger, share exchange, sale, transfer, dissolution, liquidation or winding-up
is expected to become effective, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities, cash or other property deliverable upon such
consolidation, merger, share exchange, sale, transfer, dissolution, liquidation
or winding-up. Neither the failure to give such notice nor any defect therein
shall affect the legality or validity of the proceedings described in clauses
(i) through (iii) above.
The Corporation will pay any and all documentary stamp or similar
issue or transfer taxes payable in respect of the issue or delivery of shares of
Common Stock on conversion of shares of Series B Stock pursuant hereto;
provided, however, that the Corporation shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issue or
delivery of shares of Common Stock in a name other than that of the Holder or
Storie Holder of the shares of Series B Stock to be converted, and no such issue
or delivery shall be made unless and until the Person requesting such issue or
delivery has paid to the Corporation the amount of any such tax or has
established, to the satisfaction of the Corporation, that such tax has been
paid.
The Corporation covenants that all shares of Common Stock which may be
issued upon conversions of shares of Series B Stock will, upon issue, be duly
and validly issued, fully paid and non-assessable, free of all liens and charges
and not subject to any preemptive rights.
The Corporation covenants that it will at all times reserve and keep
available, free from preemptive rights, out of the aggregate of its authorized
but unissued shares of Common Stock, for the purpose of effecting conversions of
shares of Series B Stock, the full number of shares of Common Stock deliverable
upon the conversion of all outstanding shares of Series B Stock not theretofore
converted.
(B) Initial Public Offering. Notwithstanding anything herein
-----------------------
contained, upon the consummation of an underwritten Initial Public Offering
generating gross proceeds to the Corporation of at least $25 million, all Series
B Stock shall automatically be converted into Common Stock at the Conversion
Ratio then in effect and all Series B Stock shall be surrendered forthwith to
the Corporation in accordance with the procedures specified in VIII (A) above.
IX. Merger, Consolidation and Sale of Assets.
----------------------------------------
Without the affirmative vote or consent of the Holders of a majority
of the shares of PGI Stock voting or consenting, separately as a single class,
the Corporation may not
<PAGE>
21
recapitalize, consolidate or merge with or into, or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its assets to,
any Person.
X. Mutilated or Missing Series B Stock Certificates.
------------------------------------------------
If any of the Series B Stock certificates shall be mutilated, lost,
stolen or destroyed, the Corporation shall issue, in exchange and in
substitution for and upon cancellation of the mutilated Series B Stock
certificate, or in lieu of and substitution for the Series B Stock certificate
lost, stolen or destroyed, a new Series B Stock certificate of like tenor and
representing an equivalent amount of shares of Series B Stock, but only upon
receipt of evidence of such loss, theft or destruction of such Series B Stock
certificate and indemnity, if requested, satisfactory to the Corporation.
XI. Reissuance; Preemptive Rights
-----------------------------
(i) Shares of Series B Stock that have been issued and reacquired in
any manner, including shares purchased or redeemed, shall (upon compliance with
any applicable provisions of the laws of the State of Delaware) have the status
of authorized and unissued shares of preferred stock undesignated as to series
and may be redesignated and reissued as part of any series of Preferred Stock
other than the Series B Stock.
(ii) No shares of Series B Stock shall have any rights of preemption
whatsoever as to any securities of the Corporation, or any warrants, rights or
options issued or granted with respect thereto, regardless of how such
securities or such warrants, rights or options may be designated, issued or
granted.
XII. Business Day.
------------
If any payment or redemption shall be required by the terms hereof to
be made on a day that is not a Business Day, such payment or redemption shall be
made on the immediately succeeding Business Day and no further dividends shall
accumulate after the day payment was required.
<PAGE>
22
XIII. Headings of Subdivisions.
------------------------
The headings of various subdivisions hereof are for convenience of
reference only and shall not affect the interpretation of any of the provisions
hereof.
XIV. Severability of Provisions.
--------------------------
If any right, preference or limitation of the Series B Stock set forth
in these resolutions and the Certificate of Designations filed pursuant hereto
(as such Certificate of Designations may be amended from time to time) is
invalid, unlawful or incapable of being enforced by reason of any rule or law or
public policy, all other rights, preferences and limitations set forth in such
Certificate of Designations, as amended, which can be given effect without the
invalid, unlawful or unenforceable right, preference or limitation shall,
nevertheless remain in full force and effect, and no right, preference or
limitation herein set forth shall be deemed dependent upon any other such right,
preference or limitation unless so expressed herein.
XV. Notice to the Corporation.
-------------------------
All notices and other communications required or permitted to be given
to the Corporation hereunder shall be made by first-class mail, postage prepaid,
or by Federal Express or similar overnight mail service with signature required
for receipt to the Corporation at its principal executive offices (currently
located on the date of the adoption of these resolutions at the following
address: TVN Entertainment Corporation, 2901 W. Alemeda Avenue, Seventh Floor,
Burbank, CA 91505, Attention: Chief Financial Officer). Minor imperfections in
any such notice shall not affect the validity thereof.
All notices, requests and other communications to any party hereunder
shall be in writing (including telecopier or similar writing) and shall be given
to such party by certified first class mail at its address with a return receipt
requested, by Federal Express or similar overnight mail service with signature
required for receipt, or by telecopy at the telecopier number set forth below or
such other address or telecopier number as such party may hereinafter specify in
writing for the purpose to the party giving such notice. Each such notice,
request or other communication shall be effective (i) if given by telecopy, when
such telecopy is transmitted to the telecopy number specified in this Section
and the appropriate electronic confirmation is received and a copy of such
notice is sent by overnight mail service or (ii) if given by mail or overnight
courier, 72 hours after such communication is deposited in the mails with first
class postage prepaid or given to overnight courier service, addressed as
aforesaid.
<PAGE>
23
XVI. Limitations.
-----------
Except as may otherwise be required by law, the shares of Series B
Stock shall not have any powers, preferences or relative, participating,
optional or other special rights other than those specifically set forth in this
resolution (as such resolution may be amended from time to time) or otherwise in
the Certificate of Incorporation of the Corporation.
IN WITNESS WHEREOF, this Certificate has been signed on this 29th day
of August, 1997.
TVN ENTERTAINMENT CORPORATION
By: /s/ Arthur Fields
___________________________
Name: Arthur Fields
Title: Senior Executive Vice
President
Attested by:
/s/ Robert P. Latta
- ---------------------------
Name: Robert P. Latta
Title: Assistant Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
TVN ENTERTAINMENT CORPORATION
TVN Entertainment Corporation, a corporation duly organized and existing
under the General Corporation Law of the State of Delaware (the "Corporation"),
DOES HEREBY CERTIFY THAT:
1. The amendment to the Corporation's Certificate of Incorporation set
forth below was duly adopted by the Board of Directors of the Corporation in
accordance with the provisions of Section 242 of the General Corporation Law of
the State of Delaware and has been consented to in writing by the stockholders,
and written notice has been given, in accordance with Section 228 of the General
Corporation Law of the State of Delaware.
2. Article FOUR of the Corporation's Certificate of Incorporation is
amended as follows:
For the purpose of increasing the authorized number of shares of
Preferred Stock, the second sentence of Article FOUR is hereby amended in its
entirety and replaced by the following:
"The total number of shares of Preferred this corporation shall have
authority to issue is 20,248,107 shares, $.001 par value, and the total number
of shares of Common this corporation shall have authority to issue is 40,000,000
shares, $.001 par value."
IN WITNESS WHEREOF, TVN Entertainment Corporation has caused this
Certificate to be executed by Stuart Z. Levin, its authorized officer, on this
18th day of December, 1997.
/s/ Stuart Z. Levin
______________________________
Stuart Z. Levin, President
<PAGE>
CERTIFICATE OF VOTING POWERS, DESIGNATIONS, PREFERENCES
AND RELATIVE PARTICIPATING, OPTIONAL OR OTHER SPECIAL
RIGHTS AND QUALIFICATIONS, LIMITATIONS
AND RESTRICTIONS THEREOF OF THE
SERIES B CONVERTIBLE PREFERRED STOCK
OF TVN ENTERTAINMENT CORPORATION
__________________________
Pursuant to Section 242 of the
General Corporation Law of the State of Delaware
__________________________
I, Arthur Fields, Secretary of TVN Entertainment Corporation (the
"Corporation"), a corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware, in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware, DO HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of Directors by
the Certificate of Incorporation as amended of said Corporation (the
"Certificate of Incorporation"), said Board of Directors, by a unanimous written
consent dated December 19, 1997, adopted a resolution amending the Certificate
of Voting Powers, Designations, Preferences and Relative Participating, Optional
or Other Special Rights and Qualifications, Limitations and Restrictions thereof
of the Series B Convertible Preferred Stock of TVN Entertainment Corporation
filed on August 28, 1997 with the Secretary of State of Delaware, which
resolution is as follows:
WHEREAS, the Board of Directors is authorized, within the limitations
and restrictions stated in the Certificate of Incorporation, as amended, to fix
by resolution or resolutions the designation of each series of preferred stock
and the powers, designations, preferences and relative participating, optional
or other rights, if any, or the qualifications, limitations or restrictions
thereof, including, without limiting the generality of the foregoing, such
provisions as may be desired concerning voting, redemption, dividends,
dissolution or the distribution of assets, conversion or exchange, and such
other subjects or matters as may be fixed by resolution or resolutions of the
Board of Directors under the General Corporation Law of Delaware; and
WHEREAS, it is the desire of the Board of Directors, pursuant to its
authority as aforesaid, to authorize and amend the terms of a series of
preferred stock and the number of shares constituting such series;
NOW, THEREFORE, BE IT RESOLVED, that such series of preferred stock
are hereby amended on the terms and with the provisions herein set forth:
<PAGE>
I. Certain Definitions. The definitions of "Securities Purchase
-------------------
Agreement" and "Securityholders Agreement" are hereby deleted and replaced as
follows:
"`Securities Purchase Agreement' means the Securities Purchase
Agreement, dated as of August 29, 1997 between the Corporation and
Princes Gate Investors II, L.P, as amended."
"`Securityholders Agreement' means the Securityholders Agreement,
dated as of August 29, 1997, among the Corporation, Princes Gate Investors
II, L.P., PG Investors II, Inc., Storie Partners, L.P., Wenonah Development
Corp. and Jerome H. Turk and Carole Turk Family Trust, as amended."
II. Designation. The second sentence of Section II is hereby amended
-----------
and restated to read as follows:
"The number of shares constituting such series shall be 12,648,107."
The fourth sentence of Section II is hereby amended and restated to read as
follows:
"The Series B Stock shall be issued in four subseries, with original
liquidation preferences (the "Original Liquidation Preferences") equal
to: $2.7343 per share for the first 5,714,442 shares of Series B
Stock purchased by the Holders ("Series B1 Stock"); $5.8105 per share
for the 1,790,769 shares of Series B Stock acquired by the Storie
Holders ("Series B2 Stock"); $5.4687 per share for the next 2,857,169
shares of Series B Stock purchased by the Holders ("Series B4 Stock");
and $6.8359 per share for the next 2,285,727 shares of Series B Stock
purchased by the Holders ("Series B3 Stock")."
<PAGE>
IN WITNESS WHEREOF, this Certificate has been signed on this 19th
day of December, 1997.
TVN ENTERTAINMENT CORPORATION
By: /s/ Arthur Fields
______________________________________
Name: Arthur Fields
Title: Senior Executive Vice President
Attested by:
/s/ Roger E. George
- -------------------
Roger E. George
Assistant Secretary
<PAGE>
EXHIBIT 3.2
TVN ENTERTAINMENT CORPORATION
(formerly Touchtone Video Network, Inc.)
BY-LAWS
Adopted As of October 31, 1988
<PAGE>
TVN ENTERTAINMENT CORPORATION
(A Delaware Corporation)
BY-LAWS
-------
TABLE OF CONTENTS
Page
----
ARTICLE I
STOCKHOLDERS
------------
Section 1.01. Annual Meetings........................... 1
Section 1.02. Special Meetings.......................... 1
Section 1.03. Notice of Meetings; Waiver................ 1
Section 1.04. Quorum.................................... 2
Section 1.05. Voting.................................... 2
Section 1.06. Voting by Ballot.......................... 2
Section 1.07. Adjournment............................... 2
Section 1.08. Proxies................................... 3
Section 1.09. Organization; Procedure................... 3
Section 1.10. Consent of Stockholders in Lieu of Meeting 3
ARTICLE II
BOARD OF DIRECTORS
------------------
Section 2.01. General Powers........................... 4
Section 2.02. Number and Term of Office................ 4
Section 2.03. Election of Directors.................... 4
Section 2.04. Annual and Regular Meetings.............. 4
Section 2.05. Special Meetings; Notice................. 5
Section 2.06. Quorum; Voting........................... 5
Section 2.07. Adjournment.............................. 5
Section 2.08. Action Without a Meeting................. 5
Section 2.09. Regulations; Manner of Acting............ 6
Section 2.10. Action by Telephonic Communications...... 6
Section 2.11. Resignations............................. 6
Section 2.12. Removal of Directors..................... 6
Section 2.13. Vacancies and Newly Created Directorships 6
Section 2.14. Compensation............................. 7
Section 2.15. Reliance on Accounts and Reports, etc.... 7
i
<PAGE>
Page
----
ARTICLE III
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 3.01. How Constituted....................... 7
Section 3.02. Powers................................ 7
Section 3.03. Proceedings........................... 8
Section 3.04. Quorum and Manner of Acting........... 8
Section 3.05. Action by Telephonic Communications... 9
Section 3.06. Absent or Disqualified Members........ 9
Section 3.07. Resignations.......................... 9
Section 3.08. Removal............................... 9
Section 3.09. Vacancies............................. 9
ARTICLE IV
OFFICERS
Section 4.01. Number................................ 9
Section 4.02. Election.............................. 9
Section 4.03. Salaries.............................. 10
Section 4.04. Removal and Resignation; Vacancies.... 10
Section 4.05. Authority and Duties of Officers...... 10
Section 4.06. The Chairman of the Board............. 10
Section 4.07. The President......................... 10
Section 4.08. The Vice Presidents................... . 10
Section 4.09. The Secretary......................... 11
Section 4.10. The Treasurer......................... 12
Section 4.11. Additional Officers................... 12
Section 4.12. Security.............................. 13
ARTICLE V
CAPITAL STOCK
Section 5.01. Certificates of Stock................. 13
Section 5.02. Signatures; Facsimile................. 13
Section 5.03. Lost, Stolen or Destroyed Certificates 13
Section 5.04. Transfer of Stock..................... 14
Section 5.05. Record Date........................... 14
Section 5.06. Registered Stockholders............... 15
Section 5.07. Transfer Agent and Registrar.......... 15
ii
<PAGE>
Page
----
ARTICLE VI
INDEMNIFICATION
---------------
Section 6.01. Nature of Indemnity........................... 16
Section 6.02. Successful Defense............................ 17
Section 6.03. Determination that Indemnification is Proper.. 17
Section 6.04. Advance Payment of Expenses................... 17
Section 6.05. Procedure for Indemnification of Directors and
Officers...................................... 17
Section 6.06. Survival; Preservation of Other Rights........ 18
Section 6.07. Insurance..................................... 19
Section 6.08. Severability.................................. 19
ARTICLE VII
OFFICES
-------
Section 7.01. Registered Office 19
Section 7.02. Other Offices 19
ARTICLE VIII
GENERAL PROVISIONS
------------------
Section 8.01. Dividends......................... 19
Section 8.02. Reserves.......................... 20
Section 8.03. Execution of Instruments.......... 20
Section 8.04. Corporate Indebtedness............ 20
Section 8.05. Deposits.......................... 20
Section 8.06. Checks............................ 21
Section 8.07. Sale, Transfer, etc. of Securities 21
Section 8.08. Voting as Stockholder............. 21
Section 8.09. Fiscal Year....................... 21
Section 8.10. Seal.............................. 21
Section 8.11. Books and Records; Inspection..... 21
ARTICLE IX
AMENDMENT OF BY-LAWS
--------------------
Section 9.01. Amendment........................ 22
iii
<PAGE>
TVN ENTERTAINMENT CORPORATION
BY-LAWS
-------
ARTICLE I
---------
STOCKHOLDERS
------------
Section 1.01. Annual Meetings. The annual meeting of the stockholders
---------------
of the Corporation for the election of directors and for the transaction of such
other business as properly may come before such meeting shall be held at such
place, within or without the State of Delaware, and on such date and at such
hour as may be fixed from time to time by resolution of the Board of Directors
and set forth in the notice or waiver of notice of the meeting.
[Sections 211(a), (b).]*
Section 1.02. Special Meetings. Special meetings of the stockholders
----------------
may be called at any time by the Chairman of the Board or by the President (or,
in the event of their absence or disability, by any Vice President), or by the
Board of Directors. A special meeting shall be called by the Chairman of the
Board or the President (or, in the event of their absence or disability, by any
Vice President), or by the Secretary, immediately upon receipt of a written
request therefor by stockholders holding in the aggregate not less than a
majority of the outstanding shares of the Corporation at the time entitled to
vote at any meeting of the stockholders. If such officers shall fail to call
such meeting within 20 days after receipt of such request, any stockholder
executing such request may call such meeting. Such special meetings of the
stockholders shall be held at such places, within or without the State of
Delaware, as shall be specified in the respective notices or waivers of notice
thereof. [Section 211(d).]
Section 1.03. Notice of Meetings; Waiver. The Secretary or any
--------------------------
Assistant Secretary shall cause written notice of the place, date and hour of
each meeting of the stockholders, and, in the case of a special meeting, the
purpose or purposes for which such meeting is called, to be given personally or
by mail, not less than ten nor more than sixty days prior to the meeting, to
each stockholder of record entitled to vote at such meeting. If such notice is
mailed, it shall be deemed to have been given to a stockholder when
__________________
* Citations are to the General Corporation Law of the State of
Delaware, as in effect on July 12, 1988, are inserted for
reference only, and do not constitute a part of the By-Laws.
<PAGE>
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the record of stockholders of the
Corporation, or, if he shall have filed with the Secretary of the Corporation a
written request that notices to him be mailed to some other address, then
directed to him at such other address. Such further notice shall be given as may
be required by law. No notice of any meeting of stockholders need be given to
any stockholder who submits a signed waiver of notice, whether before or after
the meeting. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in a written
waiver of notice. The attendance of any stockholder at a meeting of stockholders
shall constitute a waiver of notice of such meeting, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business on the ground that the meeting is
not lawfully called or convened. [Sections 222, 229.]
Section 1.04. Quorum. Except as otherwise required by law or by the
------
Certificate of Incorporation, the presence in person or by proxy of the holders
of record of a majority of the shares entitled to vote at a meeting of
stockholders shall constitute a quorum for the transaction of business at such
meeting. [Section 216.]
Section 1.05. Voting. If, pursuant to Section 5.05 of these By-Laws, a
------
record date has been fixed, every holder of record of shares entitled to vote at
a meeting of stockholders shall be entitled to one vote for each share
outstanding in his name on the books of the Corporation at the close of business
on such record date. If no record date has been fixed, then every holder of
record of shares entitled to vote at a meeting of stockholders shall be entitled
to one vote for each share of stock standing in his name on the books of the
Corporation at the close of business on the day next preceding the day on which
notice of the meeting is given, or, if notice is waived, at the close of
business on the day next preceding the day on which the meeting is held. Except
as otherwise required by law or by the Certificate of Incorporation, the vote of
a majority of the shares represented in person or by proxy at any meeting at
which a quorum is present shall be sufficient for the transaction of any
business at such meeting. [Sections 212(a), 216.]
Section 1.06. Voting by Ballot. No vote of the stockholders need be
----------------
taken by written ballot, unless otherwise required by law. Any vote which need
not be taken by ballot may be conducted in any manner approved by the meeting.
[Sections 211(e), 212.]
Section 1.07. Adjournment. If a quorum is not present at any meeting
-----------
of the stockholders, the stockholders present in person or by proxy shall have
the power to adjourn any such meeting from time to time until a quorum is
present. Notice of any adjourned meeting of the stockholders of the Corporation
need not be given if the place, date and hour thereof are announced at the
meeting at
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<PAGE>
which the adjournment is taken, provided, however, that if the adjournment is
for more than thirty days, or if after the adjournment a new record date for the
adjourned meeting is fixed pursuant to Section 5.05 of these By-Laws, a notice
of the adjourned meeting, conforming to the requirements of Section 1.03 hereof,
shall be given to each stockholder of record entitled to vote at such meeting.
At any adjourned meeting at which a quorum is present, any business may be
transacted that might have been transacted on the original date of the meeting.
[Section 222(c).]
Section 1.08. Proxies. Any stockholder entitled to vote at any meeting
-------
of the stockholders or to express consent to or dissent from corporate action
without a meeting may, by a written instrument signed by such stockholder or his
attorney-in-fact, authorize another person or persons to vote at any such
meeting and express such consent or dissent for him by proxy. No such proxy
shall be voted or acted upon after the expiration of three years from the date
of such proxy, unless such proxy provides for a longer period. Every proxy shall
be revocable at the pleasure of the stockholder executing it, except in those
cases where applicable law provides that a proxy shall be irrevocable. [Sections
212(b), (c).]
Section 1.09. Organization; Procedure. At every meeting of
-----------------------
stockholders the presiding officer shall be the Chairman of the Board or, in the
event of his absence or disability, the President or, in the event of their
absence or disability, a presiding officer chosen by a majority of the
stockholders present in person or by proxy. The Secretary, or in the event of
his absence or disability, an appointee of the presiding officer, shall act as
Secretary of the meeting. The order of business and all other matters of
procedure at every meeting of stockholders may be determined by such presiding
officer.
Section 1.10. Consent of Stockholders in Lieu of Meeting. To the
------------------------------------------
fullest extent permitted by law, whenever the vote of stockholders at a meeting
thereof is required or permitted to be taken for or in connection with any
corporate action, such action may be taken without a meeting, without prior
notice and without a vote of stockholders, if the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted shall consent in writing to such corporate action
being taken. Any such consent or consents shall be delivered to the Corporation
by delivery to its registered office in the State of Delaware, its principal
place of business, or an officer or agent of the Corporation having custody of
the book in which proceedings of meetings of stockholders are recorded. Delivery
made to the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. Every written consent shall bear the
date of signature
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<PAGE>
of each stockholder or member who signs the consent and no written consent shall
be effective to take the corporate action referred to therein unless, within
sixty days of the earliest dated consent delivered in the manner required by
this Section 1.10 of these By-Laws to the Corporation, written consents signed
by a sufficient number of holders or members to take action are delivered to the
Corporation in such manner. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not so consented in writing. [Section 228.]
ARTICLE II
----------
BOARD OF DIRECTORS
------------------
Section 2.01. General Powers. Except as may otherwise be provided by
--------------
law, by the Certificate of Incorporation or by these By-Laws, the business and
affairs of the Corporation shall be managed by or under the direction of the
Board of Directors and the Board of Directors may exercise all the powers of the
Corporation. [Section 141(a).]
Section 2.02. Number and Term of Office. The number of Directors shall
-------------------------
initially be three, but the number of Directors may be increased or decreased
from time to time by resolution of the Board of Directors, provided that in no
---------
event shall the number of Directors be fewer than one nor more than ten. Each
Director (whenever elected) shall hold office until his successor has been duly
elected and qualified, or until his earlier death, resignation or removal.
[Section 141(b).]
Section 2.03. Election of Directors. The Directors shall be appointed
---------------------
initially by the incorporator. Thereafter, except as otherwise provided in
Sections 2.12 and 2.13 of these By-Laws, the Directors shall be elected at each
annual meeting of the stockholders. If the annual meeting for the election of
Directors is not held on the date designated therefor, the Directors shall cause
the meeting to be held as soon thereafter as convenient. At each meeting of the
stockholders for the election of Directors, provided a quorum is present, the
Directors shall be elected by a plurality of the votes validly cast in such
election. [Sections 107, 108(a), 211(b), (c), 216.]
Section 2.04. Annual and Reqular Meetinqs. The annual meeting of the
---------------------------
Board of Directors for the purpose of electing officers and for the transaction
of such other business as may come before the meeting shall be held as soon as
possible following adjournment of the annual meeting of the stockholders at the
place of such annual meeting of the stockholders. Notice of such annual meeting
of the Board of Directors need not be given. The Board of
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<PAGE>
Directors from time to time may by resolution provide for the holding of regular
meetings and fix the place (which may be within or without the State of
Delaware) and the date and hour of such meetings. Notice of regular meetings
need not be given, provided, however, that if the Board of Directors shall fix
or change the time or place of any regular meeting, notice of such action shall
be mailed promptly, or sent by telegram, telex or cable, to each Director who
shall not have been present at the meeting at which such action was taken,
addressed to him at his usual place of business, or shall be delivered to him
personally. Notice of such action need not be given to any Director who attends
the first regular meeting after such action is taken without protesting the lack
of notice to him, prior to or at the commencement of such meeting, or to any
Director who submits a signed waiver of notice, whether before or after such
meeting. [Sections 141(g), 229, 230.]
Section 2.05. Special Meetinqs; Notice. Special meetings of the Board
------------------------
of Directors shall be held whenever called by the Chairman of the Board or by
the President or, in the event of their absence or disability, by any Vice
President, at such place (within or without the State of Delaware), date and
hour as may be specified in the respective notices or waivers of notice of such
meetings. Special meetings of the Board of Directors may be called on 24 hours'
notice, if notice is given to each Director personally or by telephone, telex or
telegram, or on five days' notice, if notice is mailed to each Director,
addressed to him at his usual place of business. Notice of any special meeting
need not be given to any Director who attends such meeting without protesting
the lack of notice to him, prior to or at the commencement of such meeting, or
to any Director who submits a signed waiver of notice, whether before or after
such meeting, and any business may be transacted thereat. [Sections 141(g),
229.]
Section 2.06. Quorum; Voting. At all meetings of the Board of
--------------
Directors, the presence of a majority of the total number of Directors shall
constitute a quorum for the transaction of business. Except as otherwise
required by law, the vote of a majority of the Directors present at any meeting
at which a quorum is present shall be the act of the Board of Directors.
[Section 141(b) .]
Section 2.07. Adjournment. A majority of the Directors present,
-----------
whether or not a quorum is present, may adjourn any meeting of the Board of
Directors to another time or place. No notice need be given of any adjourned
meeting unless the time and place of the adjourned meeting are not announced at
the time of adjournment, in which case notice conforming to the requirements of
Section 2.05 shall be given to each Director.
Section 2.08. Action Without a Meeting. Any action required or permitted
------------------------
to be taken at any meeting of the Board of Directors may be taken without a
meeting if all members of the Board
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<PAGE>
of Directors consent thereto in writing, and such writing or writings are filed
with the minutes of proceedings of the Board of Directors. [Section 141(f).]
Section 2.09. Regulations; Manner of Acting. To the extent consistent
-----------------------------
with applicable law, the Certificate of Incorporation and these By-Laws, the
Board of Directors may adopt such rules and regulations for the conduct of
meetings of the Board of Directors and for the management of the property,
affairs and business of the Corporation as the Board of Directors may deem
appropriate. The Directors shall act only as a Board, and the individual
Directors shall have no power as such.
Section 2.10. Action by Telephonic Communications.
-----------------------------------
Members of the Board of Directors may participate in a meeting of the Board of
Directors by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear one another,
and participation in a meeting pursuant to this provision shall constitute
presence in person at such meeting. [Section 141(i).]
Section 2.11. Resiqnations. Any Director may resign at any time by
------------
delivering a written notice of resignation, signed by such Director, to the
Chairman or the President. Unless otherwise specified therein, such resignation
shall take effect upon delivery. [Section 141(b).]
Section 2.12. Removal of Directors. Any Director may be removed at any
--------------------
time, either for or without cause, by vote of the stockholders. Any vacancy in
the Board of Directors caused by any removal of a Director by vote of the
stockholders may be filled by the stockholders entitled to vote for the election
of the Director so removed. If such stockholders do not fill such vacancy at the
meeting at which such removal was effected (or in the written instrument
effecting such removal, if such removal was effected by consent without a
meeting), such vacancy may be filled in the manner provided in Section 2.13 of
these By-Laws. [Section 141(k).]
Section 2.13. Vacancies and Newly Created Directorships. If any
-----------------------------------------
vacancies shall occur in the Board of Directors, by reason of death,
resignation, removal or otherwise, or if the authorized number of Directors
shall be increased, the Directors then in office shall continue to act, and such
vacancies and newly created directorships may be filled by a majority of the
Directors then in office, although less than a quorum. A Director elected to
fill a vacancy or a newly created directorship shall hold office until his
successor has been elected and qualified or until his earlier death, resignation
or removal. Any such vacancy or newly created directorship may also be filled at
any time by vote of the stockholders. [Section 223.]
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<PAGE>
Section 2.14. Compensation. The amount, if any, which each Director
------------
shall be entitled to receive as compensation for his services as such shall be
fixed from time to time by resolution of the Board of Directors. [Section
141(h).]
Section 2.15. Reliance on Accounts and Reports, etc. A Director, or a
-------------------------------------
member of any Committee designated by the Board of Directors shall, in the
performance of his duties, be fully protected in relying in good faith upon the
records of the Corporation and upon such information, opinions, reports or
statements presented to the Corporation by any of the Corporation's officers or
employees, or Committees of the Board of Directors, or by any other person as to
matters the member reasonably believes are within such other person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Corporation. [Section 141(e).]
ARTICLE III
-----------
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
----------------------------------------
Section 3.01. How Constituted. The Board of Directors may, by
---------------
resolution adopted by a majority of the whole Board, designate one or more
Committees, including an Executive Committee, each such Committee to consist of
such number of Directors as from time to time may be fixed by the Board of
Directors. The Board of Directors may designate one or more Directors as
alternate members of any such Committee, who may replace any absent or
disqualified member or members at any meeting of such Committee. Thereafter,
members (and alternate members, if any) of each such Committee may be designated
at the annual meeting of the Board of Directors. Any such Committee may be
abolished or re-designated from time to time by the Board of Directors. Each
member (and each alternate member) of any such Committee (whether designated at
an annual meeting of the Board of Directors or to fill a vacancy or otherwise)
shall hold office until his successor shall have been designated or until he
shall cease to be a Director, or until his earlier death, resignation or
removal. [Section 141(c).]
Section 3.02. Powers. During the intervals between the meetings of the
------
Board of Directors, the Executive Committee, except as otherwise provided in
this section or by resolutions of the Board of Directors adopted from time to
time by a majority of the whole Board, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the
property, affairs and business of the Corporation, including the power to
declare dividends and to authorize the issuance of stock. Each such other
Committee, except as otherwise provided in this section, shall have
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<PAGE>
and may exercise such powers of the Board of Directors as may be provided by
resolution or resolutions of the whole Board. Neither the Executive Committee
nor any such other Committee shall have the power or authority to:
(a) amend the Certificate of Incorporation,
(b) adopt an agreement of merger or consolidation,
(c) recommend to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets,
(d) recommend to the stockholders a dissolution of the
Corporation or a revocation of a dissolution,
(e) amend these By-Laws,
(f) declare a dividend,
(g) authorize the issuance of stock.
The Executive Committee shall have, and any such other Committee may be granted
by the Board of Directors power to authorize the seal of the Corporation to be
affixed to any or all papers which may require it. [Section 141(c).]
Section 3.03. Proceedinqs. Each such Committee may fix its own rules
-----------
of procedure and may meet at such place (within or without the State of
Delaware), at such time and upon such notice, if any, as it shall determine from
time to time. Each such Committee shall keep minutes of its proceedings and
shall report such proceedings to the Board of Directors at the meeting of the
Board of Directors next following any such proceedings.
Section 3.04. Quorum and Manner of Acting. Except as may be otherwise
---------------------------
provided in the resolution creating such Committee, at all meetings of any
Committee the presence of members (or alternate members) constituting a majority
of the total authorized membership of such Committee shall constitute a quorum
for the transaction of business. The act of the majority of the members present
at any meeting at which a quorum is present shall be the act of such Committee.
Any action required or permitted to be taken at any meeting of any such
Committee may be taken without a meeting, if all members of such Committee shall
consent to such action in writing and such writing or writings are filed with
the minutes of the proceedings of the Committee. The members of any such
Committee shall act only as a Committee, and the individual members of such
Committee shall have no power as such. [Sections 141(c), (f).]
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<PAGE>
Section 3.05. Action by Telephonic Communications.
-----------------------------------
Members of any Committee designated by the Board of Directors may participate in
a meeting of such Committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear one another, and participation in a meeting pursuant to this
provision shall constitute presence in person at such meeting. [Section 141(i).]
Section 3.06. Absent or Disqualified Members. In the absence or
------------------------------
disqualification of a member of any Committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member. [Section 141(c).]
Section 3.07. Resignations. Any member (and any alternate member) of
------------
any Committee may resign at any time by delivering a written notice of
resignation, signed by such member, to the Chairman or the President. Unless
otherwise specified therein, such resignation shall take effect upon delivery.
Section 3.08. Removal. Any member (and any alternate member) of any
-------
Committee may be removed at any time, either for or without cause, by resolution
adopted by majority of the whole Board of Directors.
Section 3.09. Vacancies. If any vacancy shall occur in any Committee,
---------
by reason of disqualification, death, resignation, removal or otherwise, the
remaining members (and any alternate members) shall continue to act, and any
such vacancy may be filled by the Board of Directors.
ARTICLE IV
----------
OFFICERS
--------
Section 4.01. Number. The officers of the Corporation shall be elected
------
by the Board of Directors and shall be a President, a Secretary and a Treasurer.
The Board of Directors also may elect a Chairman and one or more Vice
Presidents, and one or more Assistant Secretaries and Assistant Treasurers in
such numbers as the Board of Directors may determine. Any number of offices may
be held by the same person. No officer need be a Director of the Corporation.
[Sections 142(a), (b).]
Section 4.02. Election. Unless otherwise determined by the Board of
--------
Directors, the officers of the Corporation shall be elected by the Board of
Directors at its initial meeting and
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<PAGE>
thereafter annually at the annual meeting of the Board of Directors. In the
event of the failure to elect officers at any annual meeting, officers may be
elected at any regular or special meeting of the Board of Directors. Subject to
the provisions of Section 4.11, each officer (whether chosen at any annual
meeting of the Board of Directors or to fill a vacancy or otherwise) shall hold
office until the next succeeding annual meeting of the Board of Directors and
until his successor has been elected and qualified, or until his earlier death,
resignation or removal. [Section i42(b).]
Section 4.03. Salaries. The salaries of all officers and agents of the
--------
Corporation shall be fixed by the Board of Directors.
Section 4.04. Removal and Resignation; Vacancies. Any officer may be
----------------------------------
removed for or without cause at any time by the Board of Directors. Any officer
may resign at any time by delivering a written notice of resignation, signed by
such officer, to the Board of Directors the Chairman or the President. Unless
otherwise specified therein, such resignation shall take effect upon delivery.
Any vacancy occurring in any office of the Corporation by death, resignation,
removal or otherwise, shall be filled by the Board of Directors. [Section
142(b), (e).]
Section 4.05. Authority and Duties of Officers. The officers of the
--------------------------------
Corporation shall have such authority and shall exercise such powers and perform
such duties as may be specified in these By-Laws or in a resolution of the Board
of Directors which is not inconsistent with these By-Laws, except that in any
event each officer shall exercise such powers and perform such duties as may be
required by law. [Section 142(a).]
Section 4.06. The Chairman of the Board. The Chairman of the Board
-------------------------
shall preside at all meetings of the stockholders and directors at which he is
present, and shall exercise such other powers and perform such other duties as
may from time to time be assigned to him by these By-Laws or by the Board of
Directors.
Section 4.07. The President. The President shall exercise such powers
-------------
and perform such duties as may from time to time be assigned to him by these By-
Laws or by the Board of Directors.
Section 4.08. The Vice Presidents. Each Vice President shall exercise
-------------------
such powers and perform such duties as from time to time may be assigned to him
by these By-Laws or by the Board of Directors or by the President. At the
request of the President or in the event of his absence or disability, the Vice
President designated by the Board of Directors or, if no such designation shall
have been made, then the Vice President designated by the President shall
perform all the duties of the President and, when so acting, shall have all the
powers of and be subject to all the restrictions upon the President. Any Vice
President may sign
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<PAGE>
(unless the President or another Vice President shall have signed), certificates
representing shares of the Corporation the issuance of which shall have been
authorized by the Board of Directors.
Section 4.09. The Secretary. The Secretary shall have the following
-------------
powers and duties:
(a) He shall keep or cause to be kept a record of all the
proceedings of the meetings of the stockholders and of the Board of
Directors in books provided for that purpose.
(b) He shall cause all notices to be duly given in accordance
with the provisions of these By-Laws and as required by law.
(c) Whenever any Committee shall be appointed pursuant to a
resolution of the Board of Directors, he shall furnish a copy of such
resolution to the members of such Committee.
(d) He shall be the custodian of the records and of the seal of
the Corporation and cause such seal (or a facsimile thereof) to be
affixed to all certificates representing shares of the Corporation
prior to the issuance thereof and to all instruments the execution of
which on behalf of the Corporation under its seal shall have been duly
authorized in accordance with these By-Laws, and when so affixed he
may attest the same.
(e) He shall properly maintain and file all books, reports,
statements, certificates and all other documents and records required
by law, the Certificate of Incorpora-tion or these By-Laws.
(f) He shall have charge of the stock books and ledgers of the
Corporation and shall cause the stock and transfer books to be kept in
such manner as to show at any time the number of shares of stock of
the Corporation of each class issued and outstanding, the names
(alphabetically arranged) and the addresses of the holders of record
of such shares, the number of shares held by each holder and the date
as of which each became such holder of record.
(g) He shall sign (unless the Treasurer, an Assistant Treasurer
or Assistant Secretary shall have signed) certificates representing
shares of the Corporation the issuance of which shall have been
authorized by the Board of Directors.
(h) He shall perform, in general, all duties incident to the
office of Secretary and such other duties as may be
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<PAGE>
given to him by these By-Laws or as may be assigned to him from time o
time by the Board of Directors or the President.
Section 4.10. The Treasurer. The Treasurer shall have the following
-------------
powers and duties:
(a) He shall have charge and supervision over and be responsible
for the moneys, securities, receipts and disbursements of the
Corporation, and shall keep or cause to be kept full and accurate
records of all receipts of the Corporation.
(b) He shall cause the moneys and other valuable effects of the
Corporation to be deposited in the name and to the credit of the
Corporation in such banks or trust companies or with such bankers or
other depositaries as shall be selected in accordance with Section
8.05 of these By-Laws.
(c) He shall cause the moneys of the Corporation to be disbursed
by checks or drafts (signed as provided in Section 8.06 of these By-
Laws) upon the authorized depositaries of the Corporation and cause to
be taken and preserved proper vouchers for all moneys disbursed.
(d) He shall render to the Board of Directors or the President,
whenever requested, a statement of the financial condition of the
Corporation and of all his transactions as Treasurer, and render a
full financial report at the annual meeting of the stockholders, if
called upon to do so.
(e) He shall be empowered from time to time to require from all
officers or agents of the Corporation reports or statements giving
such information as he may desire with respect to any and all
financial transactions of the Corporation.
(f) He may sign (unless an Assistant Treasurer or the Secretary
or an Assistant Secretary shall have signed) certificates representing
stock of the Corporation the issuance of which shall have been
authorized by the Board of Directors.
Section 4.11. Additional Officers. The Board of Directors may appoint
-------------------
such other officers and agents as it may deem appropriate, and such other
officers and agents shall hold their offices for such terms and shall exercise
such powers and perform such duties as may be determined from time to time by
the Board of Directors. The Board of Directors from time to time may delegate to
any officer or agent the power to appoint subordinate officers or
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<PAGE>
agents and to prescribe their respective rights, terms of office, authorities
and duties. Any such officer or agent may remove any such subordinate officer or
agent appointed by him, for or without cause. [Sections 142(a), (b).]
Section 4.12. Security. The Board of Directors may require any
--------
officer, agent or employee of the Company to provide security for the faithful
performance of his duties, in such amount and of such character as may be
determined from time to time by the Board of Directors. [Section 142(c).]
ARTICLE V
---------
CAPITAL STOCK
-------------
Section 5.01. Certificates of Stock. The shares of the Corporation
---------------------
shall be represented by certificates, provided that the Board of Directors of
the Corporation may provide by resolution or resolutions that some or all of any
or all classes or series of its stock shall be uncertificated shares. Any such
resolution shall not apply to shares represented by a certificate until such
certificate is surrendered to the Corporation. Notwithstanding the adoption of
such a resolution by the Board of Directors, every holder of stock represented
by certificates and upon request every holder of uncertificated shares shall be
entitled to have a certificate signed by, or in the name of the Corporation by
the Chairman, or the President or a Vice President, and by the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary, representing
the number of shares registered in certificate form. Such certificate shall be
in such form as the Board of Directors may determine, to the extent consistent
with applicable law, the Certificate of Incorporation and these By-Laws.
[Section 158.]
Section 5.02. Signatures; Facsimile. Any or all the signatures on such
---------------------
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed, or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
[Section 158.]
Section 5.03. Lost, Stolen or Destroyed Certificates. The Board of
--------------------------------------
Directors may direct that a new certificate or uncertificated shares be issued
in place of any certificate theretofore issued by the Corporation alleged to
have been lost, stolen or destroyed, upon delivery to the Board of Directors of
an affidavit of the owner or owners of such certificate, setting forth such
allegation. The Board of Directors may require the owner of
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<PAGE>
such lost, stolen or destroyed certificates or his legal representa-tive, to
give the Corporation a bond sufficient to indemnify it against any claim that
may be made against it on account of the alleged loss, theft or destruction of
any such certificate or the issuance of any such new certificate or
uncertificated shares. [Section 167.]
Section 5.04. Transfer of Stock. Upon surrender to the Corporation or
-----------------
the transfer agent of the Corporation of a certifi-cate for shares, duly
endorsed or accompanied by appropriate evidence of succession, assignment or
authority to transfer, the Corporation shall issue a new certificate or
uncertificated shares to the person entitled thereto, cancel the old certificate
and record the transaction upon its books. Transfer of uncertificated shares
shall be governed by applicable provisions of law. Subject to the provisions of
the Certificate of Incorporation and these By-Laws, the Board of Directors may
prescribe such additional rules and regulations as it may deem appropriate
relating to the issue, transfer and registration of shares of the Corporation.
Section 5.05. Record Date. In order that the Corporation may determine
-----------
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and which record date shall
not be more than sixty nor less than ten days before the date of such meeting.
If no record date is fixed by the Board of Directors, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the date next preceding the
day on which notice is given or, if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held. A determination
of stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
In order that the Corporation may determine the stockholders entitled to consent
to corporate action in writing without a meeting, the Board of Directors may fix
a record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than ten days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors. If no
record date has been fixed by the Board of Directors, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the Board of Directors is required by
law, shall be the first date on which a signed written consent setting forth the
action taken or proposed to be taken is delivered to the Corporation by delivery
to its registered office in the State, its principal place of business, or an
officer or agent of
-14-
<PAGE>
the Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action. In order that the
Corporation may determine the stockholders entitled to receive payment of any
dividend or other distribution or allotment of any rights or the stockholders
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purpose of any other lawful action, the Board of Directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted, and which record date shall be
not more than sixty days prior to such action. If no record date is fixed, the
record date for determining stockholders for any such purpose shall be at the
close of business on the day on which the Board of Directors adopts the
resolution relating thereto. [Section 213.]
Section 5.06. Registered Stockholders. Prior to due surrender of a
-----------------------
certificate for registration of transfer or transfer of uncertificated shares,
the Corporation may treat the registered owner as the person exclusively
entitled to receive dividends and other distributions, to vote, to receive
notice and otherwise to exercise all the rights and powers of the owner of the
shares represented by such certificate or such uncertificated shares, and the
Corporation shall not be bound to recognize any equitable or legal claim to or
interest in such shares on the part of any other person, whether or not the
Corporation shall have notice of such claim or interests. Whenever any transfer
of shares shall be made for collateral security, and not absolutely, it shall be
so expressed in the entry of the transfer if, when the certificates are
presented to the Corporation for transfer or uncertificated shares are requested
to be transferred, both the transferor and transferee request the Corporation to
do so. [Section 159.]
Section 5.07. Transfer Agent and Reqistrar. The Board of Directors may
----------------------------
appoint one or more transfer agents and one or more registrars, and may require
all certificates representing shares to bear the signature of any such transfer
agents or registrars.
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<PAGE>
ARTICLE VI
----------
INDEMNIFICATION
---------------
Section 6.01. Nature of Indemnity. The Corporation shall indemnify any
-------------------
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he is or
was or has agreed to become a director or officer of the Corporation, or is or
was serving or has agreed to serve at the request of the Corporation as a
director or officer, of another corporation, partnership, joint venture, trust
or other enterprise, or by reason of any action alleged to have been taken or
omitted in such capacity, and may indemnify any person who was or is a party or
is threatened to be made a party to such an action, suit or proceeding by reason
of the fact that he is or was or has agreed to become an employee or agent of
the Corporation, or is or was serving or has agreed to serve at the request of
the Corporation as an employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or on his behalf in connection with such action, suit or
proceeding and any appeal therefrom, if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding had no
reasonable cause to believe his conduct was unlawful; except that in the case of
an action or suit by or in the right of the Corporation to procure a judgment in
its favor (a) such indemnification shall be limited to expenses (including
attorneys' fees) actually and reasonably incurred by such person in the defense
or settlement of such action or suit, and (b) no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Delaware Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Delaware Court of
Chancery or such other court shall deem proper.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
----------------
shall not, of itself, create a presumption that the person did not act in good
faith or in a manner in which he reasonably believed to be in or not opposed to
the best interests of the Corporation, or, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was unlawful.
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<PAGE>
Section 6.02. Successful Defense. To the extent that a director,
------------------
officer, employee or agent of the Corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in Section
6.01 or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
Section 6.03. Determination that Indemnification is
-------------------------------------
Proper. Any indemnification of a director or officer of the Corporation under
- ------
Section 6.01 (unless ordered by a court) shall be made by the Corporation unless
a determination is made that indemnification of the director or officer is not
proper in the circumstances because he has not met the applicable standard of
conduct set forth in Section 6.01. Any indemnification of an employee or agent
of the Corporation under Section 6.01 (unless ordered by a court) may be made by
the Corporation upon a determination that indemnification of the employee or
agent is proper in the circumstances because he has met the applicable standard
of conduct set forth in Section 6.01. Any such determination shall be made (a)
by the Board of Directors by a majority vote of a quorum consisting of directors
who were not parties to such action, suit or proceeding, or (b) if such a quorum
is not obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (c) by the
stockholders.
Section 6.04. Advance Payment of Expenses. Expenses incurred by a
---------------------------
director or officer in defending a civil or criminal action, suit or proceeding
shall be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of the
director or officer to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the Corporation as authorized by
this Article. Such expenses incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the Board of Directors deems
appropriate. The Board of Directors may authorize the Corporation's counsel to
represent such director, officer, employee or agent in any action, suit or
proceeding, whether or not the Corporation is a party to such action, suit or
proceeding.
Section 6.05. Procedure for Indemnification of Directors and Officers.
-------------------------------------------------------
Any indemnification of a director or officer of the Corporation under Sections
6.01 and 6.02 or advance of costs, charges and expenses to a director or officer
under Section 6.04, shall be made promptly, and in any event within 30 days,
upon the written request of the director or officer. If a determination by the
Corporation that the director or officer is entitled to indemnification pursuant
to this Article is required, and the Corporation fails to respond within sixty
days to a written
-17-
<PAGE>
request for indemnity, the Corporation shall be deemed to have approved such
request. If the Corporation denies a written request for indemnity or
advancement of expenses, in whole or in part, or if payment in full pursuant to
such request is not made within 30 days, the right to indemnification or
advances as granted by this Article shall be enforceable by the director or
officer in any court of competent jurisdiction. Such person's costs and expenses
incurred in connection with successfully establishing his right to
indemnification, in whole or in part, in any such action shall also be
indemnified by the Corporation. It shall be a defense to any such action (other
than an action brought to enforce a claim for the advance of costs, charges and
expenses under Section 6.04 where the required undertaking, if any, has been
received by the Corporation) that the claimant has not met the standard of
conduct set forth in Section 6.01, but the burden of proving such defense shall
be on the Corporation. Neither the failure of the Corporation (including its
Board of Directors, its independent legal counsel, and its stockholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he has
met the applicable standard of conduct set forth in Section 6.01, nor the fact
that there has been an actual determination by the Corporation (including its
Board of Directors, its independent legal counsel, and its stockholders) that
the claimant has not met such applicable standard of conduct, shall be a defense
to the action or create a presumption that the claimant has not met the
applicable standard of conduct.
Section 6.06. Survival; Preservation of Other Riqhts. The foregoing
--------------------------------------
indemnification provisions shall be deemed to be a contract between the
Corporation and each director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of the Delaware General Corporation Law are in effect and any repeal
or modification thereof shall not affect any right or obligation then existing
with respect to any state of facts then or previously existing or any action,
suit, or proceeding previously or thereafter brought or threatened based in
whole or in part upon any such state of facts. Such a "contract right" may not
be modified retroactively without the consent of such director, officer,
employee or agent.
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which any person indemnified may be entitled
under any by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
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<PAGE>
Section 6.07. Insurance. By action of the Board of Directors, the
---------
Corporation may purchase and maintain insurance on behalf of any person who is
or was or has agreed to become a director or officer of the Corporation, or is
or was serving at the request of the Corporation as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against him and incurred by him or on his behalf
in any such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of this Article.
Section 6.08. Severability. If this Article or any portion hereof
------------
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify each director or officer and may
indemnify each employee or agent of the Corporation as to costs, charges and
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Corporation, to the fullest extent permitted by any applicable
portion of this Article that shall not have been invalidated and to the fullest
extent permitted by applicable law.
ARTICLE VII
-----------
OFFICES
-------
Section 7.01. Registered Office. The registered office of the
-----------------
Corporation in the State of Delaware shall be located at The Corporation Trust
Company, Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. [Section 131.]
Section 7.02. Other Offices. The Corporation may maintain offices or
-------------
places of business at such other locations within or without the State of
Delaware as the Board of Directors may from time to time determine or as the
business of the Corporation may require. [Section 122(8).]
ARTICLE VIII
------------
GENERAL PROVISIONS
------------------
Section 8.01. Dividends. Subject to any applicable provisions of law
---------
and the Certificate of Incorporation, dividends upon the shares of the
Corporation may be declared by the Board of
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<PAGE>
Directors at any regular or special meeting of the Board of Directors and any
such dividend may be paid in cash, property, or shares of the Corporation.
[Section 173.]
Section 8.02. Reserves. There may be set aside out of any funds of the
--------
Corporation available for dividends such sum or sums as the Board of Directors
from time to time, in its absolute discretion, thinks proper as a reserve or
reserves to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the Corporation or for such other purpose as the
Board of Directors shall think conducive to the interest of the Corporation, and
the Board of Directors may similarly modify or abolish any such reserve.
[Section 171. ]
Section 8.03. Execution of Instruments. Subject to any limitation
------------------------
contained in the Certificate of Incorporation or these By-Laws, the Chairman of
the Board or the President may enter into any contract or execute and deliver
any instrument in the name and on behalf of the Corporation and in the ordinary
course of its business. The Board of Directors may, subject to any limitation
contained in the Certificate of Incorporation or these By-Laws, authorize any
officer or agent to enter into any contract or execute and deliver any
instrument in the name and on behalf of the Corporation. Any such authorization
may be general or limited to specific contracts or instruments.
Section 8.04. Corporate Indebtedness. No loan shall be contracted on
----------------------
behalf of the Corporation, and no evidence of indebtedness shall be issued in
its name, unless authorized by the Board of Directors. Such authorization may be
general or confined to specific instances. Loans so authorized may be effected
at any time for the Corporation from any bank, trust company or other
institution, or from any firm, corporation or individual. All bonds, debentures,
notes and other obligations or evidences of indebtedness of the Corporation
issued for such loans shall be made, executed and delivered as the Board of
Directors shall authorize. When so authorized by the Board of Directors, any
part of or all the properties, including contract rights, assets, business or
good will of the Corporation, whether then owned or thereafter acquired, may be
mortgaged, pledged, hypothecated or conveyed or assigned in trust as security
for the payment of such bonds, debentures, notes and other obligations or
evidences of indebtedness of the Corporation, and of the interest thereon, by
instruments executed and delivered in the name of the Corporation.
Section 8.05. Deposits. Any funds of the Corporation may be deposited
--------
from time to time in such banks, trust companies or other depositaries as may be
determined by the Board of Directors, or by such officers or agents as may be
authorized by the Board of Directors to make such determination.
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<PAGE>
Section 8.06. Checks. All checks or demands for money and notes of the
------
Corporation shall be signed by such officer or officers or such agent or agents
of the Corporation, and in such manner, as the Board of Directors from time to
time may determine.
Section 8.07. Sale, Transfer, etc. of Securities. To the extent
----------------------------------
authorized by the Board of Directors, the Chairman of the Board, the President,
or any Vice President together with the Secretary or Treasurer or an Assistant
Secretary or Assistant Treasurer may sell, transfer, endorse, and assign any
shares of stock, bonds or other securities owned by or held in the name of the
Corporation, and may make, execute and deliver in the name of the Corporation,
under its corporate seal, any instruments that may be appropriate to effect any
such sale, transfer, endorsement or assignment.
Section 8.08. Voting as Stockholder. Unless otherwise determined by
---------------------
resolution of the Board of Directors, the Chairman of the Board or the President
shall have full power and authority on behalf of the Corporation to attend any
meeting of stockholders of any corporation in which the Corporation may hold
stock, and to act, vote (or execute proxies to vote) and exercise in person or
by proxy all other rights, powers and privileges incident to the ownership of
such stock. Such officers acting on behalf of the Corporation shall have full
power and authority to execute any instrument expressing consent to or dissent
from any action of any such corporation without a meeting. The Board of
Directors may by resolution from time to time confer such power and authority
upon any other person or persons.
Section 8.09. Fiscal Year. The fiscal year of the Corporation shall
-----------
commence on the first day of January in each calendar year and terminate on the
31st day of December.
Section 8.10. Seal. The seal of the Corporation shall be circular in
----
form and shall contain the name of the Corporation, the year of its
incorporation and the words "Corporate Seal" and
"Delaware". The form of such seal shall be subject to alteration by the Board of
Directors. The seal may be used by causing it or a facsimile thereof to be
impressed, affixed or reproduced, or may be used in any other lawful manner.
Section 8.11. Books and Records; Inspection. Except to the extent
-----------------------------
otherwise required by law, the books and records of the Corporation shall be
kept at such place or places within or without the State of Delaware as may be
determined from time to time by the Board of Directors.
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<PAGE>
ARTICLE IX
----------
AMENDMENT OF BY-LAWS
--------------------
Section 9.01 Amendment. These By-Laws may be amended, altered or
---------
repealed at any regular or special meeting of the stockholders, if, in the case
of such special meeting only, notice of such amendment, alteration or repeal is
contained in the notice or waiver of notice of such meeting. These By-Laws may
also be amended, altered or repealed by a majority of the whole Board of
Directors. [Sections 109(a), 222, 229.]
-22-
<PAGE>
EXHIBIT 4.1
EXECUTION COPY
- --------------
SECURITYHOLDERS AGREEMENT
dated as of August 29, 1997
among
TVN ENTERTAINMENT CORPORATION,
PRINCES GATE INVESTORS II, L.P.,
STORIE PARTNERS, L.P.,
WENONAH DEVELOPMENT CORP.,
JEROME H. TURK AND CAROLE TURK FAMILY TRUST
and
PG INVESTORS II, INC.
as Agent
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1.1. Definitions........................................ 1
ARTICLE II
RESTRICTIVE LEGEND
SECTION 2.1. Restrictive Legend................................. 7
ARTICLE III
REGISTRATION RIGHTS
SECTION 3.1. Demand Registration................................ 8
SECTION 3.2. Piggy-Back Registration............................ 9
SECTION 3.3. Reduction of Offering.............................. 9
SECTION 3.4. Registration Procedures............................ 9
SECTION 3.5. Shelf Registration................................. 12
SECTION 3.6. Registration Expenses.............................. 12
SECTION 3.7. Indemnification by the Issuer...................... 12
SECTION 3.8. Indemnification by Selling Holders................. 13
SECTION 3.9. Conduct of Indemnification Proceedings............. 13
SECTION 3.10. Contribution...................................... 14
SECTION 3.11. Participation in Underwritten Registrations....... 15
SECTION 3.12. Rule 144.......................................... 16
SECTION 3.13. Holdback Agreements............................... 16
SECTION 3.14. Exclusivity....................................... 17
ARTICLE IV
COVENANTS
SECTION 4.1. Information........................................ 17
SECTION 4.2. Prohibited Issuance of Additional Series B Stock... 18
SECTION 4.3. Lead Underwriter; Lead Manager; Lead Advisor....... 18
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 4.4. Key Man Life Insurance............................. 19
SECTION 4.5. Approvals.......................................... 19
SECTION 4.6. Qualified Stock.................................... 20
ARTICLE V
BOARD OF DIRECTORS
SECTION 5.1. Number............................................. 21
SECTION 5.2. Appointment; Removal............................... 21
SECTION 5.3. Special Trigger Event.............................. 21
SECTION 5.4. Mechanics.......................................... 22
ARTICLE VI
THE AGENT
SECTION 6.1. Appointment and Authorization...................... 22
SECTION 6.2. Reliance by Issuer and Other Holders............... 22
SECTION 6.3. Liability of Agent................................. 22
SECTION 6.4. Indemnification.................................... 22
SECTION 6.5. Successor Agent.................................... 23
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. Headings........................................... 23
SECTION 7.2. No Inconsistent Agreements......................... 23
SECTION 7.3. Entire Agreement................................... 23
SECTION 7.4. Notices............................................ 24
SECTION 7.5. Applicable Law..................................... 24
SECTION 7.6. Severability....................................... 24
SECTION 7.7. Termination........................................ 24
SECTION 7.8. Successors, Assigns, Transferees................... 24
SECTION 7.9. Amendments; Waivers................................ 25
SECTION 7.10. Counterparts; Effectiveness....................... 25
SECTION 7.11. Recapitalization, etc............................. 25
SECTION 7.12. Remedies.......................................... 25
SECTION 7.13. Consent to Jurisdiction........................... 25
SECTION 7.14. Transferability................................... 26
</TABLE>
ii
<PAGE>
ARTICLE VIII
STORIE INVESTMENT
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 8.1. Existing Investments............................... 26
SECTION 8.2. Conversion to Series B2 Stock; Reset of Warrant
Exercise Price.................................... 27
EXHIBIT A - Form of Management Reporting Package
</TABLE>
iii
<PAGE>
SECURITYHOLDERS AGREEMENT
-------------------------
SECURITYHOLDERS AGREEMENT (this "Agreement") dated as of August 29,
1997 among TVN Entertainment Corporation, a Delaware corporation (the "Issuer"),
Princes Gate Investors, II, L.P., a Delaware limited partnership, as purchaser
(the "Purchaser"), Storie Partners, L.P., Wenonah Development Corp., Jerome H.
Turk and Carole Turk Family Trust and PG Investors II Inc., a Delaware
corporation, as agent (the "Agent") for the Holders (as defined below) of PGI
Stock (as defined below).
WHEREAS, the Issuer and the Purchaser have entered into the Securities
Purchase Agreement (as defined below) pursuant to which the Purchaser has agreed
to purchase shares of Series B Stock (as defined below) in accordance with the
terms thereof and the Issuer has granted the Purchaser options to purchase
additional shares of Series B Stock; and
WHEREAS, the Storie Partners (as defined below) hold certain
indebtedness of the Issuer and wish to provide for the conversion thereof into
Series B Stock.
NOW THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions.
-----------
(a) The following terms, as used herein, have the following meanings:
"Affiliate", as applied to any Person, means any other Person
directly or indirectly controlling, controlled by, or under common control
with, such Person and "Affiliated" has a meaning correlative with the
foregoing. For purposes of this definition, "control" (including, with
correlative meaning, the terms "controlling", "controlled by" and "under
common control with"), as applied to any Person, means the ownership,
directly or indirectly, of more than 10 percent of the outstanding voting
securities of such Person or other ownership interests having ordinary
voting power to elect a majority of the board of directors of such Person
or other entity performing similar functions.
"Agent" has the meaning set forth in the first paragraph of this
Agreement.
"Agreement" has the meaning set forth in the first paragraph of this
Agreement.
<PAGE>
2
"Annual Budget" means the annual budget of the Issuer and its
Subsidiaries on a consolidated basis, which shall include (i) a detailed
projected statement of operations/income statement, statement of cash
flows, balance sheet and other financial data in reasonable detail, broken
down by quarter of the next succeeding Fiscal Year and (ii) a written
business plan describing the business activities of the Issuer and its
Subsidiaries for the next succeeding Fiscal Year and specifying quarterly
objectives, all in reasonable detail, adopted in accordance with the
procedures set forth in Section 4.5(a) herein. Notwithstanding the
foregoing, until April 1, 1998, Exhibit F to the Securities Purchase
Agreement shall be deemed to be the Annual Budget and to have been approved
in the manner provided for in Section 4.5 hereof.
"Board of Directors" means the Board of Directors of the Issuer.
"Business Day" means any day except a Saturday, Sunday or other day
on which commercial banks in the City of New York are authorized or
required by law to close.
"Charter" means the Amended and Restated Certificate of Incorporation
of the Issuer, as amended as of the Closing Date, in the form attached as
Exhibit C to the Securities Purchase Agreement.
"Closing Date" means the date of the Initial Closing.
"Certificate of Designations" means the Certificate of Voting Powers,
Designations, Preferences and Relative, Participating, Optional or other
Special Rights and Qualifications, Limitations and Restrictions Thereof of
the Series B Convertible Preferred Stock of the Issuer.
"Commission" means the Securities and Exchange Commission and any
successor agency having similar powers.
"Common Stock" means the Common Stock, par value $.001 per share, of
the Issuer.
"Director" means a member of the Board of Directors.
"Equity Securities" means the Series B Stock and the Series B Common
Shares.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor statute.
<PAGE>
3
"Fiscal Year" means the fiscal year of the Issuer, beginning on
April 1 of each year, and ending on the following March 31.
"Holder" means any registered holder of shares of Series B Stock or
Series B Common Shares.
"Initial Closing" means the first date upon which shares of Series B
Stock are issued by the issuer.
"Initial Public Offering" means the first registration of Common
Stock after the date hereof under the Securities Act, using forms S-1, S-2
or S-3 or any successor forms.
"Issuer" has the meaning set forth in the first paragraph of this
Agreement.
"Liquidation Preference" has the meaning ascribed thereto in the
Certificate of Designations.
"Person" means an individual, general partnership, limited
partnership, corporation, limited liability company, trust, joint stock
company, association, joint venture or any other entity or organization,
whether or not a legal entity, including a government or political
subdivision or an agency or instrumentality thereof.
"Purchaser" has the meaning set forth in the first paragraph of this
Agreement.
"PGI Stock" means Series B1 Stock, Series B3 Stock and Series B4
Stock.
"Qualified Stock" means equity securities of the Issuer that are pari
passu with, or junior to, the Series B Stock with respect to dividends and
liquidation preference and the purchase price of which (in the opinion of
an investment bank of national standing selected by the Issuer and
reasonably acceptable to the Agent) implies an equity valuation per
outstanding (on a fully diluted basis) share of Common Stock of the Issuer
below (i) during the First Period, $6.8359 and (ii) during the Second
Period, $10.9374.
"Registrable Securities" means the Series B Common Shares; provided,
--------
in any event, that such securities shall cease to be Registrable Securities
when a registration statement relating to such securities shall have
declared effective by the Commission and such securities shall have been
disposed of pursuant to such effective registration statement or sold under
Rule 144 (but not Rule 144A).
<PAGE>
4
"Registration Expenses" means all (i) registration and filing fees,
(ii) fees and expenses of compliance with securities or blue sky laws or
the rules of the National Association of Securities Dealers, Inc. or any
successor agency (including reasonable fees and disbursements of a
qualified independent underwriter, if any, counsel in connection therewith
and the reasonable fees and disbursements of counsel in connection with
blue sky qualifications of the Registrable Securities), (iii) printing
expenses, (iv) internal expenses of the Issuer (including, without
limitation, all salaries and expenses of officers and employees performing
legal or accounting duties), (v) fees and disbursements of counsel for the
Issuer, (vi) customary fees and expenses for independent certified public
accountants retained by the Issuer (including the expenses of any comfort
letters or costs associated with the delivery by independent certified
public accountants of a comfort letter or comfort letters), (vii) fees and
expenses of any special experts retained by the Issuer in connection with
such registration, (viii) reasonable fees and expenses of one counsel for
the Holders, (ix) fees and expenses of listing the Registrable Securities
on a securities exchange or on the NASDAQ National Market System, (x)
rating agency fees and (xi) other out-of-pocket expenses of the Issuer.
"Rule 144" means Rule 144 under the Securities Act, as such rule may
be amended from time to time.
"Rule 144A" means Rule 144A under the Securities Act, as such rule
may be amended from time to time.
"Rule 144(k)" means Rule 144(k) under the Securities Act, as such
rule may be amended from time to time.
"Securities Act" means the Securities Act of 1933, as amended from
time to time, or any successor statute.
"Securities Purchase Agreement" means the Securities Purchase
Agreement dated as of the date hereof by and between the Issuer and the
Purchaser.
"Series A Preferred Stock" means the Series A Preferred Stock, par
value $.001 per share, of the Issuer, having the rights and privileges set
forth in the Charter.
"Series B Common Shares" means the shares of Common Stock issued or
to be issued upon conversion of the Series B Stock.
"Series B Stock" means the Issuer's Series B Convertible Preferred
Stock having the rights, preferences and privileges set forth in the
Certificate of Designations.
<PAGE>
5
"Special Trigger Event" shall be deemed to occur if (i) the Issuer
has not, prior to the third anniversary of the Initial Closing, completed
an Initial Public Offering, underwritten by an investment bank of national
standing and generating gross proceeds to the Issuer which exceed $25
million; (ii) the Issuer is in default with a creditor or trade partner
with respect to a liability or obligation of at least $50,000, including,
but not limited to, any of the Key Creditors (as defined in the Securities
Purchase Agreement), for thirty days; (iii) the Issuer breaches any
covenant or agreement contained herein, in the Securities Purchase
Agreement or in the Certificate of Designations and such breach has not
been cured within ten days thereof; (iv) a court having jurisdiction in the
premises enters a decree or order for (A) relief in respect of the Issuer
or any of its Subsidiaries in an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, (B)
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Issuer or any of its Subsidiaries
or for all or substantially all of the property and assets of the Issuer or
any of its Subsidiaries or (C) the winding up or liquidation of the affairs
of the Issuer or any of its Subsidiaries; (v) the Issuer or any of its
Subsidiaries (A) commences a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
consents to the entry of an order for relief in an involuntary case under
any such law, (B) consents to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official of the Issuer or any of its Subsidiaries or for all or
substantially all of the property and assets of the Issuer or any of its
Subsidiaries or (C) effects any general assignment for the benefit of
creditors; or (vi) if the Chief Operating Officer of the Issuer hired on
the date of the Initial Closing is not employed by the Issuer on a full-
time basis at all times during the one year period after the Initial
Closing, except in the event of such person's death or disability or with
the approval of the Directors elected by the Holders, and the Corporation
shall not have replaced such Chief Operating Officer within 30 days of such
cessation with a person reasonably acceptable to the Directors elected by
the Holders; provided that with respect to the events referred to in items
(ii), (iii) and (vi) above, a Special Trigger Event shall be deemed not to
have occurred unless (A) the Issuer shall have failed to give written
notice of the occurrence of such event to the Agent and the Storie Holders
within five days of such occurrence or (B) the Agent or holders of 25% or
more of the Series B Stock shall have given the Issuer written notice
declaring such event to be a Special Trigger Event.
"Specified Item" means the items noted with footnote (S) on
Exhibit F to the Securities Purchase Agreement and the items noted with
footnote (S) in the Annual Budget.
"Storie Holder" means any holder of the 10% Convertible Notes or
Warrants.
<PAGE>
6
"Storie Partners" means Storie Partners, L.P., Wenonah Development
Corp. and Jerome H. Turk and Carole Turk Family Trust.
"Storie Partners Agreements" means Warrants and 10% Convertible Notes
of the Issuer held by a Storie Holder.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than fifty percent (50%)
of the total voting power of shares of capital stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by such Person or one or more of the other
Subsidiaries of such Person or a combination thereof.
"10% Convertible Notes" means the 10% Convertible Notes of the Issuer
issued to the Storie Partners.
"Third Party" means a prospective purchaser of Equity Securities from
a Holder in an arm's-length transaction where such purchaser is not the
Issuer or an Affiliate of the Issuer.
"Transfer" means any transfer, in whole or in part, by sale, pledge,
assignment, grant or other means.
"Underwriter" means a securities dealer who purchases any Registrable
Securities as a principal in connection with a distribution of such
Registrable Securities and not as part of such dealer's market-making
activities.
"Voting Securities" means any class or series of capital stock and
any bond, debenture or other obligation of the Issuer having the right to
vote generally on matters voted on by the stockholders of the Issuer.
"Warrants" means warrants of the Issuer issued to the Storie Partners
and cancelled and reissued on the date hereof.
<PAGE>
7
(b) Each of the following terms is defined in the Section opposite
such term:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Demand Registrant 3.1
Demand Registration 3.1
Effective Date 7.10
First Period 4.6
Indemnified Party 3.9
Indemnifying Party 3.9
1% holders 3.2
Piggy-Back Registration 3.2
Registration Request 3.1
Second Period 4.6
Selling Holder 3.2
</TABLE>
ARTICLE II
RESTRICTIVE LEGEND
SECTION 2.1. Restrictive Legend.
------------------
(a) For so long as this Agreement remains in effect, each certificate
representing an Equity Security owned by any Holder or a subsequent transferee
shall (unless otherwise permitted by the provisions of Section 2.1(b) or
required by the Charter) include a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN COMPLIANCE WITH THE ACT,
THE RULES AND REGULATIONS PROMULGATED THEREUNDER AND ANY APPLICABLE
STATE SECURITIES LAWS.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
SECURITYHOLDERS AGREEMENT DATED AS OF AUGUST 29, 1997 THAT FIXES
CERTAIN RIGHTS AND OBLIGATIONS OF THE COMPANY AND THE HOLDER OF THIS
SECURITY. A COPY OF THE AGREEMENT IS ON FILE AT THE COMPANY'S
PRINCIPAL OFFICE.
<PAGE>
8
(b) Any Holder or transferee of an Equity Security may, upon providing
evidence reasonably satisfactory to the Issuer that such Equity Security either
is not a "restricted security" (as defined in Rule 144), may be sold pursuant to
Rule 144(k) or has been registered under the Securities Act, exchange the
certificate representing such Equity Security for a new certificate that does
not bear the legend set forth in Section 2.1(a).
ARTICLE III
REGISTRATION RIGHTS
SECTION 3.1. Demand Registration.
-------------------
(a) Request for Registration. At any time after the consummation of
------------------------
the Issuer's Initial Public Offering for a period of five years from the closing
of the Initial Public Offering, the holders of outstanding Registrable
Securities that constitute both (A) at least 20% of the then outstanding number
of shares of Registrable Securities and (B) at least 1% of the then outstanding
Common Stock of the Issuer, treating Series B Stock on an as-converted basis for
purposes of calculating such 1%, (such Holders collectively, a "Demand
Registrant"), may make a written request (the "Registration Request") for
registration (a "Demand Registration") under the Securities Act of Registrable
Securities having an anticipated sale price of at least $10 million. The
Registration Request will specify the number and class of Registrable Securities
proposed to be sold and will also specify the intended method of disposition
thereof. The Issuer shall not be obligated to effect more than one Demand
Registration in any six-month period and shall not be obligated to effect any
Demand Registration unless the offering of the securities registered thereby:
(a) is underwritten by an investment bank of national standing, (b) is limited
to purchases by ten or fewer sophisticated investors or (c) involves an orderly
plan of distribution reasonably acceptable to the Issuer.
(b) Effective Registration. A registration requested pursuant to this
----------------------
Section 3.1 shall be deemed not to be effected (i) if a registration statement
with respect thereto shall not have become effective, (ii) if, after it has
become effective, such registration is interfered with for any reason by any
stop order, injunction or other order or requirement of the Commission or any
other governmental agency or any court, and the result of such interference is
to prevent a Holder from disposing of the Registrable Securities to be sold
thereunder in accordance with the intended methods of disposition or (iii) if
the closing specified in the purchase agreement or underwriting agreement
entered into in connection with any underwritten registration shall not have
occurred.
<PAGE>
9
(c) Underwriting. If the Demand Registrant so elects, the offering of
------------
Registrable Securities pursuant to a Demand Registration shall be in the form of
an underwritten offering consistent with the covenants of the Issuer set forth
in Section 4.3 hereof.
SECTION 3.2. Piggy-Back Registration. If the Issuer proposes to file
-----------------------
a registration statement under the Securities Act with respect to an offering of
its equity securities other than in the Initial Public Offering or any
registration of the Series B Stock concurrent with the Issuer's Initial Public
Offering (i) for its own account (other than a registration statement on Form S-
4 or S-8 (or any substitute form that may be adopted by the Commission)) or (ii)
for the account of any holders ("1% holders") of at least 1% of the then
outstanding Common Stock of the Issuer, treating Series B Stock on an as-
converted basis for purposes of calculating such 1%, then the Issuer shall give
written notice of such proposed filing to the Agent, the Storie Holders and each
Holder of more than 5% of the shares of Registrable Securities then outstanding
as soon as practicable (but in any event not less than 20 days before the
anticipated filing date), and such notice shall offer such 1% holders the
opportunity to register such number of shares of Registrable Securities that are
then eligible for registration. If any Holder wishes to register securities of
the same class or series as the Issuer or such holder, such registration shall
be on the same terms and conditions as the registration of the Issuer or such
holders' securities (a "Piggy-Back Registration"). If the Piggy-Back
Registration is of a different class, then the Issuer has the option of
effecting a concurrent registration. Holders participating in a Piggy-Back
Registration, together with the Demand Registrant, if any, are referred to
herein as "Selling Holders."
SECTION 3.3. Reduction of Offering. Notwithstanding anything
---------------------
contained in any other Section herein, if the lead Underwriter of an offering
described in Section 3.1 or 3.2 delivers a written opinion to the Issuer that
the success of such offering would be materially and adversely affected by
inclusion of all the securities of each class requested to be included, then the
Issuer may, upon written notice to the Holders, reduce (if and to the extent
stated by such Underwriter to be necessary to eliminate such effect) the number
of the securities of each class requested to be registered so that the resultant
aggregate number of the securities of each class requested to be registered that
will be included in such registration shall be equal to the numbers of the
securities of each class stated in such Underwriter's letter; provided, however,
-------- -------
that priority in such registration shall be as follows:
(a) if such registration has been initiated by a Demand Registrant,
then, (i) first, securities offered for the account of the Selling Holders,
pro rata based on the number of shares of Registerable Securities and
Series B Stock then owned by each Selling Holder and (ii) second,
securities offered for the account of the Issuer; and
(b) if such registration has been initiated by the Issuer, then (i)
first for the account of the Issuer and (ii) second, pro rata among the
Selling Holders, based on the
<PAGE>
10
number of shares of Registrable Securities and Series B Stock then owned by
each Selling Holder.
SECTION 3.4. Registration Procedures. Whenever the Issuer is
-----------------------
required to effect the registration of Registrable Securities pursuant to
Section 3.1 hereof, the Issuer will use its best efforts to effect the
registration and the sale of such Registrable Securities in accordance with the
intended method of disposition thereof as quickly as practicable, and in
connection with any such Registration Request:
(a) The Issuer will as expeditiously as possible prepare and file with
the Commission a registration statement on any form for which the Issuer
then qualifies or which counsel for the Issuer shall deem appropriate and
which form shall be available for the sale of the Registrable Securities to
be registered thereunder in accordance with the intended method of
distribution thereof, and use its best efforts to cause such filed
registration statement to become and remain effective until all Registrable
Securities requested to be registered thereunder have been sold thereunder.
(b) The Issuer will, if requested, prior to filing a registration
statement or prospectus or any amendment or supplement thereto, furnish to
the Selling Holders and each Underwriter, if any, such number of copies of
such registration statement, each amendment and supplement thereto (in each
case including all exhibits thereto and documents incorporated by reference
therein), the prospectus included in such registration statement (including
each preliminary prospectus) and such other documents as the Selling
Holders or such Underwriter may reasonably request in order to facilitate
the sale of the Registrable Securities.
(c) After the filing of the registration statement, the Issuer will
promptly notify the Selling Holders of any comments from or any material
correspondence with the Commission or the National Association of
Securities Dealers, Inc. and of any stop order issued or threatened by the
Commission and take all reasonable actions required to prevent the entry of
such stop order or to remove it if entered.
(d) The Issuer will use its best efforts to (i) register or qualify
the Registrable Securities under such other securities or blue sky laws of
such jurisdictions in the United States or elsewhere as the Selling Holders
reasonably request to keep such registration or qualification in effect for
so long as such registration statement remains in effect, and to take any
other action which may be reasonably necessary or advisable to enable the
Selling Holders to consummate the disposition in such jurisdictions of the
securities owned by the Selling Holders and (ii) cause such disposition and
Registrable Securities to be registered with or approved by such other
governmental agencies or authorities as may be necessary by virtue of the
business and operations of the Issuer, to enable the
<PAGE>
11
Selling Holders to consummate the disposition of such Registrable
Securities; provided that the Issuer will not be required to (i) qualify
--------
generally to do business in any jurisdiction where it would not otherwise
be required to qualify but for this paragraph (d), (ii) subject itself to
taxation in any such jurisdiction other than taxation arising with respect
to the registration of securities or (iii) consent to general service of
process in any such jurisdiction.
(e) At any time when a prospectus relating to the sale of Registrable
Securities is required to be delivered under the Securities Act, the Issuer
will immediately notify the Selling Holders of the occurrence of an event
requiring the preparation of a supplement or amendment to such prospectus
so that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus will not contain an untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading and
promptly make available to the Selling Holders and the Underwriters any
such supplement or amendment. The Selling Holders agree that, upon receipt
of any notice from the Issuer of the happening of any event of the kind
described in the preceding sentence, the Selling Holders will forthwith
discontinue the offer and sale of Registrable Securities pursuant to the
registration statement covering such Registrable Securities until receipt
of the copies of such supplemented or amended prospectus and, if so
directed by the Issuer, the Selling Holders will deliver to the Issuer all
copies, other than permanent file copies then in the possession of the
Selling Holders, of the most recent prospectus covering such Registrable
Securities at the time of receipt of such notice.
(f) The Issuer will enter into customary agreements (including an
underwriting agreement in customary form) and take such other actions as
are necessary or desirable in order to expedite or facilitate the
disposition of such Registrable Securities.
(g) The Issuer will furnish to the Selling Holders and to each
Underwriter, if any, addressed to the Selling Holders or such Underwriter,
of (i) an opinion or opinions of counsel to the Issuer and (ii) a comfort
letter or comfort letters from the Issuer's independent public accountants,
each in such form and covering such matters as the Selling Holders or the
lead Underwriter requests.
(h) The Issuer will otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to
its securityholders, as soon as reasonably practicable, an earnings
statement covering a period of 12 months, beginning within three months
after the effective date of the registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the Securities
Act.
<PAGE>
12
(i) The Issuer will provide and cause to be maintained a transfer
agent and registrar for all Registrable Securities covered by such
registration statement from and after a date not later than the effective
date of such registration statement.
(j) The Issuer will use its best efforts (i) to cause all such
Registrable Securities covered by such registration statement to be listed
on any national securities exchange (if such Registrable Securities are not
already listed), and on each other securities exchange on which similar
securities issued by the Issuer are then listed, if the listing of such
Registrable Securities is then permitted under the rules of such exchange;
or (ii) to secure the designation of all such Registrable Securities
covered by such registration statement as a NASDAQ "national market system
security" within the meaning of Rule 11Aa2-1 of the Commission or, failing
that, to secure NASDAQ authorization for listing or quoting such
Registrable Securities, in each case if the Registrable Securities so
qualify, and, without limiting the generality of the foregoing, to arrange
for at least two market makers to register as such with respect to such
Registrable Securities with the National Association of Securities Dealers,
in the case of each action referred to in this clause (ii) if requested by
a Selling Holder or by the lead Underwriter.
SECTION 3.5. Shelf Registration. At any time after 180 days
------------------
following the closing of the Initial Public Offering, the Issuer, upon the
request of any Holders of more than 20% of the shares of Registrable Securities
and Series B Stock then outstanding will use its best efforts to file a "shelf"
registration statement (the "Shelf Registration") with respect to the
Registrable Securities on an appropriate form pursuant to Rule 415 (or any
similar provision that may be adopted by the Commission) under the Securities
Act and to cause such Shelf Registration to become effective and to keep such
Shelf Registration effective and the disclosure therein current and complete
until the Holders shall no longer hold any Registrable Securities. Any sale of
Registrable Securities pursuant to the Shelf Registration in an underwritten
public offering shall be deemed to be a Demand Registration subject to the
provisions of Sections 3.1, 3.3 and 3.13 hereof. Registrable Securities shall
not be sold pursuant to the Shelf Registration unless the offering of the
securities registered thereby: (a) is underwritten by an investment bank of
national standing or (b) involves an orderly plan of distribution reasonably
acceptable to the Issuer.
SECTION 3.6. Registration Expenses. Registration Expenses incurred
---------------------
in connection with any registration made or requested to be made pursuant to
this Article III will be borne by the Issuer, whether or not any registration
statement becomes effective.
SECTION 3.7. Indemnification by the Issuer. The Issuer agrees to
-----------------------------
indemnify and hold harmless each Selling Holder, its officers, directors and
agents, and each Person, if any, who controls each such Selling Holder within
the meaning of Section 15 of the Securities
<PAGE>
13
Act or Section 20 of the Exchange Act, from and against any and all losses,
claims, damages, liabilities and expenses caused by any untrue statement or
alleged untrue statement of a material fact contained in any registration
statement or prospectus relating to the Registrable Securities (as amended or
supplemented if the Issuer shall have furnished any amendments or supplements
thereto) or any preliminary prospectus, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary in order to make the statements therein (in the case of a prospectus,
in the light of the circumstances under which they were made) not misleading
except insofar as such losses, claims, damages, liabilities or expenses are
caused by any such untrue statement or omission or alleged untrue statement or
omission based upon information furnished in writing to the Issuer by or on
behalf of any such Selling Holder expressly for use therein. The Issuer also
agrees, to the extent permitted by applicable law, to indemnify any Underwriters
of the Registrable Securities, their officers and directors and each Person who
controls such underwriters on substantially the same basis as that of the
indemnification of the Selling Holders provided in this Section 3.7.
SECTION 3.8. Indemnification by Selling Holders. Each Selling Holder
----------------------------------
agrees, severally but not jointly, to indemnify and hold harmless the Issuer,
its officers, directors and agents and each Person, if any, who controls the
Issuer within the meaning of either Section 15 of the Securities Act of Section
20 of the Exchange Act, to the same extent as the foregoing indemnity from the
Issuer to such Selling Holder, but only with reference to information related to
such Selling Holder furnished in writing by such Selling Holder (or by the
Purchaser on its behalf) expressly for use in any registration statement or
prospectus relating to the Registrable Securities, or any amendment or
supplement thereto, or any preliminary prospectus. Each Selling Holder also
agrees to indemnify and hold harmless Underwriters of the Registrable
Securities, their officers and directors and each Person who controls such
Underwriters on substantially the same basis as that of the indemnification of
the Issuer provided in this Section 3.8.
SECTION 3.9. Conduct of Indemnification Proceedings. In case any
--------------------------------------
proceeding (including any governmental investigation) shall be instituted
involving any Person in respect of which indemnity may be sought pursuant to
Section 3.7 or 3.6, such Person (the "Indemnified Party") shall promptly notify
the Person against whom such indemnity may be sought (the "Indemnifying Party")
in writing and the Indemnifying Party upon request of the Indemnified Party
shall retain counsel reasonably satisfactory to the Indemnified Party to
represent the Indemnified Party and any others the Indemnifying Party may
designate in such proceeding and shall pay the reasonable fees and disbursements
of such counsel related to the proceeding. In any such proceeding, any
Indemnified Party shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Party
unless (i) the Indemnifying Party and the Indemnified Party shall have mutually
agreed to the retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the Indemnified Party
and the Indemnifying Party and representation of
<PAGE>
14
both parties by the same counsel would be in conflict or otherwise inappropriate
due to actual or potential differing interests between them. It is understood
that the Indemnifying Party shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable fees
and expenses of more than one separate firm of attorneys (in addition to any
local counsel) at any time for all such Indemnified Parties, and that all such
fees and expenses shall be reimbursed as they are incurred. In the case of any
such separate firm for the Indemnified Parties, such firm shall be designated in
writing by the Indemnified Parties. The Indemnifying Party shall not be liable
for any settlement of any proceeding effected without its consent, but if
settled with such consent, or if there be a final judgment for the plaintiff,
the Indemnifying Party shall indemnify and hold harmless such Indemnified
Parties from and against any loss or liability (to the extent stated above) by
reason of such settlement or judgment. Notwithstanding the foregoing sentence,
if at any time an Indemnified Party shall have requested an Indemnifying Party
to reimburse the Indemnified Party for fees and expenses of counsel as
contemplated by the third sentence of this paragraph, the Indemnifying Party
agrees that it shall be liable for any settlement of any proceeding effected
without its written consent if (i) such settlement is entered into more than 30
Business Days after receipt by such Indemnifying Party of the aforesaid request
and (ii) such Indemnifying Party shall not have reimbursed the Indemnified Party
in accordance with such request prior to the date of such settlement, unless the
Indemnifying Party has contested such reimbursement obligation and provides
reasonable assurances that such payment can be made upon resolution of such
dispute. No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of any pending or threatened proceeding
in respect of which any Indemnified Party is or could have been a party and
indemnity could have been sought hereunder by such Indemnified Party, unless
such settlement (x) includes an unconditional release of such Indemnified Party
from all liability arising out of such proceeding and (y) provides that such
Indemnified Party does not admit any fault or guilt with respect to the subject
matter of such proceeding.
SECTION 3.10. Contribution.
------------
(a) To the extent the indemnification provided for herein is for any
reason unavailable to the Indemnified Parties in respect of any losses, claims,
damages or liabilities referred to herein, then each such Indemnifying Party, in
lieu of indemnifying such Indemnified Party, shall contribute to the amount paid
or payable by such Indemnified Party as a result of such losses, claims, damages
or liabilities (i) as between the Issuer and any Selling Holder on the one hand
and the Underwriters on the other, in such proportion as is appropriate to
reflect the relative benefits received by the Issuer and such Selling Holder on
the one hand and the Underwriters on the other from the offering of the
securities, or if such allocation is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits but also
the relative fault of the Issuer and such Selling Holder on the one hand and of
the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations
<PAGE>
15
and (ii) as between the Issuer on the one hand and any Selling Holder on the
other, in such proportion as is appropriate to reflect the relative fault of the
Issuer and of such Selling Holder in connection with such statements or
omissions, as well as any other relevant equitable considerations. The relative
benefits received by the Issuer and any Selling Holder on the one hand and the
Underwriters on the other shall be deemed to be in the same proportion as the
total proceeds from the offering (net of underwriting discounts and commissions
but before deducting expenses) received by the Issuer and such Selling Holder
bear to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of the
prospectus. The relative fault of the Issuer and any Selling Holder on the one
hand and of the Underwriters on the other shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Issuer and such Selling Holder or by the
Underwriters. The relative fault of the Issuer on the one hand and any Selling
Holder on the other shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by such party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
(b) The Issuer and each Selling Holder agree that it would not be just
and equitable if contribution pursuant to this Section 3.10 were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an Indemnified Party as a result of
the losses, claims, damages or liabilities referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such Indemnified
Party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 3.10, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, and no Selling Holder
shall be required to contribute any amount in excess of the amount by which the
total price at which the Registrable Securities of such Selling Holder were
offered to the public (less underwriters' discounts and commissions) exceeds the
amount of any damages which such Selling Holder has otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
<PAGE>
16
SECTION 3.11. Participation in Underwritten Registrations. No Person
-------------------------------------------
may participate in any underwritten registration hereunder unless such Person
(a) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by such Person and (b) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements and these registration rights.
SECTION 3.12. Rule 144. The Issuer covenants that it will file any
--------
reports required to be filed by it under the Securities Act and the Exchange Act
and will take such further action as the Selling Holder shall reasonably
request, all to the extent required from time to time to enable the Selling
Holders to sell Registrable Securities without registration under the Securities
Act pursuant to (a) Rule 144 under the Securities Act and Rule 144A under the
Securities Act, as such Rules are amended from time to time, or (b) any similar
rule or regulation hereafter adopted by the Commission. Upon the request of the
Agent, the Issuer will deliver to the Agent a written statement as to whether it
has complied with such requirements.
SECTION 3.13. Holdback Agreements.
-------------------
(a) Restrictions on Public Sale by Holder of Registrable Securities.
---------------------------------------------------------------
If and to the extent requested by the Issuer, in the case of a non-underwritten
public offering, and if and to the extent requested by the lead Underwriter or
Underwriters, in the case of an underwritten public offering, the Holders agree
not to effect, except as part of such registration or a concurrent registration,
any public sale or distribution of the issue being registered or a similar
security of the Issuer, or any securities convertible into or exchangeable or
exercisable for such securities, including a sale pursuant to Rule 144 or Rule
144A, during the 10 days prior to, and during such period that the Issuer (in
the case of a non-underwritten public offering) or the lead Underwriter (in the
case of an underwritten public offering) may reasonably request, but in no event
longer than (1) in the case of the Initial Public Offering, 180 days and (2) in
all other cases, 60 days, in each case beginning on, the effective date of the
registration statement.
(b) Restrictions on Public Sale by the Issuer. The Issuer agrees (i)
-----------------------------------------
not to effect any public sale or distribution of any securities similar to those
being registered in accordance with Section 3.1 or Section 3.2 hereof, or any
securities convertible into or exchangeable or exercisable for such securities,
during the 10 days prior to, and during such period as the lead Underwriter may
reasonably request, but in no event longer than 180 days, beginning on, the
effective date of any registration statement (except pursuant to such
registration statement and except pursuant to registrations on Form S-4 or S-8
or any successor or similar form thereto or pursuant to an unregistered offering
to employees of the Issuer or its Subsidiaries pursuant to an employee benefit
plan as defined in Rule 405 of Regulation C of the Securities Act) or the
commencement of a public distribution of Registrable Securities; and (ii) that
any agreement entered into after the date of this Agreement pursuant to which
the Issuer
<PAGE>
17
issues or agrees to issue any privately placed securities shall contain a
provision under which holders of such securities agree not to effect any public
sale or distribution of any such securities during the periods described in (a)
above, in each case including a sale pursuant to Rule 144 (except as part of any
such registration, if permitted); provided, however, that the provisions of this
-------- -------
paragraph (b) shall not prevent the exercise, conversion or exchange of any
securities pursuant to their terms into or for other securities.
SECTION 3.14. Exclusivity. The Issuer shall not grant any
-----------
registration rights or register any of its securities except pursuant to this
Agreement or with the consent of the Holders of a majority of the shares of
Series B Stock outstanding.
ARTICLE IV
COVENANTS
SECTION 4.1. Information. So long as any shares of the Series B
-----------
Stock remain outstanding, the Issuer shall deliver to each of the Holders (or in
the case of clause (c), (d), (e) and (f) below, the Agent and any Storie Holders
holding more than 150,000 shares of Series B Stock):
(a) as soon as practicable and in any event within sixty (60) days
after the end of the first three fiscal quarters, consolidated balance sheets of
the Issuer and its Subsidiaries as at the end of such period and the related
consolidated statements of income, stockholders' equity and cash flow of the
Issuer and its Subsidiaries for such fiscal quarter, setting forth in each case
in comparative form the consolidated figures for the corresponding periods of
the previous fiscal year, all in reasonable detail and certified by the Issuer's
Chief Financial Officer that they fairly present the financial condition of the
Issuer and its Subsidiaries as at the dates indicated and the results of their
operations and changes in their financial position for the periods indicated in
accordance with generally accepted accounting principles consistently applied
except as described therein, subject to changes resulting from normal year-end
adjustment;
(b) as soon as practicable and in any event within one hundred twenty
(120) days after the end of each fiscal year of the Issuer commencing with the
fiscal year ending March 31, 1998, and with respect to the fiscal year ended
March 31, 1997, no later than September 15, 1997, consolidated balance sheets of
the Issuer and its Subsidiaries as at the end of such year and the related
consolidated statements of income, stockholders' equity and cash flow of the
Issuer and its Subsidiaries for such fiscal year, setting forth in each case, in
comparative form the consolidated figures for the previous year, all in
reasonable detail and accompanied by a report thereon of independent certified
public accountants of recognized national standing selected by the Issuer, which
report shall be unqualified as to scope of audit
<PAGE>
18
and shall state that such consolidated financial statements present fairly the
financial position of the Issuer and its Subsidiaries as at the dates indicated
and the results of their operations and changes in their financial position for
the periods indicated in conformity with generally accepted accounting
principles applied on a basis consistent with prior years (except as otherwise
stated therein) and that the examination by such accountants in connection with
such consolidated financial statements has been made in accordance with
generally accepted auditing standards;
(c) as soon as practicable and in any event no later than thirty (30)
days after the end of each fiscal month of the Issuer, the TVN Entertainment
Corporation Management Reporting Package, substantially in the form of and
covering such items set forth in Exhibit A hereto, for such month;
(d) promptly upon receipt thereof, copies of all reports submitted to
the Issuer by independent public accountants in connection with each annual,
interim or special audit of the Issuer's financial statements made by such
accountant, including, without limitation, the comment letter submitted by such
accountants to management in connection with their annual audit;
(e) promptly upon their becoming available, copies of all financial
statements, reports, notices and proxy statements sent or made available
generally by the Issuer to its securityholders or by any Subsidiary of the
Issuer to its securityholders other than the Issuer or another Subsidiary, of
all regular and periodic reports and all registration statements and
prospectuses, if any, filed by the Issuer or any of its Subsidiaries with any
securities exchange or with the Commission or any governmental authority
succeeding to any of its functions, and of all press releases and other written
statements made available generally by the Issuer or any Subsidiary to the
public or to other investors in the Issuer;
(f) within five (5) Business Days after the last day of each fiscal
quarter, a certificate signed by the Issuer's Chief Financial Officer certifying
that the Issuer is in compliance in all material respects with the terms and
conditions of this Agreement, the Charter and the Securities Purchase Agreement;
and
(g) from time to time such additional information regarding the
financial position or business of the Issuer and its Subsidiaries as the Agent
or the Storie Holders may reasonably request.
SECTION 4.2. Prohibited Issuance of Additional Series B Stock. As
------------------------------------------------
long as any of the shares of Series B Stock remain outstanding, the Issuer shall
not issue any shares of Series B Stock to any Person other than pursuant to the
Securities Purchase Agreement and Article VIII hereof.
<PAGE>
19
SECTION 4.3. Lead Underwriter; Lead Manager; Lead Advisor. For a
--------------------------------------------
period of three years from the Initial Closing, in the event that the Issuer or
any of its Subsidiaries shall engage in any public offering or private placement
of any of its securities or any sale, transfer or other disposition of any
material assets, or any merger, consolidation or other material corporate
transaction, the Purchaser shall have the right to designate Morgan Stanley &
Co. Incorporated (or any successor thereto) to act as lead (or, at its option
co-) underwriter, placement agent or advisor to the Issuer or such Subsidiary.
The commissions, discounts and compensation paid to Morgan Stanley & Co.
Incorporated (or any successor thereto) shall be consistent with the
commissions, discounts and compensation paid to Morgan Stanley & Co.
Incorporated (or any successor thereto) with respect to similar transactions.
SECTION 4.4. Key Man Life Insurance. Within 30 days after the
----------------------
Initial Closing, the Issuer will obtain "key man" insurance on the Issuer's
Chief Executive Officer and Chief Operating Officer, in an amount equal to $10
million and $5 million, respectively, and will maintain such insurance while any
PGI Stock is outstanding. Such insurance shall pay benefits in the event that
either such officer is unable to perform services for the Issuer in such
capacity, shall have other terms acceptable to, and shall be underwritten by a
Person that is, acceptable to the Agent. The Holders of PGI Stock shall, on a
pro rata basis (based on Liquidation Preference) be the beneficiaries of such
insurance for the Chief Executive Officer during the first six months after the
Initial Closing and the Issuer shall be the beneficiary thereafter; the Issuer
shall be the beneficiary of such insurance for the Chief Operating Officer.
SECTION 4.5. Approvals.
---------
(a) The Issuer will adopt an Annual Budget for the coming Fiscal Year
at a regularly scheduled meeting of the Board of Directors, held no later than
the February 15 of the immediately preceding Fiscal Year; provided that the
--------
Annual Budget must be approved by a majority of the Directors appointed by a
majority of the Holders pursuant to Article V hereof. Each Annual Budget will
contain Specified Items of the nature of the Specified Items on Exhibit F to the
Securities Purchase Agreement.
(b) Unless specifically approved or consented to in writing by a
majority of the Holders or a majority of Directors appointed by a majority of
the Holders pursuant to Article V, and except as otherwise expressly provided by
this Agreement, the Issuer and its Subsidiaries shall not, and no Person acting
on behalf of the Issuer or any of its Subsidiaries shall permit or cause the
Issuer or any of its Subsidiaries to:
(i) incur or make any expenditure or commitment with respect to a
Specified Item during any period in an amount exceeding 115% of the amount
approved for such Specified Item with respect to such period in the Annual
Budget or make any change
<PAGE>
20
(other than a deminimus change) to or take any action inconsistent (other
than an immaterial action) with the applicable Annual Budget;
(ii) add to, or permit, an increase in the number of members of the
Board of Directors of the Issuer (other than the Chief Operating Officer of
the Issuer and other than as provided for in Section 5.2 hereof);
(iii) hire, remove or change the Issuer's or any material
Subsidiary's President, Chief Executive Officer, Chief Financial Officer,
Senior Executive Vice President, Chief Operating Officer or any other
executives with comparable levels of responsibility or materially amend the
employment contract or arrangements with any such Person;
(iv) do or permit any act which would make the Issuer or any
Subsidiary thereof subject to federal or state bankruptcy or insolvency
laws;
(v) authorize any amendment to the Charter or by-laws of the Issuer
or any material Subsidiary, except as required by law;
(vi) merge or consolidate with or into any Person or enter into a
similar business combination transaction, or convey, sell, transfer, lease
or otherwise dispose of (whether in one transaction or in a series of
transactions) all or a substantial part of the Issuer's or any material
Subsidiary's assets or take any action to bring about a liquidation,
winding-up or dissolution of the Issuer or any Subsidiary thereof;
(vii) issue or grant any capital stock, stock options, warrants or
other securities exchangeable or exercisable for or convertible into any
capital stock; provided that, notwithstanding the foregoing, the Issuer may
issue stock options to employees of the Issuer or any Subsidiary for an
aggregate of up to 100,000 shares of Common Stock, each having an exercise
price equal to at least the fair market value (as defined in the
Certificate of Designations) of the shares subject to such options on the
date of grant, as determined by the Board of Directors and options to
purchase up to an aggregate of 599,775 shares of Common Stock, with an
exercise price of $0.75 per share, granted to the Chief Operating Officer
of the Corporation;
(viii) engage in any transaction with any Affiliate or any Director
or officer of the Issuer or any material Subsidiary or any relative of any
such Director or officer; or
(ix) authorize, release, circulate, or permit the release of any
public announcement or press release relating to (A) the Purchaser, the
Agent, Morgan Stanley
<PAGE>
21
& Co. Incorporated or any of its Affiliates, or (B) the hiring of a Chief
Operating Officer of the Issuer.
(c) The provisions of this Section 4.5 (other than (b)(ix)(A)) shall
no longer be binding (i) upon the consummation of any Initial Public Offering
underwritten by an investment bank of national standing and generating gross
proceeds to the Issuer in excess of $25 million or (ii) if at any time the
Purchaser and its Affiliates do not beneficially own a majority of the shares of
PGI Stock and one Person, together with its Affiliates, does not own a majority
of the shares of outstanding PGI Stock.
SECTION 4.6. Qualified Stock. Each Holder agrees to approve the
---------------
issuance of Qualified Stock generating up to $15.625 million of gross proceeds
to the Issuer during the period beginning on the date hereof and ending on the
date that is six months after the date hereof (the "First Period") and Qualified
Stock generating gross proceeds to the Issuer of up to $15.625 million during
the period beginning on the date that is six months after the date hereof and
ending on the first anniversary hereof (the "Second Period"). In the event of
an issuance of Qualified Stock during the First Period, the Purchaser shall have
the option (1) to purchase up to $15.625 million of such Qualified Stock, on the
same terms and conditions as were applicable to the transaction or transactions
giving rise to such option or (2) to reduce the purchase price of the Series B3
Stock that it has an option to purchase pursuant to Section 2.02(a) of the
Securities Purchase Agreement to a price, per share of Series B3 Stock, equal to
the price per share of Common Stock implied by the sale price of such Qualified
Stock. In the event of an issuance of Qualified Stock during the Second Period,
the Purchaser shall have the option (1) to purchase up to $15.625 million of
such Qualified Stock, on the same terms and conditions as were applicable to the
transaction or transactions giving rise to such option or (2) to reduce the
purchase price of the Series B4 Stock that it has an option to purchase pursuant
to Section 2.02(b) of the Securities Purchase Agreement to a price, per share of
Series B4 Stock, equal to the price per share of Common Stock implied by the
sale price of such Qualified Stock.
ARTICLE V
BOARD OF DIRECTORS
SECTION 5.1. Number. The Board of Directors shall initially consist
------
of five Directors and shall be increased as specified in Section 5.2 below.
SECTION 5.2. (a) Appointment; Removal. The Holders of a majority of
--------------------
the shares of the PGI Stock shall have the right to appoint one Director (and
remove and replace such Director) if any PGI Stock is outstanding; two Directors
(and remove and replace such Directors) if PGI stock having a Liquidation
Preference of at least $7.5 million is outstanding;
<PAGE>
22
three Directors (and remove and replace such Directors) if PGI Stock having a
Liquidation Preference of at least $15.0 million is outstanding; and four
Directors (and remove and replace such Directors) if PGI Stock having a
Liquidation Preference of at least $30.0 million is outstanding.
(b) Chief Operating Officer. Notwithstanding the foregoing, the
-----------------------
Issuer's stockholders may elect, and the Holders agree to vote for the election
of, the Issuer's Chief Operating Officer to the Board of Directors; provided
that such Chief Operating Officer is hired in compliance with Section
4.5(b)(iii) hereof and Sections 5.01(j) and 5.01(k) of the Securities Purchase
Agreement.
SECTION 5.3. Special Trigger Event. Notwithstanding anything to the
---------------------
contrary set forth herein, upon the occurrence of any Special Trigger Event, the
Holders of a majority of the shares of the PGI Stock then outstanding shall have
the right to immediately appoint on that date, and thereafter, a majority of the
Directors (and remove and replace such Directors), until the Special Trigger
Event has been cured and no longer of any force or effect.
SECTION 5.4. Mechanics. Any appointment, removal or replacement
---------
referred to in Section 5.2 or Section 5.3 shall be effective immediately upon
the sending by the Agent of written notice to the Issuer.
ARTICLE VI
THE AGENT
SECTION 6.1. Appointment and Authorization. Each Holder of PGI Stock
-----------------------------
irrevocably appoints and authorizes the Agent to receive all notices required to
be given to any Holder of PGI Stock and to take all such actions and to exercise
all such rights and powers as agent on its behalf as are conferred upon such
Holder of PGI Stock under this Agreement, together with all such powers as are
reasonably incidental thereto. The Agent hereby acknowledges and confirms its
acceptance of such appointment. Such authority may be exercised by the Agent in
its absolute discretion.
SECTION 6.2. Reliance by Issuer and Other Holders. The Issuer shall
------------------------------------
be entitled to treat the Agent as attorney-in-fact of each Holder of PGI Stock
with respect to all matters under this Agreement and shall not seek to
communicate with any Holder of PGI Stock as to matters under this Agreement
except through the Agent.
SECTION 6.3. Liability of Agent. Neither the Agent nor any of its
------------------
Affiliates nor any of their respective directors, officers, agents or employees
shall be liable to the Holders
<PAGE>
23
of PGI Stock for any action taken or not taken by it in connection herewith in
the absence of bad faith on the part of the Agent. Neither the Agent nor any of
its Affiliates nor any of their respective directors, officers, agents or
employees shall be responsible for or have any duty to the Holders of PGI Stock
to ascertain, inquire into or verify (i) any statement, warranty or
representation made in connection with this Agreement or the Securities Purchase
Agreement; (ii) the performance or observance of any of the covenants or
agreements of any other party to this Agreement; or (iii) the validity,
effectiveness or genuineness of this Agreement or any other instrument or
writing furnished in connection herewith. The Agent shall not incur any
liability to the Holders of PGI Stock by acting in reliance upon any notice,
consent, certificate, statement, or other writing believed by it to be genuine
or to be signed by the proper party or parties.
SECTION 6.4. Indemnification. Each Holder of PGI Stock jointly and
---------------
not severally shall indemnify, when and as suffered or incurred, the Agent, its
Affiliates and their respective directors, officers, agents and employees (to
the extent not reimbursed by the Issuer) against any cost, expense (including
the reasonable fees and expenses of counsel), claim, demand, action, loss or
liability (except such as result from such indemnitees' gross negligence or
willful misconduct) that such indemnitees may suffer or incur in connection with
this Agreement or any action taken or omitted by such indemnitees hereunder.
SECTION 6.5. Successor Agent. The Agent may resign at any time by
---------------
giving notice thereof to the Holders of PGI Stock and the Issuer. Upon any such
resignation, the Holders of PGI Stock shall have the right to appoint a
successor Agent. If no successor Agent shall have been so appointed by the
Holders of PGI Stock, and shall have accepted such appointment, within 30 days
after the retiring Agent gives notice of resignation, then the retiring Agent
may, on behalf of the Holders of PGI Stock, appoint a successor Agent. Upon the
acceptance of its appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the rights
and duties of the retiring Agent, and the retiring Agent shall be discharged
from its duties and obligations hereunder. After any retiring Agent's
resignation hereunder as Agent, the provisions of this Article shall inure to
its benefit as to any actions taken or omitted to be taken by it while it was
Agent.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. Headings. The headings in this Agreement are for
--------
convenience of reference only and shall not control or affect the meaning or
construction of any provisions hereof.
<PAGE>
24
SECTION 7.2. No Inconsistent Agreements. The Issuer is not a party
--------------------------
to and will not hereafter enter into any agreement with respect to its
securities which is inconsistent with, or otherwise grant rights superior to,
the rights granted to the Holders under this Agreement; and each of the Issuer
and the Holders represents that it is not and agrees that it will not become a
party to any other agreement relating to the voting or transfer of Voting
Securities, or the management of the Issuer, or granting any registration rights
to any Person with respect to any of the Issuer's equity securities. The Issuer
agrees that it will not amend or modify the Storie Partners Agreements without
the prior consent of the Holders.
SECTION 7.3. Entire Agreement. This Agreement, the Securities
----------------
Purchase Agreement and the Certificate of Designations constitute the entire
agreement and understanding of the parties hereto in respect of the subject
matter contained herein and therein, and there are no restrictions, promises,
representations, warranties, covenants, or undertakings with respect to the
subject matter hereof, other than those expressly set forth or referred to
herein or therein. This Agreement and the documents referred to in the
preceding sentence supersede all prior agreements and understandings between the
parties hereto with respect to the subject matter hereof.
SECTION 7.4. Notices. Any notice, request, instruction or other
-------
document to be given hereunder by any party hereto to another party hereto shall
be in writing (including telex, telecopier or similar writing) and shall be
given to such party by certified first class mail at its address with a return
receipt requested, by Federal Express or similar overnight mail service with
signature required for receipt, or by telex or telecopy at the telex or
telecopier number set forth on its signature page or to such other address as
the party to whom notice is to be given may provide in a written notice to the
party giving such notice, a copy of which written notice shall be on file with
the Secretary of the Issuer. Each such notice, request or other communication
shall be effective (i) if given by telex or telecopy, which such telex or
telecopy is transmitted to the telex or telecopy number specified in its
signature page and the appropriate answerback or confirmation, as the case may
be, is received, and a copy of such notice is sent by overnight mail service or
(ii) if given by mail or overnight courier, 72 hours after such communication is
deposited in the mails with first class postage prepaid or given to overnight
courier service, addressed as aforesaid.
SECTION 7.5. Applicable Law. This Agreement shall be governed by and
--------------
construed in accordance with the laws of the State of Delaware.
SECTION 7.6. Severability. The invalidity or unenforceability of any
------------
provisions of this Agreement in any jurisdiction shall not affect the validity,
legality or enforceability of the remainder of this Agreement in such
jurisdiction or the validity, legality or enforceability of this Agreement,
including any such provision, in any other jurisdiction, it
<PAGE>
25
being intended that all rights and obligations of the parties hereunder shall be
enforceable to the fullest extent permitted by law.
SECTION 7.7. Termination. This Agreement shall terminate and be of
-----------
no further force or effect: (i) with respect to each Holder when such Holder no
longer owns any Equity Securities (except as to matters preceding the Holder's
disposition of Equity Securities); and (ii) with respect to all Holders, upon
the consummation of an Initial Public Offering underwritten by an investment
bank of national standing generating gross proceeds to the Issuer of at least
$25 million; provided that the provisions of Article I, Section 2.1, Article
--------
III, Sections 4.3 and 4.5(b)(ix)(A), Article VI, and this Section 7.7 shall
survive any such termination.
SECTION 7.8. Successors, Assigns, Transferees. The provisions of
--------------------------------
this Agreement shall be binding upon and accrue to the benefit of the parties
hereto and their respective heirs, successors and assigns. Neither this
Agreement nor any provision hereof shall be construed so as to confer any right
or benefit upon any Person other than the parties to this Agreement and their
respective successors and assigns.
SECTION 7.9. Amendments; Waivers.
-------------------
(a) No failure or delay on the part of any party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
(b) Neither this Agreement nor any term or provision hereof may be
amended or waived except by an instrument in writing signed, in the case of an
amendment, by the parties thereto or, in the case of a waiver, by the party
against whom the enforcement of such waiver is sought.
SECTION 7.10. Counterparts; Effectiveness. This Agreement may be
---------------------------
executed in any number of counterparts, each of which shall be an original with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall
have received a counterpart hereof signed by the other party hereto, and the
closing under the Securities Purchase Agreement shall have occurred (the
"Effective Date").
SECTION 7.11. Recapitalization, etc. If any capital stock or other
---------------------
securities are issued in respect of, or in exchange or substitution for, any
Equity Securities by reason of any reorganization, recapitalization,
reclassification, merger, consolidation, spin-off, partial or
<PAGE>
26
complete liquidation, stock dividend, split-up, sale of assets, distribution to
stockholders or combination of the shares of Common Stock or any other change in
capital structure of the Issuer, appropriate adjustments shall be made with
respect to the relevant provisions of this Agreement so as to fairly and
equitably preserve, as far as practicable, the original rights and obligations
of the parties hereto under this Agreement.
SECTION 7.12. Remedies. The parties hereby acknowledge that money
--------
damages would not be adequate compensation for the damages that a party would
suffer by reason of a failure of any other party to perform any of the
obligations under this Agreement. Therefore, each party hereto agrees that
specific performance is the only appropriate remedy under this Agreement and
hereby waives the claim or defense that any other party has an adequate remedy
at law.
SECTION 7.13. Consent to Jurisdiction. Each Holder and the Issuer
-----------------------
irrevocably submit to the non-exclusive jurisdiction of any Court of Chancery of
Delaware or United States Federal Court sitting in Delaware over any suit,
action or proceeding arising out of or relating to this Agreement, the
Certificate of Designations or the Securities Purchase Agreement. Each of the
Holders of PGI Stock hereby irrevocably appoints the Agent as its authorized
agent to accept and acknowledge on its behalf service of any and all process
which may be served in any such suit, action or proceeding in any such court and
represents and warrants that such agent has accepted such appointment. Each
Holder of PGI Stock consents to process being served in any such suit, action or
proceeding by serving a copy thereof upon the agent for service of process
referred to above, provided that to the extent lawful and possible, written
notice of such service shall also be mailed to such Holder. Each Holder of PGI
Stock agrees that such service shall be deemed in every respect effective
service of process upon such Holder of PGI Stock in any such suit, action or
proceeding and shall be taken and held to be valid personal service upon and
personal delivery to such Holder. Nothing in this paragraph shall affect or
limit any right to serve process in any manner permitted by law, to bring
proceedings in the courts of any jurisdiction or to enforce in any lawful manner
a judgment obtained in one jurisdiction in any other jurisdiction.
SECTION 7.14. Transferability. The Holders shall have the right to
---------------
Transfer (i) Series B Stock to their respective Affiliates and (ii) Series B
Stock to any Person that, after such transfer, would hold Series B Stock having
a Liquidation Preference of at least $50,000 and Common Stock to any Person
that, after such transfer, would hold not less than 5,000 shares of Common
Stock; provided that each such transfer is made in compliance with the
--------
Securities Act and the Issuer receives evidence of such compliance reasonably
satisfactory to it; provided further that the Purchaser, together with its
Affiliates, or one other Person, together with its Affiliates, shall at all
times beneficially own not less than a majority of the shares of outstanding PGI
Stock.
<PAGE>
27
ARTICLE VIII
STORIE INVESTMENT
SECTION 8.1. Existing Investments. Each of the Persons indicated
--------------------
below represents to the Purchaser that (i) it owns one or more 10% Convertible
Notes having a principal amount not exceeding the amount set forth next to its
name below and Warrants to purchase a number of shares of Series B2 Stock (as
defined in the Certificate of Designations) not exceeding the number of shares
set forth next to its name below, (ii) has duly authorized, executed and
delivered this Agreement, (iii) this Agreement is enforceable against such
Person and (iv) the execution, delivery and performance of this Agreement does
not conflict with or contravene any agreement, document, law, order or judgment
applicable to such Person.
<TABLE>
<CAPTION>
Convertible Notes Warrants
----------------- --------
<S> <C> <C>
Storie Partners, L.P. $5,500,000 366,668 shares
Wenonah Development Corp. $1,000,000 66,667 shares
Jerome H. Turk and Carole Turk Family Trust $1,000,000 66,667 shares
</TABLE>
SECTION 8.2. Conversion to Series B2 Stock; Reset of Warrant Exercise
--------------------------------------------------------
Price. Effective upon the date hereof, the 10% Convertible Notes of each holder
- -----
thereof shall be converted into the number of shares of Series B2 Stock set
forth next to its name below. Each such share shall have an Original
Liquidation Preference (as defined in the Certificate of Designations) of
$5.8105.
<TABLE>
<S> <C>
Storie Partners, L.P. 946,563 shares
Wenonah Development Corp. 172,102 shares
Jerome H. Turk and Carole Turk Family Trust 172,102 shares
</TABLE>
In addition, each such Person agrees that the exercise price of the Warrants per
share of Series B2 Stock is $5.8105 and that the Warrants expire on December 31,
1998.
<PAGE>
28
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, as of the day and year first above written.
TVN ENTERTAINMENT
CORPORATION/(1)/
By: /s/ Arthur Fields
________________________________
Name: Arthur Fields
Title: Senior Executive Vice
President
PRINCES GATE INVESTORS II, L.P./(2)/
By: PG Investors II, Inc.
General Partner
By: /s/ David Powers
________________________________
Name:
Title:
STORIE PARTNERS, L.P./(3)/
By: /s/ Steven A. Ledger
________________________________
Name: Steven A. Ledger
Title: Managing Partner
WENONAH DEVELOPMENT CORP./(4)/
By: /s/ Clifford L. Michel
________________________________
Name: Clifford L. Michel
Title: President
<PAGE>
29
JEROME H. TURK AND CAROLE TURK FAMILY
TRUST/(5)/
By: /s/ Jerome H. Turk
________________________________
Name: Jerome H. Turk
Title: Trustee
PG INVESTORS II, INC.
AS AGENT/(2)/
By: /s/ David Powers
________________________________
Name:
Title:
(1) Address: 2901 W. Alameda Avenue
Seventh Floor
Burbank, CA 91505
Telecopier number: (818) 846-4626
Attention: Stuart Levin
Arthur Fields
(2) Address: 1585 Broadway, 36th Floor
New York, NY 10036
Attention: David R. Powers
Lea Ann Garrison
Telecopier number: (212) 761-9869
(3) Address: Attn: Steve Ledger
Storie Partners
1 Bush Street, Suite 1350
San Francisco, CA 94104
Telecopier number: (415) 434-8043
(4) Address: Attn: C. L. Michel, Esq.
Wenonah Development Corp.
c/o Cahill Gordon & Riendel
80 Pine Street, 17th Floor
New York, NY 10015
Telecopier number: (212) 747-1868
<PAGE>
30
(5) Address: Jerome H. Turk and Carole Turk Family Trust
c/o Fitzgeralds Gaming Corp.
301 Fremont Street
Las Vegas, NV 89101
Telecopier number: (702) 382-5562
<PAGE>
EXHIBIT 4.2
TVN ENTERTAINMENT CORPORATION
AMENDMENT TO
SECURITYHOLDERS AGREEMENT
-------------------------
December 19, 1997
PRINCES GATE INVESTORS II, L.P.
1585 Broadway, 36th Floor
New York, NY 10036
STORIE PARTNERS, L.P.
1 Bush Street, Suite 1350
San Francisco, CA 94104
WENONAH DEVELOPMENT CORP.
c/o Cahill Gordon & Riendel
80 Pine Street, 17th Floor
New York, NY 10015
JEROME H. TURK AND CAROLE TURK FAMILY TRUST
c/o Fitzgeralds Gaming Corp.
301 Fremont Street
Las Vegas, NV 89101
PG INVESTORS II, INC., AS AGENT
1585 Broadway, 36th Floor
New York, NY 10036
Ladies and Gentlemen:
Reference is made to the Securityholders Agreement dated August 29,
1997 (the "Securityholders Agreement") among TVN Entertainment Corporation, a
Delaware corporation (the "Issuer"), Princes Gate Investors, II, L.P., a
Delaware limited partnership, as purchaser (the "Purchaser"), Storie Partners,
L.P., Wenonah Development Corp., Jerome H. Turk and Carole Turk Family Trust and
PG Investors II, Inc., a Delaware corporation, as agent (the "Agent") for the
Holders of PGI Stock. Capitalized terms not defined herein are used herein as
defined in the Securityholders Agreement.
<PAGE>
The undersigned agree with the Purchaser as follows:
1 The second paragraph of the Securityholders Agreement is hereby
amended and restated to read as follows:
"WHEREAS, the Issuer and the Purchaser have entered into the
Securities Purchase Agreement (as defined below) pursuant to which the
Purchaser has agreed to purchase shares of Series B Stock (as defined
below) in accordance with the terms thereof; and"
2 Section 1.1. Definitions. (i) Paragraph (a) of Section 1.01 of
------------------------
the Securities Purchase Agreement is hereby amended by deleting the definition
of "Qualified Stock" and paragraph (b) thereof is hereby amended by deleting the
definitions of "First Period" and "Second Period."
(ii) Paragraph (a) of Section 1.01 of the Securities Purchase
Agreement is further amended by deleting and replacing the definitions of
"Certificate of Designations" and "Securities Purchase Agreement" as follows:
"`Certificate of Designations' means the Certificate of Voting Powers,
Designations, Preferences and Relative, Participating, Optional or
other Special Rights and Qualifications, Limitations and Restrictions
Thereof of the Series B Convertible Preferred Stock of the Issuer, as
amended."
"`Securities Purchase Agreement' means the Securities Purchase
Agreement dated as of the date hereof by and between the Issuer and
the Purchaser, as amended."
3 Section 4.6. Qualified Stock. Section 4.6 of the
-----------------------------
Securityholders Agreement is hereby deleted in its entirety.
4 Each Storie Holder, severally and not jointly, represents,
warrants and agrees with each other party hereto that (i) such Storie Holder has
received a copy of the Amendment to the Certificate of Designations dated the
date hereof and the Amendment to the Securities Purchase Agreement dated the
date hereof and (ii) such Storie Holder does not have any right to any
adjustment to the Conversion Ratio (as defined in the Certificate of
Designations) applicable to such Storie Holder's Series B2 Stock, or any other
right to receive any equity security, by virtue of the transactions effectuated
by such documents.
<PAGE>
If the foregoing correctly sets forth the agreement among the parties
hereto, please indicate your acceptance in the space provided for that purpose
below.
Very truly yours,
TVN ENTERTAINMENT CORPORATION
By /s/ Arthur Fields
---------------------------
Arthur Fields
Senior Executive Vice President
Accepted:
PRINCES GATE INVESTORS II, L.P.
By /s/ David Powers
---------------------------
STORIE PARTNERS, L.P.
By /s/ Steven A. Ledger
---------------------------
Managing Partner
WENONAH DEVELOPMENT CORP.
By /s/ Clifford L. Michel
---------------------------
President
JEROME H. TURK AND CAROLE TURK FAMILY TRUST
By /s/ Jerome H. Turk
---------------------------
Trustee
PG INVESTORS II, INC., AS AGENT
By /s/ David Powers
---------------------------
<PAGE>
EXHIBIT 4.3
================================================================================
TVN ENTERTAINMENT CORPORATION,
Issuer
and
THE BANK OF NEW YORK,
Trustee
---------------------
Indenture
Dated as of July 29, 1998
---------------------
14% Senior Notes due 2008
================================================================================
<PAGE>
CROSS-REFERENCE TABLE
---------------------
<TABLE>
<CAPTION>
TIA Sections Indenture Sections
- ------------ ------------------
<S> <C>
(S) 310(a)(1)............................................ 7.10
(a)(2)............................................ 7.10
(b)............................................... 7.08
(S) 313(c)............................................... 7.06; 10.02
(S) 314(a)............................................... 4.17; 10.02
(a)(4)............................................ 4.16; 10.02
(c)(1)............................................ 10.03
(c)(2)............................................ 10.03
(e)............................................... 10.04
(S) 315(b)............................................... 7.05; 10.02
(S) 316(a)(1)(A)......................................... 6.05
(a)(1)(B)......................................... 6.04
(b)............................................... 6.07
(S) 317(a)(1)............................................ 6.08
(a)(2)............................................ 6.09
(S) 318(a)............................................... 10.01
(c)............................................... 10.01
</TABLE>
Note: The Cross-Reference Table shall not for any purpose be deemed to be a
part of this Indenture.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions............................................ 2
SECTION 1.02. Incorporation by Reference of Trust Indenture Act...... 22
SECTION 1.03. Rules of Construction.................................. 23
ARTICLE TWO
THE NOTES
SECTION 2.01. Form and Dating........................................ 23
SECTION 2.02. Restrictive Legends.................................... 25
SECTION 2.03. Execution, Authentication and Denominations............ 27
SECTION 2.04. Registrar and Paying Agent............................. 28
SECTION 2.05. Paying Agent to Hold Money in Trust.................... 29
SECTION 2.06. Transfer and Exchange.................................. 29
SECTION 2.07. Book-Entry Provisions for Global Notes................. 30
SECTION 2.08. Special Transfer Provisions............................ 32
SECTION 2.09. Replacement Notes...................................... 35
SECTION 2.10. Outstanding Notes...................................... 36
SECTION 2.11. Temporary Notes........................................ 36
SECTION 2.12. Cancellation........................................... 37
SECTION 2.13. CUSIP Numbers.......................................... 37
SECTION 2.14. Defaulted Interest..................................... 37
SECTION 2.15. Issuance of Additional Notes........................... 37
ARTICLE THREE
REDEMPTION
SECTION 3.01. Right of Redemption; Optional Redemption............... 38
SECTION 3.02. Notices to Trustee..................................... 38
SECTION 3.03. Selection of Notes to Be Redeemed...................... 38
SECTION 3.04. Notice of Redemption................................... 39
SECTION 3.05. Effect of Notice of Redemption......................... 40
SECTION 3.06. Deposit of Redemption Price............................ 40
SECTION 3.07. Payment of Notes Called for Redemption................. 40
SECTION 3.08. Notes Redeemed in Part................................. 41
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes....................................... 41
SECTION 4.02. Maintenance of Office or Agency........................ 41
</TABLE>
<PAGE>
(ii)
<TABLE>
<S> <C>
SECTION 4.03. Limitation on Indebtedness............................. 42
SECTION 4.04. Limitation on Restricted Payments...................... 44
SECTION 4.05. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries................... 47
SECTION 4.06. Limitation on the Issuance and Sale of Capital Stock
of Restricted Subsidiaries.......................... 48
SECTION 4.07. Limitation on Issuances of Guarantees by Restricted
Subsidiaries........................................ 48
SECTION 4.08. Limitation on Transactions with Stockholders and
Affiliates.......................................... 49
SECTION 4.09. Limitation on Liens.................................... 50
SECTION 4.10. Limitation on Asset Sales.............................. 51
SECTION 4.11. Existence.............................................. 51
SECTION 4.12. Payment of Taxes and Other Claims...................... 52
SECTION 4.13. Maintenance of Properties and Insurance................ 52
SECTION 4.14. Notice of Defaults..................................... 52
SECTION 4.15. Compliance Certificates................................ 53
SECTION 4.16. Commission Reports and Reports to Holders.............. 53
SECTION 4.17. Repurchase of Notes upon a Change of Control........... 54
SECTION 4.18. Waiver of Stay, Extension or Usury Laws................ 54
SECTION 4.19. Limitation on Sale and Leaseback Transactions.......... 54
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. Consolidation, Merger and Sale of Assets............... 55
SECTION 5.02. Successor Substituted.................................. 56
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default...................................... 56
SECTION 6.02. Acceleration........................................... 57
SECTION 6.03. Other Remedies......................................... 58
SECTION 6.04. Waiver of Past Defaults................................ 58
SECTION 6.05. Control by Majority.................................... 59
SECTION 6.06. Limitation on Suits.................................... 59
SECTION 6.07. Rights of Holders to Receive Payment................... 59
SECTION 6.08. Collection Suit by Trustee............................. 59
SECTION 6.09. Trustee May File Proofs of Claim....................... 60
SECTION 6.10. Priorities............................................. 60
SECTION 6.11. Undertaking for Costs.................................. 61
SECTION 6.12. Restoration of Rights and Remedies..................... 61
SECTION 6.13. Rights and Remedies Cumulative......................... 61
SECTION 6.14. Delay or Omission Not Waiver........................... 61
</TABLE>
<PAGE>
(iii)
<TABLE>
<S> <C>
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. General................................................ 61
SECTION 7.02. Certain Rights of Trustee.............................. 62
SECTION 7.03. Individual Rights of Trustee........................... 63
SECTION 7.04. Trustee's Disclaimer................................... 63
SECTION 7.05. Notice of Default...................................... 63
SECTION 7.06. Reports by Trustee to Holders.......................... 64
SECTION 7.07. Compensation and Indemnity............................. 64
SECTION 7.08. Replacement of Trustee................................. 65
SECTION 7.09. Successor Trustee by Merger, Etc....................... 66
SECTION 7.10. Eligibility............................................ 66
SECTION 7.11. Money Held in Trust.................................... 66
SECTION 7.12. Withholding Taxes...................................... 66
ARTICLE EIGHT
DISCHARGE OF INDENTURE
SECTION 8.01. Termination of Company's Obligations................... 66
SECTION 8.02. Defeasance and Discharge of Indenture.................. 67
SECTION 8.03. Defeasance of Certain Obligations...................... 70
SECTION 8.04. Application of Trust Money; Miscellaneous
Provisions.......................................... 71
SECTION 8.05. Repayment to Company................................... 72
SECTION 8.06. Reinstatement.......................................... 72
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders............................. 72
SECTION 9.02. With Consent of Holders................................ 73
SECTION 9.03. Revocation and Effect of Consent....................... 74
SECTION 9.04. Notation on or Exchange of Notes....................... 75
SECTION 9.05. Trustee to Sign Amendments, Etc........................ 75
SECTION 9.06. Conformity with Trust Indenture Act.................... 75
ARTICLE TEN
SECURITY
SECTION 10.01. Security.............................................. 75
</TABLE>
<PAGE>
(iv)
<TABLE>
<S> <C>
ARTICLE ELEVEN
MISCELLANEOUS
SECTION 11.01. Trust Indenture Act of 1939........................... 78
SECTION 11.02. Notices............................................... 78
SECTION 11.03. Certificate and Opinion as to Conditions Precedent.... 79
SECTION 11.04. Statements Required in Certificate or Opinion......... 79
SECTION 11.05. Rules by Trustee, Paying Agent or Registrar........... 80
SECTION 11.06. Payment Date Other Than a Business Day................ 80
SECTION 11.07. Governing Law......................................... 80
SECTION 11.08. No Adverse Interpretation of Other Agreements......... 80
SECTION 11.09. No Recourse Against Others............................ 80
SECTION 11.10. Successors............................................ 81
SECTION 11.11. Duplicate Originals................................... 81
SECTION 11.12. Separability.......................................... 81
SECTION 11.13. Table of Contents, Headings, Etc...................... 81
SECTION 11.14. Registration Rights................................... 81
</TABLE>
EXHIBIT A FORM OF SENIOR NOTE DUE 2008
EXHIBIT B FORM OF CERTIFICATE
EXHIBIT C FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION WITH TRANSFERS TO
NON-QIB ACCREDITED INVESTORS
EXHIBIT D FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION WITH
TRANSFERS PURSUANT TO REGULATION S
<PAGE>
INDENTURE, dated as of July 29, 1998, between TVN ENTERTAINMENT
CORPORATION, a Delaware corporation (the "Company"), and THE BANK OF NEW YORK, a
-------
New York banking corporation (the "Trustee").
-------
RECITALS
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance initially of up to $200,000,000 aggregate
principal amount of the Company's 14% Senior Notes due 2008 (the "Notes")
-----
issuable as provided in this Indenture. The Company has agreed to issue a total
of 200,000 Units (the "Units") each of which consists of one Note and one
-----
warrant (a "Warrant"), each Warrant initially entitling the Holder thereof to
-------
purchase 10.777 shares of common stock, par value $0.001 per share, of the
Company. Pursuant to the terms of a Placement Agreement, dated July 24, 1998,
between the Company on the one hand and Morgan Stanley & Co. Incorporated (the
"Placement Agent") on the other hand (the "Placement Agreement"), the Company
--------------- -------------------
has agreed to issue and sell to the Placement Agent 200,000 Units. The Notes
will be partially secured pursuant to the terms of a Pledge Agreement (as
defined herein) by Pledged Securities (as defined herein) as provided by Article
Ten of this Indenture.
The Note and Warrant included in each Unit will automatically become
separately transferable upon that date (the "Separation Date") which is the
---------------
earliest to occur of (i) the date that is six months after the Closing Date,
(ii) the commencement of an exchange offer with respect to the Notes undertaken
pursuant to the Registration Rights Agreement, (iii) the effective date of a
shelf registration statement with respect to resales of the Notes, (iv) the
commencement of an Offer to Purchase the Notes and (v) such earlier date as
determined by the Placement Agent in its sole discretion. All things necessary
to make this Indenture a valid agreement of the Company, in accordance with its
terms, have been done, and the Company has done all things necessary to make the
Notes, when executed by the Company and authenticated and delivered by the
Trustee hereunder and duly issued by the Company, the valid obligations of the
Company as hereinafter provided.
This Indenture is subject to, and shall be governed by, the provisions of
the Trust Indenture Act of 1939 that are required to be a part of and to govern
indentures qualified under the Trust Indenture Act of 1939.
AND THIS INDENTURE FURTHER WITNESSETH
For and in consideration of the premises and the purchase of the Notes by
the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders, the Company and the Trustee, as follows.
<PAGE>
2
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
-----------
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Restricted Subsidiary or assumed in connection with an
Asset Acquisition by a Restricted Subsidiary and not Incurred in connection
with, or in anticipation of, such Person becoming a Restricted Subsidiary or
such Asset Acquisition; provided that Indebtedness of such Person which is
redeemed, defeased, retired or otherwise repaid at the time of or immediately
after consummation of the transactions by which such Person becomes a Restricted
Subsidiary or such Asset Acquisition shall not be Acquired Indebtedness.
"Adjusted Consolidated Net Income" means, for any period, the aggregate net
income (or loss) of the Company and its Restricted Subsidiaries for such period
determined in conformity with GAAP; provided that the following items shall be
excluded in computing Adjusted Consolidated Net Income (without duplication):
(i) the net income of any Person that is not a Restricted Subsidiary, except to
the extent of the amount of dividends or other distributions actually paid to
the Company or any of its Restricted Subsidiaries by such Person during such
period; (ii) solely for the purposes of calculating the amount of Restricted
Payments that may be made pursuant to clause (C) of the first paragraph of
Section 4.04 described below (and in such case, except to the extent includable
pursuant to clause (i) above), the net income (or loss) of any Person accrued
prior to the date it becomes a Restricted Subsidiary or is merged into or
consolidated with the Company or any of its Restricted Subsidiaries or all or
substantially all of the property and assets of such Person are acquired by the
Company or any of its Restricted Subsidiaries; (iii) the net income of any
Restricted Subsidiary to the extent that the declaration or payment of dividends
or similar distributions by such Restricted Subsidiary of such net income is not
at the time permitted by the operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to such Restricted Subsidiary, except to the extent that
such net income could be paid to the Company or a Restricted Subsidiary by
loans, advances, intercompany transfers, principal repayments or otherwise; (iv)
any gains or losses (on an after-tax basis) attributable to Asset Sales; (v)
except for purposes of calculating the amount of Restricted Payments that may be
made pursuant to clause (C) of the first paragraph of Section 4.04 described
below, any amount paid or accrued as dividends on Preferred Stock of the Company
or any Restricted Subsidiary owned by Persons other than the Company and any of
its Restricted Subsidiaries; and (vi) without duplication of clause (iv) above,
all extraordinary gains and extraordinary losses.
"Adjusted Consolidated Net Tangible Assets" means the total amount of
assets of the Company and its Restricted Subsidiaries (less applicable
depreciation, amortization and other valuation reserves), except to the extent
resulting from write-ups of capital assets (excluding write-
<PAGE>
3
ups in connection with accounting for acquisitions in conformity with GAAP),
after deducting therefrom (i) all current liabilities of the Company and its
Restricted Subsidiaries (excluding intercompany items) and (ii) all goodwill,
trade names, trademarks, patents, unamortized debt discount and expense and
other like intangibles, all as set forth on the most recent quarterly or annual
consolidated balance sheet of the Company and its Restricted Subsidiaries,
prepared in conformity with GAAP and filed with the Commission or provided to
the Trustee pursuant to the "Commission Reports and Reports to Holders"
covenant.
"Affiliate" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Agent" means any Registrar, co-Registrar, Paying Agent or authenticating
agent.
"Agent Members" has the meaning provided in Section 2.07(a).
"Asset Acquisition" means (i) an Investment by the Company or any of its
Restricted Subsidiaries in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or shall be merged into or consolidated with the
Company or any of its Restricted Subsidiaries; provided that such Person's
primary business is related, ancillary or complementary to the businesses of the
Company and its Restricted Subsidiaries on the date of such Investment or (ii)
an acquisition by the Company or any of its Restricted Subsidiaries of the
property and assets of any Person other than the Company or any of its
Restricted Subsidiaries that constitute substantially all of such Person or of a
division or line of business of such Person; provided that the property and
assets acquired are related, ancillary or complementary to the businesses of the
Company and its Restricted Subsidiaries on the date of such acquisition.
"Asset Disposition" means the sale or other disposition by the Company or
any of its Restricted Subsidiaries (other than to the Company or another
Restricted Subsidiary) of (i) all or substantially all of the Capital Stock of
any Restricted Subsidiary or (ii) all or substantially all of the assets that
constitute a division or line of business of the Company or any of its
Restricted Subsidiaries.
"Asset Sale" means any sale, transfer or other disposition (including by
way of merger or consolidation) in one transaction or a series of related
transactions by the Company or any of its Restricted Subsidiaries to any Person
other than the Company or any of its Restricted Subsidiaries of (i) all or any
of the Capital Stock of any Restricted Subsidiary, (ii) all or substantially all
of the
<PAGE>
4
property and assets of an operating unit or business of the Company or any of
its Restricted Subsidiaries or (iii) any other property and assets (other than
the Capital Stock or other Investment in an Unrestricted Subsidiary) of the
Company or any of its Restricted Subsidiaries outside the ordinary course of
business of the Company or such Restricted Subsidiary and, in each case that is
not governed by the provisions of this Indenture applicable to mergers,
consolidations and sales of all or substantially all of the assets of the
Company; provided that "Asset Sale" shall not include (a) sales or other
dispositions of inventory, receivables and other current assets, (b) sales or
other dispositions of assets for consideration at least equal to the fair market
value of the assets sold or disposed of, to the extent that the consideration
received would constitute property or assets of the kinds described in clause
(i) (B) of Section 4.10, (c) sales, transfers or other dispositions of assets
constituting Restricted Payments permitted to be made under Section 4.04, (d)
transfers consisting of granting of Liens permitted under Section 4.09 and
dispositions of such assets in accordance with such Liens or (e) Sale and
Leaseback Transactions permitted under Section 4.19 and Section 4.03.
"Attributable Debt" means, with respect to an operating lease included in
any Sale and Leaseback Transaction at the time of determination, the present
value (discounted at the interest rate implicit in the lease or, if not known,
at the Company's incremental borrowing rate) of the obligations of the lessee of
the property subject to such lease for rental payments during the remaining term
of the lease included in such transaction, including any period for which such
lease has been extended or may, at the option of the lessor, be extended, or
until the earliest date on which the lessee may terminate such lease without
penalty or upon payment of penalty (in which case the rental payments shall
include such penalty), after excluding from such rental payments all amounts
required to be paid on account of maintenance and repairs, insurance, taxes,
assessments, water, utilities and similar charges.
"Average Life" means, at any date of determination with respect to any debt
security, the quotient obtained by dividing (i) the sum of the products of (a)
the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.
"Board of Directors" means the Board of Directors of the Company or any
committee of such Board of Directors duly authorized to act under this
Indenture.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in The City of New York, or in the city of the Corporate
Trust Office of the Trustee, are authorized by law to close.
<PAGE>
5
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in the equity of such Person, whether outstanding on the
Closing Date or issued thereafter, including, without limitation, all Common
Stock and Preferred Stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person.
"Capitalized Lease Obligations" means the discounted present value of the
rental obligations under a Capitalized Lease.
"Change of Control" means such time as (i) (a) prior to the occurrence of a
Public Market, a "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Exchange Act) becomes the ultimate "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act) of Voting Stock representing a
greater percentage of the total voting power of the Voting Stock of the Company,
on a fully diluted basis, than is held by the Existing Stockholders on such date
and (b) after the occurrence of a Public Market, a "person" or "group" (within
the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) becomes the
ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of
more than 35% of the total voting power of the Voting Stock of the Company, on a
fully diluted basis, and such ownership is greater than the percentage of the
total voting power of the Voting Stock of the Company, on a fully-diluted basis,
than is held by the Existing Stockholders on such date; or (ii) individuals who
on the Closing Date constitute the Board of Directors (together with any new
directors whose election by the Board of Directors or whose nomination by the
Board of Directors for election by the Company's stockholders was approved by a
vote of at least two-thirds of the members of the Board of Directors then in
office who either were members of the Board of Directors on the Closing Date or
whose election or nomination for election was previously so approved) cease for
any reason to constitute a majority of the members of the Board of Directors
then in office.
"Closing Date" means the date on which the Notes are originally issued
under this Indenture.
"Collateral Agent" means the securities intermediary with which the Pledge
Account is maintained, initially the Trustee.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act or, if at any time after the
execution of this instrument
<PAGE>
6
such Commission is not existing and performing the duties now assigned to it
under the TIA, then the body performing such duties at such time.
"Common Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's equity, other than Preferred Stock of
such Person, whether outstanding on the Closing Date or issued thereafter,
including, without limitation, all series and classes of such common stock.
"Company" means the party named as such in the first paragraph of this
Indenture until a successor replaces it pursuant to Article Five of this
Indenture and thereafter means such successor.
"Company Order" means a written request or order signed in the name of the
Company (i) by its Chairman, a Vice Chairman, its President or a Vice President
and (ii) by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant
Secretary and delivered to the Trustee; provided, however, that such written
request or order may be signed by any two of the officers or directors listed in
clause (i) above in lieu of being signed by one of such officers or directors
listed in such clause (i) and one of the officers listed in clause (ii) above.
"Consolidated EBITDA" means, for any period, Adjusted Consolidated Net
Income for such period plus, to the extent such amount was deducted in
calculating such Adjusted Consolidated Net Income, (i) Consolidated Interest
Expense, (ii) income taxes (other than income taxes (either positive or
negative) attributable to extraordinary, and non-recurring gains or losses or
sales of assets), (iii) depreciation expense, (iv) amortization expense and (v)
all other non-cash items reducing Adjusted Consolidated Net Income (other than
items that will require cash payments and for which an accrual or reserve is, or
is required by GAAP to be, made), less all non-cash items increasing Adjusted
Consolidated Net Income, all as determined on a consolidated basis for the
Company and its Restricted Subsidiaries in conformity with GAAP; provided that,
if any Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary,
Consolidated EBITDA shall be reduced (to the extent not otherwise reduced in the
calculation of Adjusted Consolidated Net Income) by an amount equal to (A) the
amount of the Adjusted Consolidated Net Income attributable to such Restricted
Subsidiary multiplied by (B) the percentage ownership interest in the income of
such Restricted Subsidiary not owned on the last day of such period by the
Company or any of its Restricted Subsidiaries.
"Consolidated Interest Expense" means, for any period, the aggregate amount
of interest in respect of Indebtedness (including, without limitation,
amortization of original issue discount on any Indebtedness and the interest
portion of any deferred payment obligation, calculated in accordance with the
effective interest method of accounting; all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing; the net
<PAGE>
7
costs associated with Interest Rate Agreements; and interest expenses actually
paid during such period in respect of Indebtedness that is Guaranteed or secured
by the Company or any of its Restricted Subsidiaries) and all but the principal
component of rentals in respect of Capitalized Lease Obligations paid, accrued
or scheduled to be paid or to be accrued by the Company and its Restricted
Subsidiaries during such period; excluding, however, (i) any amount of such
interest of any Restricted Subsidiary if the net income of such Restricted
Subsidiary is excluded in the calculation of Adjusted Consolidated Net Income
pursuant to clause (iii) of the definition thereof (but only in the same
proportion as the net income of such Restricted Subsidiary is excluded from the
calculation of Adjusted Consolidated Net Income pursuant to clause (iii) of the
definition thereof) and (ii) any premiums, fees and expenses (and any
amortization thereof) payable in connection with the offering of the Notes, all
as determined on a consolidated basis (without taking into account Unrestricted
Subsidiaries) in conformity with GAAP.
"Consolidated Leverage Ratio" means, on any Transaction Date, the ratio of
(i) the aggregate amount of Indebtedness of the Company and its Restricted
Subsidiaries on a consolidated basis outstanding on such Transaction Date
(provided that, if any Restricted Subsidiary is not a Wholly-Owned Restricted
Subsidiary, such Indebtedness of such Restricted Subsidiary shall be reduced by
an amount equal to (I) the amount of the Indebtedness attributable to such
Restricted Subsidiary multiplied by (II) the percentage ownership interest in
the income of such Restricted Subsidiary not owned on such Transaction Date by
the Company or any of its Restricted Subsidiaries) to (ii) the aggregate amount
of Consolidated EBITDA for the then most recent fiscal quarter for which
financial statements of the Company have been filed with the Commission or
provided to the Trustee pursuant to the "Commission Reports and Reports to
Holders" covenant described below (such fiscal quarter period being the
"Quarter") multiplied by four, provided that, in making the foregoing
calculation, (A) pro forma effect shall be given to any Indebtedness to be
Incurred or repaid on the Transaction Date; (B) pro forma effect shall be given
to Asset Dispositions and Asset Acquisitions (including giving pro forma effect
to the application of proceeds of any Asset Disposition) that occur from the
beginning of the Quarter through the Transaction Date (the "Reference Period"),
----------------
as if they had occurred and such proceeds had been applied on the first day of
such Reference Period; and (C) pro forma effect shall be given to asset
dispositions and asset acquisitions (including giving pro forma effect to the
application of proceeds of any asset disposition) that have been made by any
Person that has become a Restricted Subsidiary or has been merged with or into
the Company or any Restricted Subsidiary during such Reference Period and that
would have constituted Asset Dispositions or Asset Acquisitions had such
transactions occurred when such Person was a Restricted Subsidiary as if such
asset dispositions or asset acquisitions were Asset Dispositions or Asset
Acquisitions that occurred on the first day of such Reference Period; provided
that to the extent that clause (B) or (C) of this sentence requires that pro
forma effect be given to an Asset Acquisition or Asset Disposition, such pro
forma calculation shall be based upon the full fiscal quarter immediately
preceding the Transaction Date of the Person, or division or line of business of
the Person, that is acquired or disposed of for which financial information is
available.
<PAGE>
8
"Consolidated Net Worth" means, at any date of determination, stockholders'
equity as set forth on the most recently available quarterly or annual
consolidated balance sheet of the Company and its Restricted Subsidiaries (which
shall be as of a date not more than 90 days prior to the date of such
computation, and which shall not take into account Unrestricted Subsidiaries),
less any amounts attributable to Disqualified Stock or any equity security
convertible into or exchangeable for Indebtedness, the cost of treasury stock
and the principal amount of any promissory notes receivable from the sale of the
Capital Stock of the Company or any of its Restricted Subsidiaries, each item to
be determined in conformity with GAAP (excluding the effects of foreign currency
exchange adjustments under Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 52).
"Corporate Trust Office" means the office of the Trustee at which the
corporate trust business of the Trustee shall, at any particular time, be
principally administered, which office is, at the date of this Indenture,
located at 101 Barclay Street, Floor 21 West, New York, NY 10286, Attention:
Corporate Trust Trustee Administration.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement, currency option or other similar agreement or arrangement.
"Debt Securities" means any Indebtedness (including any Guarantee) issued
in connection with a public offering (whether or not underwritten) or a private
placement (provided such private placement is underwritten for resale pursuant
to Rule 144A, Regulation S or other exemption from registration under the
Securities Act or sold on an agency basis by a broker-dealer or one of its
Affiliates to 10 or more beneficial Holders); it being understood that "Debt
Securities" shall not include commercial bank borrowings or similar borrowings,
recourse transfers of financial assets, capital leases, Attributable Debt
arising from Sale and Leaseback Transactions, issuances of Disqualified Stock to
the extent permitted to be Incurred (treating the Disqualified Stock as if it
were Indebtedness for this purpose) under Section 4.03 or other types of
borrowings incurred in a manner not customarily viewed as a "securities
offering" or Guarantees in respect of the foregoing.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Depositary" means The Depository Trust Company, its nominees, and their
respective successors.
"Disqualified Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is (i) required to be redeemed prior to
the Stated Maturity of the Notes, (ii) redeemable at the option of the Holder of
such class or series of Capital Stock at any time prior to the Stated Maturity
of the Notes or (iii) convertible into or exchangeable for Capital Stock
<PAGE>
9
referred to in clause (i) or (ii) above or Indebtedness having a scheduled
maturity prior to the Stated Maturity of the Notes; provided that any Capital
Stock that would not constitute Disqualified Stock but for provisions thereof
giving Holders thereof the right to require such Person to repurchase or redeem
such Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the Stated Maturity of the Notes shall not constitute
Disqualified Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are no more favorable to the Holders of such
Capital Stock than the provisions contained in "Limitation on Asset Sales" and
"Repurchase of Notes upon a Change of Control" covenants described below and
such Capital Stock specifically provides that such Person will not repurchase or
redeem any such stock pursuant to such provision prior to the Company's
repurchase of such Notes as are required to be repurchased pursuant to the
"Limitation on Asset Sales" and "Repurchase of Notes upon a Change of Control"
covenants described below.
"Event of Default" has the meaning provided in Section 6.01.
"Excess Proceeds" has the meaning provided in Section 4.10.
"Exchange Act" means the Securities Exchange Act of 1934.
"Exchange Notes" means any securities of the Company containing terms
identical to the Notes (except that such Exchange Notes shall be registered
under the Securities Act and shall not be subject to transfer restrictions or
additional interest) that are issued and exchanged for the Notes pursuant to the
Registration Rights Agreement and this Indenture.
"Existing Stockholders" means Princes Gate Investors II, L.P. and its
Affiliates, Stuart Z. Levin and S. Robert Levine.
"fair market value" means the price that would be paid in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, as determined in
good faith by the Board of Directors, whose determination shall be conclusive if
evidenced by a resolution of the Board of Directors; provided that for purposes
of clause (viii) of the second paragraph of the "Limitation on Indebtedness"
covenant, (x) the fair market value of any security registered under the
Exchange Act shall be the average of the closing prices, regular way, of such
security for the 20 consecutive trading days immediately preceding the sale of
Capital Stock and (y) in the event the aggregate fair market value of any other
property (other than cash or cash equivalents) received by the Company exceeds
$10 million, the fair market value of such property shall be determined by a
nationally recognized investment banking firm and set forth in their written
opinion a copy of which shall be delivered to the Trustee.
<PAGE>
10
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Closing Date, including, without limitation,
those set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations contained or referred to in
this Indenture shall be computed in conformity with GAAP applied on a consistent
basis, except that calculations made for purposes of determining compliance with
the terms of the covenants and with other provisions of this Indenture shall be
made without giving effect to (i) the amortization of any expenses incurred in
connection with the offering of the Notes and (ii) except as otherwise provided,
the amortization of any amounts required or permitted by Accounting Principles
Board Opinion Nos. 16 and 17.
"Global Notes" has the meaning provided in Section 2.01.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and,
without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness of
such other Person (whether arising by virtue of partnership arrangements, or by
agreements to keep-well, to purchase assets, goods, securities or services
(unless such purchase arrangements are on arm's-length terms and are entered
into in the ordinary course of business), to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for purposes
of assuring in any other manner the obligee of such Indebtedness of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); provided that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Guaranteed Indebtedness" has the meaning provided in Section 4.07.
"Holder" means the registered Holder of any Note.
"Incur" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness,
including an "Incurrence" of Acquired Indebtedness; provided that neither the
accrual of interest nor the accretion of original issue discount shall be
considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of
<PAGE>
11
such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto), (iv) all obligations
of such Person to pay the deferred and unpaid purchase price of property or
services, which purchase price is due more than six months after the date of
placing such property in service or taking delivery and title thereto or the
completion of such services, except Trade Payables, (v) all Capitalized Lease
Obligations of such Person, (vi) all Attributable Debt of such Person with
respect to any Sale and Leaseback Transaction to which such Person is a lessee,
(vii) the maximum fixed redemption or repurchase price of Disqualified Stock of
such Person at the date of determination, (viii) all Indebtedness of other
Persons secured by a Lien on any asset of such Person, whether or not such
Indebtedness is assumed by such Person; provided that the amount of such
Indebtedness shall be the lesser of (A) the fair market value of such asset at
such date of determination and (B) the amount of such Indebtedness, (ix) all
Indebtedness of other Persons Guaranteed by such Person to the extent such
Indebtedness is Guaranteed by such Person and (x) to the extent not otherwise
included in this definition, net obligations of such Person under Currency
Agreements and Interest Rate Agreements. For purposes of the preceding sentence,
the maximum fixed repurchase price of any Disqualified Stock that does not have
a fixed repurchase price shall be calculated in accordance with the terms of
such Disqualified Stock as if such Disqualified Stock were repurchased on any
date on which Indebtedness shall be required to be determined pursuant to this
Indenture; provided that if such Disqualified Stock is not then permitted to be
repurchased, the repurchase price shall be the book value of such Disqualified
Stock. The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and, with respect to contingent obligations, the maximum liability upon
the occurrence of the contingency giving rise to the obligation; provided that
(A) the amount outstanding at any time of any Indebtedness issued with original
issue discount is the face amount of such Indebtedness less the remaining
unamortized portion of the original issue discount of such Indebtedness at the
time of its issuance as determined in conformity with GAAP, (B) money borrowed
and set aside at the time of the Incurrence of any Indebtedness in order to
prefund the payment of the interest on such Indebtedness shall not be deemed to
be "Indebtedness" and (C) Indebtedness shall not include any liability for
federal, state, local or other taxes.
"Indenture" means this Indenture as originally executed or as it may be
amended or supplemented from time to time by one or more indentures supplemental
to this Indenture entered into pursuant to the applicable provisions of this
Indenture.
"Institutional Accredited Investor" shall mean an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7)
of Regulation D under the Securities Act.
"Interest Payment Date" means each semiannual interest payment date on
February 1 and August 1 of each year, commencing February 1, 1999.
<PAGE>
12
"Interest Rate Agreement" means interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, option or future contract or other similar
agreement or arrangement.
"Investment" in any Person means any direct or indirect advance, loan or
other extension of credit (including, without limitation, by way of Guarantee or
similar arrangement; but excluding (x) advances to customers (including
distributors) in the ordinary course of business that are, in conformity with
GAAP, recorded as accounts receivable on the balance sheet of the Company or its
Restricted Subsidiaries and (y) advances to suppliers in the ordinary course of
business that are, in conformity with GAAP, recorded as prepaid expenses on the
balance sheet of the Company or its Restricted Subsidiaries) or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, bonds, notes, debentures or other
similar instruments issued by, such Person and shall include (i) the designation
of a Restricted Subsidiary as an Unrestricted Subsidiary and (ii) the fair
market value of the Capital Stock (or any other Investment), held by the Company
or any of its Restricted Subsidiaries, of (or in) any Person that has ceased to
be a Restricted Subsidiary, including without limitation, by reason of any
transaction permitted by clause (iii) of the "Limitation on the Issuance and
Sale of Capital Stock of Restricted Subsidiaries" covenant; provided that the
fair market value of the Investment remaining in any Person that has ceased to
be a Restricted Subsidiary shall not exceed the aggregate amount of Investments
previously made in such Person valued at the time such Investments were made
less the net reduction of such Investments. For purposes of the definition of
"Unrestricted Subsidiary," and Section 4.04 described below, (i) "Investment"
shall include the fair market value of the assets (net of liabilities (other
than liabilities to the Company or any of its Restricted Subsidiaries)) of any
Restricted Subsidiary at the time that such Restricted Subsidiary is designated
an Unrestricted Subsidiary, (ii) the fair market value of the assets (net of
liabilities (other than liabilities to the Company or any of its Restricted
Subsidiaries)) of any Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary shall be considered a reduction
in outstanding Investments and (iii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its fair market value at the time of
such transfer.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including, without limitation, any conditional sale or other
title retention agreement or lease in the nature thereof or any agreement to
give any security interest).
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the proceeds
of such Asset Sale in the form of cash or cash equivalents, including payments
in respect of deferred payment
<PAGE>
13
obligations (to the extent corresponding to the principal, but not interest,
component thereof) when received in the form of cash or cash equivalents (except
to the extent such obligations are financed or sold with recourse to the Company
or any Restricted Subsidiary) and proceeds from the conversion of other property
received when converted to cash or cash equivalents, net of (i) brokerage
commissions and other fees and expenses (including fees and expenses of counsel,
accountants and investment bankers and other professionals) related to such
Asset Sale, (ii) provisions for all taxes (whether or not such taxes will
actually be paid or are payable) as a result of such Asset Sale without regard
to the consolidated results of operations of the Company and its Restricted
Subsidiaries, taken as a whole, (iii) payments made to repay Indebtedness or any
other obligation outstanding at the time of such Asset Sale that either (A) is
secured by a Lien on the property or assets sold or (B) is required to be paid
as a result of such sale and (iv) appropriate amounts to be provided by the
Company or any Restricted Subsidiary as a reserve against any liabilities
associated with such Asset Sale, including, without limitation, pension and
other post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as determined in conformity with GAAP and (b) with respect
to any issuance or sale of Capital Stock, the proceeds of such issuance or sale
in the form of cash or cash equivalents, including payments in respect of
deferred payment obligations (to the extent corresponding to the principal, but
not interest, component thereof) when received in the form of cash or cash
equivalents (except to the extent such obligations are financed or sold with
recourse to the Company or any Restricted Subsidiary) and proceeds from the
conversion of other property received when converted to cash or cash
equivalents, net of attorney's fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees incurred in connection with such issuance or sale and net of taxes
paid or payable as a result thereof.
"Non-U.S. Person" means a person who is not a "U.S. person" (as defined in
Regulation S).
"Notes" means any of the securities, as defined in the first paragraph of
the recitals hereof, that are authenticated and delivered under this Indenture.
For all purposes of this Indenture, the term "Notes" shall include the Notes
initially issued on the Closing Date, any Exchange Notes to be issued and
exchanged for any Notes pursuant to the Registration Rights Agreement and this
Indenture and any other Notes issued after the Closing Date under this
Indenture. For purposes of this Indenture, all Notes shall vote together as one
series of Notes under this Indenture.
"Offer to Purchase" means an offer to purchase Notes by the Company from
the Holders commenced by mailing a notice to the Trustee and each Holder
stating: (i) the covenant pursuant to which the offer is being made and that all
Notes validly tendered in accordance with the terms of the Offer to Purchase
will be accepted for payment on a pro rata basis; (ii) the purchase price and
the date of purchase (which shall be a Business Day no earlier than 30 days nor
later than 60 days from the date such notice is mailed) (the "Payment Date");
(iii) that any Note not tendered
<PAGE>
14
will continue to accrue interest pursuant to its terms; (iv) that, unless the
Company defaults in the payment of the purchase price, any Note accepted for
payment pursuant to the Offer to Purchase shall cease to accrue interest on and
after the Payment Date; (v) that Holders electing to have a Note purchased
pursuant to the Offer to Purchase will be required to deliver the Note, together
with the form entitled "Option of the Holder to Elect Purchase" on the reverse
side of the Note completed, to the Paying Agent at the address specified in the
notice no later than the close of business on the Business Day immediately
preceding the Payment Date; (vi) that Holders will be entitled to withdraw their
election if the Paying Agent receives, not later than the close of business on
the third Business Day immediately preceding the Payment Date, a telegram,
facsimile transmission or letter setting forth the name of such Holder, the
principal amount of Notes delivered for purchase and a statement that such
Holder is withdrawing its election to have such Notes purchased; and (vii) that
Holders whose Notes are being purchased only in part will be issued new Notes
equal in principal amount to the principal amount of the unpurchased portion of
the Notes surrendered; provided that each Note purchased and each new Note
issued shall be in a principal amount of $1,000 or integral multiples thereof.
On or prior to the Payment Date, the Company shall (i) accept for payment on a
pro rata basis Notes or portions thereof tendered pursuant to an Offer to
Purchase; (ii) deposit with the Paying Agent money sufficient to pay the
purchase price of all Notes or portions thereof so accepted; and (iii) deliver,
or cause to be delivered, to the Trustee all Notes or portions thereof so
accepted together with an Officers' Certificate specifying the Notes or portions
thereof accepted for payment by the Company. The Paying Agent shall promptly
mail to the Holders of Notes so accepted payment each in an amount equal to the
purchase price, and the Trustee shall promptly authenticate and mail to such
Holder a new Note equal in principal amount to any unpurchased portion of the
Note surrendered; provided that each Note purchased and each new Note issued
shall be in a principal amount of $1,000 or integral multiples thereof. The
Company will publicly announce the results of an Offer to Purchase as soon as
practicable after the Payment Date. The Trustee shall act as the Paying Agent
for an Offer to Purchase. The Company will comply with Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable, in the event that the Company
is required to repurchase Notes pursuant to an Offer to Purchase.
"Officer" means, with respect to the Company, (i) the Chairman of the
Board, the Chief Executive Officer, the President, any Vice President or the
Chief Financial Officer, and (ii) the Treasurer or any Assistant Treasurer, or
the Secretary or any Assistant Secretary.
"Officers' Certificate" means a certificate signed by one Officer listed in
clause (i) of the definition thereof and one Officer listed in clause (ii) of
the definition thereof or two officers listed in clause (i) of the definition
thereof. Each Officers' Certificate (other than certificates provided pursuant
to TIA Section 314(a)(4)) shall include the statements provided for in TIA
Section 314(e).
"Offshore Global Note" has the meaning provided in Section 2.01.
<PAGE>
15
"Opinion of Counsel" means a written opinion signed by legal counsel, who
may be an employee of or counsel to the Company, that meets the requirements of
Section 11.04 hereof. Each such Opinion of Counsel shall include the statements
provided for in TIA Section 314(e).
"Paying Agent" has the meaning provided in Section 2.04, except that, for
the purposes of Article Eight, the Paying Agent shall not be the Company or a
Subsidiary of the Company or an Affiliate of any of them. The term "Paying
Agent" includes any additional Paying Agent.
"Permitted Investment" means (i) an Investment in the Company or a
Restricted Subsidiary or a Person which will, upon the making of such
Investment, become a Restricted Subsidiary or be merged or consolidated with or
into or transfer or convey all or substantially all its assets to, the Company
or a Restricted Subsidiary; provided that such Person's primary business is
related, ancillary or complementary to the businesses of the Company and its
Restricted Subsidiaries on the date of such Investment; (ii) Temporary Cash
Investments; (iii) payroll, travel, relocation and similar advances to cover
matters that are expected at the time of such advances ultimately to be treated
as expenses in accordance with GAAP; (iv) loans or advances to employees made in
the ordinary course of business that do not in the aggregate exceed $1.0 million
at any time outstanding; (v) Investments in Unrestricted Subsidiaries in an
aggregate amount not to exceed $10.0 million; provided each such Unrestricted
Subsidiary's primary business is related, ancillary or complementary to the
businesses of the Company and its Restricted Subsidiaries on the dates of such
Investments; and (vi) Investments received in satisfaction of judgments or as
part of or in connection with the bankruptcy, winding up or liquidation of a
Person, except if such Investment is received in consideration for an Investment
made in such Person in connection with or in anticipation of such bankruptcy,
winding up or liquidation.
"Permitted Liens" means (i) Liens for taxes, assessments, governmental
charges or claims that are being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made; (ii) statutory and common law Liens of landlords and
carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other
similar Liens arising in the ordinary course of business and with respect to
amounts not yet delinquent or being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made; (iii) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other types of social security; (iv) Liens incurred or deposits
made to secure the performance of tenders, bids, leases, statutory or regulatory
obligations, bankers' acceptances, surety and appeal bonds, government
contracts, performance and return-of-money bonds and other obligations of a
similar nature incurred in the ordinary course of business (exclusive of
obligations for the payment of borrowed money); (v) easements, rights-of-way,
municipal and zoning ordinances and similar charges, encumbrances, title defects
or other irregularities that do not
<PAGE>
16
materially interfere with the ordinary course of business of the Company or any
of its Restricted Subsidiaries; (vi) Liens (including extensions and renewals
thereof) upon real or personal property acquired after the Closing Date;
provided that (a) such Lien is created solely for the purpose of securing
Indebtedness Incurred, in accordance with Section 4.03 described below, to
finance the cost (including, without limitation, the cost of design,
development, construction, acquisition, transportation, installation,
improvement or integration) of the real or personal property subject thereto and
such Lien is created prior to, at the time of or within six months after the
later of the acquisition, the completion of construction or the commencement of
full operation of such property, (b) the principal amount of the Indebtedness
secured by such Lien does not exceed 100% of such cost and (c) any such Lien
shall not extend to or cover any property other than such item of property and
any improvements on such property and any proceeds (including insurance
proceeds) and products thereof and attachments and accessions thereto; (vii)
leases or subleases granted to others that do not materially interfere with the
ordinary course of business of the Company and its Restricted Subsidiaries,
taken as a whole; (viii) Liens encumbering property or assets under construction
arising from progress or partial payments by a customer of the Company or its
Restricted Subsidiaries relating to such property or assets; (ix) any interest
or title of a lessor in the property subject to any Capitalized Lease or
operating lease; (x) Liens arising from filing Uniform Commercial Code financing
statements regarding leases or other Uniform Commercial Code financing
statements for precautionary purposes relating to arrangements not constituting
Indebtedness; (xi) Liens on property of, or on shares of Capital Stock or
Indebtedness of, any Person existing at the time such Person becomes, or becomes
a part of, any Restricted Subsidiary; provided that such Liens do not extend to
or cover any property or assets of the Company or any Restricted Subsidiary
other than the property or assets acquired and any proceeds (including insurance
proceeds) and products thereof and attachments and accessions thereto; (xii)
Liens in favor of the Company or any Restricted Subsidiary; (xiii) Liens arising
from the rendering of a final judgment or order against the Company or any
Restricted Subsidiary that does not give rise to an Event of Default; (xiv)
Liens securing reimbursement obligations with respect to letters of credit that
encumber documents and other property relating to such letters of credit and the
products and proceeds thereof; (xv) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payment of customs duties in
connection with the importation of goods; (xvi) Liens encumbering customary
initial deposits and margin deposits, and other Liens that are within the
general parameters customary in the industry and incurred in the ordinary course
of business, in each case, securing Indebtedness under Interest Rate Agreements
and Currency Agreements and forward contracts, options, future contracts,
futures options or similar agreements or arrangements designed solely to protect
the Company or any of its Restricted Subsidiaries from fluctuations in interest
rates, currencies or the price of commodities; (xvii) Liens arising out of
conditional sale, title retention, consignment or similar arrangements for the
sale of goods entered into by the Company or any of its Restricted Subsidiaries
in the ordinary course of business in accordance with the past practices of the
Company and its Restricted Subsidiaries prior to the Closing Date; (xviii) Liens
on or sales of receivables; (xix) any interest or title of licensor in the
property subject to a license; (xx) Liens in favor of the Trustee arising under
this Indenture; (xxi)
<PAGE>
17
Liens on the Capital Stock of Unrestricted Subsidiaries; and (xxii) Liens that
secure Indebtedness with an aggregate principal amount not in excess of $10
million at any time outstanding.
"Person" means an individual, a corporation, a partnership, a limited
liability company, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
"Physical Notes" has the meaning provided in Section 2.01.
"Placement Agent" means the party named as such in the recitals to this
Indenture.
"Pledge Account" means an account established and maintained with the
Collateral Agent for the deposit of the Pledged Securities pursuant to the terms
of the Pledge Agreement.
"Pledge Agreement" means the Collateral Pledge and Security Agreement dated
as of the Closing Date, by and among the Company, the Trustee and the Collateral
Agent, governing the pledge of the Pledged Securities and the disbursement of
funds from the Pledge Account as such agreement may be amended, restated,
supplemented or otherwise modified from time to time.
"Pledged Securities" means the U.S. Government Obligations to be purchased
by the Company and held in the Pledge Account in accordance with the Pledge
Agreement.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's preferred or preference equity, whether
outstanding on the Closing Date or issued thereafter, including, without
limitation, all series and classes of such preferred or preference stock.
"Principal" of a debt security, including the Notes, means the principal
amount due on the Stated Maturity as shown on such debt security.
"Private Placement Legend" means the legend initially set forth on the
Notes in the form set forth in Section 2.02.
"Public Equity Offering" means an underwritten primary public offering of
Common Stock of the Company pursuant to an effective registration statement
under the Securities Act.
A "Public Market" shall be deemed to exist if (i) a Public Equity Offering
has been consummated and (ii) at least 15% of the total issued and outstanding
Common Stock of the Company has been distributed by means of an effective
registration statement under the Securities Act or sales pursuant to Rule 144
under the Securities Act.
<PAGE>
18
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Redemption Date" means, when used with respect to any Note to be redeemed,
the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price" means, when used with respect to any Note to be
redeemed, the price at which such Note is to be redeemed pursuant to this
Indenture.
"Registrar" has the meaning provided in Section 2.04.
"Registration" has the meanings provided in Section 4.16.
"Registration Rights Agreement" means the Notes Registration Rights
Agreement, dated as of the Closing Date, between the Company and the Placement
Agent.
"Registration Statement" means the Registration Statement as defined and
described in the Registration Rights Agreement.
"Regular Record Date" for the interest payable on any Interest Payment Date
means the July 15 or January 15 (whether or not a Business Day), as the case may
be, immediately preceding such Interest Payment Date.
"Regulation S" means Regulation S under the Securities Act.
"Responsible Officer", when used with respect to the Trustee, means, any
vice president, any assistant vice president, any assistant secretary, any
assistant treasurer, any trust officer or assistant trust officer or any other
officer of the Trustee in its Corporate Trust Trustee Administration customarily
performing functions similar to those performed by any of the above-designated
officers and in each case having direct responsibility for the administration of
this Indenture and also means, with respect to a particular corporate trust
matter, any other officer to whom such matter is referred because of his or her
knowledge of and familiarity with the particular subject.
"Restricted Global Notes" has the meaning provided in Section 2.01.
"Restricted Payments" has the meaning provided in Section 4.04.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act.
<PAGE>
19
"Sale and Leaseback Transaction" means any direct or indirect arrangement
pursuant to which the Company or any of its Restricted Subsidiaries sells or
transfers any of its assets or properties (whether owned on the Closing Date or
acquired thereafter) and then or thereafter leases such assets or properties or
any part thereof or any other assets or properties which the Company, or its
Restricted Subsidiaries, intends to use for substantially the same purpose or
purposes as the assets or properties sold or transferred.
"Securities Act" means the Securities Act of 1933.
"Security Register" has the meaning provided in Section 2.04.
"Separation Date" has the meaning provided in the recitals to this
Indenture.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary that, together with its Subsidiaries, (i) for the most
recent fiscal year of the Company, accounted for more than 10% of the
consolidated revenues of the Company and its Restricted Subsidiaries or (ii) as
of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of the Company and its Restricted Subsidiaries, all as set
forth on the most recently available consolidated financial statements of the
Company for such fiscal year.
"Specified Date" means any Redemption Date, any Payment Date for an Offer
to Purchase or any date on which the Notes first become due and payable after an
Event of Default.
"S&P" means Standard & Poor's Ratings Services, a division of The McGraw-
Hill Companies, Inc. and its successors.
"Stated Maturity" means, (i) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final installment
of principal of such debt security is due and payable and (ii) with respect to
any scheduled installment of principal of or interest on any debt security, the
date specified in such debt security as the fixed date on which such installment
is due and payable.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the voting power
of the outstanding Voting Stock is owned, directly or indirectly, by such Person
and one or more other Subsidiaries of such Person, (ii) any limited partnership
of which such Person is a general partner or (iii) any other Person over which
any combination of such Person and its other Subsidiaries, directly or
indirectly, has the power, by contract or otherwise, to direct or cause the
direction of policies, management and affairs generally.
"Subsidiary Guarantee" has the meaning provided in Section 4.07.
<PAGE>
20
"Temporary Cash Investment" means any of the following: (i) direct
obligations of the United States of America or any agency thereof or obligations
fully and unconditionally guaranteed by the United States of America or any
agency thereof, (ii) time deposit accounts, certificates of deposit and money
market deposits maturing within 360 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States of America, and which bank or trust company has capital,
surplus and undivided profits aggregating in excess of $50.0 million (or the
foreign currency equivalent thereof) and has outstanding debt which is rated "A"
(or an equivalent rating) or higher by at least one nationally recognized
statistical rating organization (as defined in Rule 436 under the Securities
Act) or any money-market fund sponsored by a registered broker dealer or mutual
fund distributor, (iii) repurchase obligations with a term of not more than 30
days for underlying securities of the types described in clause (i) above
entered into with a bank meeting the qualifications described in clause (ii)
above, (iv) commercial paper, maturing not more than 270 days after the date of
acquisition, issued by a corporation (other than an Affiliate of the Company)
organized and in existence under the laws of the United States of America, any
state thereof or any foreign country recognized by the United States of America
with a rating at the time as of which any investment therein is made of "P-1"
(or higher) according to Moody's or "A-1" (or higher) according to S&P, (v)
auction-rate preferred stocks of any corporation maturing not later than 45 days
after the acquisition thereof, with a rating at the time of acquisition of not
less than "AAA" according to S&P or "Aaa" according to Moody's, (vi) corporate
debt obligations maturing within 12 months after the date of acquisition, with a
rating on the date of acquisition of not less than "AAA" or "A-1" according to
S&P or "Aaa" or "P-1" according to Moody's, (vii) securities with maturities of
one year or less from the date of acquisition of issued or fully and
unconditionally guaranteed by any state, commonwealth or territory of the United
States of America, or by any political subdivision or taxing authority thereof,
and rated at least "A" by S&P or Moody's and (viii) mutual funds required to
invest at least 90% of their funds in investments of the types described in
clauses (i) through (vii) above.
"Temporary Offshore Global Notes" has the meaning provided in Section 2.01.
"TIA" or "Trust Indenture Act" means the Trust Indenture Act of 1939 (15
U.S. Code (S)(S) 77aaa-77bbbb), as in effect on the date this Indenture was
executed, except as provided in Section 9.06.
"Trade Payables" means, with respect to any Person, any accounts payable or
any other indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person or any of its Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods or
services.
<PAGE>
21
"Transaction Date" means, with respect to the Incurrence of any
Indebtedness by the Company or any of its Restricted Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment, the
date such Restricted Payment is to be made.
"Trustee" means the party named as such in the first paragraph of this
Indenture until a successor replaces it in accordance with the provisions of
Article Seven of this Indenture and thereafter means such successor.
"Unit" has the meaning provided in the recitals to this Indenture.
"United States Bankruptcy Code" means the Bankruptcy Reform Act of 1978, as
amended and as codified in Title 11 of the United States Code, as amended from
time to time hereafter, or any successor federal bankruptcy law.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below; and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Restricted
Subsidiary (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary owns any
Capital Stock of, or owns or holds any Lien (other than a Permitted Lien) on any
property of, the Company or any Restricted Subsidiary; provided that (A) any
Guarantee by the Company or any Restricted Subsidiary of any Indebtedness of the
Subsidiary being so designated shall be deemed an "Incurrence" of such
Indebtedness and an "Investment" by the Company or such Restricted Subsidiary
(or both, if applicable) at the time of such designation; (B) either (I) the
Subsidiary to be so designated has total assets of $1,000 or less or (II) if
such Subsidiary has assets greater than $1,000, such designation would be
permitted under Section 4.04 described below and (C) if applicable, the
Incurrence of Indebtedness and the Investment referred to in clause (A) of this
proviso would be permitted under Section 4.03 and Section 4.04 described below.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that (i) no Default or Event of Default shall
have occurred and be continuing at the time of or after giving effect to such
designation and (ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately after such designation would, if Incurred at such time,
have been permitted to be Incurred (and shall be deemed to have been Incurred)
for all purposes of this Indenture. Any such designation by the Board of
Directors shall be evidenced to the Trustee by promptly filing with the Trustee
a copy of the resolution of the Board of Directors giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which the full
faith and credit of the United States of America is pledged or (ii) obligations
of a Person controlled or supervised by and acting as an
<PAGE>
22
agency or instrumentality of the United States of America, the payment of which
is unconditionally guaranteed as a full faith and credit obligation by the
United States of America, which, in either case, are not callable or redeemable
at the option of the issuer thereof at any time prior to the Stated Maturity of
the Notes, and shall also include a depository receipt issued by a bank or trust
company as custodian with respect to any such U.S. Government Obligation or a
specific payment of interest on or principal of any such U.S. Government
Obligation held by such custodian for the account of the Holder of a depository
receipt; provided that (except as required by law) such custodian is not
authorized to make any deduction from the amount payable to the Holder of such
depository receipt from any amount received by the custodian in respect of the
U.S. Government Obligation or the specific payment of interest on or principal
of the U.S. Government Obligation.
"U.S. Global Notes" has the meaning provided in Section 2.01.
"Voting Stock" means with respect to any Person, Capital Stock of any class
or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"Warrants" has the meaning provided in the recitals to this Indenture.
"Wholly Owned" means, with respect to any Subsidiary of any Person, the
ownership of all of the outstanding Capital Stock of such Subsidiary (other than
any director's qualifying shares or Investments by foreign nationals mandated by
applicable law) by such Person or one or more Wholly Owned Subsidiaries of such
Person.
SECTION 1.02. Incorporation by Reference of Trust Indenture Act.
-------------------------------------------------
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Notes;
"indenture security holder" means a Holder or a Noteholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on this Indenture securities means the Company or any other
obligor on the Notes.
<PAGE>
23
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by a rule of the
Commission and not otherwise defined herein have the meanings assigned to them
therein.
SECTION 1.03. Rules of Construction. Unless the context otherwise
---------------------
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(iii) "or" is not exclusive;
(iv) words in the singular include the plural, and words in the
plural include the singular;
(v) provisions apply to successive events and transactions;
(vi) "herein," "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article, Section or
other subdivision;
(vii) all ratios and computations based on GAAP contained in this
Indenture shall be computed in accordance with the definition of GAAP set
forth in Section 1.01;
(viii) all references to Sections or Articles refer to Sections or
Articles of this Indenture unless otherwise indicated; and
(ix) any reference to any law, rule, regulation, ordinance,
judgment, decree, injunction, writ, order or interpretation ("Applicable
----------
Law") of any governmental authority shall refer to such Applicable Law as
---
from time to time amended, modified or supplemented, including by
succession of comparable successor Applicable Laws; provided, that any
reference to the United States Bankruptcy Code as in effect on the date of
reference thereto and applicable to the relevant case.
ARTICLE TWO
THE NOTES
SECTION 2.01. Form and Dating. The Notes and the Trustee's certificate
---------------
of authentication shall be substantially in the form annexed hereto as Exhibit A
with such appropriate insertions, omissions, substitutions and other variations
as are required or permitted by this
<PAGE>
24
Indenture. The Notes may have notations, legends or endorsements required by
law, stock exchange agreements to which the Company is subject or usage. The
Company shall approve the form of the Notes and any notation, legend or
endorsement on the Notes. Each Note shall be dated the date of its
authentication.
The terms and provisions contained in the form of the Notes annexed hereto
as Exhibit A shall constitute, and are hereby expressly made, a part of this
Indenture. To the extent applicable, the Company and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby.
Notes offered and sold in reliance on Rule 144A shall be issued initially
in the form of one or more permanent global Notes in registered form,
substantially in the form set forth in Exhibit A (the "U.S. Global Notes"),
-----------------
registered in the name of the nominee of the Depositary, deposited with the
Trustee, as custodian for the Depositary, duly executed by the Company and
authenticated by the Trustee as hereinafter provided. The aggregate principal
amount of the U.S. Global Notes may from time to time be increased or decreased
by adjustments made on the records of the Trustee, as custodian for the
Depositary or its nominee, in accordance with the instructions given by the
Holder thereof, as hereinafter provided.
Notes offered and sold in offshore transactions in reliance on Regulation S
shall be issued initially in the form of one or more temporary global Notes in
registered form substantially in the form set forth in Exhibit A (the "Temporary
---------
Offshore Global Notes"), registered in the name of the nominee of the
- ---------------------
Depositary, deposited with the Trustee, as custodian for the Depositary, duly
executed by the Company and authenticated by the Trustee as hereinafter
provided. On or after the later of (i) JANUARY 29, 1999? and (ii) the
Separation Date, in either case, upon receipt by the Trustee and the Company of
a certificate substantially in the form of Exhibit B hereto, one or more
permanent global Notes in registered form substantially in the form set forth in
Exhibit A (the "Permanent Offshore Global Notes"; and together with the
-------------------------------
Temporary Offshore Global Notes, the "Offshore Global Notes") duly executed by
---------------------
the Company and authenticated by the Trustee as hereinafter provided shall be
deposited with the Trustee, as custodian for the Depositary, and the Registrar
shall reflect on its books and records the date and a decrease in the principal
amount at maturity of the Temporary Offshore Global Notes in an amount equal to
the principal amount at maturity of the beneficial interest in the Temporary
Offshore Global Notes transferred.
Notes delivered pursuant to Section 2.08 to Institutional Accredited
Investors and Notes delivered pursuant to Section 2.07 in exchange for interests
in the U.S. Global Notes shall be in the form of permanent certificated Notes in
registered form substantially in the form set forth in Exhibit A (the "U.S.
----
Physical Notes"), and Notes delivered pursuant to Section 2.07 in exchange for
- --------------
interests in the Offshore Global Notes shall be in the form of permanent
certificated Notes in registered form substantially in the form set forth in
Exhibit A (the "Offshore Physical Notes").
-----------------------
<PAGE>
25
The Offshore Physical Notes and U.S. Physical Notes are sometimes
collectively herein referred to as the "Physical Notes." The U.S. Global Notes
--------------
and the Offshore Global Notes are sometimes referred to herein as the "Global
------
Notes."
- -----
The definitive Notes shall be typed, printed, lithographed or engraved or
produced by any combination of these methods or may be produced in any other
manner permitted by the rules of any securities exchange on which the Notes may
be listed, all as determined by the Officers executing such Notes, as evidenced
by their execution of such Notes.
SECTION 2.02. Restrictive Legends. Unless and until a Note is exchanged
-------------------
for an Exchange Note in connection with an effective Registration Statement
pursuant to the Registration Rights Agreement, the Global Notes and each
Physical Note shall bear the following legend on the face thereof:
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE
ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING
SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT
IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) (A "QUALIFIED INSTITUTIONAL BUYER") OR (B) IT IS AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3)
OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL
ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS
SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER
THE SECURITIES ACT; (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD
REFERRED TO IN RULE 144(k) RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT
(A) TO TVN ENTERTAINMENT CORPORATION (THE "COMPANY") OR ANY SUBSIDIARY
THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE
144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN
INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES
TO THE TRUSTEE AND REGISTRAR A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF
THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE AND
REGISTRAR) AND IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL
AMOUNT OF NOTES AT THE TIME OF TRANSFER OF LESS THAN $100,000, AN OPINION
OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE
WITH THE SECURITIES
<PAGE>
26
ACT, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE
WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE),
OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT; AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE
IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN
CONNECTION WITH ANY TRANSFER OF [THIS NOTE/THE WARRANTS REPRESENTED BY THIS
CERTIFICATE/SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE] WITHIN
THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE
BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER
AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE AND REGISTRAR. IF THE PROPOSED
TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR
TO SUCH TRANSFER, FURNISH TO EACH OF THE TRUSTEE AND REGISTRAR AND THE
COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER
OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE
PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS
"OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS
GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE
CONTAINS A PROVISION REQUIRING THE TRUSTEE AND REGISTRAR TO REFUSE TO
REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING
RESTRICTIONS.
Each Global Note, whether or not an Exchange Note, shall also bear the
following legend on the face thereof:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN
THE NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH
OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR
<PAGE>
27
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INSOFAR AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT
NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTION 2.08 OF THIS INDENTURE.
Prior to the Separation Date, each Note shall bear the following legend on
the face thereof:
THIS NOTE IS INITIALLY ISSUED AS PART OF AN ISSUANCE OF UNITS, EACH OF
WHICH CONSISTS OF ONE NOTE AND ONE WARRANT (EACH, A "WARRANT"), EACH
WARRANT INITIALLY ENTITLING THE HOLDER THEREOF TO PURCHASE ONE SHARE OF
COMMON STOCK, PAR VALUE $0.001 PER SHARE, OF TVN ENTERTAINMENT CORPORATION.
PRIOR TO THE CLOSE OF BUSINESS UPON THE EARLIEST TO OCCUR OF (i) JANUARY
29, 1999, (ii) THE COMMENCEMENT OF AN EXCHANGE OFFER WITH RESPECT TO THE
NOTES, (iii) THE EFFECTIVENESS OF A SHELF REGISTRATION STATEMENT WITH
RESPECT TO THE NOTES, (iv) THE COMMENCEMENT OF AN OFFER TO PURCHASE (AS
DEFINED IN THE INDENTURE WITH RESPECT TO THE NOTES) THE NOTES AND (v) SUCH
EARLIER DATE AS DETERMINED BY MORGAN STANLEY & CO. INCORPORATED IN ITS SOLE
DISCRETION, THE NOTES EVIDENCED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED
OR EXCHANGED SEPARATELY FROM, BUT MAY BE TRANSFERRED OR EXCHANGED ONLY
TOGETHER WITH, THE WARRANTS.
SECTION 2.03. Execution, Authentication and Denominations. Subject to
-------------------------------------------
Article Four and any requirements of applicable law, the aggregate principal
amount of Notes that may be authenticated and delivered under this Indenture is
unlimited. The Notes shall be executed by two Officers of the Company. The
signature of these Officers on the Notes may be by facsimile or manual signature
in the name and on behalf of the Company.
If an Officer whose signature is on a Note no longer holds that office at
the time the Trustee or authenticating agent authenticates the Note, the Note
shall be valid nevertheless.
A Note shall not be valid until the Trustee or authenticating agent
manually signs the certificate of authentication on the Note. The signature
shall be conclusive evidence that the Note has been authenticated under this
Indenture.
<PAGE>
28
At any time and from time to time after the execution of this Indenture,
the Trustee or an authenticating agent shall upon receipt of a Company Order
authenticate for original issue Notes in the aggregate principal amount
specified in such Company Order; provided that the Trustee shall be entitled to
receive an Officers' Certificate and an Opinion of Counsel of the Company in
connection with such authentication of Notes. Such Company Order shall specify
the principal amount of Notes to be authenticated and the date on which the
original issue of Notes is to be authenticated and, in case of an issuance of
Notes pursuant to Section 2.15, shall certify that such issuance is in
compliance with Article Four.
The Trustee may appoint an authenticating agent to authenticate Notes. An
authenticating agent may authenticate Notes whenever the Trustee may do so. Each
reference in this Indenture to authentication by the Trustee includes
authentication by such authenticating agent. An authenticating agent has the
same rights as an Agent to deal with the Company or an Affiliate of the Company.
The Trustee shall not be liable for the misconduct or negligence of any
authenticating agent appointed with due care.
The Notes shall be issuable only in registered form without coupons and
only in denominations of $1,000 in principal amount and any integral multiple of
$1,000 in excess thereof.
SECTION 2.04. Registrar and Paying Agent. The Company shall maintain an
--------------------------
office or agency where Notes may be presented for registration of transfer or
for exchange (the "Registrar"), an office or agency where Notes may be presented
---------
for payment (the "Paying Agent") and an office or agency where notices and
------------
demands to or upon the Company in respect of the Notes and this Indenture may be
served, which shall be in the Borough of Manhattan, The City of New York. The
Company shall cause the Registrar to keep a register of the Notes and of their
transfer and exchange (the "Security Register"). The Company may have one or
-----------------
more co-Registrars and one or more additional Paying Agents.
The Company shall enter into an appropriate agency agreement with any Agent
not a party to this Indenture. Such agreement shall implement the provisions of
this Indenture that relate to such Agent. The Company shall give prompt written
notice to the Trustee of the name and address of any such Agent and any change
in the address of such Agent. If the Company fails to maintain a Registrar,
Paying Agent and/or agent for service of notices and demands, the Trustee shall
act as such Registrar, Paying Agent and/or agent for service of notices and
demands as necessary. The Company may remove any Agent upon written notice to
such Agent and the Trustee; provided that no such removal shall become effective
until (i) the acceptance of an appointment by a successor Agent to such Agent as
evidenced by an appropriate agency agreement entered into by the Company and
such successor Agent and delivered to the Trustee or (ii) notification to the
Trustee that the Trustee shall serve as such Agent until the appointment of a
successor Agent in accordance with clause (i) of this proviso. The Company, any
Subsidiary of
<PAGE>
29
the Company, or any Affiliate of any of them may act as Paying Agent, Registrar
or co-Registrar, and/or agent for service of notice and demands.
The Company initially appoints the Trustee as Registrar, Paying Agent,
authenticating agent and agent for service of notice and demands. The Trustee
shall preserve in as current a form as is reasonably practicable the most recent
list available to it of the names and addresses of Holders and shall otherwise
comply with TIA (S) 312(a). If the Trustee is not the Registrar, the Company
shall furnish to the Trustee as of each Regular Record Date and at such other
times as the Trustee may request in writing a list in such form and as of such
date as the Trustee may reasonably require of the names and addresses of
Holders, including the aggregate principal amount of Notes held by each Holder.
SECTION 2.05. Paying Agent to Hold Money in Trust. Not later than 12:00
-----------------------------------
p.m. (New York City time) on each due date of the principal, premium, if any,
and interest (other than the first six scheduled interest payments), if any, on
any Notes, the Company shall deposit with the Paying Agent money in immediately
available funds sufficient to pay such principal, premium, if any, and interest,
if any, so becoming due. The Company shall require each Paying Agent other than
the Trustee to agree in writing that such Paying Agent shall hold in trust for
the benefit of the Holders or the Trustee all money held by the Paying Agent for
the payment of principal of, premium, if any, and interest, if any, on the Notes
(whether such money has been paid to it by the Company or any other obligor on
the Notes), and such Paying Agent shall promptly notify the Trustee of any
default by the Company (or any other obligor on the Notes) in making any such
payment. The Company at any time may require a Paying Agent to pay all money
held by it to the Trustee and account for any funds disbursed, and the Trustee
may at any time during the continuance of any payment default, upon written
request to a Paying Agent, require such Paying Agent to pay all money held by it
to the Trustee and to account for any funds disbursed. Upon doing so, the Paying
Agent shall have no further liability for the money so paid over to the Trustee.
If the Company or any Subsidiary of the Company or any Affiliate of any of them
acts as Paying Agent, it will, on or before each due date of any principal of,
premium, if any, or interest, if any, on the Notes, segregate and hold in a
separate trust fund for the benefit of the Holders a sum of money sufficient to
pay such principal, premium, if any, or interest so becoming due until such sum
of money shall be paid to such Holders or otherwise disposed of as provided in
this Indenture, and will promptly notify the Trustee of its action or failure to
so act.
SECTION 2.06. Transfer and Exchange. The Notes are issuable only in
---------------------
registered form. The Notes shall initially be issued as part of an issue of
Units, each of which consists of one Note and one Warrant. Prior to the
Separation Date, the Notes may not be transferred or exchanged separately from,
but may be transferred or exchanged only together with, the Warrants issued in
connection with the Notes. A Holder may transfer a Note only by written
application to the Registrar stating the name of the proposed transferee and
otherwise complying with the terms of this Indenture. No such transfer shall be
effected until, and such transferee shall succeed to the
<PAGE>
30
rights of a Holder only upon, final acceptance and registration of the transfer
by the Registrar in the Security Register. Prior to the registration of any
transfer by a Holder as provided herein, the Company, the Trustee and any agent
of the Company shall treat the Person in whose name the Note is registered as
the owner thereof for all purposes whether or not the Note shall be overdue, and
neither the Company, the Trustee, nor any such agent shall be affected by notice
to the contrary. Furthermore, any Holder of a Global Note shall, by acceptance
of such Global Note, agree that transfers of beneficial interests in such Global
Note may be effected only through a book-entry system maintained by the Holder
of such Global Note (or its agent) and that ownership of a beneficial interest
in the Note shall be required to be reflected in a book entry. When Notes are
presented to the Registrar or a co-Registrar with a request to register the
transfer or to exchange them for an equal principal amount of Notes of other
authorized denominations (including an exchange of Notes for Exchange Notes),
the Registrar shall register the transfer or make the exchange as requested if
its requirements for such transactions are met (including that such Notes are
duly endorsed or accompanied by a written instrument of transfer in form
satisfactory to the Trustee and the Registrar duly executed by the Holder
thereof or by an attorney who is authorized in writing to act on behalf of the
Holder); provided that no exchanges of Notes for Exchange Notes shall occur
until a Registration Statement shall have been declared effective by the
Commission and that any Notes that are exchanged for Exchange Notes shall be
canceled by the Trustee. To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate Notes at the
Registrar's request. No service charge shall be made for any registration of
transfer or exchange or redemption of the Notes, but the Company may require
payment of a sum sufficient to cover any transfer tax or similar governmental
charge payable in connection therewith (other than any such transfer taxes or
other similar governmental charge payable upon exchanges pursuant to Section
2.11, 3.08 or 9.04).
The Registrar shall not be required (i) to issue, register the transfer of
or exchange any Note during a period beginning at the opening of business 15
days before the day of the mailing of a notice of redemption of Notes selected
for redemption under Section 3.03 and ending at the close of business on the day
of such mailing, or (ii) to register the transfer of or exchange any Note so
selected for redemption in whole or in part, except the unredeemed portion of
any Note being redeemed in part.
SECTION 2.07. Book-Entry Provisions for Global Notes. (a) The Global
--------------------------------------
Notes initially shall (i) be registered in the name of the Depositary for such
Global Notes or the nominee of such Depositary, (ii) be delivered to the Trustee
as custodian for such Depositary and (iii) bear legends as set forth in Section
2.02.
Members of, or participants in, the Depositary ("Agent Members") shall have
-------------
no rights under this Indenture with respect to any Global Note held on their
behalf by the Depositary, or the Trustee as its custodian, or under the Global
Note, and the Depositary may be treated by the Company, the Trustee and any
agent of the Company or the Trustee as the absolute owner of such
<PAGE>
31
Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Trustee or any agent of the Company or the
Trustee, from giving effect to any written certification, proxy or other
authorization furnished by the Depositary or impair, as between the Depositary
and its Agent Members, the operation of customary practices governing the
exercise of the rights of a Holder of any Note. Neither the Company nor the
Trustee shall be liable for any delay by the Depositary in identifying the
beneficial owners of the Notes and the Company and the Trustee may conclusively
rely on, and shall be protected in relying on, instructions from the Depositary
for all purposes (including with respect to the registration and delivery, and
the respective principal amounts, of any Notes to be issued).
(b) Transfers of a Global Note shall be limited to transfers of such
Global Note in whole, but not in part, to the Depositary, its successors or
their respective nominees. Interests of beneficial owners in a Global Note may
be transferred in accordance with the rules and procedures of the Depositary and
the provisions of Section 2.08. In addition, Physical Notes shall be transferred
to all beneficial owners in exchange for their beneficial interests in the
Global Notes if (i) the Depositary notifies the Company that it is unwilling or
unable to continue as Depositary for the Global Notes and a successor depositary
is not appointed by the Company within 90 days of such notice, (ii) an Event of
Default has occurred and is continuing and the Registrar has received a request
from the Depositary or (iii) in accordance with the rules and procedures of the
Depositary and the provisions of Section 2.08.
(c) Any beneficial interest in one of the Global Notes that is transferred
to a Person who takes delivery in the form of an interest in any other Global
Note will, upon transfer, cease to be an interest in such Global Note and become
an interest in the other Global Note and, accordingly, will thereafter be
subject to all transfer restrictions, if any, and other procedures applicable to
beneficial interests in such other Global Note for as long as it remains such an
interest.
(d) In connection with any transfer of a portion of the beneficial
interests in the Global Notes to beneficial owners pursuant to paragraph (b) of
this Section 2.07, the Registrar shall reflect on its books and records the date
and a decrease in the principal amount of the Global Notes in an amount equal to
the principal amount of the beneficial interest in the Global Notes to be
transferred, and the Company shall execute, and the Trustee shall authenticate
and deliver, one or more Physical Notes of like tenor and amount.
(e) In connection with the transfer of the entire Global Note to
beneficial owners pursuant to paragraph (b) of this Section 2.07, the Global
Note shall be deemed to be surrendered to the Trustee for cancellation, and the
Company shall execute, and the Trustee shall authenticate and deliver, to each
beneficial owner identified by the Depositary in exchange for its beneficial
interest in the Global Note an equal aggregate principal amount of Physical
Notes of authorized denominations.
<PAGE>
32
(f) Any Physical Note delivered in exchange for an interest in the Global
Note pursuant to paragraph (b), (d) or (e) of this Section 2.07 shall, except as
otherwise provided by paragraph (f) of Section 2.08, bear the legend regarding
transfer restrictions applicable to the Physical Note set forth in Section 2.02.
(g) Any Offshore Physical Note delivered in exchange for an interest in
the Offshore Global Note pursuant to paragraph (b) of this Section 2.07 shall,
except as otherwise provided by paragraph (f) of Section 2.08, bear the legend
regarding transfer restrictions applicable to the Offshore Physical Note set
forth in Section 2.02.
(h) The registered Holder of a Global Note may grant proxies and otherwise
authorize any Person, including Agent Members and Persons that may hold
interests through Agent Members, to take any action which a Holder is entitled
to take under this Indenture or the Notes.
SECTION 2.08. Special Transfer Provisions. Unless and until a Note is
---------------------------
exchanged for an Exchange Note in connection with an effective Registration
Statement pursuant to the Registration Rights Agreement, the following
provisions shall apply:
(a) Transfers to Non-QIB Institutional Accredited Investors. The following
-------------------------------------------------------
provisions shall apply with respect to the registration of any proposed transfer
of a Note to any Institutional Accredited Investor which is not a QIB (excluding
Non-U.S. Persons):
(i) The Registrar shall register the transfer of any Note, whether or
not such Note bears the Private Placement Legend, if (x) the requested
transfer is after the time period referred to in Rule 144(k) under the
Securities Act or (y) the proposed transferee has delivered to the
Registrar (A) a certificate substantially in the form of Exhibit C hereto
and (B) if the principal amount of the Notes being transferred is less than
$100,000, an opinion of counsel acceptable to the Company that such
transfer is in compliance with the Securities Act.
(ii) If the proposed transferor is an Agent Member holding a
beneficial interest in the Global Note, upon receipt by the Registrar of
(x) the documents, if any, required by paragraph (i) and (y) instructions
given in accordance with the Depositary's and the Registrar's procedures,
the Registrar shall reflect on its books and records the date and a
decrease in the principal amount of the Global Note in an amount equal to
the principal amount of the beneficial interest in the Global Note to be
transferred, and the Company shall execute, and the Trustee shall
authenticate and deliver, one or more Physical Notes of like tenor and
amount.
<PAGE>
33
(b) Transfers to QIBs. The following provisions shall apply with respect
-----------------
to the registration of any proposed transfer of a Physical Note or an interest
in the Global Note to a QIB (excluding Non-U.S. Persons):
(i) If the Note to be transferred consists of (x) Physical Notes, the
Registrar shall register the transfer if such transfer is being made by a
proposed transferor who has checked the box provided for on the form of
Note stating, or has otherwise advised the Company and the Registrar in
writing, that the sale has been made in compliance with the provisions of
Rule 144A to a transferee who has signed the certification provided for on
the form of Note stating, or has otherwise advised the Company and the
Registrar in writing, that it is purchasing the Note for its own account or
an account with respect to which it exercises sole investment discretion
and that it and any such account is a QIB within the meaning of Rule 144A,
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as
it has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon
its foregoing representations in order to claim the exemption from
registration provided by Rule 144A or (y) an interest in the Global Note,
the transfer of such interest may be effected only through the book entry
system maintained by the Depositary.
(ii) If the proposed transferee is an Agent Member, and the Note to be
transferred consists of Physical Notes, upon receipt by the Registrar of
the documents referred to in clause (i) and instructions given in
accordance with the Depositary's and the Registrar's procedures, the
Registrar shall reflect on its books and records the date and an increase
in the principal amount of the Global Note in an amount equal to the
principal amount of the Physical Notes to be transferred, and the Trustee
shall cancel the Physical Note so transferred.
(c) Transfers of Interests in the Temporary Offshore Global Note. The
------------------------------------------------------------
following provisions shall apply with respect to registration of any proposed
transfer of interests in the Temporary Offshore Global Note:
(i) The Registrar shall register the transfer of any Note (x) if the
proposed transferee is a Non-U.S. Person and the proposed transferor has
delivered to the Registrar a certificate substantially in the form of
Exhibit D hereto or (y) if the proposed transferee is a QIB and the
proposed transferor has checked the box provided for on the form of Note
stating, or has otherwise advised the Company and the Registrar in writing,
that the sale has been made in compliance with the provisions of Rule 144A
to a transferee who has signed the certification provided for on the form
of Note stating, or has otherwise advised the Company and the Registrar in
writing, that it is purchasing the Note for its own account or an account
with respect to which it exercises sole investment discretion and that
<PAGE>
34
it and any such account is a QIB within the meaning of Rule 144A, and is
aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as
it has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon
its foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
(ii) If the proposed transferee is an Agent Member, upon receipt by
the Registrar of the documents referred to in clause (i)(y) above and
instructions given in accordance with the Depositary's and the Registrar's
procedures, the Registrar shall reflect on its books and records the date
and an increase in the principal amount of the U.S. Global Note in an
amount equal to the principal amount of the Temporary Offshore Global Note
to be transferred, and the Trustee shall decrease the amount of the
Temporary Offshore Global Note.
(d) Transfers of Interests in the Permanent Offshore Global Note or
---------------------------------------------------------------
Offshore Physical Notes to U.S. Persons. The following provisions shall apply
- ---------------------------------------
with respect to any transfer of interests in the Permanent Offshore Global Note
or Offshore Physical Notes to U.S. Persons: The Registrar shall register the
transfer of any such Note without requiring any additional certification.
(e) Transfers to Non-U.S. Persons at Any Time. The following provisions
-----------------------------------------
shall apply with respect to any transfer of a Note to a Non-U.S. Person:
(i) Prior to September 7, 1998, the Registrar shall register any
proposed transfer of a Note to a Non-U.S. Person upon receipt of a
certificate substantially in the form of Exhibit D hereto from the proposed
transferor.
(ii) On and after September 7, 1998, the Registrar shall register any
proposed transfer to any Non-U.S. Person if the Note to be transferred is a
Physical Note or an interest in the Global Note, upon receipt of a
certificate substantially in the form of Exhibit D hereto from the proposed
transferor.
(iii) (a) If the proposed transferor is an Agent Member holding a
beneficial interest in the Global Note, upon receipt by the Registrar of
(x) the documents, if any, required by paragraph (ii) and (y) instructions
in accordance with the Depositary's and the Registrar's procedures, the
Registrar shall reflect on its books and records the date and a decrease in
the principal amount of the Global Note in an amount equal to the principal
amount of the beneficial interest in the Global Note to be transferred, and
(b) if the proposed transferee is an Agent Member, upon receipt by the
Registrar of instructions given in accordance with the Depositary's and the
Registrar's procedures, the Registrar shall reflect on its books and
records the date and an increase in the principal amount of
<PAGE>
35
the Offshore Global Note in an amount equal to the principal amount of the
Physical Notes or the Global Note, as the case may be, to be transferred,
and the Trustee shall cancel the Physical Note, if any, so transferred or
decrease the principal amount of the Global Note.
(f) Private Placement Legend. Upon the transfer, exchange or replacement
------------------------
of Notes not bearing the Private Placement Legend, the Registrar shall deliver
Notes that do not bear the Private Placement Legend. Upon the transfer, exchange
or replacement of Notes bearing the Private Placement Legend, the Registrar
shall deliver only Notes that bear the Private Placement Legend unless either
(i) the circumstances contemplated by the fourth paragraph of Section 2.01 or
paragraph (a)(i)(x) or (e)(ii) of this Section 2.08 exist or (ii) there is
delivered to the Registrar an Opinion of Counsel reasonably satisfactory to the
Company and the Trustee to the effect that neither such legend nor the related
restrictions on transfer are required in order to maintain compliance with the
provisions of the Securities Act.
(g) General. By its acceptance of any Note bearing the Private Placement
-------
Legend, each Holder of such a Note acknowledges the restrictions on transfer of
such Note set forth in this Indenture and in the Private Placement Legend and
agrees that it will transfer such Note only as provided in this Indenture. The
Registrar shall not register a transfer of any Note unless such transfer
complies with the restrictions on transfer of such Note set forth in this
Indenture. In connection with any transfer of Notes, each Holder agrees by its
acceptance of the Notes to furnish the Registrar or the Company such
certifications, legal opinions or other information as either of them may
reasonably require to confirm that such transfer is being made pursuant to an
exemption from, or a transaction not subject to, the registration requirements
of the Securities Act; provided that the Registrar shall not be required to
determine (but may rely on a determination made by the Company with respect to)
the sufficiency of any such certifications, legal opinions or other information.
The Registrar shall retain copies of all letters, notices and other written
communications received pursuant to Section 2.07 or this Section 2.08. The
Company shall have the right to inspect and make copies of all such letters,
notices or other written communications at any reasonable time upon the giving
of reasonable written notice to the Registrar.
SECTION 2.09. Replacement Notes. If a mutilated Note is surrendered to
-----------------
the Trustee or if the Holder claims that the Note has been lost, destroyed or
wrongfully taken, the Company shall issue and the Trustee shall authenticate a
replacement Note of like tenor and principal amount and bearing a number not
contemporaneously outstanding; provided that the requirements of the second
paragraph of Section 2.10 are met. An indemnity bond must be furnished that is
sufficient in the judgment of both the Trustee and the Company to protect the
Company, the Trustee or any Agent from any loss that any of them may suffer if a
Note is replaced. The Company may charge such Holder for its expenses and the
expenses of the Trustee in replacing a Note. In case any such mutilated, lost,
destroyed or wrongfully taken Note has become or is about to become due and
<PAGE>
36
payable, the Company in its discretion may pay such Note instead of issuing a
new Note in replacement thereof.
Every replacement Note is an additional obligation of the Company and shall
be entitled to the benefits of this Indenture.
SECTION 2.10. Outstanding Notes. Notes outstanding at any time are all
-----------------
Notes that have been authenticated by the Trustee except for those canceled by
it, those delivered to it for cancellation and those described in this Section
2.10 as not outstanding.
If a Note is replaced or paid pursuant to Section 2.09, it ceases to be
outstanding unless and until the Trustee and the Company receive proof
satisfactory to them that the replaced or paid Note is held by a bona fide
purchaser.
If the Paying Agent (other than the Company or an Affiliate of the Company)
holds on the maturity date money sufficient to pay Notes payable on that date,
then on and after that date such Notes cease to be outstanding and interest on
them shall cease to accrue.
A Note does not cease to be outstanding because the Company or one of its
Affiliates holds such Note, provided, however, that in determining whether the
Holders of the requisite principal amount of the outstanding Notes have given
any request, demand, authorization, direction, notice, consent or waiver
hereunder, Notes owned by the Company or any other obligor upon the Notes or any
Affiliate of the Company or of such other obligor shall be disregarded and
deemed not to be outstanding, except that, in determining whether the Trustee
shall be protected in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Notes which a Responsible Officer of
the Trustee actually knows to be so owned shall be so disregarded. Notes so
owned that have been pledged in good faith may be regarded as outstanding if the
pledgee establishes to the satisfaction of the Trustee the pledgee's right so to
act with respect to such Notes and that the pledgee is not the Company or any
other obligor upon the Notes or any Affiliate of the Company or of such other
obligor.
SECTION 2.11. Temporary Notes. Until definitive Notes are ready for
---------------
delivery, the Company may prepare and the Trustee shall authenticate temporary
Notes. Temporary Notes shall be substantially in the form of definitive Notes
but may have insertions, substitutions, omissions and other variations
determined to be appropriate by the Officers executing the temporary Notes, as
evidenced by their execution of such temporary Notes. If temporary Notes are
issued, the Company will cause definitive Notes to be prepared without
unreasonable delay. After the preparation of definitive Notes, the temporary
Notes shall be exchangeable for definitive Notes upon surrender of the temporary
Notes at the office or agency of the Company designated for such purpose
pursuant to Section 4.02, without charge to the Holder. Upon surrender for
cancellation of any one or more temporary Notes the Company shall execute and
the Trustee shall authenticate
<PAGE>
37
and deliver in exchange therefor a like principal amount of definitive Notes of
authorized denominations. Until so exchanged, the temporary Notes shall be
entitled to the same benefits under this Indenture as definitive Notes.
SECTION 2.12. Cancellation. The Company at any time may deliver to the
------------
Trustee for cancellation any Notes previously authenticated and delivered
hereunder that the Company may have acquired in any manner whatsoever, and may
deliver to the Trustee for cancellation any Notes previously authenticated
hereunder that the Company has not issued and sold. The Registrar and the Paying
Agent shall forward to the Trustee any Notes surrendered to them for transfer,
exchange or payment. The Trustee shall cancel all Notes surrendered for
transfer, exchange, payment or cancellation and shall dispose of them in
accordance with its normal procedure. Except as expressly permitted by this
Indenture, the Company may not issue new Notes to replace Notes it has paid in
full or delivered to the Trustee for cancellation.
SECTION 2.13. CUSIP Numbers. The Company in issuing the Notes may use
-------------
"CUSIP", "CINS" or "ISIN" numbers (if then generally in use), and the Trustee
shall use CUSIP, CINS or ISIN numbers, as the case may be, in notices of
redemption or exchange as a convenience to Holders; provided that any such
notice shall state that no representation is made as to the correctness of such
numbers either as printed on the Notes or as contained in any notice of
redemption or exchange and that reliance may be placed only on the other
identification numbers printed on the Notes. The Company will promptly notify
the Trustee of any change in CUSIP, CINS or ISIN numbers for the Notes.
SECTION 2.14. Defaulted Interest. If the Company defaults in a payment
------------------
of interest on the Notes, it shall pay, or shall deposit with the Paying Agent
money in immediately available funds sufficient to pay, the defaulted interest,
plus (to the extent lawful) any interest payable on the defaulted interest, to
the Persons who are Holders on a subsequent special record date. A special
record date, as used in this Section 2.14 with respect to the payment of any
defaulted interest, shall mean the 15th day immediately preceding the date fixed
by the Company for the payment of defaulted interest, whether or not such day is
a Business Day. At least 15 days before the subsequent special record date, the
Company shall mail to each Holder and to the Trustee a notice that states the
subsequent special record date, the payment date and the amount of defaulted
interest to be paid.
SECTION 2.15. Issuance of Additional Notes. The Company may, subject to
----------------------------
Article Four of this Indenture, issue additional Notes under this Indenture.
The Notes issued on the Closing Date and any additional Notes subsequently
issued shall be treated as a single class for all purposes under this Indenture.
<PAGE>
38
ARTICLE THREE
REDEMPTION
SECTION 3.01. Right of Redemption; Optional Redemption. (a) The Notes
----------------------------------------
will be redeemable, at the Company's option, in whole or in part, at any time or
from time to time, on or after August 1, 2003 and prior to maturity, upon not
less than 30 nor more than 60 days' prior notice mailed by first-class mail to
each Holder's last address as it appears in the Security Register, at the
following Redemption Prices (expressed in percentages of principal amount), plus
accrued and unpaid interest, if any, to the Redemption Date (subject to the
right of Holders of record on the relevant Regular Record Date that is prior to
the Redemption Date to receive interest due on an Interest Payment Date), if
redeemed during the 12-month period commencing August 1 of the years set forth
below:
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
2003 108.000%
2004 105.333%
2005 102.667%
2006 and thereafter 100.000%
</TABLE>
(b) At any time prior to August 1, 2001, the Company may redeem up to 35%
of the principal amount of the Notes with the proceeds of one or more Public
Equity Offerings following which there is a Public Market, at any time or from
time to time in part, at a Redemption Price (expressed as a percentage of
principal amount thereof) of 114.000%; provided that (i) Notes representing at
least $130.0 million aggregate principal amount at maturity remain outstanding
after each such redemption and (ii) notice of such redemption is mailed within
60 days after the consummation of the related Public Equity Offering.
SECTION 3.02. Notices to Trustee. If the Company elects to redeem Notes
------------------
pursuant to Section 3.01(a) or (b), it shall notify the Trustee in writing of
the Redemption Date and the principal amount of Notes to be redeemed.
The Company shall give each notice provided for in this Section 3.02 in an
Officers' Certificate at least 45 days before the Redemption Date (unless a
shorter period shall be satisfactory to the Trustee).
SECTION 3.03. Selection of Notes to Be Redeemed. If less than all of the
---------------------------------
Notes are to be redeemed at any time, the Trustee shall select the Notes to be
redeemed in compliance with the requirements, as certified to it by the Company,
of the principal national securities exchange, if any, on which the Notes are
listed or, if the Notes are not listed on a national securities exchange,
<PAGE>
39
on a pro rata basis, by lot or by such other method as the Trustee in its sole
discretion shall deem fair and appropriate; provided that no Notes of $1,000 in
principal amount or less shall be redeemed in part.
The Trustee shall make the selection from the Notes outstanding and not
previously called for redemption. Notes in denominations of $1,000 in principal
amount may only be redeemed in whole. The Trustee may select for redemption
portions (equal to $1,000 in principal amount or any integral multiple thereof)
of Notes that have denominations larger than $1,000 in principal amount.
Provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption. The Trustee shall notify the
Company and the Registrar promptly in writing of the Notes or portions of Notes
to be called for redemption.
SECTION 3.04. Notice of Redemption. With respect to any redemption of
--------------------
Notes pursuant to Section 3.01, at least 30 days but not more than 60 days
before a Redemption Date, the Company shall mail a notice of redemption by
first-class mail to each Holder whose Notes are to be redeemed.
The notice shall identify the Notes including CUSIP, CINS or ISIN numbers
to be redeemed and shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) the name and address of the Paying Agent;
(iv) that Notes called for redemption must be surrendered to the
Paying Agent in order to collect the Redemption Price;
(v) that, unless the Company defaults in making the redemption
payment, interest on Notes called for redemption ceases to accrue on and
after the Redemption Date and the only remaining right of the Holders is to
receive payment of the Redemption Price plus accrued interest, if any, to
the Redemption Date upon surrender of the Notes to the Paying Agent;
(vi) that, if any Note is being redeemed in part, the portion of the
principal amount (equal to $1,000 in principal amount or any integral
multiple thereof) of such Note to be redeemed and that, on and after the
Redemption Date, upon surrender of such Note, a new Note or Notes in
principal amount equal to the unredeemed portion thereof will be reissued;
and
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40
(vii) that, if any Note contains a CUSIP, CINS or ISIN number as
provided in Section 2.13, no representation is being made as to the
correctness of the CUSIP, CINS or ISIN number either as printed on the
Notes or as contained in the notice of redemption and that reliance may be
placed only on the other identification numbers printed on the Notes.
At the Company's request (which request may be revoked by the Company at
any time prior to the time at which the Trustee shall have given such notice to
the Holders), made in writing to the Trustee at least 45 days (or such shorter
period as shall be satisfactory to the Trustee) before a Redemption Date, the
Trustee shall give the notice of redemption pursuant to Section 3.01(a) or (b)
in the name and at the expense of the Company. If, however, the Company gives
such notice to the Holders, the Company shall concurrently deliver to the
Trustee an Officers' Certificate stating that such notice has been given.
SECTION 3.05. Effect of Notice of Redemption. Once notice of redemption
------------------------------
is mailed, Notes called for redemption become due and payable on the Redemption
Date and at the Redemption Price. Upon surrender of any Notes to the Paying
Agent, such Notes shall be paid at the Redemption Price, plus accrued interest,
if any, to the Redemption Date.
Notice of redemption shall be deemed to be given when mailed, whether or
not the Holder receives the notice. In any event, failure to give such notice,
or any defect therein, shall not affect the validity of the proceedings for the
redemption of Notes held by Holders to whom such notice was properly given.
SECTION 3.06. Deposit of Redemption Price. On or prior to 11:00 a.m.,
---------------------------
New York City time on any Redemption Date, the Company shall deposit with the
Paying Agent (or, if the Company is acting as its own Paying Agent, shall
segregate and hold in trust as provided in Section 2.05) money sufficient to pay
the Redemption Price of and accrued interest on all Notes to be redeemed on that
date other than Notes or portions thereof called for redemption on that date
that have been delivered by the Company to the Trustee for cancellation.
SECTION 3.07. Payment of Notes Called for Redemption. If notice of
--------------------------------------
redemption has been given in the manner provided above, the Notes or portion of
Notes specified in such notice to be redeemed shall become due and payable on
the Redemption Date at the Redemption Price stated therein, together with
accrued interest to such Redemption Date, and on and after such date (unless the
Company shall default in the payment of such Notes at the Redemption Price and
accrued interest to the Redemption Date, in which case the principal, until
paid, shall bear interest from the Redemption Date at the rate prescribed in the
Notes) such Notes shall cease to accrue interest. Upon surrender of any Note
for redemption in accordance with a notice of redemption, such Note shall be
paid and redeemed by the Company at the Redemption Price, together with accrued
interest, if any, to the Redemption Date; provided that installments of interest
whose
<PAGE>
41
Stated Maturity is on or prior to the Redemption Date shall be payable to the
Holders registered as such at the close of business on the relevant Regular
Record Date.
SECTION 3.08. Notes Redeemed in Part. Upon surrender of any Note that is
----------------------
redeemed in part, the Company shall execute and the Trustee shall authenticate
and deliver to the Holder a new Note equal in principal amount to the unredeemed
portion of such surrendered Note.
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes. The Company shall pay the principal of,
----------------
premium, if any, and interest on the Notes on the dates and in the manner
provided in the Notes and this Indenture. An installment of principal, premium,
if any, or interest shall be considered paid on the date due if the Trustee or
Paying Agent or Collateral Agent (other than the Company, a Subsidiary of the
Company, or any Affiliate of any of them) holds on that date money designated
for and sufficient to pay the installment. If the Company or any Subsidiary of
the Company or any Affiliate of any of them acts as Paying Agent, an installment
of principal, premium, if any, or interest shall be considered paid on the due
date if the entity acting as Paying Agent complies with the last sentence of
Section 2.05. As provided in Section 6.09, upon any bankruptcy or reorganization
procedure relative to the Company, the Trustee shall serve as the Paying Agent,
if any, for the Notes.
The Company shall pay interest on overdue principal, premium, if any, and
interest on overdue installments of interest, to the extent lawful, at the rate
per annum specified in the Notes.
SECTION 4.02. Maintenance of Office or Agency. The Company will maintain
-------------------------------
in the Borough of Manhattan, The City of New York, an office or agency where
Notes may be surrendered for registration of transfer or exchange or for
presentation for payment and where notices and demands to or upon the Company in
respect of the Notes and this Indenture may be served. The Company will give
prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the address of the Trustee set forth in Section 11.02.
The Company may also from time to time designate one or more other offices
or agencies where the Notes may be presented or surrendered for any or all such
purposes and may from time to time rescind such designations; provided that no
such designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in the Borough of Manhattan, The City
of New York for such purposes. The Company will give prompt written
<PAGE>
42
notice to the Trustee of any such designation or rescission and of any change in
the location of any such other office or agency.
The Company hereby initially designates the Corporate Trust Office of the
Trustee as such office of the Company in accordance with Section 2.04.
SECTION 4.03. Limitation on Indebtedness. (a) The Company will not, and
--------------------------
will not permit any of its Restricted Subsidiaries to, Incur any Indebtedness
(other than the Notes and Indebtedness existing on the Closing Date); provided
that the Company may Incur Indebtedness, and any Restricted Subsidiary may Incur
Acquired Indebtedness, if, after giving effect to the Incurrence of such
Indebtedness and the receipt and application of the proceeds therefrom, the
Consolidated Leverage Ratio would be greater than zero and less than 6:1.
Notwithstanding the foregoing, the Company and any Restricted Subsidiary
(except as specified below) may Incur each and all of the following: (i)
Indebtedness (including any Indebtedness under one or more revolving credit or
working capital facilities) of the Company in an aggregate principal amount
outstanding at any time not to exceed the greater of (A) the sum of (I) 80% of
the consolidated book value of the accounts receivable of the Company and its
Restricted Subsidiaries and (II) 60% of the consolidated book value of the
inventory of the Company and its Restricted Subsidiaries, in each case as
determined from the financial statement of the Company for the then most recent
fiscal quarter which has been filed with the Commission or provided to the
Trustee pursuant to Section 4.16 and (B) $25.0 million; (ii) Indebtedness owed
(A) to the Company evidenced by a promissory note or (B) to any Restricted
Subsidiary; provided that any event which results in any such Restricted
Subsidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of
such Indebtedness (other than to the Company or another Restricted Subsidiary)
shall be deemed, in each case, to constitute an Incurrence of such Indebtedness
not permitted by this clause (ii); (iii) Indebtedness issued in exchange for, or
the net proceeds of which are used to refinance or refund, then outstanding
Indebtedness (other than Indebtedness Incurred under clause (i), (ii), (iv),
(vi), (ix) or (x) of this paragraph) and any refinancings thereof in a principal
amount not to exceed the principal amount so refinanced or refunded (plus
premiums, accrued interest, fees and expenses), unless the Incurrence of such
excess is otherwise permitted by this covenant; provided that Indebtedness the
proceeds of which are used to refinance or refund the Notes or Indebtedness that
is pari passu with, or subordinated in right of payment to, the Notes shall only
be permitted under this clause (iii) if (A) in case the Notes are refinanced in
part or the Indebtedness to be refinanced is pari passu with the Notes, such new
Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such new Indebtedness is outstanding, is expressly made pari
passu with, or subordinate in right of payment to, the remaining Notes, (B) in
case the Indebtedness to be refinanced is subordinated in right of payment to
the Notes, such new Indebtedness, by its terms or by the terms of any agreement
or instrument pursuant to which such new Indebtedness is issued or remains
outstanding, is expressly made subordinate in right of payment to the Notes at
least to the extent that the Indebtedness to be
<PAGE>
43
refinanced is subordinated to the Notes and (C) such new Indebtedness,
determined as of the date of Incurrence of such new Indebtedness, does not
mature prior to the Stated Maturity of the Indebtedness to be refinanced or
refunded, and the Average Life of such new Indebtedness is at least equal to the
remaining Average Life of the Indebtedness to be refinanced or refunded; and
provided further that in no event may Indebtedness of the Company be refinanced
by means of any Indebtedness of any Restricted Subsidiary pursuant to this
clause (iii); (iv) Indebtedness (A) in respect of performance, surety or appeal
bonds provided in the ordinary course of business, (B) under Currency Agreements
and Interest Rate Agreements; provided that such agreements (a) are designed
solely to protect the Company or its Restricted Subsidiaries against
fluctuations in foreign currency exchange rates or interest rates and (b) do not
increase the Indebtedness of the obligor outstanding at any time other than as a
result of fluctuations in foreign currency exchange rates or interest rates or
by reason of fees, indemnities and compensation payable thereunder; and (C)
arising from agreements providing for indemnification, adjustment of purchase
price or similar obligations, or from Guarantees or letters of credit, surety
bonds or performance bonds securing any obligations of the Company or any of its
Restricted Subsidiaries pursuant to such agreements, in any case Incurred in
connection with the disposition of any business, assets or Restricted Subsidiary
(other than Guarantees of Indebtedness Incurred by any Person acquiring all or
any portion of such business, assets or Restricted Subsidiary for the purpose of
financing such acquisition), in a principal amount not to exceed the gross
proceeds actually received by the Company or any Restricted Subsidiary in
connection with such disposition; (v) Indebtedness of the Company or any
Restricted Subsidiary, to the extent the net proceeds thereof are promptly (A)
used to purchase Notes tendered in an Offer to Purchase made as a result of a
Change in Control or (B) deposited to defease the Notes as described below under
Section 8.02 or 8.03; (vi) Guarantees of the Notes and Guarantees of
Indebtedness of the Company by any Restricted Subsidiary; provided the Guarantee
of such Indebtedness is permitted by and made in accordance with Section 4.07;
(vii) Indebtedness Incurred to finance the cost (including the cost of design,
development, acquisition, construction, installation, improvement,
transportation or integration) to acquire equipment, inventory or network assets
(including acquisitions by way of Capitalized Lease and acquisitions of the
Capital Stock of a Person that becomes a Restricted Subsidiary to the extent of
the fair market value of the equipment, inventory or network assets so acquired)
by the Company or a Restricted Subsidiary after the Closing Date; (viii)
Indebtedness of the Company not to exceed, at any one time outstanding, two
times the sum of (A) the Net Cash Proceeds received by the Company after the
Closing Date from the issuance and sale of its Capital Stock (other than
Disqualified Stock) to a Person that is not a Restricted Subsidiary of the
Company, to the extent such Net Cash Proceeds have not been used pursuant to
clause (C)(2) of the first paragraph or clause (iii), (iv), (vi), or (vii) of
the second paragraph of Section 4.04 to make a Restricted Payment and (B) 80% of
the fair market value of property (other than cash and cash equivalents)
received by the Company after the Closing Date from the sale of its Capital
Stock (other than Disqualified Stock) to a Person that is not a Restricted
Subsidiary of the Company, to the extent such sale of Capital Stock has not been
used pursuant to clause (iii), (iv), (vi) or (vii) of the second paragraph of
Section 4.04 to make a Restricted Payment; provided that such
<PAGE>
44
Indebtedness does not mature prior to the Stated Maturity of the Notes and has
an Average Life longer than the Notes; (ix) Indebtedness of the Company, in an
aggregate principal amount outstanding at any time not to exceed $1.0 million,
Incurred in connection with the repurchase of shares of Capital Stock of the
Company, options on any such shares or related stock appreciation rights held by
employees, former employees, directors or former directors (or their estates or
beneficiaries under their estates), upon death, disability, retirement or
termination of employment; provided that such Indebtedness, by its terms, (A) is
expressly made subordinate in right of payment to the Notes, and (B) provides
that no payments of principal (including by way of sinking fund, mandatory
redemption or otherwise (including defeasance)), may be made while any of the
Notes are outstanding; and (x) Indebtedness of the Company (in addition to
Indebtedness permitted under clauses (i) through (ix) above) in an aggregate
principal amount outstanding at any time not to exceed $55.0 million, less any
amount of such Indebtedness permanently repaid as provided under Section 4.10.
(b) Notwithstanding any other provision of this Section 4.03, the maximum
amount of Indebtedness that the Company or a Restricted Subsidiary may Incur
pursuant to this Section 4.03 shall not be deemed to be exceeded, with respect
to any outstanding Indebtedness due solely to the result of fluctuations in the
exchange rates of currencies.
(c) For purposes of determining any particular amount of Indebtedness
under this Section 4.03, (1) Guarantees, Liens or obligations with respect to
letters of credit supporting Indebtedness otherwise included in the
determination of such particular amount shall not be included and (2) any Liens
granted pursuant to the equal and ratable provisions referred to in Section 4.09
shall not be treated as Indebtedness. For purposes of determining compliance
with this Section 4.03, in the event that an item of Indebtedness meets the
criteria of more than one of the types of Indebtedness described in the above
clauses, the Company, in its sole discretion, shall classify and may, from time
to time, reclassify, such item of Indebtedness and only be required to include
the amount and type of such Indebtedness in one of such clauses.
SECTION 4.04. Limitation on Restricted Payments. The Company will not,
---------------------------------
and will not permit any Restricted Subsidiary to, directly or indirectly, (i)
declare or pay any dividend or make any distribution on or with respect to its
Capital Stock (other than (x) dividends or distributions payable solely in
shares of its Capital Stock (other than Disqualified Stock) or in options,
warrants or other rights to acquire shares of such Capital Stock and (y) pro
rata dividends or distributions on Common Stock of Restricted Subsidiaries held
by minority stockholders) held by Persons other than the Company or any of its
Restricted Subsidiaries, (ii) purchase, redeem, retire or otherwise acquire for
value any shares of Capital Stock of (A) the Company or an Unrestricted
Subsidiary (including options, warrants or other rights to acquire such shares
of Capital Stock) held by any Person or (B) a Restricted Subsidiary (including
options, warrants or other rights to acquire such shares of Capital Stock) held
by any Affiliate of the Company (other than a Wholly Owned Restricted
Subsidiary) or any Holder (or any Affiliate of such Holder) of 5% or more of the
<PAGE>
45
Capital Stock of the Company, (iii) make any voluntary or optional principal
payment, or voluntary or optional redemption, repurchase, defeasance, or other
acquisition or retirement for value, of Indebtedness of the Company that is
subordinated in right of payment to the Notes or (iv) make any Investment, other
than a Permitted Investment, in any Person (such payments or any other actions
described in clauses (i) through (iv) above being collectively "Restricted
----------
Payments") if, at the time of, and after giving effect to, the proposed
- --------
Restricted Payment: (A) a Default or Event of Default shall have occurred and be
continuing, (B) the Company could not Incur at least $1.00 of Indebtedness under
the first paragraph of Section 4.03 or (C) the aggregate amount of all
Restricted Payments (the amount, if other than in cash, to be determined in good
faith by the Board of Directors, whose determination shall be conclusive and
evidenced by a Board Resolution) made after the Closing Date shall exceed the
sum of (1) the aggregate amount of the Consolidated EBITDA (or, if Consolidated
EBITDA is negative, minus the amount by which Consolidated EBITDA is less than
zero) less 1.5 times Consolidated Interest Expense, in each case accrued on a
cumulative basis during the period (taken as one accounting period) beginning on
the first day of the fiscal quarter immediately following the Closing Date and
ending on the last day of the last fiscal quarter preceding the Transaction Date
for which reports have been filed with the Commission or provided to the Trustee
pursuant to Section 4.16 plus (2) the aggregate Net Cash Proceeds received by
the Company after the Closing Date from the issuance and sale permitted by this
Indenture of its Capital Stock (other than Disqualified Stock) to a Person who
is not a Restricted Subsidiary of the Company, including an issuance or sale
permitted by this Indenture of Indebtedness of the Company for cash subsequent
to the Closing Date upon the conversion of such Indebtedness into Capital Stock
(other than Disqualified Stock) of the Company, or from the issuance to a Person
who is not a Restricted Subsidiary of the Company of any options, warrants or
other rights to acquire Capital Stock of the Company (in each case, exclusive of
any Disqualified Stock or any options, warrants or other rights that are
redeemable at the option of the Holder, or are required to be redeemed, prior to
the Stated Maturity of the Notes), in each case except to the extent such Net
Cash Proceeds are used to Incur Indebtedness pursuant to clause (viii) of the
second paragraph of Section 4.03(a) plus (3) an amount equal to the net
reduction in Investments (other than reductions in Permitted Investments) in any
Person resulting from payments of interest on Indebtedness, dividends,
distributions, repayments of loans or advances, or other transfers of assets, in
each case to the Company or any Restricted Subsidiary or from the Net Cash
Proceeds from the sale of any such Investment (except, in each case, to the
extent any such payment or proceeds are included in the calculation of Adjusted
Consolidated Net Income), or from redesignations of Unrestricted Subsidiaries as
Restricted Subsidiaries (valued in each case as provided in the definition of
"Investments"), not to exceed, in each case, the amount of Investments
previously made by the Company or any Restricted Subsidiary in such Person or
Unrestricted Subsidiary.
The foregoing provision shall not be violated by reason of: (i) the
payment of any dividend within 60 days after the date of declaration thereof if,
at said date of declaration, such payment would comply with the foregoing
paragraph; (ii) the redemption, repurchase, defeasance or other
<PAGE>
46
acquisition or retirement for value of Indebtedness that is subordinated in
right of payment to the Notes, including premium, if any, and accrued and unpaid
interest, with the proceeds of, or in exchange for, Indebtedness Incurred under
clause (iii) of the second paragraph of part (a) of Section 4.03; (iii) the
repurchase, redemption or other acquisition of Capital Stock of the Company or
an Unrestricted Subsidiary (or options, warrants or other rights to acquire such
Capital Stock) in exchange for, or out of the proceeds of, a substantially
concurrent offering of, shares of Capital Stock (other than Disqualified Stock)
of the Company (or options, warrants or other rights to acquire such Capital
Stock); (iv) the making of any principal payment or the repurchase, redemption,
retirement, defeasance or other acquisition for value of Indebtedness of the
Company which is subordinated in right of payment to the Notes in exchange for,
or out of the proceeds of a substantially concurrent offering of shares of the
Capital Stock (other than Disqualified Stock) of the Company (or options,
warrants or other rights to acquire such Capital Stock); (v) payments or
distributions to dissenting stockholders pursuant to applicable law, pursuant to
or in connection with a consolidation, merger or transfer of assets that
complies with the provisions of Section 5.01; (vi) Investments in any Person the
primary business of which is related, ancillary or complementary to the business
of the Company and its Restricted Subsidiaries on the date of such Investments;
provided that the aggregate amount of Investments made pursuant to this clause
(vi) does not exceed the sum of (x) $30.0 million plus (y) the amount of Net
Cash Proceeds received by the Company after the Closing Date from the sale of
its Capital Stock (other than Disqualified Stock) to a Person who is not a
Restricted Subsidiary of the Company, except to the extent such Net Cash
Proceeds are used to Incur Indebtedness pursuant to clause (viii) of the second
paragraph of Section 4.03 or to make Restricted Payments pursuant to clause
(C)(2) of the first paragraph, or clause (iii) or (iv) of this paragraph, of
this Section 4.04, plus (z) the net reduction in Investments made pursuant to
this clause (vi) resulting from distributions on or repayments of such
Investments or from the Net Cash Proceeds from the sale of any such Investment
(except in each case to the extent any such payment or proceeds is included in
the calculation of Consolidated EBITDA) or from such Person becoming a
Restricted Subsidiary (valued in each case as provided in the definition of
"Investments"); provided that the net reduction in any Investment shall not
exceed the amount of such Investment; (vii) Investments acquired in exchange for
Capital Stock (other than Disqualified Stock) of the Company; (viii) the
declaration or payment of dividends on the Common Stock of the Company following
a Public Equity Offering of such Common Stock of up to 6.0% per annum of the Net
Cash Proceeds received by the Company in such Public Equity Offering; (ix)
repurchases of Warrants pursuant to a Repurchase Offer; (x) any purchase of any
fractional share of Common Stock of the Company in connection with an exercise
of the Warrants; or (xi) repurchases of Capital Stock of the Company from
employees, former employees, directors, former directors, consultants or former
consultants of the Company (or their estates or beneficiaries under their
estates) upon their death, disability, retirement, or termination of employment;
provided that the aggregate amount of such repurchases shall not exceed $1.0
million in any calendar year or $5.0 million in the aggregate; provided further
that, except in the case of clauses (i) and (iii), no Default or Event of
Default shall have occurred and be continuing or occur as a consequence of the
actions or payments set forth therein.
<PAGE>
47
Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payment referred to in clause (ii) thereof, an
exchange of Capital Stock for Capital Stock or Indebtedness referred to in
clause (iii) or (iv) thereof and an Investment referred to in clause (vi)
thereof), and the Net Cash Proceeds from any issuance of Capital Stock referred
to in clauses (iii) and (iv) thereof, shall be included in calculating whether
the conditions of clause (C) of the first paragraph of this Section 4.04 have
been met with respect to any subsequent Restricted Payments. In the event the
proceeds of an issuance of Capital Stock of the Company are used for the
redemption, repurchase or other acquisition of the Notes, or Indebtedness that
is pari passu with the Notes, then the Net Cash Proceeds of such issuance shall
be included in clause (C) of the first paragraph of this Section 4.04 only to
the extent such proceeds are not used for such redemption, repurchase or other
acquisition of Indebtedness.
SECTION 4.05. Limitation on Dividend and Other Payment Restrictions
-----------------------------------------------------
Affecting Restricted Subsidiaries. The Company will not, and will not permit
- ---------------------------------
any Restricted Subsidiary to, create or otherwise cause or suffer to exist or
become effective any consensual encumbrance or restriction of any kind on the
ability of any Restricted Subsidiary to (i) pay dividends or make any other
distributions permitted by applicable law on any Capital Stock of such
Restricted Subsidiary owned by the Company or any other Restricted Subsidiary,
(ii) pay any Indebtedness owed to the Company or any other Restricted
Subsidiary, (iii) make loans or advances to the Company or any other Restricted
Subsidiary or (iv) transfer any of its property or assets to the Company or any
other Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions: (i) existing on the Closing Date in this Indenture or any other
agreements in effect on the Closing Date, and any extensions, refinancings,
renewals or replacements of such agreements; provided that the encumbrances and
restrictions in any such extensions, refinancings, renewals or replacements are
no less favorable in any material respect to the Holders than those encumbrances
or restrictions that are then in effect and that are being extended, refinanced,
renewed or replaced; (ii) existing under or by reason of applicable law; (iii)
existing with respect to any Person or the property or assets of such Person
acquired by the Company or any Restricted Subsidiary, existing at the time of
such acquisition and not incurred in contemplation thereof, which encumbrances
or restrictions are not applicable to any Person or the property or assets of
any Person other than such Person or the property or assets of such Person so
acquired, and any extensions, refinancings, renewals or replacements of
agreements of such Person existing at the time of such acquisition; provided,
that the encumbrances and restrictions in any such extensions, refinancings,
renewals or replacements do not extend to any Person or the property or assets
of any Person other than such Person or the property and assets of such Person
so acquired; (iv) in the case of clause (iv) of the first paragraph of this
Section 4.05, (A) that restrict in a customary manner the subletting, assignment
or transfer of any property or asset that is subject to a lease, license,
conveyance or contract or similar property or asset, (B) existing by virtue of
any transfer of, agreement to transfer, option or right with respect to, or Lien
on, any property or assets of the Company or any
<PAGE>
48
Restricted Subsidiary not otherwise prohibited by this Indenture or (C) arising
or agreed to in the ordinary course of business, not relating to any
Indebtedness, and that do not, individually or in the aggregate, detract from
the value of property or assets of the Company or any Restricted Subsidiary in
any manner material to the Company or any Restricted Subsidiary; (v) with
respect to a Restricted Subsidiary and imposed pursuant to an agreement that has
been entered into for the sale or disposition of all or substantially all of the
Capital Stock of, or property and assets of, such Restricted Subsidiary; or (vi)
contained in the terms of any Indebtedness or any agreement pursuant to which
such Indebtedness was issued if (A) the encumbrance or restriction is not
materially more disadvantageous to the Holders of the Notes than is customary in
comparable financings (as determined by the Company) and (B) the Company
determines that any such encumbrance or restriction is not reasonably expected
to materially affect the Company's ability to make principal or interest
payments on the Notes. Nothing contained in this Section 4.05 shall prevent the
Company or any Restricted Subsidiary from (1) creating, incurring, assuming or
suffering to exist any Liens otherwise permitted by Section 4.09 or (2)
restricting the sale or other disposition of property or assets of the Company
or any of its Restricted Subsidiaries that secure Indebtedness of the Company or
any of its Restricted Subsidiaries.
SECTION 4.06. Limitation on the Issuance and Sale of Capital Stock of
-------------------------------------------------------
Restricted Subsidiaries. The Company will not sell, and will not permit any
- -----------------------
Restricted Subsidiary, directly or indirectly, to issue or sell, any shares of
Capital Stock of a Restricted Subsidiary (including options, warrants or other
rights to purchase shares of such Capital Stock) except (i) to the Company or a
Wholly Owned Restricted Subsidiary; (ii) issuances of director's qualifying
shares or sales to foreign nationals of shares of Capital Stock of foreign
Restricted Subsidiaries, to the extent required by applicable law; (iii) if,
immediately after giving effect to such issuance or sale, such Restricted
Subsidiary would no longer constitute a Restricted Subsidiary and any Investment
in such Person remaining after giving effect to such issuance or sale would have
been permitted to be made under Section 4.04 if made on the date of such
issuance or sale, (iv) issuances or sales of Common Stock of a Restricted
Subsidiary; provided that the Company or such Restricted Subsidiary applies the
Net Cash Proceeds, if any, of any such sale in accordance with clause (A) or (B)
of Section 4.10 or (v) issuances or sales of Disqualified Stock if Section 4.03
would permit the Disqualified Stock to be issued or sold (treating the
Disqualified Stock as Indebtedness for such purpose).
SECTION 4.07. Limitation on Issuances of Guarantees by Restricted
---------------------------------------------------
Subsidiaries. The Company will not permit any Restricted Subsidiary to (x)
- ------------
directly or indirectly Guarantee any Indebtedness of the Company which is pari
passu with or subordinate in right of payment to the Notes ("Guaranteed
Indebtedness") or (y) issue any Debt Securities (other than Indebtedness
Incurred pursuant to clause (v) of Section 4.03), unless (i) such Restricted
Subsidiary simultaneously executes and delivers a supplemental indenture to this
Indenture providing for a Guarantee (a "Subsidiary Guarantee") of payment of the
--------------------
Notes by such Restricted Subsidiary and (ii) such Restricted Subsidiary waives
and will not in any manner whatsoever claim or take the
<PAGE>
49
benefit or advantage of, any rights of reimbursement, indemnity or subrogation
or any other rights against the Company or any other Restricted Subsidiary as a
result of any payment by such Restricted Subsidiary under its Subsidiary
Guarantee; provided that this paragraph shall not be applicable to any Guarantee
of any Restricted Subsidiary that existed at the time such Person became a
Restricted Subsidiary and was not Incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary. If the
Guaranteed Indebtedness is (A) pari passu with the Notes, then the Guarantee of
such Guaranteed Indebtedness shall be pari passu with, or subordinated to, the
Subsidiary Guarantee or (B) subordinated to the Notes, then the Guarantee of
such Guaranteed Indebtedness shall be subordinated to the Subsidiary Guarantee
at least to the extent that the Guaranteed Indebtedness is subordinated to the
Notes.
Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary may provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or transfer,
to any Person not an Affiliate of the Company, of all of the Company's and each
Restricted Subsidiary's Capital Stock in, or all or substantially all the assets
of, such Restricted Subsidiary (which sale, exchange or transfer is not
prohibited by this Indenture) or (ii) the release or discharge of the Guarantee
that resulted in the creation of such Subsidiary Guarantee, except a discharge
or release by or as a result of payment under such Guarantee.
SECTION 4.08. Limitation on Transactions with Stockholders and
------------------------------------------------
Affiliates. The Company will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, enter into, renew or extend any transaction
(including, without limitation, the purchase, sale, lease or exchange of
property or assets, or the rendering of any service) with any Holder (or any
Affiliate of such Holder) of 5.0% or more of any class of Capital Stock of the
Company or with any Affiliate of the Company or any Restricted Subsidiary,
except upon fair and reasonable terms no less favorable to the Company or such
Restricted Subsidiary than could be obtained, at the time of such transaction
or, if such transaction is pursuant to a written agreement, at the time of the
execution of the agreement providing therefor, in a comparable arm's-length
transaction with a Person that is not such a Holder or an Affiliate.
The foregoing limitation does not limit, and shall not apply to (i)
transactions (A) approved by a majority of the disinterested members of the
Board of Directors or (B) for which the Company or a Restricted Subsidiary
delivers to the Trustee a written opinion of a nationally recognized investment
banking firm (including, without limitation, the Placement Agent and its
Affiliates) stating that the transaction is fair to the Company or such
Restricted Subsidiary from a financial point of view; (ii) any transaction
solely between the Company and any of its Wholly Owned Restricted Subsidiaries
or solely between Wholly Owned Restricted Subsidiaries; (iii) the payment of
reasonable and customary regular fees to directors of the Company who are not
employees of the Company; (iv) any payments or other transactions pursuant to
any tax-sharing agreement between the Company and any other Person with which
the Company files a
<PAGE>
50
consolidated tax return or with which the Company is part of a consolidated
group for tax purposes; (v) transactions between the Company or any of its
Restricted Subsidiaries and a non-Wholly Owned Restricted Subsidiary or an
Unrestricted Subsidiary on a cost, rather than fair market value, basis, or on
other terms of the kind customarily employed to allocate charges among members
of a consolidated group of entities, in any such case that are fair and
reasonable to the Company or such Restricted Subsidiary; provided that the
aggregate fair market value of the consideration subject to such transactions
does not exceed $1.0 million in any calendar year; (vi) payment of fees to the
Placement Agent or its Affiliates for financial, advisory, consulting or
investment banking services that the Board of Directors deems to be advisable or
appropriate (including, without limitation, the payment of any underwriting
discounts or commissions or placement agency fees in connection with the
issuance and sale of securities); or (vii) any Restricted Payments not
prohibited by Section 4.04. Notwithstanding the foregoing, any transaction or
series of related transactions covered by the first paragraph of this Section
4.08 and not covered by clauses (ii) through (vii) of this paragraph, (a) the
aggregate amount of which exceeds $5.0 million in value, must be approved or
determined to be fair in the manner provided for in clause (i) (A) or (B) above
and (b) the aggregate amount of which exceeds $10.0 million in value, must be
determined to be fair in the manner provided for in clause (i)(B) above.
SECTION 4.09. Limitation on Liens. The Company will not, and will not
-------------------
permit any Restricted Subsidiary to, create, incur, assume or suffer to exist
any Lien on any of its assets or properties of any character, or any shares of
Capital Stock or Indebtedness of any Restricted Subsidiary, without making
effective provision for all of the Notes and all other amounts due under this
Indenture to be directly secured equally and ratably with (or, if the obligation
or liability to be secured by such Lien is subordinated in right of payment to
the Notes, prior to) the obligation or liability secured by such Lien.
The foregoing limitation does not apply to (i) Liens existing on the
Closing Date; (ii) Liens granted after the Closing Date on any assets or Capital
Stock of the Company or its Restricted Subsidiaries created in favor of the
Holders; (iii) Liens with respect to the assets of a Restricted Subsidiary
granted by such Restricted Subsidiary to the Company or a Wholly Owned
Restricted Subsidiary to secure Indebtedness owing to the Company or such other
Restricted Subsidiary; (iv) Liens securing Indebtedness that is Incurred to
refinance secured Indebtedness that is permitted to be Incurred under clause
(iii) of the second paragraph of Section 4.03; provided that such Liens do not
extend to or cover any property or assets of the Company or any Restricted
Subsidiary other than the property or assets securing the Indebtedness being
refinanced; (v) Liens on the Capital Stock of, or any property or assets of, a
Restricted Subsidiary securing Indebtedness of such Restricted Subsidiary
permitted under Section 4.03; (vi) Liens securing (A) obligations under
revolving credit, working capital or similar facilities Incurred under clause
(i), or (B) Indebtedness Incurred under clause (vii) of the second paragraph of
Section 4.03; or (vii) Permitted Liens.
<PAGE>
51
SECTION 4.10. Limitation on Asset Sales. The Company will not, and will
-------------------------
not permit any Restricted Subsidiary to, consummate any Asset Sale, unless (i)
the consideration received by the Company or such Restricted Subsidiary is at
least equal to the fair market value of the assets sold or disposed of and (ii)
at least 75% of the consideration received consists of any combination of cash
or Temporary Cash Investments or the assumption of unsubordinated Indebtedness
of the Company or Indebtedness of any Restricted Subsidiary, provided that the
Company or such Restricted Subsidiary is irrevocably and unconditionally
released from all liability under such Indebtedness. In the event and to the
extent that the Net Cash Proceeds received by the Company or any of its
Restricted Subsidiaries from one or more Asset Sales occurring on or after the
Closing Date in any period of 12 consecutive months exceed 10% of Adjusted
Consolidated Net Tangible Assets (determined as of the date closest to the
commencement of such 12-month period for which a consolidated balance sheet of
the Company and its Subsidiaries has been filed with the Commission or provided
to the Trustee pursuant to Section 4.16), then the Company shall or shall cause
the relevant Restricted Subsidiary to (i) within 12 months after the date Net
Cash Proceeds so received exceed 10% of Adjusted Consolidated Net Tangible
Assets (A) apply an amount equal to such excess Net Cash Proceeds to permanently
repay unsubordinated Indebtedness of the Company, or any Restricted Subsidiary
providing a Subsidiary Guarantee pursuant to Section 4.07 or Indebtedness of any
other Restricted Subsidiary, in each case owing to a Person other than the
Company or any of its Restricted Subsidiaries or (B) invest an equal amount, or
the amount not so applied pursuant to clause (A) (or enter into a definitive
agreement committing to so invest within 12 months after the date of such
agreement), in property or assets (other than current assets) of a nature or
type or that are used in a business (or in a Person having property and assets
of a nature or type, or engaged in a business) similar or related to the nature
or type of the property and assets of, or the business of, the Company and its
Restricted Subsidiaries existing on the date of such investment and (ii) apply
(no later than the end of the 12-month period referred to in clause (i)) such
excess Net Cash Proceeds (to the extent not applied (or committed to be applied)
pursuant to clause (i)) as provided in the following paragraph of this Section
4.10. The amount of such excess Net Cash Proceeds required to be applied (or to
be committed to be applied) during such 12-month period as set forth in clause
(i) of the preceding sentence and not applied as so required by the end of such
period shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
Section 4.10 totals at least $5 million, the Company must commence, not later
than the fifteenth Business Day of such month, and consummate an Offer to
Purchase from the Holders on a pro rata basis an aggregate principal amount of
Notes equal to the Excess Proceeds on such date, at a purchase price equal to
100% of the principal amount of the Notes on the relevant Payment Date, plus, in
each case, accrued interest, if any, to the Payment Date.
SECTION 4.11. Existence. Subject to Articles Four and Five of this
---------
Indenture, the Company will do or cause to be done all things necessary to
preserve and keep in full force and
<PAGE>
52
effect its existence and the existence of each of its Restricted Subsidiaries in
accordance with the respective organizational documents of the Company and each
such Restricted Subsidiary and the rights (whether pursuant to charter,
partnership certificate, agreement, statute or otherwise), material licenses and
franchises of the Company and each such Restricted Subsidiary.
SECTION 4.12. Payment of Taxes and Other Claims. The Company will pay or
---------------------------------
discharge and shall cause each of its Restricted Subsidiaries to pay or
discharge, or cause to be paid or discharged, before the same shall become
delinquent (i) all material taxes, assessments and governmental charges levied
or imposed upon (a) the Company or any such Restricted Subsidiary, (b) the
income or profits of any such Restricted Subsidiary that is a corporation or (c)
the property of the Company or any such Restricted Subsidiary and (ii) all
material lawful claims for labor, materials and supplies that, if unpaid, might
by law become a Lien upon the property of the Company or any Restricted
Subsidiary; provided that the Company shall not be required to pay or discharge,
or cause to be paid or discharged, any such tax, assessment, charge or claim the
amount, applicability or validity of which is being contested in good faith by
appropriate proceedings and for which adequate reserves have been established.
SECTION 4.13. Maintenance of Properties and Insurance. The Company will
---------------------------------------
cause all properties used or useful in the conduct of its business or the
business of any of its Restricted Subsidiaries to be maintained and kept in good
condition (ordinary wear and tear excepted), repair and working order and
supplied with all necessary equipment and will cause to be made all necessary
repairs, renewals, replacements, betterments and improvements thereof, all as in
the judgment of the Company may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
provided that nothing in this Section 4.13 shall prevent the Company or any such
Restricted Subsidiary from discontinuing the use, operation or maintenance of
any of such properties or disposing of any of them, if such discontinuance or
disposal is, in the judgment of the Company, desirable in the conduct of the
business of the Company or such Restricted Subsidiary.
The Company will provide or cause to be provided, for itself and its
Restricted Subsidiaries, insurance (including appropriate self-insurance)
against loss or damage of the kinds customarily insured against by corporations
similarly situated and owning like properties, including, but not limited to,
products liability insurance and public liability insurance, with reputable
insurers or with the government of the United States of America, or an agency or
instrumentality thereof, in such amounts, with such deductibles and by such
methods as shall be customary for corporations similarly situated in the
industry in which the Company or any such Restricted Subsidiary, as the case may
be, is then conducting business.
SECTION 4.14. Notice of Defaults. In the event that an Officer of the
------------------
Company becomes aware of any Default or Event of Default, the Company, promptly
after it becomes aware thereof, will give written notice thereof to the Trustee.
<PAGE>
53
SECTION 4.15. Compliance Certificates. (a) The Company shall deliver to
-----------------------
the Trustee, within 90 days after the end of each fiscal year, an Officers'
Certificate stating whether or not the signers know of any Default or Event of
Default that occurred during such fiscal year. Such certificate shall contain a
certification from the principal executive officer, principal financial officer
or principal accounting officer of the Company that a review has been conducted
of the activities of the Company and its Restricted Subsidiaries and the
Company's and its Restricted Subsidiaries' performance under this Indenture and
that the Company has complied with all conditions and covenants under this
Indenture. For purposes of this Section 4.15, such compliance shall be
determined without regard to any period of grace or requirement of notice
provided under this Indenture. If the Officers of the Company signing such
certificate do know of such a Default or Event of Default, the certificate shall
describe any such Default or Event of Default and its status. The first
certificate to be delivered pursuant to this Section 4.15(a) shall be for the
first fiscal year beginning after the execution of this Indenture. Except as set
forth herein, the Trustee shall have no obligation to monitor the Company's
compliance with its obligations set forth herein.
(b) The Company shall deliver to the Trustee, within 90 days after the end
of the Company's fiscal year, a certificate signed by the Company's independent
certified public accountants stating (i) that their audit examination has
included a review of the terms of this Indenture and the Notes as they relate to
accounting matters, (ii) that they have read the most recent Officers'
Certificate delivered to the Trustee pursuant to paragraph (a) of this Section
4.15 and (iii) whether, in connection with their audit examination, anything
came to their attention that caused them to believe that the Company was not in
compliance with any of the terms, covenants, provisions or conditions of Article
Four and Section 5.01 of this Indenture as they pertain to accounting matters
and, if any Default or Event of Default has come to their attention, specifying
the nature and period of existence thereof; provided that such independent
certified public accountants shall not be liable in respect of such statement by
reason of any failure to obtain knowledge of any such Default or Event of
Default that would not be disclosed in the course of an audit examination
conducted in accordance with generally accepted auditing standards in effect at
the date of such examination.
SECTION 4.16. Commission Reports and Reports to Holders. At all times
-----------------------------------------
from and after the earlier of (i) the date of the commencement of an Exchange
Offer or the effectiveness of a shelf registration statement pursuant to the
terms of the Registration Rights Agreement (the "Registration") and (ii) the
------------
date that is one year after the Closing Date, in either case, whether or not the
Company is then required to file reports with the Commission, the Company shall
file with the Commission all such reports and other information as it would be
required to file with the Commission by Sections 13(a) or 15(d) under the
Exchange Act if it were subject thereto. The Company shall supply the Trustee
and each Holder or shall supply to the Trustee for forwarding to each such
Holder, without cost to such Holder, copies of such reports and other
information. At all times prior to the earlier of the date of the Registration
and the date that is one year after the Closing Date, the Company shall supply
the Trustee and each Holder or shall supply to the
<PAGE>
54
Trustee for forwarding to each such Holder, without cost to such Holder,
quarterly and annual reports substantially equivalent to those which would be
required by the Exchange Act. In addition, at all times prior to the sale of the
Notes pursuant to an effective registration statement, upon the request of any
Holder or any prospective purchaser of the Notes designated by a Holder, the
Company shall supply to such Holder or such prospective purchaser the
information required under Rule 144A under the Securities Act.
Delivery of such reports, information and documents to the Trustee is for
informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
SECTION 4.17. Repurchase of Notes upon a Change of Control. The Company
--------------------------------------------
shall commence, within 30 days of the occurrence of a Change of Control, and
thereafter consummate an Offer to Purchase for all Notes then outstanding, at a
purchase price equal to 101% of the principal amount thereof on the relevant
Payment Date, plus accrued interest, if any, to the Payment Date.
SECTION 4.18. Waiver of Stay, Extension or Usury Laws. The Company
---------------------------------------
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay or extension law or any usury law or other law
that would prohibit or forgive the Company from paying all or any portion of the
principal of, premium, if any, or interest on the Notes as contemplated herein,
wherever enacted, now or at any time hereafter in force, or that may affect the
covenants or the performance of this Indenture; and (to the extent that it may
lawfully do so) the Company hereby expressly waives all benefit or advantage of
any such law and covenants that it will not hinder, delay or impede the
execution of any power herein granted to the Trustee, but will suffer and permit
the execution of every such power as though no such law had been enacted.
SECTION 4.19. Limitation on Sale and Leaseback Transactions. The Company
---------------------------------------------
will not, and will not permit any Restricted Subsidiary to, enter into any Sale
and Leaseback Transaction.
The foregoing restriction does not apply to any Sale and Leaseback
Transaction if (i) the lease is for a period, including renewal rights, of not
in excess of three years; (ii) the lease secures or relates to industrial
revenue or pollution control bonds; (iii) the transaction is solely between the
Company and any Wholly Owned Restricted Subsidiary or solely between Wholly
Owned Restricted Subsidiaries; or (iv) the Company or such Restricted
Subsidiary, within 12 months after the sale or transfer of any assets or
properties is completed, applies an amount not less than the net proceeds
received from such sale in accordance with clause (A) or (B) of the first
paragraph of Section 4.10.
<PAGE>
55
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. Consolidation, Merger and Sale of Assets. The Company
----------------------------------------
shall not consolidate with, merge with or into, or sell, convey, transfer, lease
or otherwise dispose of all or substantially all of its property and assets (as
an entirety or substantially an entirety in one transaction or a series of
related transactions) to, any Person or permit any Person to merge with or into
the Company unless: (i) the Company shall be the continuing Person, or the
Person (if other than the Company) formed by such consolidation or into which
the Company is merged or that acquired or leased such property and assets of the
Company shall be a corporation organized and validly existing under the laws of
the United States of America or any jurisdiction thereof and shall expressly
assume, by a supplemental indenture, executed and delivered to the Trustee, all
of the obligations of the Company on all of the Notes and under this Indenture;
(ii) immediately after giving effect to such transaction, no Default or Event of
Default shall have occurred and be continuing; (iii) immediately after giving
effect to such transaction on a pro forma basis, the Company or any Person
becoming the successor obligor of the Notes (including any Person which would,
after giving effect to the merger or consolidation, properly classify the
Company as a Subsidiary in accordance with GAAP, and which expressly guarantees
the obligations of the Company under the Notes through a supplemental indenture)
shall have a Consolidated Net Worth equal to or greater than 90% of the
Consolidated Net Worth of the Company immediately prior to such transaction;
(iv) immediately after giving effect to such transaction on a pro forma basis,
the Company, or any Person becoming the successor obligor of the Notes
(including any Person which would, after giving effect to the merger or
consolidation, properly classify the Company as a Subsidiary in accordance with
GAAP, and which expressly guarantees the obligations of the Company under the
Notes through a supplemental indenture), as the case may be, shall have a
Consolidated Leverage Ratio not greater than 110% of the Consolidated Leverage
Ratio of the Company immediately prior to the transaction; provided, however,
that this clause (iv) shall not apply to a consolidation or merger with or into
a Wholly Owned Restricted Subsidiary with a positive net worth; and (v) the
Company delivers to the Trustee an Officers' Certificate (attaching the
arithmetic computations to demonstrate compliance with clauses (iii) and (iv)
above) and an Opinion of Counsel, in each case stating that such consolidation,
merger or transfer and such supplemental indenture comply with this provision
and that all conditions precedent provided for herein relating to such
transaction have been complied with; provided, however, that clauses (iii) and
(iv) above do not apply if, in the good faith determination of the Board of
Directors of the Company, whose determination shall be evidenced by a Board
Resolution, the principal purpose of such transaction is to change the state of
incorporation of the Company; provided further that, in connection with any such
merger or consolidation, no consideration (other than Capital Stock (other than
Disqualified Stock) in the surviving Person or the Company) shall be issued or
distributed to the stockholders of the Company; and provided further that any
such transaction shall not have as one of its purposes the evasion of the
foregoing limitations.
<PAGE>
56
SECTION 5.02. Successor Substituted. Upon any consolidation or merger,
---------------------
or any sale, conveyance, transfer, lease or other disposition of all or
substantially all of the property and assets of the Company in accordance with
Section 5.01 of this Indenture, the successor Person formed by such
consolidation or into which the Company is merged or to which such sale,
conveyance, transfer, lease or other disposition is made shall succeed to, and
be substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such successor Person had been named
as the Company herein; provided that the Company shall not be released from its
obligation to pay the principal of, premium, if any, or interest on the Notes in
the case of a lease of all or substantially all of its property and assets.
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default. An "Event of Default" shall occur with
----------------- ----------------
respect to the Notes if:
(a) the Company defaults in the payment of principal of (or premium,
if any, on) any Note when the same becomes due and payable at maturity,
upon acceleration, redemption or otherwise;
(b) the Company defaults in the payment of interest on any Note when
the same becomes due and payable, and such default continues for a period
of 30 days or a failure by the Company to make any of the first six
scheduled interest payments on the Notes on the applicable Interest Payment
Date;
(c) the Company defaults in the performance of, or breaches the
provisions of, Article Five or fails to make or consummate an Offer to
Purchase in accordance with Section 4.10 or 4.17;
(d) the Company defaults in the performance of or breaches any other
covenant or agreement of the Company in this Indenture or under the Notes
(other than a default specified in clause (a), (b) or (c) above) and such
default or breach continues for a period of 30 consecutive days after
written notice by the Trustee or the Holders of 25% or more in aggregate
principal amount of the Notes;
(e) there occurs with respect to any issue or issues of Indebtedness
of the Company or any Significant Subsidiary having an outstanding
principal amount of $10.0 million or more in the aggregate for all such
issues of all such Persons, whether such Indebtedness now exists or shall
hereafter be created, (I) an event of default that has caused the Holder
thereof to declare such Indebtedness to be due and payable prior to its
Stated
<PAGE>
57
Maturity and such Indebtedness has not been discharged in full or such
acceleration has not been rescinded or annulled within 30 days of such
acceleration and/or (II) the failure to make a principal payment at the
final (but not any interim) fixed maturity and such defaulted payment shall
not have been made, waived or extended within 30 days of such payment
default;
(f) any final judgment or order (not covered by insurance) for the
payment of money in excess of $10.0 million in the aggregate for all such
final judgments or orders against all such Persons (treating any
deductibles, self-insurance or retention as not so covered) shall be
rendered against the Company or any Significant Subsidiary and shall not be
paid or discharged, and there shall be any period of 30 consecutive days
following entry of the final judgment or order that causes the aggregate
amount for all such final judgments or orders outstanding and not paid or
discharged against all such Persons to exceed $10.0 million during which a
stay of enforcement of such final judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect;
(g) a court having jurisdiction in the premises enters a decree or
order for (A) relief in respect of the Company or any Significant
Subsidiary in an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, (B) appointment
of a receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of the Company or any Significant Subsidiary or for all or
substantially all of the property, and assets of the Company or any
Significant Subsidiary or (C) the winding-up or liquidation of the affairs
of the Company or any Significant Subsidiary and, in each case, such decree
or order shall remain unstayed and in effect for a period of 60 consecutive
days;
(h) the Company or any Significant Subsidiary (A) commences a
voluntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or consents to the entry of an order for
relief in an involuntary case under any such law, (B) consents to the
appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company or any
Significant Subsidiary or for all or substantially all of the property and
assets of the Company or any Significant Subsidiary or (C) effects any
general assignment for the benefit of creditors; or
(i) the Pledge Agreement shall cease to be in full force and effect
or to be enforceable in accordance with its terms, except as provided
therein.
SECTION 6.02. Acceleration. If an Event of Default (other than an
------------
Event of Default specified in clause (g) or (h) of Section 6.01 that occurs with
respect to the Company) occurs and is continuing under this Indenture, the
Trustee or the Holders of at least 25% in
<PAGE>
58
aggregate principal amount of the Notes then outstanding, by written notice to
the Company (and to the Trustee if such notice is given by the Holders), may,
and the Trustee at the request of such Holders shall, declare the aggregate
principal amount of, premium, if any, and accrued interest on the Notes to be
immediately due and payable. Upon a declaration of acceleration, such principal
amount, premium, if any, and accrued interest shall be immediately due and
payable. In the event of a declaration of acceleration because an Event of
Default set forth in clause (e) of Section 6.01 has occurred and is continuing,
such declaration of acceleration shall be automatically rescinded and annulled
if the event of default triggering such Event of Default pursuant to clause (e)
shall be remedied or cured by the Company or the relevant Significant Subsidiary
or waived by the Holders of the relevant Indebtedness within 60 days after the
declaration of acceleration with respect thereto. If an Event of Default
specified in clause (g) or (h) of Section 6.01 occurs with respect to the
Company, the principal amount of, premium, if any, and accrued interest on the
Notes then outstanding shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
Holder. The Holders of at least a majority in aggregate principal amount of the
outstanding Notes, by written notice to the Company and to the Trustee, may
waive all past defaults and rescind and annul a declaration of acceleration and
its consequences if (i) all existing Events of Default, other than the
nonpayment of the principal amount of, premium, if any, and interest on the
Notes that have become due solely by such declaration of acceleration, have been
cured or waived and (ii) the rescission would not conflict with any judgment or
decree of a court of competent jurisdiction.
SECTION 6.03. Other Remedies. If an Event of Default occurs and is
--------------
continuing, the Trustee may, and at the direction of the Holders of at least a
majority in aggregate principal amount of the outstanding Notes shall, pursue
any available remedy by a proceeding at law or in equity to collect the payment
of the principal amount of, premium, if any, or interest on the Notes or to
enforce the performance of any provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Notes or does not produce any of them in the proceeding.
SECTION 6.04. Waiver of Past Defaults. Subject to Sections 6.02, 6.07
-----------------------
and 9.02, the Holders of at least a majority in aggregate principal amount of
the outstanding Notes, by notice to the Trustee, may waive an existing Default
or Event of Default and its consequences, except a Default in the payment of the
principal of, premium, if any, or interest on any Note as specified in clause
(a) or (b) of Section 6.01 or in respect of a covenant or provision of this
Indenture that cannot be modified or amended without the consent of the Holder
of each outstanding Note affected. Upon any such waiver, such Default or Event
of Default shall cease to exist, and any Default or Event of Default arising
therefrom shall be deemed to have been cured, for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Default or
Event of Default or impair any right consequent thereto.
<PAGE>
59
SECTION 6.05. Control by Majority. The Holders of at least a majority in
-------------------
aggregate principal amount of the outstanding Notes may direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee. However, the Trustee
may refuse to follow any direction that conflicts with law or this Indenture,
that may involve the Trustee in personal liability, or that the Trustee
determines in good faith may be unduly prejudicial to the rights of Holders of
Notes not joining in the giving of such direction and may take any other action
it deems proper that is not inconsistent with any such direction received from
Holders of Notes.
SECTION 6.06. Limitation on Suits. A Holder may not pursue any remedy
-------------------
with respect to this Indenture or the Notes unless: (i) the Holder gives the
Trustee written notice of a continuing Event of Default; (ii) the Holders of at
least 25% in aggregate principal amount of outstanding Notes make a written
request to the Trustee to pursue the remedy; (iii) such Holder or Holders offer
the Trustee indemnity satisfactory to the Trustee against any costs, liability
or expense; (iv) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer of indemnity; and (v) during such 60-
day period, the Holders of a majority in aggregate principal amount of the
outstanding Notes do not give the Trustee a direction that is inconsistent with
the request. However, such limitations do not apply to the right of any Holder
of a Note to receive payment of the principal amount of, premium, if any, or
interest on, such Note or to bring suit for the enforcement of any such payment,
on or after the due date expressed in the Notes, which right shall not be
impaired or affected without the consent of such Holder.
For purposes of Section 6.05 of this Indenture and this Section 6.06, the
Trustee shall comply with TIA Section 316(a) in making any determination of
whether the Holders of the required aggregate principal amount of outstanding
Notes have concurred in any request or direction of the Trustee to pursue any
remedy available to the Trustee or the Holders with respect to this Indenture or
the Notes or otherwise under the law.
A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over such other Holder.
SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding any
------------------------------------
other provision of this Indenture, the right of any Holder of a Note to receive
payment of the principal of, premium, if any, or interest on, such Note or to
bring suit for the enforcement of any such payment, on or after the due date
expressed in the Notes, shall not be impaired or affected without the consent of
such Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event of Default in
--------------------------
payment of principal, premium or interest specified in clause (a), (b) or (c) of
Section 6.01 occurs and is continuing, the Trustee may recover judgment in its
own name and as trustee of an express trust against the Company or any other
obligor of the Notes for the whole amount of principal,
<PAGE>
60
premium, if any, and accrued interest remaining unpaid, together with interest
on overdue principal, premium, if any, and, to the extent that payment of such
interest is lawful, interest on overdue installments of interest, in each case
at the rate specified in the Notes, and such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file
--------------------------------
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee (including any claim for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07) and the Holders allowed in any judicial proceedings relative to
the Company (or any other obligor of the Notes), its creditors or its property
and shall be entitled and empowered to collect and receive any monies,
securities or other property payable or deliverable upon conversion or exchange
of the Notes or upon any such claims and to distribute the same, and any
custodian, receiver, assignee, trustee, liquidator, sequestrator or other
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay to
the Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 7.07. Nothing herein contained shall be
deemed to empower the Trustee to authorize or consent to, or accept or adopt on
behalf of any Holder, any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 6.10. Priorities. If the Trustee collects any money pursuant to
----------
this Article Six, it shall pay out the money in the following order:
First: to the Trustee for all amounts due under Section 7.07;
Second: to Holders for amounts then due and unpaid for the principal
of, premium, if any, and interest on the Notes in respect of which or for
the benefit of which such money has been collected, ratably, without
preference or priority of any kind, according to the amounts due and
payable on such Notes for principal, premium, if any, and interest,
respectively; and
Third: to the Company or any other obligors of the Notes, as their
interests may appear, or as a court of competent jurisdiction may direct.
The Trustee, upon prior written notice to the Company, may fix a record
date and payment date for any payment to Holders pursuant to this Section 6.10.
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61
SECTION 6.11. Undertaking for Costs. In any suit for the enforcement of
---------------------
any right or remedy under this Indenture or in any suit against the Trustee for
any action taken or omitted by it as Trustee, a court may require any party
litigant in such suit to file an undertaking to pay the costs of the suit, and
the court may assess reasonable costs, including reasonable attorneys' fees and
expenses, against any party litigant in the suit having due regard to the merits
and good faith of the claims or defenses made by the party litigant. This
Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.07, or a suit by Holders of more than 10% in principal
amount of the outstanding Notes.
SECTION 6.12. Restoration of Rights and Remedies. If the Trustee or any
----------------------------------
Holder has instituted any proceeding to enforce any right or remedy under this
Indenture and such proceeding has been discontinued or abandoned for any reason,
or has been determined adversely to the Trustee or to such Holder, then, and in
every such case, subject to any determination in such proceeding, the Company,
the Trustee and the Holders shall be restored severally and respectively to
their former positions hereunder and thereafter all rights and remedies of the
Company, Trustee and the Holders shall continue as though no such proceeding had
been instituted.
SECTION 6.13. Rights and Remedies Cumulative. Except as otherwise
------------------------------
provided with respect to the replacement or payment of mutilated, destroyed,
lost or wrongfully taken Notes in Section 2.09, no right or remedy herein
conferred upon or reserved to the Trustee or to the Holders is intended to be
exclusive of any other right or remedy, and every right and remedy shall, to the
extent permitted by law, be cumulative and in addition to every other right and
remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
SECTION 6.14. Delay or Omission Not Waiver. No delay or omission of the
----------------------------
Trustee or of any Holder to exercise any right or remedy accruing upon any Event
of Default shall impair any such right or remedy or constitute a waiver of any
such Event of Default or an acquiescence therein. Every right and remedy given
by this Article Six or by law to the Trustee or to the Holders may be exercised
from time to time, and as often as may be deemed expedient, by the Trustee or by
the Holders, as the case may be.
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. General. The duties and responsibilities of the Trustee
-------
shall be as provided by the TIA and as set forth herein. Notwithstanding the
foregoing, no provision of this Indenture shall require the Trustee to expend or
risk its own funds or otherwise incur any financial liability in the performance
of any of its duties hereunder, or in the exercise of any of its rights
<PAGE>
62
or powers, if it shall have reasonable grounds for believing that repayment of
such funds or adequate indemnity against such risk or liability is not
reasonably assured to it. Whether or not herein expressly so provided, every
provision of this Indenture relating to the conduct or affecting the liability
of or affording protection to the Trustee shall be subject to the provisions of
this Article Seven.
SECTION 7.02. Certain Rights of Trustee. Subject to TIA Sections 315(a)
-------------------------
through (d):
(i) the Trustee may conclusively rely, and shall be protected in
acting or refraining from acting, upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness or
other paper or document believed by it to be genuine and to have been
signed or presented by the proper Person. The Trustee need not investigate
any fact or matter stated in any such document;
(ii) before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel, which shall conform to
Section 11.04. The Trustee shall not be liable for any action it takes or
omits to take in good faith in reliance on such certificate or opinion;
(iii) the Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any attorney or
agent appointed with due care;
(iv) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders, unless such Holders shall have offered to the
Trustee security or indemnity satisfactory to the Trustee against the
costs, expenses and liabilities that might be incurred by it in compliance
with such request or direction;
(v) the Trustee shall not be liable for any action it takes or omits
to take in good faith that it believes to be authorized or within its
rights or powers or for any action it takes or omits to take in accordance
with the written direction of the Holders of a majority in principal amount
of the outstanding Notes relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee, under this
Indenture;
(vi) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the absence of
bad faith on its part, rely upon an Officers' Certificate;
<PAGE>
63
(vii) the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the Company
personally or by agent or attorney;
(viii) the Trustee may consult with counsel of its selection and the
advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(ix) the Trustee shall not be deemed to have notice of any Default
or Event of Default unless a Responsible Officer of the Trustee has actual
knowledge thereof or unless written notice of any event which is in fact
such a default is received by the Trustee at the Corporate Trust Office of
the Trustee, and such notice references the Securities and this Indenture;
and
(x) the rights, privileges, protections, immunities and benefits
given to the Trustee, including, without limitation, its right to be
indemnified, are extended to, and shall be enforceable by, the Trustee in
each of its capacities hereunder, and to each agent, custodian and other
Person employed to act hereunder.
SECTION 7.03. Individual Rights of Trustee. The Trustee, in its
----------------------------
individual or any other capacity, may become the owner or pledgee of Notes and
may otherwise deal with the Company or its Affiliates with the same rights it
would have if it were not the Trustee. Any Agent may do the same with like
rights. However, the Trustee is subject to TIA Sections 310(b) and 311.
SECTION 7.04. Trustee's Disclaimer. The Trustee (i) makes no
--------------------
representation as to the validity or adequacy of this Indenture or the Notes,
(ii) shall not be accountable for the Company's use or application of the
proceeds from the Notes and (iii) shall not be responsible for any statement in
the Notes other than its certificate of authentication.
SECTION 7.05. Notice of Default. If any Default or any Event of Default
-----------------
occurs and is continuing and if such Default or Event of Default is known to a
Responsible Officer of the Trustee, the Trustee shall mail to each Holder in the
manner and to the extent provided in TIA Section 313(c) notice of the Default or
Event of Default within 90 days after it occurs, unless such Default or Event of
Default has been cured or waived; provided, however, that, except in the case of
a default in the payment of the principal of, premium, if any, or interest on
any Note, the Trustee shall be protected in withholding such notice if and so
long as the board of directors, the
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64
executive committee or a trust committee of directors and/or Responsible
Officers of the Trustee in good faith determine that the withholding of such
notice is in the interest of the Holders.
SECTION 7.06. Reports by Trustee to Holders. Within 60 days after each
-----------------------------
July 15, beginning with July 15, 1999, the Trustee shall mail to each Holder as
provided in TIA Section 313(c) a brief report dated as of such July 15, if
required by TIA Section 313(a).
SECTION 7.07. Compensation and Indemnity. The Company shall pay to the
--------------------------
Trustee such compensation as shall be agreed upon in writing for its services.
The compensation of the Trustee shall not be limited by any law on compensation
of a trustee of an express trust. The Company shall reimburse the Trustee upon
request for all reasonable out-of-pocket expenses and advances incurred or made
by the Trustee. Such expenses shall include the reasonable compensation and
expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee against any and all losses,
liabilities, obligations, damages, penalties, judgments, actions, suits,
proceedings, reasonable costs and expenses (including reasonable fees and
disbursements of counsel) of any kind whatsoever which may be incurred by the
Trustee in connection with any investigative, administrative or judicial
proceeding (whether or not such indemnified party is designated a party to such
proceeding) arising out of or in connection with the acceptance or
administration of its duties under this Indenture including the costs and
expenses of defending itself against any claim (whether asserted by the Company,
or any Holder or any other Person); provided, however, that the Company need not
reimburse any expense or indemnify against any loss, obligation, damage,
penalty, judgment, action, suit, proceeding, reasonable cost or expense
(including reasonable fees and disbursements of counsel) of any kind whatsoever
which may be incurred by the Trustee in connection with any investigative,
administrative or judicial proceeding (whether or not such indemnified party is
designated a party to such proceeding) in which it is determined that the
Trustee acted with negligence, bad faith or willful misconduct. The Trustee
shall notify the Company promptly of any claim for which it may seek indemnity.
Failure by the Trustee to so notify the Company shall not relieve the Company of
its obligations hereunder, unless the Company is materially prejudiced thereby.
The Company shall defend the claim and the Trustee shall cooperate in the
defense. Unless otherwise set forth herein, the Trustee may have separate
counsel and the Company shall pay the reasonable fees and expenses of such
counsel. The Company need not pay for any settlement made without its consent,
which consent shall not be unreasonably withheld.
To secure the Company's payment obligations in this Section 7.07, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee, in its capacity as Trustee, except money or property
held in trust pursuant to the Pledge Agreement and money or property held in
trust to pay principal of, premium, if any, and interest on particular Notes.
<PAGE>
65
If the Trustee incurs expenses or renders services after the occurrence of
an Event of Default specified in clause (g) or (h) of Section 6.01, the expenses
and the compensation for the services will be intended to constitute expenses of
administration under Title 11 of the United States Bankruptcy Code or any
applicable federal or state law for the relief of debtors.
The provisions of this Section shall survive the termination of this
Indenture.
SECTION 7.08. Replacement of Trustee. A resignation or removal of the
----------------------
Trustee and appointment of a successor Trustee shall become effective only upon
the successor Trustee's acceptance of appointment as provided in this Section
7.08.
The Trustee may resign at any time by so notifying the Company in writing
at least 30 days prior to the date of the proposed resignation. The Holders of
a majority in principal amount of the outstanding Notes may remove the Trustee
by so notifying the Trustee in writing and may appoint a successor Trustee with
the consent of the Company. The Company may remove the Trustee if: (i) the
Trustee is no longer eligible under Section 7.10; (ii) the Trustee is adjudged a
bankrupt or an insolvent; (iii) a receiver or other public officer takes charge
of the Trustee or its property; or (iv) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed, or if a vacancy exists in the office
of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Company. If
the successor Trustee does not deliver its written acceptance required by the
next succeeding paragraph of this Section 7.08 within 30 days after the retiring
Trustee resigns or is removed, the retiring Trustee, the Company or the Holders
of a majority in principal amount of the outstanding Notes may petition, at the
expense of the Company, any court of competent jurisdiction for the appointment
of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company. Immediately after the delivery of
such written acceptance, subject to the Lien provided in Section 7.07, (i) the
retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee, (ii) the resignation or removal of the retiring Trustee shall
become effective and (iii) the successor Trustee shall have all the rights,
powers and duties of the Trustee under this Indenture. A successor Trustee
shall mail notice of its succession to each Holder.
If the Trustee is no longer eligible under Section 7.10, any Holder who
satisfies the requirements of TIA Section 310(b) may petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee.
<PAGE>
66
The Company shall give notice of any resignation and any removal of the
Trustee and each appointment of a successor Trustee to all Holders. Each notice
shall include the name of the successor Trustee and the address of its Corporate
Trust Office.
Notwithstanding replacement of the Trustee pursuant to this Section 7.08,
the Company's obligation under Section 7.07 shall continue for the benefit of
the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger, Etc. If the Trustee
--------------------------------
consolidates with, merges or converts into, or transfers all or substantially
all of its corporate trust business to, another corporation or national banking
association, the resulting, surviving or transferee corporation or national
banking association without any further act shall be the successor Trustee with
the same effect as if the successor Trustee had been named as the Trustee
herein.
SECTION 7.10. Eligibility. This Indenture shall always have a Trustee
-----------
who satisfies the requirements of TIA Section 310(a)(1). The Trustee shall have
a combined capital and surplus of at least $25 million as set forth in its most
recent published annual report of condition.
SECTION 7.11. Money Held in Trust. The Trustee shall not be liable for
-------------------
interest on any money received by it except as the Trustee may agree in writing
with the Company. Money held in trust by the Trustee need not be segregated
from other funds except to the extent required by law and except for money held
in trust under Article Eight of this Indenture.
SECTION 7.12. Withholding Taxes. The Trustee, as agent for the Company,
-----------------
shall exclude and withhold from each payment of principal and interest and other
amounts due hereunder or under the Notes any and all withholding taxes
applicable thereto as required by law. The Trustee agrees to act as such
withholding agent and, in connection therewith, whenever any present or future
taxes or similar charges are required to be withheld with respect to any amounts
payable in respect of the Notes, to withhold such amounts and timely pay the
same to the appropriate authority in the name of and on behalf of the Holders of
the Notes, that it will file any necessary withholding tax returns or statements
when due, and that, as promptly as possible after the payment thereof, it will
deliver to each Holder of a Note appropriate documentation showing the payment
thereof, together with such additional documentary evidence as such Holders may
reasonably request from time to time.
ARTICLE EIGHT
DISCHARGE OF INDENTURE
SECTION 8.01. Termination of Company's Obligations. Except as otherwise
------------------------------------
provided in this Section 8.01, the Company may terminate its obligations under
the Notes and this Indenture if:
<PAGE>
67
(i) all Notes previously authenticated and delivered (other than
destroyed, lost or stolen Notes that have been replaced or Notes that are
paid pursuant to Section 4.01 or Notes for whose payment money or
securities have theretofore been held in trust and thereafter repaid to the
Company, as provided in Section 8.05) have been delivered to the Trustee
for cancellation and the Company has paid all sums payable by it hereunder;
or
(ii) (A) the Notes mature within one year or all of them are to be
called for redemption within one year under arrangements satisfactory to
the Trustee for giving the notice of redemption, (B) the Company
irrevocably deposits in trust with the Trustee during such one-year period,
under the terms of an irrevocable trust agreement in form and substance
satisfactory to the Trustee, as trust funds solely for the benefit of the
Holders for that purpose, money or U.S. Government Obligations sufficient
(in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee), without consideration of any reinvestment of any interest
thereon, to pay principal, premium, if, any, and interest on the Notes to
maturity or redemption, as the case may be, and to pay all other sums
payable by it hereunder, (C) no Default or Event of Default with respect to
the Notes shall have occurred and be continuing on the date of such
deposit, (D) such deposit will not result in a breach or violation of, or
constitute a default under, this Indenture or any other agreement or
instrument to which the Company is a party or by which it is bound and (E)
the Company has delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, in each case stating that all conditions precedent
provided for herein relating to the satisfaction and discharge of this
Indenture have been complied with.
With respect to the foregoing clause (i), the Company's obligations under
Section 7.07 shall survive. With respect to the foregoing clause (ii), the
Company's obligations in Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.08,
2.09, 2.14, 4.01, 4.02, 7.07, 7.08, 8.05 and 8.06 shall survive until the Notes
are no longer outstanding. Thereafter, only the Company's obligations in
Sections 7.07, 8.05 and 8.06 shall survive. After any such irrevocable deposit,
the Trustee upon request shall acknowledge in writing the discharge of the
Company's obligations under the Notes and this Indenture except for those
surviving obligations specified above.
SECTION 8.02. Defeasance and Discharge of Indenture. The Company will be
-------------------------------------
deemed to have paid and will be discharged from any and all obligations in
respect of the Notes at any time on or after the 123rd day after the date of the
deposit referred to in clause (A) of this Section 8.02, and the provisions of
this Indenture will no longer be in effect with respect to the Notes, and the
Trustee, at the expense of the Company, shall execute proper instruments
acknowledging the same, except as to (i) rights of registration of transfer and
exchange, (ii) substitution of apparently mutilated, defaced, destroyed, lost or
stolen Notes, (iii) rights of Holders to receive payments of principal thereof
and interest thereon, (iv) the Company's obligations under Section 4.02, (v) the
rights, obligations and immunities of the Trustee hereunder and (vi) the rights
of the Holders as
<PAGE>
68
beneficiaries of this Indenture with respect to the property so deposited with
the Trustee payable to all or any of them; provided that the following
conditions shall have been satisfied:
(A) with reference to this Section 8.02, the Company has irrevocably
deposited or caused to be irrevocably deposited with the Trustee (or
another trustee satisfying the requirements of Section 7.10) and conveyed
all right, title and interest for the benefit of the Holders, under the
terms of an irrevocable trust agreement in form and substance satisfactory
to the Trustee as trust funds in trust, specifically pledged to the Trustee
for the benefit of the Holders as security for payment of the principal of,
premium, if any, and interest, if any, on the Notes, and dedicated solely
to, the benefit of the Holders, in and to (1) money in an amount, (2) U.S.
Government Obligations that, through the payment of interest, premium, if
any, and principal in respect thereof in accordance with their terms, will
provide, not later than one day before the due date of any payment referred
to in this clause (A), money in an amount or (3) a combination thereof in
an amount sufficient, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, to pay and discharge, without consideration of
the reinvestment of such interest and after payment of all federal, state
and local taxes or other charges and assessments in respect thereof payable
by the Trustee, the principal of, premium, if any, and accrued interest on
the outstanding Notes at the Stated Maturity of such principal or interest;
provided that the Trustee shall have been irrevocably instructed to apply
such money or the proceeds of such U.S. Government Obligations to the
payment of such principal, premium, if any, and interest with respect to
the Notes;
(B) such deposit will not result in a breach or violation of, or
constitute a default under, this Indenture or any other agreement or
instrument to which the Company or any of its Restricted Subsidiaries is a
party or by which the Company or any of its Restricted Subsidiaries is
bound;
(C) immediately after giving effect to such deposit on a pro forma
basis, no Event of Default or event that after the giving of notice or the
lapse of time or both would become an Event of Default, shall have occurred
and be continuing on the date of such deposit or during the period ending
on the 123rd day after such date of deposit;
(D) the Company shall have delivered to the Trustee (1) either (x) a
ruling directed to the Trustee received from the Internal Revenue Service
to the effect that the Holders will not recognize income, gain or loss for
federal income tax purposes as a result of the Company's exercise of its
option under this Section 8.02 and will be subject to federal income tax on
the same amount and in the same manner and at the same times as would have
been the case if such option had not been exercised or (y) an Opinion of
Counsel to the same effect as the ruling described in clause (x) above that
is based on and
<PAGE>
69
accompanied by a ruling to that effect published by the Internal Revenue
Service, unless there has been a change in the applicable federal income
tax law since the Closing Date such that a ruling from the Internal Revenue
Service is no longer required and (2) an Opinion of Counsel to the effect
that (x) the creation of the defeasance trust does not violate the
Investment Company Act of 1940 and (y) after the passage of 123 days
following the deposit (except, with respect to any trust funds for the
account of any Holder who may be deemed to be an "insider" within the
meaning of Section 101(31) of the United States Bankruptcy Code, after one
year following the deposit), the trust funds will not be subject to the
effect of Section 547 of the United States Bankruptcy Code or Section 15 of
the New York Debtor and Creditor Law in a case commenced by or against the
Company under either such statute, and either (I) the trust funds will no
longer remain the property of the Company (and therefore will not be
subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally) or
(II) if a court were to rule under any such law in any case or proceeding
that the trust funds remained property of the Company, (a) assuming such
trust funds remained in the possession of the Trustee prior to such court
ruling to the extent not paid to the Holders, the Trustee will hold, for
the benefit of the Holders, a valid and perfected security interest in such
trust funds that is not avoidable in bankruptcy or otherwise except for the
effect of Section 552(b) of the United States Bankruptcy Code on interest
on the trust funds accruing after the commencement of a case under such
statute and (b) the Holders will be entitled to receive adequate protection
of their interests in such trust funds if such trust funds are used in such
case or proceeding;
(E) if the Notes are then listed on a national securities exchange,
the Company shall have delivered to the Trustee an Opinion of Counsel to
the effect that such deposit, defeasance and discharge will not cause the
Notes to be delisted; and
(F) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, in each case stating that all conditions
precedent provided for herein relating to the defeasance contemplated by
this Section 8.02 have been complied with.
Notwithstanding the foregoing, prior to the end of the 123-day (or one
year) period referred to in clause (D)(2)(y) of this Section 8.02, none of the
Company's obligations under this Indenture shall be discharged. Subsequent to
the end of such 123-day (or one year) period with respect to this Section 8.02,
the Company's obligations in Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.08,
2.09, 2.14, 4.01, 4.02, 7.07, 7.08, 8.05 and 8.06 shall survive until the Notes
are no longer outstanding. Thereafter, only the Company's obligations in
Sections 7.07, 8.05 and 8.06 shall survive. If and when a ruling from the
Internal Revenue Service or an Opinion of Counsel referred to in clause (D)(1)
of this Section 8.02 is able to be provided specifically without regard to, and
not in reliance upon, the continuance of the Company's obligations under Section
4.01, then the Company's obligations under such Section 4.01 shall cease upon
delivery to the Trustee
<PAGE>
70
of such ruling or Opinion of Counsel and compliance with the other conditions
precedent provided for herein relating to the defeasance contemplated by this
Section 8.02.
After any such irrevocable deposit, the Trustee upon request shall
acknowledge in writing the discharge of the Company's obligations under the
Notes and this Indenture except for those surviving obligations in the
immediately preceding paragraph.
SECTION 8.03. Defeasance of Certain Obligations. The Company may omit to
---------------------------------
comply with any term, provision or condition set forth in clauses (iii) and (iv)
of Section 5.01 and Sections 4.03 through 4.16 and Section 4.19, and clause (c)
of Section 6.01 with respect to clauses (iii) and (iv) of Section 5.01, clause
(d) of Section 6.01 with respect to Sections 4.03 through 4.16 and Section 4.19
and clauses (e) and (f) of Section 6.01 shall be deemed not to be Events of
Default, in each case with respect to the outstanding Notes if:
(i) with reference to this Section 8.03, the Company has irrevocably
deposited or caused to be irrevocably deposited with the Trustee (or
another trustee satisfying the requirements of Section 7.10) and conveyed
all right, title and interest to the Trustee for the benefit of the
Holders, under the terms of an irrevocable trust agreement in form and
substance satisfactory to the Trustee as trust funds in trust, specifically
pledged to the Trustee for the benefit of the Holders as security for
payment of the principal of, premium, if any, and interest, if any, on the
Notes, and dedicated solely to, the benefit of the Holders, in and to (A)
money in an amount, (B) U.S. Government Obligations that, through the
payment of interest and principal in respect thereof in accordance with
their terms, will provide, not later than one day before the due date of
any payment referred to in this clause (i), money in an amount or (C) a
combination thereof in an amount sufficient, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay and discharge,
without consideration of the reinvestment of such interest and after
payment of all federal, state and local taxes or other charges and
assessments in respect thereof payable by the Trustee, the principal of,
premium, if any, and interest on the outstanding Notes on the Stated
Maturity of such principal or interest; provided that the Trustee shall
have been irrevocably instructed to apply such money or the proceeds of
such U.S. Government Obligations to the payment of such principal, premium,
if any, and interest with respect to the Notes;
(ii) such deposit will not result in a breach or violation of, or
constitute a default under, this Indenture or any other agreement or
instrument to which the Company or any of its Restricted Subsidiaries is a
party or by which the Company or any of its Restricted Subsidiaries is
bound;
(iii) immediately after giving effect to such deposit on a pro forma
basis, no Event of Default or event that after the giving of notice or the
lapse of time or both would
<PAGE>
71
become an Event of Default, shall have occurred and be continuing on the
date of such deposit or during the period ending on the 123rd day after
such date of deposit;
(iv) the Company has delivered to the Trustee an Opinion of Counsel to
the effect that (A) the creation of the defeasance trust does not violate
the Investment Company Act of 1940 and (B) after the passage of 123 days
following the deposit (except, with respect to any trust funds for the
account of any Holder who may be deemed to be an "insider" within the
meaning of Section 101(31) of the United States Bankruptcy Code, after one
year following the deposit), the trust funds will not be subject to the
effect of Section 547 of the United States Bankruptcy Code or Section 15 of
the New York Debtor and Creditor Law in a case commenced by or against the
Company under either such statute, and either (1) the trust funds will no
longer remain the property of the Company (and therefore will not be
subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally) or
(2) if a court were to rule under any such law in any case or proceeding
that the trust funds remained property of the Company, (x) assuming such
trust funds remained in the possession of the Trustee prior to such court
ruling to the extent not paid to the Holders, the Trustee will hold, for
the benefit of the Holders, a valid and perfected security interest in such
trust funds that is not avoidable in bankruptcy or otherwise (except for
the effect of Section 552(b) of the United States Bankruptcy Code on
interest on the trust funds accruing after the commencement of a case under
such statute) and (y) the Holders will be entitled to receive adequate
protection of their interests in such trust funds if such trust funds are
used in such case or proceeding;
(v) if the Notes are then listed on a national securities exchange,
the Company shall have delivered to the Trustee an Opinion of Counsel to
the effect that such deposit, defeasance and discharge will not cause the
Notes to be delisted; and
(vi) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, in each case stating that all conditions
precedent provided for herein relating to the defeasance contemplated by
this Section 8.03 have been complied with.
SECTION 8.04. Application of Trust Money; Miscellaneous Provisions.
----------------------------------------------------
Subject to Section 8.06, the Trustee or Paying Agent shall hold in trust money
or U.S. Government Obligations deposited with it pursuant to Section 8.01, 8.02
or 8.03, as the case may be, and shall apply the deposited money and the money
from U.S. Government Obligations in accordance with the Notes and this Indenture
to the payment of principal of, premium, if any, and interest on the Notes; but
such money need not be segregated from other funds except to the extent required
by law.
<PAGE>
72
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 8.01, 8.02 or 8.03 or the principal and interest
received in respect thereof other than any such tax, fee or other charge which
by law is for the account of the Holders of outstanding Notes.
SECTION 8.05. Repayment to Company. Subject to Sections 7.07, 8.01, 8.02
--------------------
and 8.03, the Trustee and the Paying Agent shall promptly pay to the Company
upon request set forth in an Officers' Certificate any excess money held by them
at any time and thereupon shall be relieved from all liability with respect to
such money. The Trustee and the Paying Agent shall pay to the Company upon
request any money held by them for the payment of principal, premium, if any, or
interest that remains unclaimed for two years. After payment to the Company,
Holders entitled to such money must look to the Company for payment as general
creditors unless an applicable law designates another Person, and all liability
of the Trustee and such Paying Agent with respect to such money shall cease.
SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is unable to
-------------
apply any money or U.S. Government Obligations in accordance with Section 8.01,
8.02 or 8.03, as the case may be, by reason of any legal proceeding or by reason
of any order or judgment of any court or governmental authority enjoining,
restraining or otherwise prohibiting such application, the Company's obligations
under this Indenture and the Notes shall be revived and reinstated as though no
deposit had occurred pursuant to Section 8.01, 8.02 or 8.03, as the case may be,
until such time as the Trustee or Paying Agent is permitted to apply all such
money or U.S. Government Obligations in accordance with Section 8.01, 8.02 or
8.03, as the case may be; provided that, if the Company has made any payment of
principal of, premium, if any, or interest on any Notes because of the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Notes to receive such payment from the money or U.S.
Government Obligations held by the Trustee or Paying Agent.
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders. The Company, when authorized
--------------------------
by its Board of Directors (as evidenced by a Board Resolution delivered to the
Trustee), and the Trustee may amend or supplement this Indenture or the Notes
without notice to or the consent of any Holder:
(1) to cure any ambiguity, defect or inconsistency in this Indenture;
provided that such amendments or supplements shall not, in the good faith
opinion of the Board of Directors as evidenced by a Board Resolution,
adversely affect the interests of the Holders in any material respect;
<PAGE>
73
(2) to comply with Article Five;
(3) to comply with any requirements of the Commission in connection
with the qualification of this Indenture under the TIA;
(4) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee; or
(5) to make any change that, in the good faith opinion of the Board
of Directors as evidenced by a Board Resolution, does not materially and
adversely affect the rights of any Holder.
SECTION 9.02. With Consent of Holders. Subject to Sections 6.04 and 6.07
-----------------------
and without prior notice to the Holders, the Company, when authorized by its
Board of Directors (as evidenced by a Board Resolution delivered to the
Trustee), and the Trustee may amend this Indenture, the Pledge Agreement and the
Notes with the written consent of the Holders of a majority in principal amount
of the Notes then outstanding, and the Holders of a majority in principal amount
of the Notes then outstanding by written notice to the Trustee may waive future
compliance by the Company with any provision of this Indenture, the Notes or the
Pledge Agreement.
Notwithstanding the provisions of this Section 9.02, without the consent of
each Holder affected, an amendment or waiver, including a waiver pursuant to
Section 6.04, may not:
(i) change the Stated Maturity of the principal of, or any
installment of interest on, any Note;
(ii) reduce the principal amount of, or premium, if any, or interest
on, any Note;
(iii) change any place or currency of payment of principal of, or
premium, if any, or interest on, any Note;
(iv) impair the right to institute suit for the enforcement of any
payment on or after the Stated Maturity (or, in the case of redemption, on
or after the Redemption Date) of any Note;
(v) reduce the percentage in principal amount of outstanding Notes
the consent of whose Holders is required for any such supplemental
indenture, for any waiver of compliance with certain provisions of this
Indenture or certain Defaults and their consequences provided for in this
Indenture;
<PAGE>
74
(vi) waive a default in the payment of principal of, premium, if
any, or interest on, any Note;
(vii) modify Article Ten or the Pledge Agreement in a manner that
adversely affects the right of any Holder in any material respect; or
(viii) modify any of the provisions of this Section 9.02, except to
increase any such percentage or to provide that certain other provisions of
this Indenture cannot be modified or waived without the consent of the
Holder of each outstanding Note affected thereby.
It shall not be necessary for the consent of the Holders under this Section
9.02 to approve the particular form of any proposed amendment, supplement or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section 9.02 becomes
effective, the Company shall mail to the Holders affected thereby a notice
briefly describing the amendment, supplement or waiver. The Company will mail
supplemental indentures to Holders upon request. Any failure of the Company to
mail such notice, or any defect therein, shall not, however, in any way impair
or affect the validity of any such supplemental indenture or waiver.
SECTION 9.03. Revocation and Effect of Consent. Until an amendment or
--------------------------------
waiver becomes effective, a consent to it by a Holder is a continuing consent by
the Holder and every subsequent Holder of a Note or portion of a Note that
evidences the same debt as the Note of the consenting Holder, even if notation
of the consent is not made on any Note. However, any such Holder or subsequent
Holder may revoke the consent as to its Note or portion of its Note. Such
revocation shall be effective only if the Trustee receives the notice of
revocation before the time the amendment, supplement or waiver becomes
effective. An amendment, supplement or waiver shall become effective on receipt
by the Trustee of written consents from the Holders of the requisite percentage
in principal amount of the outstanding Notes.
The Company may, but shall not be obligated to, fix a record date for the
purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver. If a record date is fixed, then, notwithstanding the last
two sentences of the immediately preceding paragraph, those Persons who were
Holders at such record date (or their duly designated proxies) and only those
Persons shall be entitled to consent to such amendment, supplement or waiver or
to revoke any consent previously given, whether or not such Persons continue to
be Holders after such record date. No such consent shall be valid or effective
for more than 90 days after such record date.
<PAGE>
75
After an amendment, supplement or waiver becomes effective, it shall bind
every Holder unless it is of the type described in any of clauses (i) through
(v) of the second paragraph of Section 9.02. In case of an amendment or waiver
of the type described in clauses (i) through (v) of the second paragraph of
Section 9.02, the amendment or waiver shall bind each Holder who has consented
to it and every subsequent Holder of a Note that evidences the same indebtedness
as the Note of the consenting Holder.
SECTION 9.04. Notation on or Exchange of Notes. If an amendment,
--------------------------------
supplement or waiver changes the terms of a Note, the Trustee may require the
Holder to deliver it to the Trustee. At the Company's expense, the Trustee may
place an appropriate notation on the Note about the changed terms and return it
to the Holder and the Trustee may place an appropriate notation on any Note
thereafter authenticated. Alternatively, if the Company or the Trustee so
determines, the Company in exchange for the Note shall issue and the Trustee
shall authenticate a new Note that reflects the changed terms. Failure to make
the appropriate notation, or issue a new Note, shall not affect the validity and
effect of such amendment, supplement or waiver.
SECTION 9.05. Trustee to Sign Amendments, Etc. The Trustee shall be
-------------------------------
entitled to receive, and shall be fully protected in relying upon, an Opinion of
Counsel stating that the execution of any amendment, supplement or waiver
authorized pursuant to this Article Nine is authorized or permitted by this
Indenture and that it will be valid and binding upon the Company. Subject to the
preceding sentence, the Trustee shall sign such amendment, supplement or waiver
if the same does not adversely affect the rights, duties, liabilities or
immunities of the Trustee. The Trustee may, but shall not be obligated to,
execute any such amendment, supplement or waiver that affects the Trustee's own
rights, duties or immunities under this Indenture or otherwise.
SECTION 9.06. Conformity with Trust Indenture Act. Every supplemental
-----------------------------------
indenture executed pursuant to this Article Nine shall conform to the
requirements of the TIA as then in effect.
ARTICLE TEN
SECURITY
SECTION 10.01. Security. (a) On the Closing Date, the Company shall (i)
--------
enter into the Pledge Agreement and comply with the terms and provisions thereof
and (ii) purchase the Pledged Securities to be pledged to the Trustee for the
benefit of the Holders in such amount as will be sufficient upon receipt of
scheduled interest and principal payments of such Pledged Securities, in the
opinion of a nationally recognized firm of independent public accountants
selected by the Company, to provide for payment in full of the first six
scheduled interest payments due on the Notes. The Pledged Securities shall be
pledged by the Company to the Trustee for the benefit of
<PAGE>
76
the Holders and shall be held by the Collateral Agent in the Pledge Account
pending disposition pursuant to the Pledge Agreement.
In the event the Exchange Offer is not consummated and the Shelf Registration
Statement is not declared effective on or prior to July 29, 1999 and the
interest rate on the Notes is increased by .5% per annum as required by this
Indenture, the Company shall purchase and deliver to the Collateral Agent
additional Pledged Securities in such amount as will be sufficient upon receipt
of scheduled interest and/or principal payments of all Pledged Securities
thereafter held in the Pledged Account, in the opinion of a nationally
recognized firm of independent public accountants selected by the Company, to
provide payment for the first six scheduled interest payments due on the Notes
(assuming the additional .5% per annum remains in effect for the entire period).
The additional Pledged Securities shall be pledged by the Company to the
Collateral Agent for the benefit of the Holders and shall be held by the
Collateral Agent in the Pledged Account.
(b) Each Holder, by its acceptance of a Note, consents and agrees to the
terms of the Pledge Agreement (including, without limitation, the provisions
providing for foreclosure and release of the Pledged Securities) as the same may
be in effect or may be amended from time to time in accordance with its terms,
and authorizes and directs the Trustee and the Collateral Agent to enter into
the Pledge Agreement and to perform its respective obligations and exercise its
respective rights thereunder in accordance therewith. The Company will do or
cause to be done all such acts and things as may be necessary or proper, or as
may be required by the provisions of the Pledge Agreement, to assure and confirm
to the Trustee the security interest in the Pledged Securities contemplated
hereby, by the Pledge Agreement or any part thereof, as from time to time
constituted, so as to render the same available for the security and benefit of
this Indenture and of the Notes secured hereby, according to the intent and
purposes herein expressed. The Company shall take, or shall cause to be taken,
upon request of the Trustee, any and all actions reasonably required to cause
the Pledge Agreement to create and maintain, as security for the obligations of
the Company under this Indenture and the Notes, valid and enforceable first
priority liens in and on all the Pledged Securities, in favor of the Trustee,
superior to and prior to the rights of third Persons and subject to no other
Liens.
(c) The release of any Pledged Securities pursuant to the Pledge Agreement
will not be deemed to impair the security under this Indenture in contravention
of the provisions hereof if and to the extent the Pledged Securities are
released pursuant to this Indenture and the Pledge Agreement. To the extent
applicable, the Company shall cause TIA Section 314(d) relating to the release
of property or securities from the Lien and security interest of the Pledge
Agreement and relating to the substitution therefor of any property or
securities to be subjected to the Lien and security interest of the Pledge
Agreement to be complied with. Any certificate or opinion required by TIA
Section 314(d) may be made by an Officer of the Company, except in cases where
TIA Section 314(d) requires that such certificate or opinion be made by an
independent Person, which Person shall be an independent engineer, appraiser or
other expert selected by the Company.
<PAGE>
77
(d) The Company shall cause TIA Section 314(b), relating to Opinions of
Counsel regarding the Lien under the Pledge Agreement, to be complied with. The
Trustee may, to the extent permitted by Sections 7.01 and 7.02 hereof, accept as
conclusive evidence of compliance with the foregoing provisions the appropriate
statements contained in such Opinions of Counsel.
(e) The Trustee may, in its sole discretion and without the consent of the
Holders, on behalf of the Holders, take all actions it deems necessary or
appropriate in order to (i) enforce any of the terms of the Pledge Agreement and
(ii) collect and receive any and all amounts payable in respect of the
obligations of the Company thereunder. The Trustee shall have the authority
necessary in order to institute and maintain such suits and proceedings as the
Trustee may deem expedient to preserve or protect its interests and the
interests of the Holders in the Pledged Securities (including the authority to
institute and maintain suits or proceedings to restrain the enforcement of or
compliance with any legislative or other governmental enactment, rule or order
that may be unconstitutional or otherwise invalid if the enforcement of, or
compliance with, such enactment, rule or order would impair the security
interest hereunder or be prejudicial to the interests of the Holders or of the
Trustee).
(f) Beyond the exercise of reasonable care in the custody and preservation
thereof, the Trustee shall have no duty as to any Pledged Securities in its
possession or control or in the possession or control of the Collateral Agent or
any income thereon or as to preservation of rights against prior parties or any
other rights pertaining thereto, and the Trustee shall not be responsible for
filing any financing or continuation statements or recording any documents or
instruments in any public office at any time or times or otherwise perfecting or
maintaining the perfection of any security interest in the Pledged Securities.
The Trustee shall be deemed to have exercised reasonable care in the custody and
preservation of the Pledged Securities in its possession if the Pledged
Securities are accorded treatment substantially equal to that which it accords
its own property or property held in similar accounts and shall not be liable or
responsible for any loss or diminution in the value of any of the Pledged
Securities, by reason of the act or omission of the Collateral Agent, any
carrier, forwarding agency or other agent or bailee selected by the Trustee in
good faith.
(g) The Trustee shall not be responsible for the existence, genuineness or
value of any of the Pledged Securities or for the validity, perfection, priority
or enforceability of the Liens in any of the Pledged Securities, whether
impaired by operation of law or by reason of any action or omission to act on
its part hereunder, except to the extent such action or omission constitutes
gross negligence, bad faith or wilful misconduct on the part of the Trustee, for
the validity or sufficiency of the Pledged Securities or any agreement or
assignment contained therein, for the validity of the title of the Company to
the Pledged Securities, for insuring the Pledged Securities or for the payment
of taxes, charges, assessments or Liens upon the Pledged Securities or otherwise
as to the maintenance of the Pledged Securities. The Trustee shall have no duty
to ascertain or inquire as to the performance or observance of any of the terms
of this Indenture or the Pledge Agreement by the Company or the Collateral
Agent.
<PAGE>
78
ARTICLE ELEVEN
MISCELLANEOUS
SECTION 11.01. Trust Indenture Act of 1939. Prior to the effectiveness
---------------------------
of the Registration Statement, this Indenture shall incorporate and be governed
by the provisions of the TIA that are required to be part of and to govern
indentures qualified under the TIA. After the effectiveness of the Registration
Statement, this Indenture shall be subject to the provisions of the TIA that are
required to be a part of this Indenture and shall, to the extent applicable, be
governed by such provisions.
SECTION 11.02. Notices. Any notice or communication shall be
-------
sufficiently given if in writing and delivered in Person, mailed by first-class
mail or sent by telecopier transmission addressed as follows:
if to the Company:
-----------------
TVN Entertainment Corporation
2901 West Alameda Avenue, 7th Floor
Burbank, California 91505
Fax: (818) 526-5001
Attention: Chief Financial Officer
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304
Fax: (650) 493-6811
Attention: Robert P. Latta, Esq.
if to the Trustee:
-----------------
The Bank of New York
101 Barclay Street
New York, NY 10286
Fax: (212) 815-5915
Attention: Corporate Trust Trustee Administration
The Company or the Trustee by notice to the other may designate additional
or different addresses for subsequent notices or communications.
<PAGE>
79
Any notice or communication mailed to a Holder shall be mailed to it at its
address as it appears on the Security Register by first-class mail and shall be
sufficiently given to such Holder if so mailed within the time prescribed.
Copies of any such communication or notice to a Holder shall also be mailed to
the Trustee and each Agent at the same time.
Failure to transmit a notice or communication to a Holder as provided
herein or any defect in any such notice shall not affect its sufficiency with
respect to other Holders. Except for a notice to the Trustee, which is deemed
given only when received, and except as otherwise provided in this Indenture, if
a notice or communication is mailed in the manner provided in this Section
11.02, it is duly given, whether or not the addressee receives it.
Where this Indenture provides for notice in any manner, such notice may be
waived in writing by the Person entitled to receive such notice, either before
or after the event, and such waiver shall be the equivalent of such notice.
Waivers of notice by Holders shall be filed with the Trustee, but such filing
shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
In case by reason of the suspension of regular mail service or by reason of
any other cause it shall be impracticable to give such notice by mail, then such
notification as shall be made with the approval of the Trustee shall constitute
a sufficient notification for every purpose hereunder.
SECTION 11.03. Certificate and Opinion as to Conditions Precedent. Upon
--------------------------------------------------
any request or application by the Company to the Trustee to take any action
under this Indenture, the Company shall furnish to the Trustee:
(i) an Officers' Certificate stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(ii) an Opinion of Counsel stating that, in the opinion of such
Counsel, all such conditions precedent have been complied with.
SECTION 11.04. Statements Required in Certificate or Opinion. Each
---------------------------------------------
certificate or opinion with respect to compliance with a condition or covenant
provided for in this Indenture shall include:
(i) a statement that each Person signing such certificate or opinion
has read such covenant or condition and the definitions herein relating
thereto;
<PAGE>
80
(ii) a brief statement as to the nature and scope of the examination
or investigation upon which the statement or opinion contained in such
certificate or opinion is based;
(iii) a statement that, in the opinion of each such Person, such
Person has made such examination or investigation as is necessary to enable
such Person to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(iv) a statement as to whether or not, in the opinion of each such
Person, such condition or covenant has been complied with; provided,
however, that, with respect to matters of fact, an Opinion of Counsel may
rely on an Officers' Certificate or certificates of public officials.
SECTION 11.05. Rules by Trustee, Paying Agent or Registrar. The Trustee
-------------------------------------------
may make reasonable rules for action by or at a meeting of Holders. The Paying
Agent or Registrar may make reasonable rules for its functions.
SECTION 11.06. Payment Date Other Than a Business Day. If an Interest
--------------------------------------
Payment Date, Redemption Date, Payment Date, Stated Maturity or date of maturity
of any Note shall not be a Business Day, then payment of principal of, premium,
if any, or interest on such Note, as the case may be, need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the Interest Payment Date, Payment Date or Redemption
Date, or at the Stated Maturity or date of maturity of such Note; provided that
no interest shall accrue for the period from and after such Interest Payment
Date, Payment Date, Redemption Date, Stated Maturity or date of maturity, as the
case may be.
SECTION 11.07. Governing Law. The laws of the State of New York shall
-------------
govern this Indenture and the Notes, without regard to conflicts of laws
principles thereof. The Trustee, the Company and the Holders agree to submit to
the jurisdiction of the courts of the State of New York in any action or
proceeding arising out of or relating to this Indenture or the Notes.
SECTION 11.08. No Adverse Interpretation of Other Agreements. This
---------------------------------------------
Indenture may not be used to interpret another indenture, loan or debt agreement
of the Company or any Subsidiary of the Company. Any such indenture, loan or
debt agreement may not be used to interpret this Indenture.
SECTION 11.09. No Recourse Against Others. No recourse for the payment
--------------------------
of the principal of, premium, if any, or interest on any of the Notes, or for
any claim based thereon or otherwise in respect thereof, and no recourse under
or upon any obligation, covenant or agreement of the Company contained in this
Indenture, or in any of the Notes, or because of the creation of
<PAGE>
81
any Indebtedness represented thereby, shall be had against any incorporator or
against any past, present or future partner, shareholder, other equityholder,
officer, director, employee or controlling person, as such, of the Company or of
any successor Person, either directly or through the Company or any successor
Person, whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise; it being expressly
understood that all such liability is hereby expressly waived and released by
each Holder as a condition of, and as a consideration for, the execution of this
Indenture and the issue of the Notes.
SECTION 11.10. Successors. All agreements of the Company in this
----------
Indenture and the Notes shall bind its successors. All agreements of the
Trustee in this Indenture shall bind its successor.
SECTION 11.11. Duplicate Originals. The parties may sign any number of
-------------------
copies of this Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement.
SECTION 11.12. Separability. In case any provision in this Indenture or
------------
in the Notes shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
SECTION 11.13. Table of Contents, Headings, Etc. The Table of Contents,
--------------------------------
Cross-Reference Table and headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, are not to be
considered a part hereof and shall in no way modify or restrict any of the terms
and provisions hereof.
SECTION 11.14. Registration Rights. The Holders of the Notes will be
-------------------
entitled to the benefits, and subject to the restrictions, of the Registration
Rights Agreement, and each Holder of Notes shall be deemed to be a "Holder" for
purposes of and as defined in the Registration Rights Agreement.
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, all as of the date first written above.
TVN ENTERTAINMENT CORPORATION
By: /s/ Arthur Fields
___________________________________
Name: Arthur Fields
Title: Senior Vice President,
Chief Administrative
Officer and Secretary
THE BANK OF NEW YORK,
as Trustee
By: /s/ Michael Culhane
___________________________________
Name: Michael Culhane
Title: Vice President
<PAGE>
EXHIBIT A
---------
[FACE OF NOTE]
TVN ENTERTAINMENT CORPORATION
[ ]% Senior Note Due 2008
[CUSIP] [CINS] __________
No. $_________
TVN ENTERTAINMENT CORPORATION, a Delaware corporation (the "Company", which
term includes any successor under this Indenture hereinafter referred to), for
value received, promises to pay to ____________, or its registered assigns, the
principal sum of __________ ($_________) on August 1, 2008.
Interest Payment Dates: February 1 and August 1, commencing February 1,
1999.
Regular Record Dates: January 15 and July 15.
Reference is hereby made to the further provisions of this Note set forth
on the reverse hereof, which further provisions shall for all purposes have the
same effect as if set forth at this place.
<PAGE>
A-2
IN WITNESS WHEREOF, the Company has caused this Note to be signed manually
or by facsimile by its duly authorized officers.
TVN ENTERTAINMENT CORPORATION
By: ___________________________________
Name:
Title:
By: ___________________________________
Name:
Title:
(Trustee's Certificate of Authentication)
This is one of the Notes described in the within-mentioned Indenture.
Date:
THE BANK OF NEW YORK,
as Trustee
By:___________________________________________
Authorized Signatory
<PAGE>
A-3
[REVERSE SIDE OF NOTE]
TVN ENTERTAINMENT CORPORATION
14% Senior Note due 2008
1. Principal and Interest.
----------------------
The Company will pay the principal of this Note on August 1, 2008.
The Company promises to pay interest on the principal amount of this Note
on each Interest Payment Date, as set forth below, at the rate per annum shown
above.
Interest will be payable semi-annually (to the Holders of record of the
Notes at the close of business on the January 15 or July 15 immediately
preceding the Interest Payment Date) on each Interest Payment Date, commencing
February 1, 1999. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
If an exchange offer (the "Exchange Offer") registered under the Securities
Act is not consummated, or a shelf registration statement (the "Shelf
Registration Statement") under the Securities Act with respect to resales of the
Notes is not declared effective by the Commission, on or before July 29, 1999 in
accordance with the terms of the Notes Registration Rights Agreement dated July
29, 1998 among the Company and Morgan Stanley & Co. Incorporated, interest (in
addition to interest otherwise accruing on the Notes) will accrue at the rate of
0.5% per annum and be payable in cash semiannually, in arrears, on each Interest
Payment Date, commencing February 1, 2000, until the Exchange Offer is
consummated or the Shelf Registration Statement is declared effective. The
Holder of this Note is entitled to the benefits of such Notes Registration
Rights Agreement.
The Company shall pay interest on overdue principal and premium, if any,
and interest on overdue installments of interest, to the extent lawful, at a
rate per annum that is 2% in excess of the rate otherwise payable.
<PAGE>
A-4
2. Method of Payment.
-----------------
The Company will pay interest (except defaulted interest) on the principal
amount of the Notes as provided above on each of February 1 and August 1 to the
persons who are Holders (as reflected in the Security Register at the close of
business on such February 15 and August 15 immediately preceding the Interest
Payment Date), in each case, even if the Note is canceled on registration of
transfer or registration of exchange after such record date; provided that, with
respect to the payment of principal, the Company will make payment to the Holder
that surrenders this Note to a Paying Agent on or after August 1, 2008.
The Company will pay principal, premium, if any, and as provided above,
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts. However, the Company may pay
principal, premium, if any, and interest by its check payable in such money. It
may mail an interest check to a Holder's registered address (as reflected in the
Security Register). If a payment date is a date other than a Business Day at a
place of payment, payment may be made at that place on the next succeeding day
that is a Business Day and no interest shall accrue for the intervening period.
3. Paying Agent and Registrar.
--------------------------
Initially, the Trustee will act as authenticating agent, Paying Agent and
Registrar. The Company may change any authenticating agent, Paying Agent or
Registrar without notice. The Company, any Subsidiary or any Affiliate of any
of them may act as Paying Agent, Registrar or co-Registrar.
4. Indenture; Limitations.
----------------------
The Company issued the Notes under an Indenture dated as of July 29, 1998
(the "Indenture"), between the Company and The Bank of New York, trustee (the
"Trustee"). Capitalized terms herein are used as defined in this Indenture
unless otherwise indicated. The terms of the Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act. The Notes are subject to all such terms, and Holders are
referred to the Indenture and the Trust Indenture Act for a statement of all
such terms. To the extent permitted by applicable law, in the event of any
inconsistency between the terms of this Note and the terms of the Indenture, the
terms of the Indenture shall control.
The Notes are general unsecured obligations of the Company.
<PAGE>
A-5
5. Redemption.
----------
The Notes will be redeemable, at the Company's option, in whole or in part,
at any time or from time to time, on or after August 1, 2003 and prior to
maturity, upon not less than 30 nor more than 60 days' prior notice mailed by
first class mail to each Holder's last address, as it appears in the Security
Register, at the following Redemption Prices (expressed in percentages of
principal amount), plus accrued and unpaid interest to the Redemption Date
(subject to the right of Holders of record on the relevant Regular Record Date
that is immediately prior to the Redemption Date to receive interest due on an
Interest Payment Date), if redeemed during the 12-month period commencing August
1 of the years set forth below:
Year Redemption Price
---- ----------------
2003 .................. 108.000%
2004 .................. 105.333%
2005 .................. 102.667%
2006 and thereafter ... 100.000%
At any time prior to August 1, 2001, the Company may redeem up to 35% of
the principal amount of the Notes with the proceeds of one or more Public Equity
Offerings following which there is a Public Market, at any time or from time to
time in part, at a Redemption Price (expressed as a percentage of principal
amount thereof) of 114.000%; provided that (i) Notes representing at least
$130.0 million aggregate principal amount remain outstanding after each such
redemption and (ii) notice of such redemption is mailed within 60 days after the
consummation of the related Public Equity Offering.
Notes in original denominations larger than $1,000 may be redeemed in part.
On and after the Redemption Date, interest ceases to accrue on Notes or portions
of Notes called for redemption, unless the Company defaults in the payment of
the Redemption Price.
6. Repurchase upon Change of Control.
---------------------------------
Upon the occurrence of any Change of Control, each Holder shall have the
right to require the repurchase of its Notes by the Company in cash pursuant to
the offer described in the Indenture at a purchase price equal to 101% of the
principal amount thereof on the relevant Payment Date, plus accrued and unpaid
interest, if any, to the date of purchase (the "Payment Date").
A notice of such Change of Control will be mailed within 30 days after any
Change of Control occurs to each Holder at its last address as it appears in the
Security Register. Notes in original denominations larger than $1,000 may be
sold to the Company in part. On and after the
<PAGE>
A-6
Payment Date, interest ceases to accrue on Notes or portions of Notes
surrendered for purchase by the Company, unless the Company defaults in the
payment of the purchase price.
7. Denominations; Transfer; Exchange.
---------------------------------
The Notes are in registered form without coupons in denominations of $1,000
of principal amount and integral multiples of $1,000 in excess thereof. A
Holder may register the transfer or exchange of Notes in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay any taxes and fees
required by law or permitted by the Indenture. The Registrar need not register
the transfer or exchange of any Notes selected for redemption. Also, it need
not register the transfer or exchange of any Notes for a period of 15 days
before the day of mailing of a notice of redemption of Notes selected for
redemption.
8. Persons Deemed Owners.
---------------------
A Holder shall be treated as the owner of a Note for all purposes.
9. Unclaimed Money.
---------------
If money for the payment of principal, premium, if any, or interest remains
unclaimed for two years, the Trustee and the Paying Agent will pay the money
back to the Company. After that, Holders entitled to the money must look to the
Company for payment, unless an abandoned property law designates another Person,
and all liability of the Trustee and such Paying Agent with respect to such
money shall cease.
10. Discharge Prior to Redemption or Maturity.
-----------------------------------------
If the Company deposits with the Trustee money or U.S. Government
Obligations sufficient to pay the then outstanding principal of, premium, if
any, and accrued interest, if any, on the Notes to redemption or maturity, (a)
the Company will be discharged from the Indenture and the Notes, except in
certain circumstances for certain sections thereof, or (b) the Company will be
discharged from certain covenants set forth in the Indenture.
11. Amendment; Supplement; Waiver.
-----------------------------
Subject to certain exceptions set forth in the Indenture, the Indenture,
the Pledge Agreement or the Notes may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the Notes
then outstanding, and any existing default or compliance with any provision may
be waived with the consent of the Holders of at least a majority in principal
amount of the Notes then outstanding. Without notice to or the consent of
<PAGE>
A-7
any Holder, the parties thereto may amend or supplement the Indenture or the
Notes to, among other things, cure any ambiguity, defect or inconsistency and
make any change that does not materially and adversely affect the rights of any
Holder.
12. Restrictive Covenants.
---------------------
The Indenture imposes certain limitations on the ability of the Company and
its Restricted Subsidiaries, among other things, to Incur additional
Indebtedness, make Restricted Payments, use the proceeds from Asset Sales,
engage in transactions with Affiliates or merge, consolidate or transfer
substantially all of its assets. Within 90 days after the end of each fiscal
year, the Company must report to the Trustee on compliance with such
limitations.
13. Successor Persons.
-----------------
When a successor Person or other entity assumes, in accordance with the
Indenture, all the obligations of its predecessor under the Notes and the
Indenture, the predecessor Person, subject to certain exceptions, will be
released from those obligations.
14. Defaults and Remedies.
---------------------
The following events constitute "Events of Default" under the Indenture:
(a) the Company defaults in the payment of principal of (or premium, if any, on)
any Note when the same becomes due and payable at maturity, upon acceleration,
redemption or otherwise; (b) the Company defaults in the payment of interest on
any Note when the same becomes due and payable, and such default continues for a
period of 30 days, or a failure by the Company to make any of the first six
scheduled interest payments on the Notes on the applicable Interest Payment
Date; (c) the Company defaults in the performance of, or breaches the provisions
of, Article Five or fails to make or consummate an Offer to Purchase in
accordance with Section 4.10 or 4.17; (d) the Company defaults in the
performance of or breaches any other covenant or agreement of the Company in the
Indenture or under the Notes (other than a default specified in clause (a), (b)
or (c) above) and such default or breach continues for a period of 30
consecutive days after written notice by the Trustee or the Holders of 25% or
more in aggregate principal amount of the Notes; (e) there occurs with respect
to any issue or issues of Indebtedness of the Company or any Significant
Subsidiary having an outstanding principal amount of $10.0 million or more in
the aggregate for all such issues of all such Persons, whether such Indebtedness
now exists or shall hereafter be created, (I) an event of default that has
caused the Holder thereof to declare such Indebtedness to be due and payable
prior to its Stated Maturity and such Indebtedness has not been discharged in
full or such acceleration has not been rescinded or annulled within 30 days of
such acceleration and/or (II) the failure to make a principal payment at the
final (but not any interim) fixed maturity and such defaulted payment shall not
have been made, waived or extended within 30 days of such payment default; (f)
any final judgment or order (not covered by insurance) for
<PAGE>
A-8
the payment of money in excess of $10.0 million in the aggregate for all such
final judgments or orders against all such Persons (treating any deductibles,
self-insurance or retention as not so covered) shall be rendered against the
Company or any Significant Subsidiary and shall not be paid or discharged, and
there shall be any period of 30 consecutive days following entry of the final
judgment or order that causes the aggregate amount for all such final judgments
or orders outstanding and not paid or discharged against all such Persons to
exceed $10.0 million during which a stay of enforcement of such final judgment
or order, by reason of a pending appeal or otherwise, shall not be in effect;
(g) a court having jurisdiction in the premises enters a decree or order for (A)
relief in respect of the Company or any Significant Subsidiary in an involuntary
case under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, (B) appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company or any
Significant Subsidiary or for all or substantially all of the property, and
assets of the Company or any Significant Subsidiary or (C) the winding up or
liquidation of the affairs of the Company or any Significant Subsidiary and, in
each case, such decree or order shall remain unstayed and in effect for a period
of 60 consecutive days; (h) the Company or any Significant Subsidiary (A)
commences a voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or consents to the entry of an order for
relief in an involuntary case under any such law, (B) consents to the
appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company or any
Significant Subsidiary or for all or substantially all of the property and
assets of the Company or any Significant Subsidiary or (C) effects any general
assignment for the benefit of creditors or (i) the Pledge Agreement shall cease
to be in full force and effect or to be enforceable in accordance with its
terms, except as provided therein.
If an Event of Default (other than an Event of Default specified in clause
(g) or (h) above that occurs with respect to the Company) occurs and is
continuing under the Indenture, the Trustee or the Holders of at least 25% in
aggregate principal amount of the Notes then outstanding, by written notice to
the Company (and to the Trustee if such notice is given by the Holders), may,
and the Trustee at the request of such Holders shall, declare the aggregate
principal amount of, premium, if any, and accrued interest on the Notes to be
immediately due and payable. Upon a declaration of acceleration, such principal
amount, premium, if any, and accrued interest shall be immediately due and
payable.
15. Security.
--------
The Company has entered into the Pledge Agreement and purchased and pledged
to the Collateral Agent for its benefit and the ratable benefit of the Holders
Pledged Securities in an amount sufficient upon receipt of scheduled interest
and principal payments on such securities to provide for payment in full of the
first six scheduled interest payments due on the Notes. The Pledged Securities
will be pledged by the Company to the Collateral Agent for its benefit and the
<PAGE>
A-9
ratable benefit of the Holders and will be held by the Collateral Agent in the
Pledge Account pending disbursement pursuant to the Pledge Agreement.
16. Trustee Dealings with Company.
-----------------------------
The Trustee under the Indenture, in its individual or any other capacity,
may make loans to, accept deposits from and perform services for the Company or
its Affiliates and may otherwise deal with the Company or its Affiliates as if
it were not the Trustee.
17. No Recourse Against Others.
--------------------------
No incorporator or any past, present or future partner, stockholder, other
equity Holder, officer, director, employee or controlling person as such, of the
Company or of any successor Person shall have any liability for any obligations
of the Company under the Notes or the Indenture or for any claim based on, in
respect of or by reason of, such obligations or their creation. Each Holder by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for the issuance of the Notes.
18. Authentication.
--------------
This Note shall not be valid until the Trustee or authenticating agent
manually signs the certificate of authentication on the other side of this Note.
19. Abbreviations.
-------------
Customary abbreviations may be used in the name of a Holder or an assignee,
such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties),
JT TEN (= joint tenants with right of survivorship and not as tenants in
common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors Act).
The Company will furnish a copy of the Indenture to any Holder upon written
request and without charge. Requests may be made to TVN Entertainment
Corporation, 2901 West Alameda Avenue, Seventh Floor, Burbank, California
91505, attention: Chief Financial Officer.
<PAGE>
A-10
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered Holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
- ----------------------------------
______________________________________________________________________________
Please print or typewrite name and address including zip code of assignee
______________________________________________________________________________
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing ___________________________________ attorney to transfer said Note on
the books of the Company with full power of substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL NOTES OTHER THAN EXCHANGE NOTES]
In connection with any transfer of this Note occurring prior to the date
which is the earlier of (i) the date the Shelf Registration Statement is
declared effective or (ii) the end of the period referred to in Rule 144(k)
under the Securities Act, the undersigned confirms that without utilizing any
general solicitation or general advertising that:
[Check One]
---------
[ ] (a) this Note is being transferred in compliance with the exemption from
registration under the Securities Act of 1933 provided by Rule 144A
thereunder.
or
--
[ ] (b) this Note is being transferred other than in accordance with (a) above
and documents are being furnished which comply with the conditions of
transfer set forth in this Note and the Indenture.
<PAGE>
A-11
If none of the foregoing boxes is checked, the Trustee or other Registrar shall
not be obligated to register this Note in the name of any Person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.08 of the Indenture shall have
been satisfied.
Date:_______________ _____________________________________________
NOTICE: The signature to this assignment
must correspond with the name as written upon
the face of the within-mentioned instrument
in every particular, without alteration or
any change whatsoever.
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this Note for
its own account or an account with respect to which it exercises sole investment
discretion and that it and any such account is a "qualified institutional buyer"
within the meaning of Rule 144A under the Securities Act of 1933 and is aware
that the sale to it is being made in reliance on Rule 144A and acknowledges that
it has received such information regarding the Company as the undersigned has
requested pursuant to Rule 144A or has determined not to request such
information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Dated:____________________ __________________________________________________
NOTICE: To be executed by an executive officer
<PAGE>
A-12
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to Section
4.10 or 4.17 of the Indenture, check the Box: [ ]
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 4.10 or 4.17 of the Indenture, state the amount:
$___________________.
Date: _________________
Your Signature: ________________________________________________________________
(Sign exactly as your name appears on the other side of this
Note)
Signature Guarantee: ______________________________
Signatures must be guaranteed by an "eligible guarantor
institution" meeting the requirements of the Trustee, which
requirements include membership or participation in the
Security Transfer Agent Medallion Program ("STAMP")
or such other "signature guarantee program" as may be
determined by the Trustee in addition to, or in substitution
for, STAMP, all in accordance with the Securities Exchange
Act of 1934, as amended.
<PAGE>
EXHIBIT B
---------
Form of Certificate
-------------------
_____________, ____
The Bank of New York
101 Barclay Street, Floor 21 West
New York, NY 10286
Attention: Corporate Trust Trustee Administration
TVN Entertainment Corporation (the "Company")
14% Senior Notes due 2008 (the "Notes")
---------------------------------------
Ladies and Gentlemen:
This letter relates to U.S. $_______________ principal amount of Notes
represented by a Note (the "Legended Note") which bears a legend outlining
restrictions upon transfer of such Legended Note. Pursuant to Section 2.01 of
the Indenture dated as of July 29, 1998 (the "Indenture") relating to the Notes,
we hereby certify that we are (or we will hold such securities on behalf of) a
person outside the United States to whom the Notes could be transferred in
accordance with Rule 904 of Regulation S promulgated under the U.S. Securities
Act of 1933. Accordingly, you are hereby requested to exchange the legended
certificate for an unlegended certificate representing an identical principal
amount of Notes, all in the manner provided for in the Indenture.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Holder]
By:_______________________________________________
Authorized Signature
<PAGE>
EXHIBIT C
---------
Form of Certificate to be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors
-----------------------------------------
______ _, ____
The Bank of New York
101 Barclay Street, Floor 21 West
New York, New York 10286
Attention: Corporate Trust Trustee Administration
TVN Entertainment Corporation (the "Company")
14% Senior Notes due 2008 (the "Notes")
---------------------------------------
Ladies and Gentlemen:
In connection with our proposed purchase of $___________ aggregate
principal amount of the Notes, we confirm that:
1. We understand that any subsequent transfer of the Notes is subject
to certain restrictions and conditions set forth in the Indenture dated as
of July 29, 1998 relating to the Notes (the "Indenture") and the undersigned
agrees to be bound by, and not to resell, pledge or otherwise transfer the
Notes except in compliance with, such restrictions and conditions and the
Securities Act of 1933, as amended (the "Securities Act").
2. We understand that the offer and sale of the Notes have not been
registered under the Securities Act, and that the Notes may not be offered
or sold except as permitted in the following sentence. We agree, on our own
behalf and on behalf of any accounts for which we are acting as hereinafter
stated, that if we should sell any Notes, we will do so only (A) to the
Company or any subsidiary thereof, (B) in accordance with Rule 144A under
the Securities Act to a "qualified institutional buyer" (as defined
therein), (C) to an institutional "accredited investor" (as defined below)
that, prior to such transfer, furnishes (or has furnished on its behalf by a
U.S. broker-dealer) to you and to the Company a signed letter substantially
in the form of this letter, (D) outside the United States in accordance with
Rule 904 of Regulation S under the Securities Act, (E) pursuant to another
available exemption from the registration requirements of the Securities
Act, or (F) pursuant to an effective registration statement under the
Securities Act, and we further agree to provide to any
<PAGE>
C-2
person purchasing any of the Notes from us a notice advising such purchaser
that resales of the Notes are restricted as stated herein.
3. We understand that, on any proposed resale of any Notes, we will be
required to furnish to you and the Company such certifications, legal
opinions and other information as you and the Company may reasonably require
to confirm that the proposed sale complies with the foregoing restrictions.
We further understand that the Notes purchased by us will bear a legend to
the foregoing effect.
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and
have such knowledge and experience in financial and business matters as to
be capable of evaluating the merits and risks of our investment in the
Notes, and we and any accounts for which we are acting are each able to bear
the economic risk of our or its investment.
5. We are acquiring the Notes purchased by us for our own account or
for one or more accounts (each of which is an institutional "accredited
investor") as to each of which we exercise sole investment discretion.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.
Very truly yours,
[Name of Transferee]
By:_________________________________________________________________________
Authorized Signature
<PAGE>
EXHIBIT D
---------
Form of Certificate to Be Delivered in
Connection with Transfers Pursuant to Regulation S
--------------------------------------------------
____________, ____
The Bank of New York
101 Barclay Street, Floor 21 West
New York, New York 10286
Attention: Corporate Trust Trustee Administration
TVN Entertainment Corporation (the "Company")
14% Senior Notes due 2008 (the "Notes")
---------------------------------------
Ladies and Gentlemen:
In connection with our proposed sale of U.S.$__________________
aggregate principal amount of the Notes, we confirm that such sale has been
effected pursuant to and in accordance with Regulation S under the Securities
Act of 1933 and, accordingly, we represent that:
(1) the offer of the Notes was not made to a person in the United
States;
(2) at the time the buy order was originated, the transferee was
outside the United States or we and any person acting on our behalf
reasonably believed that the transferee was outside the United States;
(3) no directed selling efforts have been made by us in the United
States in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable; and
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the U.S. Securities Act of 1933.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:_________________________________________
Authorized Signature
<PAGE>
EXHIBIT 4.4
- --------------------------------------------------------------------------------
WARRANT AGREEMENT
between
TVN ENTERTAINMENT CORPORATION
and
THE BANK OF NEW YORK
Dated as of July 29, 1998
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I
CERTAIN DEFINITIONS
ARTICLE II
ORIGINAL ISSUE OF WARRANTS
Section 2.1. Form of Warrant Certificates................................. 6
Section 2.2. Restrictive Legends.......................................... 7
Section 2.3. Execution and Delivery of Warrant Certificates............... 10
Section 2.4. Certificated Warrants........................................ 10
ARTICLE III
EXERCISE PRICE, EXERCISE AND REPURCHASE OF WARRANTS
Section 3.1. Exercise Price............................................... 11
Section 3.2. Exercise; Restrictions on Exercise........................... 11
Section 3.3. Method of Exercise; Payment of Exercise Price................ 11
Section 3.4. Repurchase Offers............................................ 12
ARTICLE IV
ADJUSTMENTS
Section 4.1. Adjustments.................................................. 16
Section 4.2. Notice of Adjustment......................................... 23
Section 4.3. Statement on Warrants........................................ 24
Section 4.4. Notice of Consolidation, Merger, Etc......................... 24
Section 4.5. Fractional Interests......................................... 25
</TABLE>
ARTICLE V
DECREASE IN EXERCISE PRICE
ARTICLE VI
LOSS OR MUTILATION
<PAGE>
ii
ARTICLE VII
RESERVATION AND AUTHORIZATION OF COMMON SHARES
ARTICLE VIII
WARRANT TRANSFER BOOKS; RESTRICTIONS ON TRANSFER
Section 8.1. Transfer and Exchange........................................ 26
Section 8.2. Book-Entry Provisions for the Global Warrants................ 27
Section 8.3. Special Transfer Provisions.................................. 29
Section 8.4. Surrender of Warrant Certificates............................ 31
ARTICLE IX
WARRANT HOLDERS
Section 9.1. Warrant Holder Deemed Not a Stockholder...................... 32
Section 9.2. Right of Action.............................................. 32
ARTICLE X
REMEDIES
Section 10.1. Defaults.................................................... 32
Section 10.2. Payment Obligations......................................... 33
Section 10.3. Remedies; No Waiver......................................... 33
ARTICLE XI
THE WARRANT AGENT
Section 11.1. Duties and Liabilities...................................... 33
Section 11.2. Right to Consult Counsel.................................... 34
Section 11.3. Compensation; Indemnification............................... 35
Section 11.4. No Restrictions on Actions.................................. 35
Section 11.5. Discharge or Removal; Replacement Warrant Agent............. 35
Section 11.6. Successor Warrant Agent..................................... 36
<PAGE>
iii
ARTICLE XII
MISCELLANEOUS
Section 12.1. Monies Deposited with the Warrant Agent..................... 37
Section 12.2. Payment of Taxes............................................ 37
Section 12.3. No Merger, Consolidation or Sale of Assets of the Company... 37
Section 12.4. Reports to Holders.......................................... 38
Section 12.5. Notices; Payment............................................ 38
Section 12.6. Binding Effect.............................................. 39
Section 12.7. Counterparts................................................ 39
Section 12.8. Amendments.................................................. 39
Section 12.9. Headings.................................................... 40
Section 12.10. Common Shares Legend........................................ 40
Section 12.12. Termination................................................. 42
Section 12.13. Governing Law............................................... 42
Section 12.14. Registration Rights......................................... 42
<PAGE>
iv
EXHIBIT A FORM OF WARRANT CERTIFICATE
EXHIBIT B FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION WITH TRANSFERS
PURSUANT TO REGULATION S
EXHIBIT C-1 FORM OF CERTIFICATE TO BE DELIVERED BY TRANSFEROR IN CONNECTION
WITH TRANSFERS TO INSTITUTIONAL ACCREDITED INVESTORS
EXHIBIT C-2 FORM OF CERTIFICATE TO BE DELIVERED BY TRANSFEREES IN CONNECTION
WITH TRANSFERS TO INSTITUTIONAL ACCREDITED INVESTORS
APPENDIX A LIST OF FINANCIAL EXPERTS
<PAGE>
WARRANT AGREEMENT
WARRANT AGREEMENT, dated as of July 29, 1998 (this "Agreement"),
---------
between TVN Entertainment Corporation, a Delaware corporation (the "Company"),
-------
and The Bank of New York, a New York banking corporation (the "Warrant Agent").
-------------
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, pursuant to the terms of a Placement Agreement dated July 24,
1998 (the "Placement Agreement"), between the Company and Morgan Stanley & Co.
-------------------
Incorporated, as placement agent (the "Placement Agent"), the Company has agreed
---------------
to issue and sell to the Placement Agent an aggregate of 200,000 warrants (each,
a "Warrant" and collectively, the "Warrants"), each Warrant initially entitling
------- --------
the holder thereof to purchase 10.777 shares of Common Stock (as defined below)
of the Company at an exercise price of $0.01 per Common Share (as defined
below), as part of 200,000 units (the "Units"), each Unit consisting of one 14%
-----
Senior Note due 2008 of the Company (each a "Note" and collectively, the
----
"Notes") to be issued pursuant to the provisions of an Indenture, dated as of
-----
the date hereof, between the Company and The Bank of New York, as trustee (the
"Indenture"), and one Warrants;
---------
WHEREAS, the Notes and the Warrants included in each Unit will become
automatically separately transferable at the close of business upon the earliest
to occur of (i) the date that is 180 days after the Closing Date (as defined
below), (ii) the commencement of an exchange offer with respect to the Notes
undertaken pursuant to the Notes Registration Rights Agreement (as defined
below), (iii) the effectiveness of a shelf registration statement with respect
to resales of the Notes, (iv) the commencement of an Offer to Purchase (as
defined below) the Notes and (v) such earlier date as determined by the
Placement Agent in its sole discretion (the "Separation Date"); and
---------------
WHEREAS, the Company desires to engage the Warrant Agent to act on the
Company's behalf, and the Warrant Agent desires to act on behalf of the Company,
in connection with the issuance of the Warrant Certificates (as defined below)
and the other matters as provided herein, including, without limitation, for the
purpose of defining the terms and provisions of the Warrants and the respective
rights and obligations thereunder of the Company and the record holders thereof
(together with the holders of shares of Common Stock (or other securities)
received upon exercise thereof, the "Holders").
-------
NOW, THEREFORE, in consideration of the foregoing and of the mutual
agreements contained herein and in the Placement Agreement, the Company and the
Warrant Agent hereby agree as follows:
<PAGE>
2
ARTICLE I
CERTAIN DEFINITIONS
Defined terms used herein without other definition shall have the
respective meanings ascribed thereto, whether directly or indirectly by
reference, in the Placement Agreement.
"Affiliate" means, as applied to any Person, any other Person directly
or indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Agent Members" has the meaning specified in Section 8.2(a) hereof.
"Auditors" means, at any time, the independent auditors of the Company
at such time.
"Board" means the board of directors of the Company from time to time.
"Business Day" means a day except a Saturday, Sunday or other day on
which commercial banks in The City of New York, or in the city of the principle
corporate trust office of the Warrant Agent, are authorized by law to close.
"Certificated Warrants" has the meaning specified in Section 2.1
hereof.
"Certificate for Surrender" means the form on the reverse side of the
Warrant Certificate substantially in the form of Exhibit A hereto.
"Closing Date" means the date hereof.
"Commission" means the United States Securities and Exchange
Commission.
"Common Shares" means the shares of the Common Stock of the Company.
"Common Stock" means the voting Common Stock, par value $0.001 per
share, of the Company.
<PAGE>
3
"Company" has the meaning specified in the preamble to this Agreement.
"Current Market Value" has the meaning specified in Section 4.1(f)
hereof.
"Default" has the meaning specified in Section 10.1 hereof.
"Depositary" means The Depository Trust Company, its nominees and
their respective successors.
"Exchange Act" means the United States Securities Exchange Act of
1934, as amended.
"Exercise Price" has the meaning specified in Section 3.1 hereof.
"Expiration Date" means August 1, 2008.
"Final Surrender Time" has the meaning specified in Section 3.4(b)
hereof.
"Financial Expert" means one of the Persons listed in Appendix A
hereto.
"Global Warrants" has the meaning specified in Section 2.1 hereof.
"Holders" has the meaning specified in the recitals to this Agreement.
"Indenture" has the meaning specified in the recitals to this
Agreement.
"Independent Financial Expert" means a Financial Expert that does not,
and whose directors, executive officers and 5% stockholders do not, have a
direct or indirect financial interest in the Company or any of its subsidiaries
or Affiliates, which has not been for at least five years and, at the time it is
called upon to give independent financial advice to the Company, is not (and
none of its directors, executive officers or 5% stockholders is) a promoter,
director, or officer of the Company or any of its subsidiaries or Affiliates.
The Independent Financial Expert may be compensated and indemnified by the
Company for opinions or services it provides as an Independent Financial Expert.
"Institutional Accredited Investor" shall mean an institution that is
an "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or
(7) of Regulation D under the Securities Act.
"Non-U.S. Person" means a Person who is not a U.S. Person as defined
in Rule 902 of Regulation S.
<PAGE>
4
"Notes" has the meaning specified in the recitals to this Agreement.
"Notes Registration Rights Agreement" means the Registration Rights
Agreement with respect to the Notes dated July 29, 1998 between the Company and
the Placement Agent.
"Notice Date" has the meaning specified in Section 3.4(b) hereof.
"Offer to Purchase" shall have the meaning specified in the Indenture.
"Officer" means, with respect to the Company, (i) the Chairman of the
Board, the Chief Executive Officer, the President, any Vice President, the Chief
Operating Officer, the Chief Financial Officer, and (ii) the Treasurer or any
Assistant Treasurer, the Secretary or any Assistant Secretary.
"Officers' Certificate" means a certificate signed by one Officer
listed in clause (i) of the definition thereof and one Officer listed in clause
(ii) of the definition thereof; provided, however, that any such certificate may
be signed by any two of the Officers listed in clause (i) of the definition
thereof in lieu of being signed by one Officer listed in clause (i) of the
definition thereof and one Officer listed in clause (ii) of the definition
thereof.
"Opinion of Counsel" means a written opinion signed by legal counsel
who may be an employee of or counsel to the Company.
"Person" means an individual, a corporation, a partnership, a limited
liability company, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
"Placement Agreement" has the meaning specified in the recitals to
this Agreement.
"Private Placement Legend" means the legend set forth on the Warrant
Certificates in the form set forth in Section 2.2(a) hereof.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Regulation S" means Regulation S under the Securities Act.
"Relevant Value" has the meaning specified in Section 3.4(d) hereof.
<PAGE>
5
"Repurchase Event" means, and shall be deemed to occur on, any date
when the Company (i) consolidates with or merges into or with another Person
(but only where the holders of Common Stock receive consideration in exchange
for all or part of such Common Stock), if the Common Stock (or other securities)
thereafter issuable upon exercise of the Warrants is not registered under the
Exchange Act or (ii) sells all or substantially all of its assets to another
Person, if the Common Stock (or other securities) thereafter issuable upon
exercise of the Warrants is not registered under the Exchange Act; provided that
in each case a "Repurchase Event" shall not be deemed to have occurred if the
consideration for such transaction consists solely of cash.
"Repurchase Notice" has the meaning specified in Section 3.4(a)
hereof.
"Repurchase Obligation" has the meaning specified in Section 10.2
hereof.
"Repurchase Offer" means the Company's offer to repurchase the
Warrants in accordance with Section 3.4 hereof.
"Repurchase Price" has the meaning specified in Section 3.4(d) hereof.
"Right" has the meaning specified in Section 4.1(c) hereof.
"Rule 144A" means Rule 144A under the Securities Act.
"Securities Act" means the United States Securities Act of 1933, as
amended.
"Separation Date" has the meaning specified in the recitals to this
Agreement.
"Spread" means, with respect to any Warrant, the Current Market Value
of the Common Shares subject to such Warrant, less the Exercise Price of such
Warrant, in each case as adjusted as provided herein.
"Subscription Form" means the form on the reverse side of the Warrant
Certificate substantially in the form of Exhibit A hereto.
"Underlying Securities" shall mean the Common Shares (or other
securities) issuable upon exercise of the Warrants.
"Units" has the meaning specified in the recitals to this Agreement.
"Valuation Date" means the date five Business Days prior to the Notice
Date.
<PAGE>
6
"Value Certificate" has the meaning specified in Section 3.4(d)
hereof.
"Value Report" has the meaning specified in Section 4.1(k) hereof.
"Warrant" has the meaning specified in the recitals to this Agreement.
"Warrant Agent" has the meaning specified in the preamble to this
Agreement.
"Warrant Certificates" has the meaning specified in Section 2.1
hereof.
"Warrant Registration Rights Agreement" means the Warrant Registration
Rights Agreement, dated as of July 29, 1998, between the Company and the Warrant
Agent.
"Warrant Registration Statement" has the meaning specified in Section
3 of the Warrant Registration Rights Agreement.
ARTICLE II
ORIGINAL ISSUE OF WARRANTS
Section 2.1. Form of Warrant Certificates. Certificates representing
----------- ----------------------------
the Warrants (the "Warrant Certificates") shall be substantially in the form
--------------------
attached hereto as Exhibit A, shall be dated the date on which such Warrant
Certificates are countersigned by the Warrant Agent and shall have such
insertions as are appropriate or required or permitted by this Agreement and may
have such letters, numbers or other marks of identification and such legends and
endorsements stamped, printed, lithographed or engraved thereon as the Company
may deem appropriate and as are not inconsistent with the provisions of this
Agreement, or as may be required to comply with any law or with any rule or
regulation pursuant thereto or with any rule or regulation of any securities
exchange on which the Warrants may be listed, or to conform to usage.
Warrants offered and sold shall be issued initially in the form of one
or more permanent global Warrant Certificates in definitive, fully registered
form, substantially in the form set forth in Exhibit A (the "Global Warrant"),
--------------
deposited with the Warrant Agent, as custodian for, and registered in the name
of the nominee for, the Depositary, duly executed by the Company and
countersigned by the Warrant Agent as hereinafter provided. The aggregate
number of Warrants represented by the Global Warrant may from time to time be
increased or decreased by adjustments made on the records of the Warrant Agent,
as custodian for the Depositary, or its nominee, as provided in Section 2.4 and
Section 8.3 hereof.
<PAGE>
7
Warrants issued pursuant to Section 2.4 and Section 8.2(b) in exchange
for interests in the Global Warrant shall be issued in the form of permanent
Warrant Certificates in registered form, substantially in the form set forth in
Exhibit A (the "Certificated Warrants").
---------------------
The definitive Warrant Certificates shall be typed, printed,
lithographed or engraved or produced by any combination of these methods or may
be produced in any other manner permitted by the rules of any securities
exchange on which the Warrants may be listed, all as determined by the officers
executing such Warrant Certificates, as evidenced by their execution of such
Warrant Certificates.
Section 2.2. Restrictive Legends. (a) The Warrant Certificates shall
----------- -------------------
bear substantially the following legend on the face thereof:
THE WARRANTS REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO,
OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET
FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE
HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), OR (B)
IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(A)(1),(2) OR (7) OF REGULATION D UNDER THE SECURITIES ACT)
(AN "INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S.
PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION
IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT; (2)
AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER
RULE 144(k) TAKING INTO ACCOUNT THE PROVISIONS OF RULE 144(d), IF
APPLICABLE, UNDER THE SECURITIES ACT AS IN EFFECT WITH RESPECT TO
SUCH TRANSFER, RESELL OR OTHERWISE TRANSFER THE WARRANTS
REPRESENTED BY THIS CERTIFICATE EXCEPT (A) TO TVN ENTERTAINMENT
CORPORATION (THE "COMPANY") OR ANY SUBSIDIARY THEREOF, (B) TO A
QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER
THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN
INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER,
FURNISHES TO THE WARRANT AGENT A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE
<PAGE>
8
RESTRICTIONS ON TRANSFER OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE
WARRANT AGENT) AND IF SUCH TRANSFER SUBSEQUENT TO THE DATE ON
WHICH THE WARRANTS REPRESENTED HEREBY BECOME SEPARATELY
TRANSFERABLE, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY
THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D)
OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT
TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT; AND (3) AGREES
THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE WARRANTS
REPRESENTED BY THIS CERTIFICATE ARE TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH
ANY TRANSFER OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE
WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK
THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO
THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE
WARRANT AGENT. IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL
ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER,
FURNISH TO EACH OF THE WARRANT AGENT AND THE COMPANY SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF
THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS
BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES"
AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S
UNDER THE SECURITIES ACT. THE WARRANT AGREEMENT CONTAINS A
PROVISION REQUIRING THE WARRANT AGENT TO REFUSE TO REGISTER ANY
TRANSFER OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IN
VIOLATION OF THE FOREGOING RESTRICTIONS.
(b) Each Global Warrant shall also bear the following legend on the
face thereof:
<PAGE>
9
UNLESS THIS WARRANT CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO TVN
ENTERTAINMENT CORPORATION OR THE WARRANT AGENT FOR REGISTRATION
OF TRANSFER, EXCHANGE OR PAYMENT AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH
OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS
IN WHOLE, BUT NOT IN PART, TO NOMINEES OF THE DEPOSITORY TRUST
COMPANY OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND
TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO
TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
ARTICLE VIII OF THE WARRANT AGREEMENT.
(c) Each Warrant Certificate issued prior to the Separation Date shall
bear the following legend on the face thereof:
THE WARRANTS EVIDENCED BY THIS CERTIFICATE ARE INITIALLY ISSUED
AS PART OF AN ISSUANCE OF UNITS, EACH OF WHICH CONSISTS OF ONE
14% SENIOR NOTE DUE 2008 OF TVN ENTERTAINMENT CORPORATION
(COLLECTIVELY, THE "NOTES") AND ONE WARRANT INITIALLY ENTITLING
THE HOLDER THEREOF TO PURCHASE 10.777 SHARES OF VOTING COMMON
STOCK, PAR VALUE $0.001 PER SHARE, OF TVN ENTERTAINMENT
CORPORATION. PRIOR TO THE CLOSE OF BUSINESS UPON THE EARLIEST TO
OCCUR OF (i) JANUARY 29, 1999, (ii) THE COMMENCEMENT OF AN
EXCHANGE OFFER WITH RESPECT TO THE NOTES, (iii) THE EFFECTIVENESS
OF A SHELF REGISTRATION STATEMENT WITH RESPECT TO THE NOTES, (iv)
THE COMMENCEMENT OF AN OFFER TO PURCHASE (AS DEFINED IN THE
INDENTURE) THE NOTES, AND (v) SUCH EARLIER DATE AS DETERMINED BY
MORGAN STANLEY & CO. INCORPORATED IN ITS
<PAGE>
10
CAPACITY AS PLACEMENT AGENT AND IN ITS SOLE DISCRETION, THE
WARRANTS EVIDENCED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED OR
EXCHANGED SEPARATELY FROM, BUT MAY BE TRANSFERRED OR EXCHANGED
ONLY TOGETHER WITH, THE NOTES.
Section 2.3. Execution and Delivery of Warrant Certificates.
----------- ----------------------------------------------
Warrant Certificates evidencing 200,000 Warrants, each Warrant to purchase
initially 10.777 Common Shares, may be executed, on or after the date of this
Agreement, by the Company and delivered to the Warrant Agent for
countersignature, and the Warrant Agent shall thereupon countersign and deliver
such Warrant Certificates upon the order and at the written direction of the
Company signed by its Chief Executive Officer or other duly authorized executive
officer to the purchasers thereof on the date of issuance. The Warrant Agent is
hereby authorized to countersign and deliver Warrant Certificates as required by
this Section 2.3 or by Section 3.3, Article VI or Article VIII hereof.
The Warrant Certificates shall be executed on behalf of the Company by
its Chairman of the Board, Chief Executive Officer, any Vice President or other
duly authorized executive officer of the Company either manually or by facsimile
signature printed thereon. The Warrant Certificates shall be countersigned by
manual signature of the Warrant Agent and shall not be valid for any purpose
unless so countersigned. In case any officer or director of the Company whose
signature shall have been placed upon any of the Warrant Certificates shall
cease to be such officer or director of the Company before countersignature by
the Warrant Agent and the issuance and delivery thereof, such Warrant
Certificates may nevertheless be countersigned by the Warrant Agent and issued
and delivered with the same force and effect as though such Person had not
ceased to be such officer or director of the Company.
Section 2.4. Certificated Warrants. Beneficial owners of interests in
----------- ---------------------
a Global Warrant may receive Certificated Warrants (which, except as set forth
in Section 8.3(d), shall bear the Private Placement Legend) in accordance with
the procedures of the Warrant Agent and the Depositary. In connection with the
execution and delivery of such Certificated Warrants, the Warrant Agent shall
reflect on its books and records the date and a decrease in the number of
Warrants represented by the relevant Global Warrant equal to the number of such
Certificated Warrants and the Company shall execute and the Warrant Agent shall
countersign and deliver to said beneficial owners one or more Certificated
Warrants in an equal aggregate number.
<PAGE>
11
ARTICLE III
EXERCISE PRICE, EXERCISE AND REPURCHASE OF WARRANTS
Section 3.1. Exercise Price. Each Warrant Certificate shall, when
----------- --------------
countersigned by the Warrant Agent, initially entitle the Holder thereof,
subject to the provisions of this Agreement, to purchase the number of Common
Shares indicated thereon at a purchase price (the "Exercise Price") of $0.01 per
--------------
Common Share, subject to adjustment as provided in Section 4.1 and Article V
hereof.
Section 3.2. Exercise; Restrictions on Exercise. At any time after
----------- ----------------------------------
one year after the Closing Date and on or before the Expiration Date, any
outstanding Warrants may be exercised on any Business Day; provided that the
Warrant Registration Statement is, at the time of exercise, effective and
available for the exercise of the Warrants or the exercise of such Warrants is
exempt from the registration requirements of the Securities Act. Any Warrants
not exercised by 5:00 p.m., New York City time, on the Expiration Date shall
expire and all rights of the Holders of such Warrants shall terminate.
Additionally, pursuant to Section 4.1(j)(ii) hereof, the Warrants shall expire
and all rights of the Holders of such Warrants shall terminate in the event the
Company merges or consolidates with or sells all or substantially all of its
property and assets to a Person (other than an Affiliate of the Company) if the
consideration payable to holders of Common Stock in exchange for their Common
Stock in connection with such merger, consolidation or sale consists solely of
cash or in the event of the dissolution, liquidation or winding up of the
Company.
Section 3.3. Method of Exercise; Payment of Exercise Price. In order
----------- ---------------------------------------------
to exercise all or any of the Warrants represented by a Warrant Certificate, the
Holder thereof must surrender for exercise the Warrant Certificate to the
Warrant Agent at its corporate trust office address set forth in Section 12.5
hereof, with the Subscription Form set forth on the reverse of the Warrant
Certificate duly executed, together with payment in full of the Exercise Price
then in effect for each Common Share (or other securities) issuable upon
exercise of the Warrants as to which a Warrant is exercised; such payment may be
made in cash or by certified or official bank or bank cashier's check payable to
the order of the Company and shall be made to the Warrant Agent at its corporate
trust office address set forth in Section 12.5 hereof prior to the close of
business on the date the Warrant Certificate is surrendered to the Warrant Agent
for exercise. Notwithstanding the foregoing, the Exercise Price may be paid by
surrendering additional Warrants to the Warrant Agent having an aggregate Spread
equal to the aggregate Exercise Price of the Warrants being exercised. All
payments received upon exercise of Warrants shall be delivered to the Company by
the Warrant Agent as instructed in writing by the Company. If less than all the
Warrants represented by a Warrant Certificate are exercised or surrendered (in
connection with a cashless exercise), such Warrant Certificate shall be
surrendered and a new Warrant Certificate of the same tenor and for the
<PAGE>
12
number of Warrants which were not exercised or so surrendered shall be executed
by the Company and delivered to the Warrant Agent and the Warrant Agent shall
countersign the new Warrant Certificate, registered in such name or names as may
be directed in writing by the Holder, and shall deliver the new Warrant
Certificate to the Person or Persons entitled to receive the same. Global
Warrants will be exercised in accordance with the procedures of the Warrant
Agent and the Depositary. Upon the exercise of any Warrants following the
surrender of a Warrant Certificate in conformity with the foregoing provisions,
the Warrant Agent shall instruct the Company to transfer promptly to the Holder
or, upon the written order of the Holder of such Warrant Certificate,
appropriate evidence of ownership of any Common Shares or other security or
property to which it is entitled, registered or otherwise placed in such name or
names as may be directed in writing by the Holder, and to deliver such evidence
of ownership to the Person or Persons entitled to receive the same and
fractional shares, if any, or an amount in cash, in lieu of any fractional
shares, as provided in Section 4.5 hereof; provided that the Holder of such
Warrant shall be responsible for the payment of any transfer taxes required as
the result of any change in ownership of such Warrants or the issuance of such
Common Shares other than to the Holder of such Warrants and any such transfer
shall comply with applicable law. Upon the exercise of a Warrant or Warrants,
the Warrant Agent is hereby authorized and directed to requisition from any
transfer agent of the Common Shares (and all such transfer agents are hereby
irrevocably authorized to comply with all such requests) certificates (bearing
the legend set forth in Section 12.10 hereof, if applicable, unless a
registration statement with the Commission relating to such Common Shares shall
then be in effect or the Company and the Holder exercising such Warrant or
Warrants otherwise agree) for the necessary number of Common Shares to which
said Holder may be entitled. The Company shall enter, or shall cause any
transfer agent of the Common Shares to enter, the name of the Person entitled to
receive the Common Shares upon exercise of the Warrants into the Company's
register of stockholders within 14 days of such exercise. A Warrant shall be
deemed to have been exercised immediately prior to the close of business on the
date of the surrender for exercise, as provided above, of the Warrant
Certificate representing such Warrant and, for all purposes under this
Agreement, the Person entitled to receive any Common Shares deliverable upon
such exercise shall, as between such Person and the Company, be deemed to be the
Holder of such Common Shares of record as of the close of business on such date
and shall be entitled to receive, and the Warrant Agent shall deliver to such
Person, any Common Shares to which such Person would have been entitled had such
Person been the registered holder on such date.
Section 3.4. Repurchase Offers. (a) Notice of Repurchase Event.
----------- ----------------- --------------------------
Within five Business Days following the occurrence of a Repurchase Event, the
Company shall give notice (a "Repurchase Notice") to the Holders of the Warrants
-----------------
and the Warrant Agent that such event has occurred.
<PAGE>
13
(b) Repurchase Offers Generally. Following the occurrence of a
---------------------------
Repurchase Event, the Company shall offer to repurchase for cash all outstanding
Warrants pursuant to the provisions of this Section 3.4 (a "Repurchase Offer").
----------------
The Company shall give notice of a Repurchase Offer in accordance with Section
3.4(f) hereof. Each date on which the Company gives any such notice is referred
to as the "Notice Date." The Repurchase Offer shall commence on the Notice Date
-----------
for such Repurchase Offer and shall expire at 5:00 p.m., New York City time, on
a date determined by the Company (the "Final Surrender Time") that is at least
--------------------
30 but not more than 60 days after the Notice Date. Once a Repurchase Event has
occurred, there is no limit on the number of Repurchase Offers that the Company
may make.
(c) Repurchase Offers. (i) In any Repurchase Offer, the Company shall
-----------------
offer to purchase for cash at the Repurchase Price all Warrants outstanding on
the Notice Date for such Repurchase Offer that are properly tendered to the
Warrant Agent on or prior to the Final Surrender Time for such Repurchase Offer.
(ii) Each Holder may, but shall not be obligated to, accept such
Repurchase Offer by tendering to the Warrant Agent, on or prior to the Final
Surrender Time for such Repurchase Offer, the Warrant Certificates evidencing
the Warrants such Holder desires to have repurchased in such offer, together
with a completed Certificate for Surrender in substantially the form attached to
the Warrant Certificate. A Holder may withdraw all or a portion of the Warrants
tendered to the Warrant Agent at any time prior to the Final Surrender Time for
such Repurchase Offer. If less than all the Warrants represented by a Warrant
Certificate shall be tendered, such Warrant Certificate shall be surrendered and
a new Warrant Certificate of the same tenor and for the number of Warrants which
were not tendered shall be executed by the Company and delivered to the Warrant
Agent and the Warrant Agent shall countersign the new Warrant Certificate,
registered in such name or names as may be directed in writing by the Holder,
and shall deliver the new Warrant Certificate to the Person or Persons entitled
to receive the same; provided that the Holder of such Warrants shall be
responsible for the payment of any transfer taxes required as the result of any
change in ownership of such Warrants and any such transfer shall comply with
applicable law.
(d) Repurchase Price. (i) The purchase price (the "Repurchase Price")
---------------- ----------------
for each Warrant properly tendered to the Warrant Agent pursuant to a Repurchase
Offer shall be equal to the value (the "Relevant Value") on the Valuation Date
--------------
of the Common Shares issuable, and other securities or property of the Company
which would have been delivered, upon exercise of Warrants had the Warrants been
exercised (regardless of whether the Warrants are then exercisable), less the
Exercise Price in effect on the Notice Date for such Repurchase Offer.
<PAGE>
14
(ii) The Relevant Value of the Common Shares and other securities or
property issuable upon exercise of all the Warrants, on any Valuation Date shall
be:
(1) (A) If the Common Shares (or other securities) are registered
under the Exchange Act, deemed to be the average of the daily market prices
(on the stock exchange that is the primary trading market for the Common
Shares (or other securities)) of the Common Shares (or other securities)
for the 20 consecutive trading days immediately preceding such Valuation
Date or, (B) if the Common Shares (or other securities) have been
registered under the Exchange Act for less than 20 consecutive trading days
before such date, then the average of the daily market prices for all of
the trading days before such date for which daily market prices are
available, in the case of each of (A) and (B), as certified to the Warrant
Agent by the Chief Executive Officer, the President, any Vice President or
the Chief Financial Officer of the Company (the "Value Certificate"). The
-----------------
market price for each such trading day shall be: (A) in the case of a
security listed or admitted to trading on any national securities exchange,
the closing sales price on such day, or if no sale takes place on such day,
the average of the closing bid and asked prices on such day, (B) in the
case of a security not then listed or admitted to trading on any national
securities exchange, the last reported sale price on such day, or if no
sale takes place on such day, the average of the closing bid and asked
prices on such day, as reported by a reputable quotation source designated
by the Company, (C) in the case of a security not then listed or admitted
to trading on any national securities exchange and as to which no such
reported sale price or bid and asked prices are available, the average of
the reported high bid and low asked prices on such day, as reported by a
reputable quotation service, or a newspaper of general circulation in the
Borough of Manhattan, City and State of New York customarily published on
each Business Day, designated by the Company, or, if there shall be no bid
and asked prices on such day, the average of the high bid and low asked
prices, as so reported, on the most recent day (not more than 30 days prior
to the date in question) for which prices have been so reported and (D) if
there are no bid and asked prices reported during the 30 days prior to the
date in question, the Relevant Value shall be determined as if the Common
Shares (or other securities) were not registered under the Exchange Act; or
(2) If the Common Shares (or other securities) are not registered
under the Exchange Act or if the value cannot be computed under clause (1)
above, deemed to be equal to the value set forth in the Value Report (as
defined below) as determined by an Independent Financial Expert, which
shall be selected by the Board in accordance with Section 3.4(e) hereof,
and retained on customary terms and conditions, using one or more valuation
methods that the Independent Financial Expert, in its best professional
judgment, determines to be most appropriate but without giving effect to
any discount for lack of liquidity, the fact that the Company has no class
of equity securities
<PAGE>
15
registered under the Exchange Act or the fact that the Common Shares and
other securities or property issuable upon exercise of the Warrants
represent a minority interest in the Company. The Company shall use its
best efforts to cause the Independent Financial Expert to deliver to the
Company, with a copy to the Warrant Agent, within 45 days of the
appointment of the Independent Financial Expert in accordance with Section
3.4(e) hereof, a value report (the "Value Report") stating the Relevant
------------
Value of the Common Shares and other securities or property of the Company,
if any, being valued as of the Valuation Date and containing a brief
statement as to the nature and scope of the methodologies upon which the
determination of Relevant Value was made. The Warrant Agent shall have no
duty with respect to the Value Report of any Independent Financial Expert,
except to keep it on file and available for inspection by the Holders. The
determination as to Relevant Value in accordance with the provisions of
this Section 3.4(d) shall be conclusive on all Persons.
(e) Selection of Independent Financial Expert. If clause (d)(ii)(2)
-----------------------------------------
of this Section 3.4 is applicable, the Board of Directors of the Company shall
select an Independent Financial Expert not more than five Business Days
following a Repurchase Event. Within two Business Days following its selection
of an Independent Financial Expert, the Company shall deliver to the Warrant
Agent a notice setting forth the name of the Independent Financial Expert.
(f) Notice of Repurchase Offer. Each notice of a Repurchase Offer (an
--------------------------
"Offer Notice") given by the Company pursuant to Section 3.4(b) shall be given
------------
by the Company directly to all Holders of the Warrants, with a copy to the
Warrant Agent, shall be given simultaneously with the Repurchase Notice (or, in
the event that the Relevant Value of the Common Shares or other securities or
property issuable upon exercise of all the Warrants cannot be determined
pursuant to Section 3.4(d)(ii)(1), then such Offer Notice shall be given within
five Business Days after the Company receives the Value Report with respect to
such offer) and shall specify (A) the Final Surrender Time for such Repurchase
Offer, (B) the manner in which Warrants may be surrendered to the Warrant Agent
for repurchase by the Company, (C) the Repurchase Price at which the Warrants
will be repurchased by the Company, (D) if applicable, the name of the
Independent Financial Expert whose valuation of the Common Shares and other
securities or property was utilized in connection with determining such
Repurchase Price and (E) that payment of the Repurchase Price will be made by
the Warrant Agent. Each such notice shall be accompanied by a Certificate for
Surrender for Repurchase Offer in substantially the form attached to the Warrant
Certificate and a copy of the Value Report, if any.
(g) Payment for Warrants. Upon surrender for repurchase of any
--------------------
Warrants in conformity with the provisions of this Section 3.4, the Warrant
Agent shall thereupon promptly notify the Company of such surrender. On or
before the Final Surrender Time for
<PAGE>
16
any Repurchase Offer, the Company shall deposit with the Warrant Agent funds
sufficient to make payment for the Warrants tendered to the Warrant Agent and
not withdrawn. After receipt of such deposit from the Company, the Warrant Agent
shall make payment, by delivering a check in such amount as is appropriate, to
such Person or Persons as it may be directed in writing by the Holder
surrendering such Warrants, net of any transfer taxes required to be paid in the
event that the check is to be delivered to a Person other than the Holder.
(h) Compliance with Laws. Notwithstanding anything contained in this
--------------------
Section 3.4, if the Company is required to comply with laws, regulations and
securities exchange or clearing procedures, rules or regulations in connection
with making any Repurchase Offer, such laws, regulations, procedures or rules
shall govern the making of such Repurchase Offer.
ARTICLE IV
ADJUSTMENTS
Section 4.1. Adjustments. The Exercise Price and the number of Common
----------- -----------
Shares issuable upon exercise of each Warrant shall be subject to adjustment
from time to time as follows:
(a) Divisions; Consolidations; Reclassifications. In case the Company
--------------------------------------------
shall, on or before the Expiration Date, (i) issue any Common Shares in payment
of a dividend or other distribution with respect to its Common Stock, (ii)
subdivide its issued and outstanding Common Shares, (iii) consolidate its issued
and outstanding Common Shares into a smaller number of shares, or (iv)
reclassify or convert the Common Shares (other than a reclassification in
connection with a merger, consolidation or other business combination which will
be governed by Section 4.1(j)), then the number of Common Shares purchasable
upon exercise of each Warrant immediately prior to the record date for such
issue or distribution or the effective date of such subdivision, consolidation,
reclassification or conversion shall be adjusted so that the Holder of each
Warrant shall thereafter be entitled to receive the kind and number of Common
Shares which such Holder would have been entitled to receive after the happening
of any of the events described above had such Warrant been exercised immediately
prior to the happening of such event or any record date with respect thereto.
An adjustment made pursuant to this Section 4.1(a) shall become effective
immediately after the effective date of such event retroactive to the record
date, if any, for such event.
(b) Rights; Options; Warrants. In case the Company shall issue rights,
-------------------------
options, warrants or convertible or exchangeable securities (other than an
issuance of
<PAGE>
17
convertible or exchangeable securities subject to Section 4.1(a)) to all holders
of its Common Shares, entitling them to subscribe for or purchase Common Shares
at a price per share which is lower (at the record date for such issuance) than
the then Current Market Value per Common Share, then the number of Common Shares
thereafter purchasable upon the exercise of each Warrant shall instead be
adjusted and shall be determined by multiplying the number of Common Shares
theretofore purchasable upon exercise of each Warrant by a fraction, the
numerator of which shall be the sum of (i) the number of Common Shares
outstanding immediately prior to the issuance of such rights, options, warrants
or convertible or exchangeable securities plus (ii) the number of additional
Common Shares which may be purchased or subscribed for upon exercise, exchange
or conversion of such rights, options, warrants or convertible or exchangeable
securities, and the denominator of which shall be the sum of (x) the number of
Common Shares outstanding immediately prior to the issuance of such rights,
options, warrants or convertible or exchangeable securities plus (y) the number
of shares which the total consideration received by the Company for such rights,
options, warrants or convertible or exchangeable securities so offered would
purchase at the then Current Market Value per Common Share. Except as otherwise
provided above, such adjustment shall be made whenever such rights, options,
warrants or convertible or exchangeable securities are issued, and shall become
effective retroactively immediately after the record date for the determination
of stockholders entitled to receive such rights, options, warrants or
convertible or exchangeable securities.
(c) Issuance of Common Shares at Lower Values. In case the Company
-----------------------------------------
shall sell and issue any Common Share or Right (as defined below) (excluding (i)
any Right issued in any of the transactions described in Section 4.1(a) or (b)
above, (ii) Common Shares issued pursuant to any Right issued in any transaction
described in Section 4.1(a) or (b) above, (iii) any Common Shares or Right
issued as consideration (A) when any corporation or business is acquired, merged
into or becomes part of the Company or a subsidiary of the Company or (B) in
good faith in connection with any other business collaboration, in each case in
an arm's-length transaction between the Company and a Person other than an
Affiliate of the Company and (iv) Common Shares issued upon the exercise of
Rights outstanding on the Closing Date and disclosed in the Offering Memorandum
with respect to the Notes) at a price per Common Share (determined in the case
of any such Right, by dividing (x) the total consideration receivable by the
Company in consideration of the sale and issuance of such Right, plus the total
consideration payable to the Company upon exercise, conversion or exchange
thereof, by (y) the total number of Common Shares covered by such Right) that is
lower than the Current Market Value per Common Share in effect immediately prior
to such sale or issuance, then the number of Common Shares thereafter
purchasable upon the exercise of each Warrant shall be determined by multiplying
the number of Common Shares theretofore purchasable upon exercise of such
Warrant by a fraction, the numerator of which shall be the number of Common
Shares outstanding immediately after such sale or issuance and the denominator
of which shall be the number of Common Shares outstanding immediately prior
<PAGE>
18
to such sale or issuance plus the number of Common Shares which the aggregate
consideration received (determined as provided below) for such sale or issuance
would purchase at such Current Market Value per Common Share. For purposes of
this Section 4.1(c), the Common Shares which the holder of any such Right shall
be entitled to subscribe for or purchase shall be deemed to be issued and
outstanding as of the date of such sale and issuance and the consideration
received by the Company therefor shall be deemed to be the consideration
received by the Company for such Right, plus the consideration or premiums
stated in such Right to be paid for the Common Shares covered thereby. In case
the Company shall sell and issue any Right together with one or more other
securities as part of a unit at a price per unit, then in determining the "price
per Common Share" and the "consideration received by the Company" for purposes
of the first sentence of this Section 4.1(c), the Board shall determine, in good
faith, the fair value of the Right then being sold as part of such unit. For
purposes of this paragraph, a "Right" shall mean any right, option, warrant or
-----
convertible or exchangeable security containing the Right to subscribe for or
acquire one or more Common Shares, excluding the Warrants. This Section 4.1(c)
shall not apply to: (i) the exercise of Warrants, or the conversion or exchange
of other securities convertible or exchangeable for Common Shares; or (ii)
Common Shares issued upon the exercise of Rights or warrants issued to all
holders of Common Shares.
(d) Distributions of Debt, Assets, Subscription Rights or Convertible
-----------------------------------------------------------------
Securities. In case the Company shall make a distribution to all holders of its
- ----------
Common Shares of evidences of its indebtedness, or assets, or other
distributions (excluding any issuance of Common Shares referred to in Section
4.1(a) above and excluding distributions in connection with the dissolution,
liquidation or winding-up of the Company which shall be governed by Section
4.1(j) and distributions of securities referred to in Section 4.1(a), Section
4.1(b) or Section 4.1(c)), then, in each case, the number of Common Shares
purchasable after such record date upon the exercise of each Warrant shall be
determined by multiplying the number of Common Shares purchasable upon the
exercise of such Warrant immediately prior to such record date by a fraction,
the numerator of which shall be the Current Market Value per Common Share
immediately prior to the record date for such distribution and the denominator
of which shall be the Current Market Value per Common Share immediately prior to
the record date for such distribution less the then fair value (as determined in
good faith by the Board) of the evidences of its indebtedness, or assets or
other distributions so distributed attributable to one Common Share. Such
adjustment shall be made whenever any such distribution is made, and shall
become effective on the date of distribution retroactive to the record date for
the determination of stockholders entitled to receive such distribution.
(e) Expiration of Rights, Options and Conversion Privileges. Upon the
-------------------------------------------------------
expiration of any rights, options, warrants or conversion or exchange privileges
(including, without limitation, any Rights) that have previously resulted in an
adjustment hereunder, if any thereof shall not have been exercised, exchanged or
converted, the Exercise Price and the
<PAGE>
19
number of Common Shares issuable upon the exercise of each Warrant shall, upon
such expiration, be readjusted and shall thereafter, upon any future exercise,
be such as they would have been had they been originally adjusted (or had the
original adjustment not been required, as the case may be) as if (i) the only
Common Shares so issued were the Common Shares, if any, actually issued or sold
upon the exercise, exchange or conversion of such rights, options, warrants or
conversion or exchange rights (including, without limitation, any Rights) and
(ii) such Common Shares, if any, were issued or sold for the consideration
actually received by the Company upon such exercise, exchange or conversion plus
the consideration, if any, actually received by the Company for issuance, sale
or grant of all such rights, options, warrants or conversion or exchange rights
(including, without limitation, any Rights) whether or not exercised.
(f) Current Market Value. For the purposes of any computation under
--------------------
this Article IV, the "Current Market Value" per Common Share or of any other
--------------------
security (herein collectively referred to as a "security") at any date herein
specified shall be:
(i) if the security is not registered under the Exchange Act, the
value of the security (1) most recently determined as of a date within the
six months preceding such date by an Independent Financial Expert selected
by the Company in accordance with the criteria for such valuation set out
in Section 4.1(k), or (2) if no such determination shall have been made
within such six-month period or if the Company so chooses, determined as of
such a date by an Independent Financial Expert selected by the Company in
accordance with the criteria for such valuation set out in Section 4.1(k),
or
(ii) if the security is registered under the Exchange Act, the average
of the daily market prices of the security for the 20 consecutive trading
days immediately preceding such date or, if the security has been
registered under the Exchange Act for less than 20 consecutive trading days
before such date, then the average of the daily market prices for all of
the trading days before such date for which daily market prices are
available. The market price for each such trading day shall be: (A) in
the case of a security listed or admitted to trading on any national
securities exchange or a national market system, including without
limitation the Nasdaq National Market, the closing sales price, regular
way, on such day, or if no sale takes place on such day, the average of the
closing bid and asked prices on such day on the principal national
securities exchange on which such security is listed or admitted, as
determined by the Board, in good faith, (B) in the case of a security not
then listed or admitted to trading on any national securities exchange, the
last reported sale price on such day, or if no sale takes place on such
day, the average of the closing bid and asked prices on such day, as
reported by a reputable quotation source designated by the Company, (C) in
the case of a security not then listed or admitted to trading on any
national securities exchange and as to which no such reported sale price or
bid and asked prices are available, the
<PAGE>
20
average of the reported high bid and low asked prices on such day, as
reported by a reputable quotation service, or a newspaper of general
circulation in the Borough of Manhattan, City and State of New York
customarily published on each Business Day, designated by the Company, or,
if there shall be no bid and asked prices on such day, the average of the
high bid and low asked prices, as so reported, on the most recent day (not
more than 30 calendar days prior to the date in question) for which prices
have been so reported and (D) if there are no bid and asked prices reported
during the 30 calendar days prior to the date in question, the Current
Market Value of the security shall be determined as if the security were
not registered under the Exchange Act.
(g) Consideration Received. For purposes of any computation
----------------------
respecting consideration received pursuant to this Section 4.1, the following
shall apply:
(i) in the case of the issuance of Common Shares for cash, the
consideration shall be the amount of such cash, provided that in no case
shall any deduction be made for any commissions, discounts or other
expenses incurred by the Company for any underwriting of the issue or
otherwise in connection therewith;
(ii) in the case of the issuance of Common Shares for a consideration
in whole or in part other than cash, the consideration other than cash
shall be deemed to be the fair market value thereof as determined in good
faith by the Board (irrespective of the accounting treatment thereof),
whose determination shall be conclusive and described in reasonable detail
in a board resolution which shall be provided as soon as practicable
thereafter to the Warrant Agent; and
(iii) in the case of the issuance of rights, options, warrants or
securities convertible into or exchangeable for Common Shares (including,
without limitation, any Rights), the aggregate consideration received
therefor shall be deemed to be the consideration received by the Company
for the issuance of such rights, options, warrants or securities
convertible into or exchangeable for Common Shares, plus the additional
minimum consideration, if any, to be received by the Company upon the
exercise, conversion or exchange thereof (the consideration in each case to
be determined in the same manner as provided in clauses (i) and (ii) of
this Section 4.1(g)).
(h) De Minimis Adjustments. No adjustment in the number of Common
----------------------
Shares purchasable hereunder shall be required unless such adjustment would
require an increase or decrease of at least one percent (1%) in the number of
Common Shares purchasable upon the exercise of each Warrant; provided, however,
that any adjustments which by reason of this Section 4.1(h) are not required to
be made shall be carried forward and taken
<PAGE>
21
into account in any subsequent adjustment. All calculations shall be made to the
nearest one-thousandth of a share.
(i) Adjustment of Exercise Price. Whenever the number of Common Shares
----------------------------
purchasable upon the exercise of each Warrant is adjusted, as herein provided,
the Exercise Price per Common Share payable upon exercise of such Warrant shall
be adjusted (calculated to the nearest $.0001) so that it shall equal the price
determined by multiplying such Exercise Price immediately prior to such
adjustment by a fraction the numerator of which shall be the number of Common
Shares purchasable upon the exercise of each Warrant immediately prior to such
adjustment and the denominator of which shall be the number of Common Shares so
purchasable immediately thereafter. Following any adjustment to the Exercise
Price pursuant to this Article IV, the amount payable, when adjusted, shall
never be less than the par value per Common Share at the time of such
adjustment.
If, after an adjustment, a Holder of a Warrant upon exercise of it may
receive shares of two or more classes in the capital of the Company, the Company
shall determine the allocation of the adjusted Exercise Price between such
classes of shares in a manner that the Board deems fair and equitable to the
Holders. After such allocation, the exercise privilege and the Exercise Price
of each class of shares shall thereafter be subject to adjustment on terms
comparable to those applicable to Common Shares in this Article IV.
Such adjustment shall be made successively whenever any event listed
above shall occur.
(j) Consolidation, Merger, Etc. (i) Subject to the provisions of
--------------------------
Subsection (ii) below of this Section 4.1(j), in case of the consolidation
of the Company with, or merger of the Company with or into, or of the sale
of all or substantially all of the properties and assets of the Company to,
any Person, and in connection therewith consideration is payable to holders
of Common Shares (or other securities or property purchasable upon exercise
of Warrants) in exchange therefor, the Warrants shall remain subject to the
terms and conditions set forth in this Agreement and each Warrant shall,
after such consolidation, merger or sale, entitle the Holder to receive
upon exercise the number of shares in the capital or other securities or
property (including cash) of or from the Person resulting from such
consolidation or surviving such merger or to which such sale shall be made
or of the parent of such Person, as the case may be, that would have been
distributable or payable on account of the Common Shares if such Holder's
Warrants had been exercised immediately prior to such merger, consolidation
or sale (or, if applicable, the record date therefor); and in any such case
the provisions of this Agreement with respect to the rights and interests
thereafter of the Holders of Warrants shall be appropriately adjusted by
the Board in good faith so
<PAGE>
22
as to be applicable, as nearly as may reasonably be, to any shares, other
securities or any property thereafter deliverable on the exercise of the
Warrants.
(ii) Notwithstanding the foregoing, (x) if the Company merges or
consolidates with, or sells all or substantially all of its property and
assets to, another Person (other than an Affiliate of the Company) and
consideration is payable to holders of Common Shares in exchange for their
Common Shares in connection with such merger, consolidation or sale which
consists solely of cash, or (y) in the event of the dissolution,
liquidation or winding up of the Company, then the Holders of Warrants
shall be entitled to receive distributions on the date of such event on an
equal basis with holders of Common Shares (or other securities issuable
upon exercise of the Warrants) as if the Warrants had been exercised
immediately prior to such event, less the Exercise Price. Upon receipt of
such payment, if any, the rights of a Holder shall terminate and cease and
such Holder's Warrants shall expire. If the Company has made a Repurchase
Offer that has not expired at the time of such transaction, the holders of
the Warrants will be entitled to receive the higher of (i) the amount
payable to the holders of the Warrants described above and (ii) the
Repurchase Price payable to the holders of the Warrants pursuant to such
Repurchase Offer. In case of any such merger, consolidation or sale of
assets, the surviving or acquiring Person or, in the event of any
dissolution, liquidation or winding up of the Company, the Company shall
deposit promptly with the Warrant Agent the funds, if any, necessary to pay
the Holders of the Warrants. After receipt of such deposit from such
Person or the Company and after receipt of surrendered Warrant
Certificates, the Warrant Agent shall make payment by delivering a check in
such amount as is appropriate (or, in the case of consideration other than
cash, such other consideration as is appropriate) to such Person or Persons
as it may be directed in writing by the Holder surrendering such Warrants.
(k) If required pursuant to Section 4.1(f)(i), the Current Market
Value shall be deemed to be equal to the value set forth in the Value Report (as
defined below) as determined by an Independent Financial Expert, which shall be
selected by the Board not more than ten Business Days following the occurrence
of any event referred to in Section 4(b), 4(c), or 4(d), and retained on
customary terms and conditions, using one or more valuation methods that the
Independent Financial Expert, in its professional judgment, determines to be
most appropriate. The Company shall cause the Independent Financial Expert to
deliver to the Company, with a copy to the Warrant Agent, within 45 days of the
appointment of the Independent Financial Expert, a value report (the "Value
-----
Report") stating the value of the Common Shares and other securities or property
- ------
of the Company, if any, being valued as of the Valuation Date and containing a
brief statement as to the nature and scope of the examination or investigation
upon which the determination of value was made. The Warrant Agent shall have no
duty with respect to the Value Report of any Independent Financial Expert,
except to keep it on file and available for inspection by the Holders. The
<PAGE>
23
determination as to Current Market Value in accordance with the provisions of
this Section 4.1(k) shall be conclusive on all Persons. The Independent
Financial Expert shall consult with management of the Company in order to allow
management to comment on the proposed value prior to delivery to the Company of
any Value Report.
(l) When No Adjustment Required. Without limiting any other
---------------------------
exception contained in this Section 4.1, and in addition thereto, no adjustment
need be made for:
(i) grants or exercises of Rights granted to employees, directors or
consultants of the Company or any of its subsidiaries (to the
extent that all such securities do not have an aggregate equity
value in excess of 15% of the equity value of the Company on a
fully diluted basis, as determined in good faith by the Board
and any such Rights have an exercise price at least equal to the
fair market value of the Common Shares on the date of issuance,
as determined in good faith by the Board);
(ii) grants or exercises of options, warrants or other agreements or
rights to purchase capital stock of the Company existing on the
Closing Date;
(iii) rights to purchase Common Shares pursuant to a Company plan for
reinvestment of dividends or interest;
(iv) a change in the par value of the Common Shares (including a
change from par value to no par value or vice versa);
(v) issuances of Rights or Common Shares in bona fide public
offerings or private placements pursuant to Section 4(2) of the
Securities Act, Regulation D thereunder or Regulation S,
involving at least one investment bank of national reputation
(provided any such private placement is to 10 or more beneficial
holders); and
(vi) issuances of Rights or Common Stock in connection with the
establishment of commercial bank facilities.
To the extent the Warrants become convertible into cash, no adjustment
need be made thereafter as to the cash. Interest will not accrue on the cash.
Section 4.2. Notice of Adjustment. Whenever the number of Common
----------- --------------------
Shares purchasable upon the exercise of each Warrant or the Exercise Price is
adjusted, as herein provided, the Company shall cause the Warrant Agent promptly
to mail by first class mail,
<PAGE>
24
postage prepaid, at the expense of the Company, to each Holder notice of such
adjustment or adjustments and shall deliver to the Warrant Agent a certificate
of the Auditors setting forth the number of Common Shares purchasable upon the
exercise of each Warrant and the Exercise Price after such adjustment, setting
forth a brief statement of the facts requiring such adjustment and setting forth
the computation by which such adjustment was made. Such certificate shall be
conclusive evidence of the correctness of such adjustment except in the case of
manifest error. The Warrant Agent shall be entitled to conclusively rely on such
certificate and shall be under no duty or responsibility with respect to any
such certificate, except to exhibit the same, from time to time, to any Holder
desiring an inspection thereof during reasonable business hours upon reasonable
notice. The Warrant Agent shall not at any time be under any duty or
responsibility to any Holders to determine whether any facts exist which may
require any adjustment of the Exercise Price or the number of Common Shares
purchasable on exercise of the Warrants or any of the other adjustments set
forth in Section 4.1, or with respect to the nature or extent of any such
adjustment when made, or with respect to the method employed in making such
adjustment, or the validity or value (or the kind or amount) of any Common
Shares which may be purchasable on exercise of the Warrants. The Warrant Agent
shall not be responsible for any failure of the Company to make any cash payment
or to issue, transfer or deliver any Common Shares or share certificates upon
the exercise of any Warrant.
Section 4.3. Statement on Warrants. Irrespective of any adjustment
----------- ---------------------
in the Exercise Price or the number or kind of shares purchasable upon the
exercise of the Warrants, Warrants theretofore or thereafter issued may continue
to express the same price and number and kind of shares as are stated in the
Warrants initially issuable pursuant to this Agreement.
Section 4.4. Notice of Consolidation, Merger, Etc. In case at any
----------- ------------------------------------
time after the date hereof and prior to 5:00 p.m., New York City time, on the
Expiration Date, there shall be any (i) consolidation or merger involving the
Company or sale, transfer or other disposition of all or substantially all of
the Company's property, assets or business (except a merger or other
reorganization in which the Company shall be the surviving corporation and
holders of Common Shares receive no consideration in respect of their shares) or
(ii) any other transaction contemplated by Section 4.1(j)(ii) above, then, in
any one or more of such cases, the Company shall cause to be mailed to the
Warrant Agent and shall cause the Warrant Agent to mail, at the Company's
expense, to each Holder of a Warrant, at the earliest practicable time (and, in
any event, not less than 20 days before any date set for definitive action),
notice of the date on which such reorganization, sale, consolidation, merger,
dissolution, liquidation or winding up shall take place, as the case may be.
Such notice shall also set forth such facts as shall indicate the effect of such
action (to the extent such effect may be known at the date of such notice) on
the Exercise Price and the kind and amount of the Common Shares and other
securities, money and other property deliverable upon exercise of the Warrants.
Such notice shall also specify the date as of which the holders of record of the
Common Shares or other
<PAGE>
25
securities or property issuable upon exercise of the Warrants shall be entitled
to exchange their shares for securities, money or other property deliverable
upon such reorganization, sale, consolidation, merger, dissolution, liquidation
or winding up, as the case may be.
Section 4.5. Fractional Interests. If more than one Warrant shall be
----------- --------------------
presented for exercise in full at the same time by the same Holder, the number
of full Common Shares which shall be issuable upon such exercise thereof shall
be computed on the basis of the aggregate number of Common Shares purchasable on
exercise of the Warrants so presented. The Company shall not be required to
issue fractional Common Shares upon the exercise of Warrants. If any fraction of
a Common Share would, except for the provisions of this Section 4.5, be issuable
on the exercise of any Warrant (or specified portion thereof), the Company may
pay an amount in cash calculated by it to be equal to the then Current Market
Value per Common Share multiplied by such fraction computed to the nearest whole
cent.
Section 4.6. Initial Public Offering. Notwithstanding anything to the
----------- -----------------------
contrary herein contained, if the Company conducts an initial public offering of
equity securities (other than Common Shares), the Company will give the Holders
the opportunity to convert such Warrants into warrants to purchase such equity
securities and such Common Shares or such other securities that have been
received by the Holders upon the exercise of Warrants into such equity
securities. Such conversion opportunity will be on terms and conditions
determined to be fair and reasonable by the Board.
ARTICLE V
DECREASE IN EXERCISE PRICE
The Board, in its sole discretion, shall have the right at any time,
or from time to time, to decrease the Exercise Price of the Warrants and/or
increase the number of shares issuable upon the exercise of the Warrants.
ARTICLE VI
LOSS OR MUTILATION
Upon receipt by the Company and the Warrant Agent of evidence
satisfactory to them of the ownership and the loss, theft, destruction or
mutilation of any Warrant Certificate and of indemnity or bond satisfactory to
them and (in the case of mutilation) upon surrender and cancellation thereof,
then, in the absence of notice to the Company or the Warrant Agent that the
Warrants represented thereby have been acquired by a bona fide purchaser, the
<PAGE>
26
Company shall execute and the Warrant Agent shall countersign and deliver to the
registered Holder of the lost, stolen, destroyed or mutilated Warrant
Certificate, in exchange for or in lieu thereof, a new Warrant Certificate of
the same tenor and for a like aggregate number of Warrants. Upon the issuance of
any new Warrant Certificate under this Article VI, the Company may require the
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in relation thereto and other expenses (including the fees and
expenses of the Warrant Agent) in connection therewith. Every new Warrant
Certificate executed and delivered pursuant to this Article VI in lieu of any
lost, stolen or destroyed Warrant Certificate shall constitute a contractual
obligation of the Company whether or not the allegedly lost, stolen or destroyed
Warrant Certificates shall be at any time enforceable by anyone and shall be
entitled to the benefits of this Agreement equally and proportionately with any
and all other Warrant Certificates duly executed and delivered hereunder. The
provisions of this Article VI are exclusive and shall preclude (to the extent
lawful) all other rights or remedies with respect to the replacement of
mutilated, lost, stolen, or destroyed Warrant Certificates.
ARTICLE VII
RESERVATION AND AUTHORIZATION
OF COMMON SHARES
The Company shall at all times reserve and keep available such number
of its authorized but unissued Common Shares deliverable upon exercise of the
Warrants as will be sufficient to permit the exercise in full of all outstanding
Warrants and will cause appropriate evidence of ownership of such Common Shares
to be delivered to the Warrant Agent upon its request for delivery thereof upon
the exercise of the Warrants. The Company covenants that all Common Shares of
the Company that may be issued upon the exercise of the Warrants will, upon
issuance, be duly authorized, validly issued, fully paid and not subject to any
calls for funds and free from pre-emptive rights and all taxes, liens, charges
and security interests with respect to the issue thereof.
ARTICLE VIII
WARRANT TRANSFER BOOKS; RESTRICTIONS ON TRANSFER
Section 8.1. Transfer and Exchange. The Warrant Certificates shall
----------- ---------------------
be issued in registered form only. The Warrant Agent shall keep at its office a
register for the registration of Warrant Certificates and transfers or exchanges
of Warrant Certificates as herein provided and other appropriate data as
determined by the Warrant Agent. The
<PAGE>
27
Company shall, upon reasonable notice to the Warrant Agent, have access to such
register during the Warrant Agent's regular business hours. All Warrant
Certificates issued upon any registration of transfer or exchange of Warrant
Certificates shall be the valid obligations of the Company, evidencing the same
obligations, and entitled to the same benefits under this Agreement, as the
Warrant Certificates surrendered for such registration of transfer or exchange.
The Warrants shall initially be issued as part of the issuance of the
Units. Prior to the Separation Date, the Warrants may not be transferred or
exchanged separately from, but may be transferred or exchanged only together
with, the Notes issued as part of such Units.
A Holder may transfer its Warrants only by complying with the terms of
this Agreement. No such transfer shall be effected until, and such transferee
shall succeed to the rights of a Holder only upon, final acceptance and
registration of the transfer by the Warrant Agent in the register. Prior to the
registration of any transfer of Warrants by a Holder as provided herein, the
Company, the Warrant Agent, and any agent of the Company may treat the Person in
whose name the Warrants are registered as the owner thereof for all purposes and
as the Person entitled to exercise the rights represented thereby, any notice to
the contrary notwithstanding. Furthermore, any holder of a Global Warrant
shall, by acceptance of such Global Warrant, agree that transfers of beneficial
interests in such Global Warrant may be effected only through a book-entry
system maintained by the holder of such Global Warrant (or its agent), and that
ownership of a beneficial interest in the Warrants represented thereby shall be
required to be reflected in a book-entry. When Warrant Certificates are
presented to the Warrant Agent with a request to register the transfer or to
exchange them for an equal amount of Warrants, the Warrant Agent shall register
such transfer or make such exchange as requested if its requirements for such
transactions are met. To permit registrations of transfers and exchanges, the
Company shall execute Warrant Certificates at the Warrant Agent's request. No
service charge shall be made for any registration of transfer or exchange of
Warrants, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection with any
registration of transfer of Warrants.
Section 8.2. Book-Entry Provisions for the Global Warrants. (a) The
----------- ---------------------------------------------
Global Warrant initially shall (i) be registered in the name of the Depositary
for such Global Warrant or the nominee of such Depositary, (ii) be delivered to
the Warrant Agent as custodian for such Depositary and (iii) bear legends as set
forth in Section 2.2 hereof.
Members of, or participants in, the Depositary ("Agent Members") shall
-------------
have no rights under this Agreement with respect to the Global Warrant held on
their behalf by the Depositary or the Warrant Agent as its custodian, and the
Depositary may be treated by the Company, the Warrant Agent and any agent of the
Company or the Warrant Agent as the
<PAGE>
28
absolute owner of each such Global Warrant for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Warrant Agent or any agent of the Company or the Warrant Agent, from giving
effect to any written certification, proxy or other authorization furnished by
the Depositary or impair, as between the Depositary and its Agent Members, the
operation of customary practices governing the exercise of the rights of a
Holder of any Warrants.
(b) Transfers of the Global Warrant shall be limited to transfers of
such Global Warrant in whole, but not in part, to the Depositary, its successors
or their respective nominees. Interests of beneficial owners in the Global
Warrant may be transferred in accordance with the rules and procedures of the
Depositary and the provisions of Section 8.3 hereof. Certificated Warrants
shall be transferred to beneficial owners in exchange for their beneficial
interests in the Global Warrant, (i) if the Depositary notifies the Company that
it is unwilling or unable to continue as Depositary for the Global Warrant and a
successor depositary is not appointed by the Company within 90 days of such
notice, (ii) if there is a Default or (iii) upon the request of the beneficial
owner in accordance with the rules and procedures of the Depositary and the
provisions of Section 8.3 hereof.
(c) In connection with the transfer of the entire Global Warrant to
beneficial owners pursuant to paragraph (b) of this Section 8.2, the Global
Warrant shall be surrendered to the Warrant Agent for cancellation, and the
Company shall execute, and the Warrant Agent shall countersign and deliver, to
each beneficial owner identified by the Depositary in exchange for its
beneficial interest in the Global Warrant, Certificated Warrants representing,
in the aggregate, the number of Warrants theretofore represented by the Global
Warrant.
(d) In connection with the transfer of a portion of the beneficial
interests in the Global Warrant to beneficial owners pursuant to paragraph (b)
of this Section 8.2, the Warrant Agent shall reflect on its books and records
the date and a decrease in the amount of Warrants represented by the Global
Warrant in an amount equal to the amount of Warrants represented by the
beneficial interest in the Global Warrant to be transferred, and the Company
shall execute, and the Warrant Agent shall countersign and deliver, to each
beneficial owner identified by the Depositary in exchange for its beneficial
interest in the Global Warrant, Certificated Warrants of like tenor and amount.
(e) Any Certificated Warrant delivered in exchange for an interest in
the Global Warrant pursuant to paragraph (b), (c) or (d) of this Section shall,
except as otherwise provided by paragraph (d) of Section 8.3 hereof, bear the
legend regarding transfer restrictions set forth in Section 2.2 hereof.
(f) The registered holder of the Global Warrant may grant proxies and
otherwise authorize any Person, including Agent Members and Persons that may
hold interests
<PAGE>
29
through Agent Members, to take any action which a Holder is entitled to take
under this Agreement or the Warrants.
Section 8.3. Special Transfer Provisions. The following provisions
----------- ---------------------------
shall apply:
(a) Transfers to QIBs. The following provisions shall apply with
-----------------
respect to the registration of any proposed transfer of Warrants to a QIB
(excluding non-U.S. Persons):
(i) If the Warrants to be transferred are represented by Certificated
Warrants, the Warrant Agent shall register the transfer if such transfer is
being made by a proposed transferor who has checked the box provided for on
the form of Warrant Certificate stating, or has otherwise advised the
Company and the Warrant Agent in writing, that the sale has been made in
compliance with the provisions of Rule 144A to a transferee who has signed
the certification provided for on the form of Warrant Certificate stating,
or has otherwise advised the Company and the Warrant Agent in writing, that
it is purchasing the Warrants for its own account or an account with
respect to which it exercises sole investment discretion and that it and
any such account is a QIB within the meaning of Rule 144A, and is aware
that the sale to it is being made in reliance on Rule 144A and acknowledges
that it has received such information regarding the Company as it has
requested pursuant to Rule 144A or has determined not to request such
information and that it is aware that the transferor is relying upon its
foregoing representations in order to claim the exemption from registration
provided by Rule 144A.
(ii) If the proposed transferee is an Agent Member, and the Warrants
to be transferred are represented by Certificated Warrants, upon receipt by
the Warrant Agent of the documents referred to in clause (i) above and
instructions given in accordance with the Depositary's and the Warrant
Agent's procedures, the Warrant Agent shall reflect on its books and
records the date and an increase in the amount of Warrants represented by
the Global Warrant in an amount equal to the amount of Warrants represented
by the Certificated Warrants to be transferred, and the Warrant Agent
shall cancel the Certificated Warrants so transferred.
(b) Transfers to Non-U.S. Persons at Any Time. The following
-----------------------------------------
provisions shall apply with respect to the registration of any proposed transfer
of Warrants to a Non-U.S. Person:
(i) The Warrant Agent shall register any proposed transfer of
Warrants to a Non-U.S. Person only upon receipt of a certificate
substantially in the form of Exhibit B from the proposed transferor.
<PAGE>
30
(ii) If the proposed transferee is an Agent Member and the Warrants to
be transferred are represented by Certificated Warrants or an interest in
the Global Warrant, upon receipt by the Warrant Agent of the documents
referred to in clause (i) above and instructions given in accordance with
the Depositary's and the Warrant Agent's procedures, the Warrant Agent
shall reflect on its books and records the date and an increase in the
number of Warrants represented by the Global Warrant in an amount equal to
the number of Warrants represented by the Certificated Warrants to be
transferred, and the Warrant Agent shall cancel the Certificated Warrant so
transferred.
(c) Transfers to Any Other Person. The following provisions shall
-----------------------------
apply with respect to the registration of any proposed transfer of Warrants to
any Person not specified in paragraphs (a) and (b) above (including any
Institutional Accredited Investor which is not a QIB).
(i) The Warrant Agent shall register any proposed transfer of
Warrants to any such Person if (x) the transferor has delivered to the
Warrant Agent and the Company a certificate substantially in the form of
Exhibit C-1 hereto and, if required by paragraph (d) thereof, an Opinion of
Counsel to the effect set forth therein and (y) the proposed transferee has
delivered to the Warrant Agent and the Company a certificate substantially
in the form of Exhibit C-2 hereto if such transferee is an Institutional
Accredited Investor that is not a QIB.
(ii) If the proposed transferor is an Agent Member holding a
beneficial interest in the Global Warrant, upon receipt by the Warrant
Agent and the Company of the documents referred to in clause (i) above and
instructions given in accordance with the Depositary's and the Warrant
Agent's procedures, the Company shall execute and the Warrant Agent shall
countersign Certificated Warrants in an amount equal to the number of
Warrants represented by the Global Warrant, if any, to be transferred and
the Warrant Agent shall decrease the number of Warrants represented by the
Global Warrant so transferred.
(d) Private Placement Legend. Upon the transfer, exchange or
------------------------
replacement of Warrant Certificates not bearing the Private Placement Legend,
the Warrant Agent shall deliver Warrant Certificates that do not bear the
Private Placement Legend. Upon the transfer, exchange or replacement of Warrant
Certificates bearing the Private Placement Legend, the Warrant Agent shall
deliver only Warrant Certificates that bear the Private Placement Legend unless
there is delivered to the Warrant Agent an Opinion of Counsel reasonably
satisfactory to the Company and its counsel and the Warrant Agent to the effect
that neither such legend nor the related restrictions on transfer are required
in order to maintain compliance with the provisions of the Securities Act.
<PAGE>
31
(e) General. (i) By its acceptance of any Warrants represented by a
-------
Warrant Certificate bearing the Private Placement Legend, each Holder of such
Warrants acknowledges the restrictions on transfer of such Warrants set forth in
this Agreement and in the Private Placement Legend and agrees that it will
transfer such Warrants only as provided in this Agreement. The Warrant Agent
shall not register a transfer of any Warrants unless such transfer complies with
the restrictions on transfer of such Warrants set forth in this Agreement and is
in compliance with applicable laws and applicable rules, regulations and
procedures of any securities exchange or clearing agency in effect from time to
time. In connection with any transfer of Warrants, each Holder agrees by its
acceptance of Warrants to furnish the Warrant Agent or the Company such
certifications, legal opinions or other information as either of them may
reasonably require to confirm that such transfer is being made pursuant to an
exemption from, or a transaction not subject to, the registration requirements
of the Securities Act or any other applicable laws of any foreign jurisdiction;
provided that the Warrant Agent shall not be required to determine (but may rely
on a determination made by the Company with respect to) the sufficiency of any
such certifications, legal opinions or other information.
(ii) The Warrant Agent shall retain copies of all letters, notices and
other written communications received pursuant to Section 8.2 hereof or
this Section 8.3. The Company shall have the right to inspect and make
copies of all such letters, notices or other written communications at any
reasonable time upon the giving of reasonable written notice to the Warrant
Agent.
Section 8.4. Surrender of Warrant Certificates. Any Warrant
----------- ---------------------------------
Certificate surrendered for registration of transfer, exchange or exercise of
the Warrants represented thereby shall, if surrendered to the Company, be
delivered to the Warrant Agent, and all Warrant Certificates surrendered or so
delivered to the Warrant Agent shall be promptly canceled by the Warrant Agent
and shall not be reissued by the Company and, except as provided in this Article
VIII in case of an exchange, Article III hereof in case of the exercise of less
than all the Warrants represented thereby or Article VI in case of a mutilated
Warrant Certificate, no Warrant Certificate shall be issued hereunder in lieu
thereof. The Warrant Agent shall deliver to the Company from time to time or
otherwise dispose of such canceled Warrant Certificates as the Company may
direct in writing, provided, however, that the Warrant Agent shall not be
required to destroy such canceled Warrant Certificates.
<PAGE>
32
ARTICLE IX
WARRANT HOLDERS
Section 9.1. Warrant Holder Deemed Not a Stockholder. The Company and
----------- ---------------------------------------
the Warrant Agent may deem and treat the registered Holder(s) of the Warrant
Certificates as the absolute owner(s) thereof (notwithstanding any notation of
ownership or other writing thereon made by anyone), for the purpose of any
exercise thereof and for all other purposes, and neither the Company nor the
Warrant Agent shall be affected by any notice to the contrary. Accordingly, the
Company and/or the Warrant Agent shall not, except as ordered by a court of
competent jurisdiction as required by law, be bound to recognize any equitable
or other claim to or interest in the Warrants on the part of any Person other
than such registered Holder, whether or not it shall have express or other
notice thereof. Prior to the valid exercise of the Warrants, no Holder of a
Warrant Certificate, as such, shall be entitled to any rights of a stockholder
of the Company, including, without limitation, the right to vote or to consent
to any action of the stockholders, to receive dividends or other distributions,
to exercise any preemptive right or to receive any notice of meetings of
stockholders and, except as otherwise provided in this Agreement, shall not be
entitled to receive any notice of any proceedings of the Company.
Section 9.2. Right of Action. All rights of action with respect to
----------- ---------------
this Agreement are vested in the Holders of the Warrants, and any Holder of any
Warrant, without the consent of the Warrant Agent or the Holders of any other
Warrant, may, on such Holder's own behalf and for such Holder's own benefit,
enforce, and may institute and maintain any suit, action or proceeding against
the Company suitable to enforce, or otherwise in respect of, such Holder's right
to exercise such Warrants in the manner provided in the Warrant Certificate
representing such Warrants and in this Agreement.
ARTICLE X
REMEDIES
Section 10.1. Defaults. It shall be deemed to be a "Default" with
------------ -------- -------
respect to the Company's (or its successor's) obligations under this Agreement
if:
(a) a Repurchase Event occurs and the Company (or its successor) shall
fail to make a Repurchase Offer pursuant to Section 3.4 hereof; or
(b) the Company (or its successor) shall fail to purchase the Warrants
pursuant to the Repurchase Offer in accordance with the provisions of
Section 3.4 hereof.
<PAGE>
33
Section 10.2. Payment Obligations. Upon the happening of a Default
------------ -------------------
under this Agreement, the Company shall be obligated to increase the amount
otherwise payable pursuant to Section 3.4(d) hereof in respect of the Repurchase
Offer to which such Default relates by an amount equal to interest thereon at a
rate per annum equal to 14% from the date of the Default to the date of payment,
which interest shall compound quarterly (all such payment obligations in respect
of such Repurchase Offer, together with all such increased amounts, being the
"Repurchase Obligation").
---------------------
Section 10.3. Remedies; No Waiver. Notwithstanding any other provision
------------ -------------------
of this Warrant Agreement, if a Default occurs and is continuing, the Holders of
the Warrants may pursue any available remedy to collect the Repurchase
Obligation or to enforce the performance of any provision of this Warrant
Agreement. A delay or omission by any Holder of a Warrant in exercising, or a
failure to exercise, any right or remedy arising out of a Default shall not
impair the right or remedy or constitute a waiver of or acquiescence in the
Default. All remedies are cumulative to the extent permitted by law.
ARTICLE XI
THE WARRANT AGENT
Section 11.1. Duties and Liabilities. The Company hereby appoints the
------------ ----------------------
Warrant Agent to act as agent of the Company as set forth in this Agreement. The
Warrant Agent hereby accepts the agency established by this Agreement and agrees
to perform the same upon the terms and conditions herein set forth, by all of
which the Company and the Holders of Warrants, by their acceptance thereof,
shall be bound. The Warrant Agent shall not, by countersigning Warrant
Certificates or by any other act hereunder, be deemed to make any
representations as to the validity or authorization of the Warrants or the
Warrant Certificates (except as to its countersignature thereon) or of any
Common Shares issued upon exercise of any Warrant, or as to the accuracy of the
computation of the Exercise Price or the number or kind or amount of Common
Shares deliverable upon exercise of any Warrant or the correctness of the
representations of the Company made in the certificates that the Warrant Agent
receives. The Warrant Agent shall not be accountable for the use or application
by the Company of the proceeds of the exercise of any Warrant. The Warrant Agent
shall not have any duty to calculate or determine any adjustments with respect
to either the Exercise Price or the kind and amount of Common Shares receivable
by Holders upon the exercise of Warrants required from time to time and the
Warrant Agent shall have no duty or responsibility in determining the accuracy
or correctness of such calculation. The Warrant Agent shall not be (a) liable
for any recital or statement of fact contained herein or in the Warrant
Certificates or for any action taken, suffered or omitted by it in good faith
without gross negligence or willful misconduct in the belief that any Warrant
Certificate or any other documents or any signatures
<PAGE>
34
are genuine or properly authorized, (b) responsible for any failure on the part
of the Company to comply with any of its covenants and obligations contained in
this Agreement or in the Warrant Certificates or (c) liable for any act or
omission in connection with this Agreement except for its own gross negligence,
bad faith or willful misconduct. The Warrant Agent is hereby authorized to
accept instructions with respect to the performance of its duties hereunder from
the Chairman of the Board, Chief Executive Officer, any Vice President or other
executive officer of the Company and to apply to any such officer for
instructions (which instructions will be promptly given in writing when
requested) and the Warrant Agent shall not be liable for any action taken or
suffered to be taken by it in good faith without gross negligence in accordance
with the instructions of any such officer; provided, however, that, in its
discretion, the Warrant Agent may, in lieu thereof, accept other evidence of
such or may require such further or additional evidence as it may deem
reasonable. The Warrant Agent shall not be liable for any action taken with
respect to any matter in the event it requests instructions from the Company as
to that matter and does not receive such instructions within a reasonable period
of time after the request therefor.
The Warrant Agent may execute and exercise any of the rights and
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys, agents or employees, and the Warrant Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of any
such attorneys, agents or employees; provided that reasonable care has been
exercised with respect to the retention of any such attorney, agent or employee.
The Warrant Agent shall not be under any obligation or duty to institute, appear
in or defend any action, suit or legal proceeding in respect hereof, unless
first indemnified to its reasonable satisfaction. The Warrant Agent shall
promptly notify the Company in writing of any claim made or action, suit or
proceeding instituted against it arising out of or in connection with this
Agreement.
The Company will perform, execute, acknowledge and deliver or cause to
be delivered all such further acts, instruments and assurances as are consistent
with this Agreement and as may reasonably be required by the Warrant Agent in
order to enable it to carry out or perform its duties under this Agreement.
The Warrant Agent shall act solely as agent of the Company hereunder.
The Warrant Agent shall not be liable except for the failure to perform such
duties as are specifically set forth herein, and no implied covenants or
obligations shall be read into this Agreement against the Warrant Agent, whose
duties and obligations shall be determined solely by the express provisions
hereof.
Section 11.2. Right to Consult Counsel. The Warrant Agent may any time
------------ -----------------------
consult with legal counsel of its selection (who may be legal counsel for the
Company), and the opinion or advice of such counsel shall be full and complete
authorization and protection to
<PAGE>
35
the Warrant Agent and the Warrant Agent shall incur no liability or
responsibility to the Company or to any Holder for any action taken, suffered or
omitted by it in good faith without gross negligence in accordance with the
written opinion or advice of such counsel.
Section 11.3. Compensation; Indemnification. The Company agrees
------------ -----------------------------
promptly to pay the Warrant Agent from time to time and in any case within 30
days of receipt of an invoice, compensation for its services hereunder as the
Company and the Warrant Agent may agree from time to time, and to reimburse it
upon its request upon furnishing reasonable supporting documentation for
reasonable fees or expenses and reasonable counsel fees and expenses incurred in
connection with the execution and administration of this Agreement, and further
agrees to indemnify the Warrant Agent and save it harmless against any losses,
liabilities or reasonable expenses arising out of or in connection with the
acceptance and administration of this Agreement, including, without limitation,
the reasonable costs and expenses of investigating or defending any claim
(whether made by the Company or any other Person) of such liability, except that
the Company shall have no liability hereunder to the extent that any such loss,
liability or expense results from the Warrant Agent's own gross negligence, bad
faith or willful misconduct. The obligations of the Company under this Section
11.3 shall survive the exercise and the expiration of the Warrants, the
termination of this Agreement and the resignation or removal of the Warrant
Agent in respect of services or expenses incurred in connection with the
Warrants or this Agreement.
Section 11.4. No Restrictions on Actions. Nothing in this Agreement
------------ --------------------------
shall be deemed to prevent the Warrant Agent and any stockholder, director,
officer or employee of the Warrant Agent from buying, selling or dealing in any
of the Warrants or other securities of the Company or becoming pecuniarily
interested in transactions in which the Company may be interested, or
contracting with or lending money to the Company or otherwise acting as fully
and freely as though it were not the Warrant Agent under this Agreement.
Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
Section 11.5. Discharge or Removal; Replacement Warrant Agent. The
------------ -----------------------------------------------
Warrant Agent may resign from its position as such and be discharged from all
further duties and liabilities hereunder (except liability arising as a result
of the Warrant Agent's own gross negligence, bad faith or willful misconduct),
after giving one month's prior written notice to the Company. The Company may
at any time remove the Warrant Agent upon one month's written notice specifying
the date when such discharge shall take effect, and the Warrant Agent shall
thereupon in like manner be discharged from all further duties and liabilities
hereunder, except as aforesaid. The Warrant Agent shall mail to each Holder of
a Warrant, at the Company's expense, a copy of said notice of resignation or
notice of removal, as the case may be. Upon such resignation or removal the
Company shall appoint in writing a new warrant agent. If the Company shall fail
to make such appointment within a period of 30 days after it
<PAGE>
36
has been notified in writing of such resignation by the resigning Warrant Agent
or after such removal, then the resigning or removed Warrant Agent or the Holder
of any Warrant may apply, at the expense of the Company, to any court of
competent jurisdiction for the appointment of a new warrant agent. After 30 days
from receipt of, or giving, notice, as the case may be, and pending appointment
of a successor to the original Warrant Agent, either by the Company or by such a
court, the duties of the Warrant Agent shall be carried out by the Company. Any
new warrant agent, whether appointed by the Company or by such a court, shall be
a bank or trust company doing business under the laws of the United States or
any state thereof, in good standing and having a combined capital and surplus of
not less than $25,000,000. The combined capital and surplus of any such new
warrant agent shall be deemed to be the combined capital and surplus as set
forth in the most recent annual report of its condition published by such
warrant agent prior to its appointment, provided that such reports are published
at least annually pursuant to law or to the requirements of a federal or state
supervising or examining authority. After acceptance in writing of such
appointment by the new warrant agent, it shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named herein as
the Warrant Agent, without any further assurance, conveyance, act or deed;
however, the original Warrant Agent shall in all events deliver and transfer to
the successor Warrant Agent all property (including, without limitation,
documents and recorded information), if any, at the time held hereunder by the
original Warrant Agent and if for any reason it shall be necessary or expedient
to execute and deliver any further assurance, conveyance, act or deed, the same
shall be done at the expense of the Company and shall be legally and validly
executed and delivered by the resigning or removed Warrant Agent. Not later than
the effective date of any such appointment, the Company shall file notice
thereof with the resigning or removed Warrant Agent and shall forthwith cause a
copy of such notice to be mailed by the successor Warrant Agent to each Holder
of a Warrant. Failure to give any notice provided for in this Section 11.5,
however, or any defect therein, shall not affect the legality or validity of the
resignation of the Warrant Agent or the appointment of a new warrant agent, as
the case may be.
Section 11.6. Successor Warrant Agent. Any corporation into which the
------------ -----------------------
Warrant Agent or any new warrant agent may be merged or converted, or any
corporation resulting from any consolidation to which the Warrant Agent or any
new warrant agent shall be a party or any corporation succeeding to all or
substantially all the corporate agency business of the Warrant Agent, shall be a
successor Warrant Agent under this Agreement without any further act, provided
that such corporation would be eligible for appointment as successor to the
Warrant Agent under the provisions of Section 11.5 hereof. Any such successor
Warrant Agent shall promptly cause notice of its succession as Warrant Agent to
be mailed to each Holder of a Warrant.
<PAGE>
37
ARTICLE XII
MISCELLANEOUS
Section 12.1. Monies Deposited with the Warrant Agent. The Warrant
------------ ---------------------------------------
Agent shall not be required to pay interest on any monies deposited pursuant to
the provisions of this Agreement except such as it shall agree in writing with
the Company to pay thereon. Any monies, securities or other property which at
any time shall be deposited by the Company or on its behalf with the Warrant
Agent pursuant to this Agreement shall be and are hereby assigned, transferred
and set over to the Warrant Agent in trust for the purpose for which such
monies, securities or other property shall have been deposited; but such monies,
securities or other property need not be segregated from other funds, securities
or other property except to the extent required by law. The Warrant Agent shall
distribute any money deposited with it for payment and distribution to the
Holders by mailing by first class mail a check in such amount as is required by
this Agreement to each such Holder at the address shown on the Warrant register
of the Company, or as it may be otherwise directed in writing by such Holder, in
accordance with the terms and conditions hereof. Any monies, securities or
other property deposited with the Warrant Agent for payment or distribution to
the Holders that remains unclaimed for two years after the date the monies,
securities or other property was deposited with the Warrant Agent shall be
delivered to the Company upon its request therefor.
Section 12.2. Payment of Taxes. All Common Shares issuable upon the
------------ ----------------
exercise of Warrants shall be validly issued, fully paid and not subject to any
calls for funds, and the Company shall pay any taxes and other governmental
charges that may be imposed under the laws of the United States of America or
any political subdivision or taxing authority thereof or therein in respect of
the issue or delivery thereof upon exercise of Warrants (other than income taxes
imposed on the Holders). The Company shall not be required, however, to pay any
tax or other charge imposed in connection with any transfer involved in the
issue of any certificate for Common Shares (including other securities or
property issuable upon the exercise of the Warrants) or payment of cash to any
Person other than the Holder of a Warrant Certificate surrendered upon the
exercise of a Warrant and in case of such transfer or payment, the Warrant Agent
and the Company shall not be required to issue any share certificate or pay any
cash until such tax or charge has been paid or it has been established to the
Warrant Agent's and the Company's satisfaction that no such tax or charge is
due.
Section 12.3. No Merger, Consolidation or Sale of Assets of the
------------ -------------------------------------------------
Company. Except as otherwise provided herein, the Company will not merge into or
- -------
consolidate with any other Person, or sell or otherwise transfer its property,
assets and business substantially as an entirety to a successor of the Company,
unless the Person resulting from such merger or consolidation, or such successor
of the Company, shall expressly assume, by supplemental agreement satisfactory
in form to the Warrant Agent and executed and delivered to the
<PAGE>
38
Warrant Agent, the due and punctual performance and observance of each and every
covenant and condition of this Agreement or contained in the Warrants to be
performed and observed by the Company.
Section 12.4. Reports to Holders. At all times from and after the
------------ ------------------
earlier of (i) a consummation of a registered exchange offer or the
effectiveness of a shelf registration statement with respect to the Notes and
(ii) January 29, 1999 (such earlier date, the "Exchange Act Reporting Date"),
whether or not the Company is then required to file reports with the Commission,
the Company shall deliver for filing to the Commission all such reports and
other information it would be required to file with the Commission by Section
13(a) or 15(d) under the Exchange Act if it were subject thereto. The Company
shall supply the Warrant Agent and each Holder or shall supply to the Warrant
Agent for forwarding to each such Holder, without cost to such Holder, copies of
such reports and other information. At all times prior to the Exchange Act
Reporting Date, the Company shall supply the Warrant Agent and each Holder or
shall supply the Warrant Agent for forwarding to each such Holder, without cost
to such Holder, quarterly and annual reports substantially equivalent to those
which would be required by the Exchange Act. In addition, at all times prior to
the Exchange Act Reporting Date, upon the request of any Holder or any
prospective purchaser of the Warrants designated by a Holder, the Company shall
supply to such Holder or such prospective purchaser the information required
under Rule 144A.
Section 12.5. Notices; Payment. (a) Except as otherwise provided in
------------ ----------------
Section 12.5(b) hereof, any notice, demand or delivery authorized by this
Agreement shall be sufficiently given or made when mailed, if sent by first
class mail, postage prepaid, addressed to any Holder of a Warrant at such
Holder's last known address appearing on the register of the Company maintained
by the Warrant Agent and to the Company or the Warrant Agent as follows:
To the Company:
TVN Entertainment Corporation
2701 West Alameda Avenue, Seventh Floor
Burbank, California 91505
Attention: Vice President of Finance
<PAGE>
39
To the Warrant Agent:
The Bank of New York
101 Barclay Street
New York, New York 10286
Attention: Corporate Trust Trustee Administration
or such other address as shall have been furnished to the party giving or making
such notice, demand or delivery. Any notice that is mailed in the manner herein
provided shall be conclusively presumed to have been duly given when mailed,
whether or not the Holder receives the notice.
(b) Payment of the Exercise Price shall be made in accordance with the
provisions of this Agreement at the office of the Warrant Agent set forth above,
unless otherwise directed by the Warrant Agent and the Company.
(c) Any notice required to be given by the Company to the Holders
shall be made by mailing, to the Holders at their last known addresses appearing
on the register maintained by the Warrant Agent. The Company hereby irrevocably
authorizes the Warrant Agent, in the name and at the expense of the Company, to
mail any such notice upon receipt thereof from the Company. Any notice that is
mailed in the manner herein provided shall be conclusively presumed to have been
duly given when mailed, whether or not the Holder receives the notice.
Section 12.6. Binding Effect. This Agreement shall be binding upon and
------------ --------------
inure to the benefit of the Company and the Warrant Agent and their respective
successors and assigns, and the Holders from time to time of the Warrants.
Nothing in this Agreement is intended or shall be construed to confer upon any
Person, other than the Company, the Warrant Agent and the Holders of the
Warrants, any right, remedy or claim under or by reason of this Agreement or any
part hereof.
Section 12.7. Counterparts. This Agreement may be executed manually
------------ ------------
or by facsimile in any number of counterparts, each of which shall be deemed an
original, but all of which together constitute one and the same instrument.
Section 12.8. Amendments. The Warrant Agent may, without the consent
------------ ----------
or concurrence of the Holders of the Warrants, by supplemental agreement or
otherwise, join with the Company in making any changes or corrections in this
Agreement that (a) are required to cure any ambiguity or to correct any
defective or inconsistent provision or clerical omission or mistake or manifest
error herein contained or (b) add to the covenants and agreements of the Company
in this Agreement further covenants and agreements of the
<PAGE>
40
Company thereafter to be observed, or surrender any rights or power reserved to
or conferred upon the Company in this Agreement; provided that in either case
such changes or corrections do not and will not adversely affect, alter or
change the rights, privileges or immunities of the Holders of Warrants or the
Warrant Agent. Upon the Warrant Agent's request, the Company shall promptly
provide an Officer's Certificate and Opinion of Counsel which provide all
conditions precedent to adoption of an amendment that have been satisfied.
Section 12.9. Headings. The descriptive headings of the several
------------ --------
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
Section 12.10. Common Shares Legend. Unless and until the Common
------------- --------------------
Shares issuable upon the exercise of the Warrants are registered under the
Securities Act, or unless otherwise agreed by the Company and the Holder
thereof, such Common Shares will bear a legend substantially to the following
effect:
THE COMMON SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND ACCORDINGLY, MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO,
OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET
FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE
HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B)
IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES
ACT) (AN "INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A
U.S. PERSON AND IS ACQUIRING THE COMMON SHARES REPRESENTED BY
THIS CERTIFICATE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH
REGULATION S UNDER THE SECURITIES ACT; (2) AGREES THAT IT WILL
NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k), TAKING
INTO ACCOUNT THE PROVISIONS OF RULE 144(d), IF APPLICABLE, UNDER
THE SECURITIES ACT AS IN EFFECT WITH RESPECT TO SUCH TRANSFER,
RESELL OR OTHERWISE TRANSFER THE COMMON SHARES REPRESENTED BY
THIS CERTIFICATE EXCEPT (A) TO TVN ENTERTAINMENT CORPORATION (THE
"COMPANY") OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED
INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE
SECURITIES ACT, (C) INSIDE THE UNITED
<PAGE>
41
STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO
SUCH TRANSFER, FURNISHES TO THE TRANSFER AGENT AND REGISTRAR A
SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE RESTRICTIONS ON TRANSFER OF THE COMMON SHARES
REPRESENTED BY THIS CERTIFICATE (THE FORM OF WHICH LETTER CAN BE
OBTAINED FROM THE TRANSFER AGENT AND REGISTRAR) AND AN OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN
COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES
IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE
SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR
(F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT; AND (3) AGREES THAT IT WILL DELIVER TO EACH
PERSON TO WHOM THE COMMON SHARES REPRESENTED BY THIS CERTIFICATE
ARE TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE COMMON SHARES
REPRESENTED BY THIS CERTIFICATE WITHIN THE TIME PERIOD REFERRED
TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON
THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND
SUBMIT THIS CERTIFICATE TO THE TRANSFER AGENT AND REGISTRAR. IF
THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR,
THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO EACH OF THE
TRANSFER AGENT AND REGISTRAR AND THE COMPANY SUCH CERTIFICATIONS,
LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE
PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT
TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED
HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND
"U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S
UNDER THE SECURITIES ACT. THE WARRANT AGREEMENT CONTAINS A
PROVISION REQUIRING THE TRANSFER AGENT AND REGISTRAR TO REFUSE TO
REGISTER ANY TRANSFER OF THE SHARES OF COMMON STOCK REPRESENTED
BY THIS CERTIFICATE IN VIOLATION OF THE FOREGOING RESTRICTIONS.
<PAGE>
42
Section 12.11. Third Party Beneficiaries. The Holders shall be third
------------- -------------------------
party beneficiaries to the agreements made hereunder between the Company, on the
one hand, and the Warrant Agent, on the other hand, and each Holder shall have
the right to enforce such agreements directly to the extent it deems such
enforcement necessary or advisable to protect its rights or the rights of
Holders hereunder. By acquiring Warrants, each Holder agrees to be bound by the
obligations of Holders generally as set forth herein and as such obligations may
be applicable to such Holder.
Section 12.12. Termination. Except as otherwise specified herein,
------------- -----------
this Agreement shall terminate at 5:00 p.m. (New York City time) on the tenth
anniversary of the Closing Date. Notwithstanding the foregoing, this Agreement
shall terminate on any earlier date as of which all Warrants have been
exercised.
Section 12.13. Governing Law. This Agreement shall be governed by
-------------- -------------
the laws of the State of New York. The Warrant Agent, the Company and the
Holders agree to submit to the jurisdiction of the courts of the State of New
York in any action or proceeding arising out of or relating to this Agreement or
the Warrants.
Section 12.14. Registration Rights. Each Warrant will be entitled to
------------- -------------------
the benefits, and subject to the terms and conditions, of the Warrant
Registration Rights Agreement, and each Holder shall be deemed to be a "Holder"
as defined in the Warrant Registration Rights Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, as of the day and year first above written.
TVN ENTERTAINMENT CORPORATION
By: /s/ Arthur Fields
--------------------------------------
Name: Arthur Fields
Title: Senior Executive Vice President
THE BANK OF NEW YORK
By: /s/ Michael Culhane
--------------------------------------
Name: Michael Culhane
Title: Vice President
WARRANT AGREEMENT
<PAGE>
EXHIBIT A
FORM OF WARRANT CERTIFICATE
TVN ENTERTAINMENT CORPORATION
[CUSIP] [CINS] [ISIN] No. _____
No. _____
WARRANTS TO PURCHASE COMMON SHARES
This certifies that ______________, or its registered assigns, is the
owner of ___________ Warrants, each of which represents the right to purchase,
after January 29, 1999, from TVN ENTERTAINMENT CORPORATION, a Delaware
corporation (the "Company"), 10.777 shares of the Common Stock, par value $.001
-------
per share, of the Company (the "Common Shares") at an exercise price (the
-------------
"Exercise Price") of $0.01 per Common Share (subject to adjustment as provided
--------------
in the Warrant Agreement hereinafter referred to below), upon surrender hereof
at the office of The Bank of New York, or to its successor, as the warrant agent
under the Warrant Agreement (any such warrant agent being herein called the
"Warrant Agent"), or such other location contemplated by Section 12.5(b) of the
-------------
Warrant Agreement, with the Subscription Form on the reverse hereof duly
executed, with signature guaranteed as therein specified and simultaneous
payment in full in cash or by certified or official bank or bank cashier's check
payable to the order of the Company. Notwithstanding the foregoing, the
Exercise Price may be paid by surrendering additional Warrants to the Warrant
Agent having an aggregate Spread equal to the aggregate Exercise Price of the
Warrants being exercised. At any time after one year after the Closing Date and
on or before the Expiration Date, any outstanding Warrants may be exercised on
any Business Day; provided that the Warrant Registration Statement is, at the
time of exercise, effective and available for the exercise of Warrants or the
exercise of such Warrants is exempt from the registration requirements of the
Securities Act.
This Warrant Certificate is issued under and in accordance with a
Warrant Agreement dated as of July 29, 1998 (the "Warrant Agreement"), between
-----------------
the Company and The Bank of New York, as Warrant Agent, and a Warrant
Registration Rights Agreement dated as of July 29, 1998 (the "Warrant
-------
Registration Rights Agreement"), between the Company and Morgan Stanley & Co.
- -----------------------------
Incorporated, and is subject to the Certificate of Incorporation and Bylaws of
the Company and to the terms and provisions contained therein, to all of which
terms and provisions the Holder of this Warrant Certificate consents by
acceptance hereof. The terms of the Warrant Agreement and the Warrant
Registration Rights Agreement are hereby incorporated herein by reference and
made a part hereof. Reference is hereby made to the Warrant Agreement and the
Warrant Registration Rights Agreement for a full description of the rights,
limitations of rights, obligations, duties and immunities
<PAGE>
A-2
thereunder of the Company and the Holders of the Warrants. The summary of the
terms of the Warrant Agreement and the Warrant Registration Rights Agreement
contained in this Warrant Certificate is qualified in its entirety by express
reference to the Warrant Agreement and the Warrant Registration Rights
Agreement. All terms used in this Warrant Certificate that are defined in the
Warrant Agreement and the Warrant Registration Rights Agreement shall have the
meanings assigned to them in such agreements.
Copies of the Warrant Agreement and the Warrant Registration Rights
Agreement are on file at the office of the Warrant Agent and may be obtained by
writing to the Warrant Agent at the following address:
The Bank of New York
101 Barclay Street
New York, New York 10286
Attention: Corporate Trust Trustee Administration
A "Repurchase Event", as defined in the Warrant Agreement, shall be
----------------
deemed to occur on any date when the Company (i) consolidates with or merges
into or with another Person (but only where the holders of Common Stock receive
consideration in exchange for all or part of such Common Stock), if the Common
Stock (or other securities) thereafter issuable upon exercise of the Warrants is
not registered under the Exchange Act or (ii) sells all or substantially all of
its assets to another Person, if the Common Stock (or other securities)
thereafter issuable upon exercise of the Warrants is not registered under the
Exchange Act; provided that in each case a "Repurchase Event" shall not be
deemed to have occurred if the consideration for such transaction consists
solely of cash.
Following a Repurchase Event, the Company must make an offer to
repurchase for cash all outstanding Warrants (a "Repurchase Offer"). If the
----------------
Company makes a Repurchase Offer, Holders may, until the expiration date of such
offer, surrender all or part of their Warrants for repurchase by the Company.
Warrants received by the Warrant Agent in proper form during a
Repurchase Offer will, except as otherwise provided in the Warrant Agreement, be
repurchased by the Company at a price in cash (the "Repurchase Price") equal to
----------------
the value on the Valuation Date relating thereto of the Common Shares issuable,
and other securities or property of the Company which would have been delivered,
upon exercise of the Warrants had the Warrants been exercised (whether or not
the Warrants are then exercisable), less the Exercise Price in effect on the
Notice Date for such Repurchase Offer. The value of such Common Shares and
other securities will be, to the extent not otherwise provided in the Warrant
Agreement, (i) if the Common Shares (or other securities) are registered under
the Exchange Act, determined based upon the average of the daily market prices
(as determined pursuant to Section
<PAGE>
A-3
3.4(d)(ii)(1) of the Warrant Agreement) of the Common Shares (or other
securities) for the 20 consecutive trading days immediately preceding such
Valuation Date or (ii) if the Common Shares (or other securities) are not
registered under the Exchange Act or if the value cannot be computed under
clause (i) above, determined by the Independent Financial Expert (as defined in
the Warrant Agreement), in each case as set forth in the Warrant Agreement.
The "Valuation Date" as defined in the Warrant Agreement shall be
--------------
deemed to occur on the date five Business Days prior to the date notice of the
Repurchase Offer is first given.
If the Company fails to make or complete a Repurchase Offer (a
"Default") as required by the Warrant Agreement, it shall be obligated to
- --------
increase the amount otherwise payable pursuant to the Warrant Agreement in
respect of the Repurchase Offer by an amount equal to interest thereon at a rate
per annum of [ ]% from the date of the Default to the date of payment, which
interest shall compound quarterly.
If the Company merges or consolidates with or into, or sells all or
substantially all of its property and assets to, another Person and the
consideration received by holders of Common Shares consists solely of cash, the
Holders of Warrants shall be entitled to receive distributions on the date of
such event on an equal basis with holders of Common Shares (or other securities
issuable upon exercise of the Warrants) as if the Warrants had been exercised
immediately prior to such event (less the Exercise Price). Upon receipt of such
payment, if any, the rights of a Holder shall terminate and cease and such
Holder's Warrants shall expire.
The number of Common Shares purchasable upon the exercise of each
Warrant and the price per share are subject to adjustment as provided in the
Warrant Agreement. Except as stated in the immediately preceding paragraph and
in the Warrant Agreement, in the event the Company merges or consolidates with,
or sells all or substantially all of its assets to, another Person, each Warrant
will, upon exercise, entitle the Holder thereof to receive the number of shares
of capital stock or other securities or the amount of money and other property
which the holder of a Common Share (or other securities or property issuable
upon exercise of a Warrant) is entitled to receive upon completion of such
merger, consolidation or sale.
As to any final fraction of a share which the same Holder of one or
more Warrant Certificates would otherwise be entitled to purchase upon exercise
thereof in the same transaction, the Company may pay the cash value thereof
determined as provided in the Warrant Agreement.
All Common Shares issuable by the Company upon the exercise of
Warrants shall be validly issued, fully paid and not subject to any calls for
funds, and the Company shall
<PAGE>
A-4
pay any taxes and other governmental charges that may be imposed under the laws
of the United States of America or any political subdivision or taxing authority
thereof or therein in respect of the issue or delivery thereof upon exercise of
Warrants (other than income taxes imposed on the Holders). The Company shall not
be required, however, to pay any tax or other charge imposed in connection with
any transfer involved in the issue of any certificate for Common Shares
(including other securities or property issuable upon the exercise of the
Warrants) or payment of cash to any Person other than the Holder of a Warrant
Certificate surrendered upon the exercise of a Warrant and in case of such
transfer or payment, the Warrant Agent and the Company shall not be required to
issue any share certificate or pay any cash until such tax or charge has been
paid or it has been established to the Warrant Agent's and the Company's
satisfaction that no such tax or charge is due.
Subject to the restrictions on and conditions to transfer set forth in
Articles II and VIII of the Warrant Agreement, this Warrant Certificate and all
rights hereunder are transferable by the registered Holder hereof, in whole or
in part, on the register of the Company maintained by the Warrant Agent for such
purpose at the Warrant Agent's office in New York, New York, upon surrender of
this Warrant Certificate duly endorsed, or accompanied by a written instrument
of transfer in form satisfactory to the Company and the Warrant Agent duly
executed, with signatures guaranteed as specified in the attached Form of
Assignment, by the registered Holder hereof or his attorney duly authorized in
writing and by such other documentation required pursuant to the Warrant
Agreement and upon payment of any necessary transfer tax or other governmental
charge imposed upon such transfer. Upon any partial transfer, the Company will
sign and issue and the Warrant Agent will countersign and deliver to such Holder
a new Warrant Certificate or Certificates with respect to any portion not so
transferred. Each taker and Holder of this Warrant Certificate, by taking and
holding the same, consents and agrees that prior to the registration of transfer
as provided in the Warrant Agreement, the Company and the Warrant Agent may
treat the Person in whose name the Warrants are registered as the absolute owner
hereof for any purpose and as the Person entitled to exercise the rights
represented hereby, any notice to the contrary notwithstanding. Accordingly,
the Company and/or the Warrant Agent shall not, except as ordered by a court of
competent jurisdiction as required by law, be bound to recognize any equitable
or other claim to or interest in the Warrants on the part of any Person other
than such Registered Holder, whether or not it shall have express or other
notice thereof.
This Warrant Certificate may be exchanged at the office of the Warrant
Agent maintained for such purpose in New York, New York, for Warrant
Certificates representing the same aggregate number of Warrants, each new
Warrant Certificate to represent such number of Warrants as the Holder hereof
shall designate at the time of such exchange.
Prior to the exercise of the Warrants represented hereby, the Holder
of this Warrant Certificate, as such, shall not be entitled to any rights of a
stockholder of the
<PAGE>
A-5
Company, including, without limitation, the right to vote or to consent to any
action of the stockholders, to receive any distributions, to exercise any pre-
emptive right or to receive any notice of meetings of stockholders, and shall
not be entitled to receive any notice of any proceedings of the Company except
as provided in the Warrant Agreement.
This Warrant Certificate shall be void and all rights evidenced hereby
shall cease on August 1, 2008, unless sooner terminated by the liquidation,
dissolution or winding-up of the Company or as otherwise provided in the Warrant
Agreement upon the consolidation or merger of the Company with, or sale of the
Company to, another Person or unless such date is extended as provided in the
Warrant Agreement.
This Warrant Certificate shall not be valid for any purpose until it
shall have been countersigned by the Warrant Agent.
TVN ENTERTAINMENT CORPORATION
By: _________________________
Name:
Title:
Dated:
Countersigned:
THE BANK OF NEW YORK,
as Warrant Agent
By: ___________________________
Authorized Signatory
<PAGE>
A-6
FORM OF REVERSE OF WARRANT CERTIFICATE
SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
To: The Bank of New York,
as Warrant Agent
101 Barclay Street
New York, New York 10286
Attention: Corporate Trust Trustee Administration
The undersigned irrevocably exercises ________ of the Warrants
represented by this Warrant Certificate and herewith makes payment of $ _______
(such payment being in cash or by certified or official bank or bank cashier's
check payable to the order or at the direction of TVN Entertainment Corporation
or, the exercise price may be paid by surrendering additional Warrants to the
Warrant Agent having an aggregate Spread equal to the aggregate exercise price
of the Warrants being exercised) all at the exercise price and on the terms and
conditions specified in this Warrant Certificate and in the Warrant Agreement
and the Warrant Registration Rights Agreement referred to herein and surrenders
this Warrant Certificate and all right, title and interest therein to and
directs that the Common Stock, par value $0.001 per share, of TVN Entertainment
Corporation (the "Common Shares") deliverable upon the exercise of such Warrants
-------------
be registered or placed in the name and at the address specified below and
delivered thereto.
<PAGE>
A-7
Dated: _______________________________________________________
(Signature of Owner)
_______________________________________________________
(Street Address)
_______________________________________________________
(City) (State) (Zip Code)
Signature Guaranteed By:
_______________________________________________________
Signatures must be guaranteed by an "eligible guarantor
institution" meeting the requirements of the Warrant
Agent, which requirements include membership or
participation in the Security Transfer Agent Medallion
Program ("STAMP") or such other "signature guarantee
program" as may be determined by the Warrant Agent in
addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as
amended.
Securities and/or check or other property to be issued or delivered to:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
<PAGE>
A-8
FORM OF CERTIFICATE FOR REPURCHASE OFFER
(To be executed only upon repurchase
of Warrant by TVN Entertainment Corporation)
To:
The undersigned, having received prior notice of the consideration for
which TVN ENTERTAINMENT CORPORATION will repurchase the Warrants represented by
the within Warrant Certificate, hereby surrenders this Warrant Certificate for
repurchase by TVN ENTERTAINMENT CORPORATION of the number of Warrants specified
below for the consideration set forth in such notice.
Dated:
___________________________________
(Number of Warrants)
___________________________________
(Signature of Owner)
___________________________________
(Street Address)
___________________________________
(City) (State) (Zip Code)
Signature Guaranteed By:
_______________________________________________________
Signatures must be guaranteed by an "eligible guarantor
institution" meeting the requirements of the Warrant
Agent, which requirements include membership or
participation in the Security Transfer Agent Medallion
Program ("STAMP") or such other "signature guarantee
program" as may be determined by the Warrant Agent in
addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as
amended.
<PAGE>
A-9
Securities and/or check to be issued to:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
<PAGE>
A-10
FORM OF ASSIGNMENT
In consideration of monies or other valuable consideration received
from the Assignee(s) named below, the undersigned registered Holder of this
Warrant Certificate hereby sells, assigns, and transfers unto the Assignee(s)
named below (including the undersigned with respect to any Warrants constituting
a part of the Warrants evidenced by this Warrant Certificate not being assigned
hereby) all of the right of the undersigned under this Warrant Certificate, with
respect to the number of Warrants set forth below:
Name(s) of Assignee(s): ______________________________________
Address: _____________________________________________________
No. of Warrants: _____________________________________________
Please insert social security or other identifying number of assignee(s):
and does hereby irrevocably constitute and appoint ________________________ the
undersigned's attorney to make such transfer on the books of __________________
maintained for the purposes, with full power of substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED ON ALL CERTIFICATES]
In connection with any transfer of Warrants, the undersigned confirms that
without utilizing any general solicitation or general advertising that:
[Check One]
[_] (a) these Warrants are being transferred in compliance with the exemption
from registration under the U.S. Securities Act of 1933, as amended,
provided by Rule 144A thereunder.
or
[_] (b) these Warrants are being transferred other than in accordance with (a)
above and documents are being furnished which comply with the conditions of
transfer set forth in this Warrant Certificate and the Warrant Agreement.
or
[_] (c) these Warrants are being transferred pursuant to an effective
registration statement under the U.S. Securities Act of 1933, as amended.
<PAGE>
A-11
If none of the foregoing boxes is checked, the Warrant Agent shall not be
obligated to register the Warrants in the name of any Person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Article VIII of the Warrant Agreement shall
have been satisfied.
Dated:
___________________________________
(Signature of Owner)
___________________________________
(Street Address)
___________________________________
(City) (State) (Zip Code)
Signature Guaranteed By:
__________________________________________________
Signatures must be guaranteed by an "eligible
guarantor institution" meeting the requirements of
the Warrant Agent, which requirements include
membership or participation in the Security
Transfer Agent Medallion Program ("STAMP") or such
other "signature guarantee program" as may be
determined by the Warrant Agent in addition to, or
in substitution for, STAMP, all in accordance with
the Securities Exchange Act of 1934, as amended.
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing the Warrant(s) for
its own account or an account with respect to which it exercises sole investment
discretion and that it and any such account is a "qualified institutional buyer"
within the meaning of Rule 144A under the U.S. Securities Act of 1933, as
amended, and is aware that the sale to it is being made in reliance on Rule 144A
and acknowledges that it has received such information regarding TVN
Entertainment Corporation as the undersigned has requested pursuant to Rule 144A
or has determined not to request such information and that it is aware that the
transferor is relying upon the undersigned's
<PAGE>
A-12
foregoing representations in order to claim the exemption from registration
provided by Rule 144A.
Dated:________________
_______________________________________________
[NOTE: To be executed by an executive officer]
<PAGE>
EXHIBIT B
Form of Certificate to be Delivered
in Connection with
Transfers Pursuant to Regulation S
----------------------------------
[Date]
TVN Entertainment Corporation
2901 West Almadea Ave., 7/th/ Floor
Burbank, CA 91505
Attention: President
The Bank of New York
101 Barclay Street
New York, New York 10286
Attention: Corporate Trust Trustee Administration
Re: Warrants (the "Warrants") to Purchase
--------
Common Shares of TVN Entertainment Corporation (the "Company")
-------
Ladies and Gentlemen:
In connection with our proposed sale of _______________ Warrants, we
hereby certify that such sale has been effected pursuant to and in accordance
with Regulation S under the U.S. Securities Act of 1933, as amended (the
"Securities Act"), and, accordingly, we represent that:
- ---------------
(1) the offer of the Warrants was not made to a Person in the United
States and not to a U.S. Person (as defined in Regulation S under the
Securities Act);
(2) at the time the buy order was originated, the transferee was outside
the United States or we and any Person acting on our behalf reasonably
believed that the transferee was outside the United States;
(3) no directed selling efforts (as such term is defined in Rule 902(b)
of Regulation S under the Securities Act) have been made by us, any of
our affiliates or any Persons acting on our behalf in the United States
in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S under the Securities Act, as applicable; and
<PAGE>
B-2
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act.
Each of you is entitled to rely upon this letter and is irrevocably
authorized to produce this letter or a copy hereof to any interested party in
any administrative or legal proceedings or official inquiry with respect to the
matters covered hereby. Terms used in this certificate have the meanings set
forth in Regulation S.
Very truly yours,
[Name of Transferor]
By: _________________________
Authorized Signature
<PAGE>
EXHIBIT C-1
Form of Certificate to be
Delivered by Transferor in Connection with
Transfers to Institutional Accredited Investors
-----------------------------------------------
[Date]
TVN Entertainment Corporation
2901 West Almadea Ave., 7/th/ Floor
Burbank, CA 91505
Attention: President
The Bank of New York
101 Barclay Street
New York, New York 10286
Attention: Corporate Trust Trustee Administration
Re: Warrants (the "Warrants") to Purchase
--------
Common Shares of TVN Entertainment Corporation (the "Company")
-------
Ladies and Gentlemen:
We hereby certify that such transfer is being effected in compliance
with the transfer restrictions applicable to the Warrants or interests therein
transferred pursuant to and in accordance with the U.S. Securities Act of 1933,
as amended (the "Securities Act"), and accordingly we hereby further certify
--------------
that (check one):
(a) [_] such transfer is being effected pursuant to and in accordance with
Rule 144 under the Securities Act;
or
(b) [_] such transfer is being effected to the Company or a subsidiary
thereof;
or
(c) [_] such transfer is being effected pursuant to an effective
registration statement under the Securities Act;
or
<PAGE>
C1-2
(d) [_] such transfer is being effected pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 144A, Rule 144
or Rule 904 thereunder, and we hereby further certify that such transfer
complies with the transfer restrictions applicable to the Warrants or interests
therein transferred to Institutional Accredited Investors and in accordance with
the requirements of the exemption claimed, which certification is supported by
an Opinion of Counsel provided by us or the transferee (a copy of which we have
attached to this certification), to the effect that such transfer is in
compliance with the Securities Act. Upon consummation of the proposed transfer
in accordance with the terms of the Warrant Agreement, the transferred Warrants
or interests therein will be subject to the restrictions on transfer enumerated
in the Private Placement Legend printed on the Certificated Warrant and in the
Warrant Agreement and the Securities Act.
Very truly yours,
[Name of Transferor]
By: _______________________________
Authorized Signature
<PAGE>
EXHIBIT C-2
Form of Certificate to be
Delivered By Transferees in Connection with
Transfers to Institutional Accredited Investors
-----------------------------------------------
[Date]
TVN Entertainment Corporation
2901 West Almadea Ave., 7/th/ Floor
Burbank, CA 91505
Attention: President
The Bank of New York
101 Barclay Street
New York, New York 10286
Attention: Corporate Trust Administration
Re: Warrants (the "Warrants") to Purchase
--------
Common Shares of TVN Entertainment Corporation (the "Company")
-------
Dear Sirs:
In connection with our proposed purchase of ___________ aggregate
number of Warrants, we confirm that:
1. We understand that any subsequent transfer of the Warrants, any
interest therein or the Common Shares issuable upon exercise of any Warrant
(the "Warrant Shares") is subject to certain restrictions and conditions set
--------------
forth in the Warrant Agreement dated as of July 29, 1998 relating to the
Warrants (the "Warrant Agreement") and the Warrant Registration Rights
-----------------
Agreement dated as of July 29, 1998 relating to the Warrants (the "Warrant
-------
Registration Rights Agreement") and the undersigned agrees to be bound by,
-----------------------------
and not to resell, pledge or otherwise transfer the Warrants or Warrant
Shares except in compliance with, such restrictions and conditions and the
U.S. Securities Act of 1933, as amended (the "Securities Act").
--------------
2. We understand that the Warrants represented by this Warrant
Certificate and, as of the date this Warrant Certificate was originally
issued, the Warrant Shares have not been registered under the Securities
Act, and accordingly may not be offered, sold, pledged or otherwise
transferred within the United States or to, or for the account or benefit
of, U.S. Persons except as set forth in the following sentence. We agree
that
<PAGE>
C2-2
we will not, within the time period referred to under Rule 144(k) of the
Securities Act (taking into account the provisions of Rule 144(d) under the
Securities Act, if applicable) under the Securities Act as in effect on the
date of the transfer of this Warrant, resell or otherwise transfer the
Warrants represented by this Warrant Certificate except (a) to TVN
Entertainment Corporation or any subsidiary thereof, (b) to a qualified
institutional buyer in compliance with Rule 144A under the Securities Act,
(c) outside the United States in an offshore transaction in compliance with
Rule 904 under the Securities Act, (d) pursuant to the exemption from
registration provided by Rule 144 under the Securities Act (if available),
(e) to an institutional accredited investor that, prior to such transfer,
furnishes to you, to the Company and, in the case of the Warrant Shares, to
the transfer agent and registrar therefor, a signed letter containing
certain representations and agreements relating to the restrictions on
transfer of the Warrants represented by this Warrant Certificate (the form
of which letter can be obtained from the Warrant Agent) and an opinion of
counsel acceptable to the Company and its counsel that such transfer is in
compliance with the Securities Act or (f) pursuant to an effective
registration statement under the Securities Act and, in each case, in
accordance with applicable state securities laws.
3. We understand that, on any proposed resale of any Warrants, any
interest therein or Warrant Shares, we will be required to furnish to each
of you such certifications, legal opinions and other information as either
of you may reasonably require to confirm that the proposed sale complies
with the foregoing restrictions. We further understand that the Warrants
purchased by us will bear a legend to the foregoing effect.
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and
have such knowledge and experience in financial and business matters as to
be capable of evaluating the merits and risks of our investment in the
Warrants, and we and any accounts for which we are acting are each able to
bear the economic risk of our or its investment for an indefinite period of
time.
5. We are acquiring the Warrants purchased by us for our own account
or for one or more accounts (each of which is an institutional "accredited
investor") as to each of which we exercise sole investment discretion.
<PAGE>
C2-3
Each of you and, if applicable, the transfer agent and registrar for
the Warrant Shares are entitled to rely upon this letter and are irrevocably
authorized to produce this letter or a copy hereof to any interested party in
any administrative or legal proceedings or official inquiry with respect to the
matters covered hereby.
Very truly yours,
[Name of Transferee]
By: _________________________________
Authorized Signature
<PAGE>
APPENDIX A
LIST OF FINANCIAL EXPERTS
- -------------------------
BankAmerica Robertson Stephens
Bear, Stearns & Co., Inc.
Broadview Associates LLP
BT Alex. Brown
CIBC Oppenheimer Corp.
Cowen & Company
Credit Suisse First Boston Corporation
Deutsche Morgan Grenfell Inc.
Dillon, Read & Co. Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Furman Selz, LLP
Goldman, Sachs & Co.
Hambrecht & Quist
Lazard Freres & Co.
Lehman Brothers
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Morgan Stanley & Co. Incorporated
NationsBank Montgomery Securities
PaineWebber Incorporated
Prudential Securities Inc.
Salomon Brothers Inc
Smith Barney Inc.
<PAGE>
EXHIBIT 4.5
- --------------------------------------------------------------------------------
WARRANT REGISTRATION RIGHTS AGREEMENT
between
TVN ENTERTAINMENT CORPORATION
and
MORGAN STANLEY & CO. INCORPORATED
Dated as of July 29, 1998
- --------------------------------------------------------------------------------
<PAGE>
WARRANT REGISTRATION RIGHTS AGREEMENT
WARRANT REGISTRATION RIGHTS AGREEMENT, dated as of July 29, 1998 (this
"Agreement"), between TVN ENTERTAINMENT CORPORATION, a Delaware corporation (the
---------
"Company"), and MORGAN STANLEY & CO. INCORPORATED (the "Placement Agent").
------- ---------------
Pursuant to the terms of a Placement Agreement, dated July 24, 1998
(the "Placement Agreement"), between the Company and the Placement Agent, the
-------------------
Company has agreed to issue and sell to the Placement Agent an aggregate of
200,000 warrants (each, a "Warrant" and collectively, the "Warrants") to be
------- --------
issued pursuant to the provisions of a Warrant Agreement (the "Warrant
-------
Agreement"), to be dated as of the Closing Date (as defined below), between the
- ---------
Company and The Bank of New York (the "Warrant Agent"), each Warrant initially
-------------
entitling the holder thereof to purchase 10.777 shares of Common Stock (as
defined below) of the Company at an exercise price of $0.01 per Common Share (as
defined below), as part of 200,000 units (the "Units"), each Unit consisting of
-----
one 14% Senior Note due 2008 of the Company (each a "Note" and collectively, the
----
"Notes") to be issued pursuant to the provisions of an Indenture dated as of the
-----
date hereof (the "Indenture") between the Company, as issuer, and The Bank of
New York, as trustee, and one Warrant. The Note and the Warrants included in
each Unit will automatically become separately transferable at the close of
business upon the earliest to occur of (i) the date that is six months after the
Closing Date, (ii) the commencement of an exchange offer with respect to the
Notes undertaken pursuant to the Notes Registration Rights Agreement (as defined
below), (iii) the effectiveness of a shelf registration statement with respect
to resales of the Notes, (iv) the commencement of an Offer to Purchase the Notes
(as defined below) and (v) such earlier date as determined by the Placement
Agent in its sole discretion (the "Separation Date").
---------------
In consideration of the foregoing and of the mutual agreements
contained herein and in the Placement Agreement, the Company and the Warrant
Agent hereby agree as follows:
1. Definitions.
-----------
As used in this Agreement, the following capitalized defined terms
shall have the following meanings:
"Auditors" means, at any time, the independent auditors of the Company
at such time.
"Board" means the board of directors of the Company from time to time.
"Closing Date" means the date hereof.
<PAGE>
2
"Comfort Letter" has the meaning specified in Section 3(b)(iv) hereof.
"Commission" means the United States Securities and Exchange
Commission.
"Common Stock" means the Common Stock, par value $0.001 per share, of
the Company.
"Common Shares" means the shares of the Common Stock of the Company.
"Company" has the meaning specified in the preamble to this Agreement.
"Company Shares" has the meaning specified in Section 2(b) hereof.
"Cutback Notice" has the meaning specified in Section 2(a) hereof.
"Expiration Date" means August 1, 2008.
"Holders" means the record holders of the Warrants and the holders of
Common Shares (or other securities) received upon exercise thereof.
"Indenture" has the meaning specified in the recitals to this
Agreement.
"Initial Public Offering" means the first firmly underwritten initial
public offering of the Common Stock of the Company registered under the
Securities Act.
"managing underwriter" has the meaning specified in Section 2(a)
hereof.
"Maximum Shares" has the meaning specified in Section 2(b) hereof.
"Maximum Secondary Shares" has the meaning specified in Section 2(c)
hereof.
"Notes" has the meaning specified in the recitals to this Agreement.
"Notes Registration Rights Agreement" means the Registration Rights
Agreement dated as of the Closing Date among the Company and the Placement Agent
relating to the Notes.
"Offer to Purchase" shall have the meaning specified in the Indenture.
"Opinion" has the meaning specified in Section 3(b)(iv) hereof.
<PAGE>
3
"Other Shares" has the meaning specified in Section 2(b) hereof.
"Piggy-back Registration Rights" has the meaning specified in Section
2(a) hereof.
"Placement Agent" has the meaning specified in the preamble to this
Agreement.
"Placement Agreement" has the meaning specified in the recitals to
this Agreement.
"Registration Statement" has the meaning specified in Section 2(a)
hereof.
"Resale Shelf" has the meaning specified in Section 3(b) hereof.
"Securities Act" means the United States Securities Act of 1933, as
amended.
"Shelf Expiration Date" has the meaning specified in Section 3(a)
hereof.
"Underlying Securities" means the Common Shares (or other securities)
issuable upon the exercise of the Warrants pursuant to the Warrant Agreement.
"Units" has the meaning specified in the recitals to this Agreement.
"Warrant" has the meaning specified in the recitals to this Agreement.
"Warrant Agent" has the meaning specified in the recitals to this
Agreement.
"Warrant Agreement" means the Warrant Agreement dated as of the
Closing Date between the Company and the Warrant Agent.
"Warrant Registration Statement" has the meaning specified in Section
3(a) hereof.
"Warrant Shares" has the meaning specified in Section 2(a) hereof.
2. Piggy-Back Registration Rights.
------------------------------
(a) If prior to the Shelf Expiration Date, the Company proposes to
file a registration statement with the Commission respecting an offering of any
shares of Common Stock (or other securities issuable upon exercise of the
Warrants) for cash (other than an
<PAGE>
4
offering registered solely on Form S-4 or S-8 or any successor form thereto and
other than the initial public offering of shares of Common Stock (or other
securities issuable upon exercise of the Warrants) if no stockholder of the
Company participates therein), the Company shall give prompt written notice to
all the Holders of Warrants or Common Shares or such other securities received
upon exercise of Warrants at least 15 days prior to the initial filing of the
registration statement relating to such offering (the "Registration Statement").
----------------------
Each such Holder shall have the right, within 15 days after delivery of such
notice, to request in writing that the Company include all or a portion of such
of the Common Shares issuable upon exercise of such Holder's Warrants, such
other securities as shall be issuable upon the exercise of the Warrants, or the
Common Shares or such other securities previously received upon the exercise
thereof pursuant to the Warrant Agreement, in each case to the extent that such
Common Shares or other securities would be (upon issuance) or are, as the case
may be, subject to restrictions on transfer ("Warrant Shares"), in such
--------------
Registration Statement ("Piggy-back Registration Rights"). The Company shall
------------------------------
include in such Registration Statement all of the Warrant Shares that a Holder
has requested be included; provided, however, that the Company shall not be
-------- -------
obligated to include in such Registration Statement any Warrant Shares of such
Holder that will not be sold to the underwriters pursuant to Section 2(d) of
this Agreement if and to the extent that the Commission shall object in writing
to the inclusion of such Warrant Shares in such Registration Statement. If the
Holder of any such Warrant Shares has requested to sell its Warrant Shares to
the underwriters of such offering pursuant to Section 2(d) of this Agreement and
the underwriter for the public offering or the underwriter managing the public
offering (in either case, the "managing underwriter") delivers a notice (a
--------------------
"Cutback Notice") pursuant to Section 2(b) or 2(c) hereof, any Warrant Shares
--------------
not included in such public offering due to any Cutback Notice shall be included
in such Registration Statement (unless the Commission objects in writing to the
inclusion of such Warrant Shares in such Registration Statement) but not sold to
the underwriter(s) of such public offering under Section 2(d) of this Agreement,
and will be subject to any restrictions on transfer set forth in the Warrant
Agreement. The managing underwriter may deliver one or more Cutback Notices at
any time prior to the execution of the underwriting agreement for the public
offering.
(b) If a proposed public offering includes securities to be offered
for the account of the Company ("Company Shares") and shares to be sold by
--------------
stockholders, the provisions of this Section 2(b) shall be applicable if the
managing underwriter delivers a Cutback Notice stating that, in its opinion, the
number of Common Shares (other than Warrant Shares to be sold by the Holders)
that selling stockholders propose to sell therein, whether or not such selling
stockholders have the right to include shares therein (the "Other Shares"), plus
------------
the number of Warrant Shares that the Holders have requested to be sold therein
pursuant to Section 2(d) of this Agreement, plus the Company Shares, exceeds the
maximum number of shares specified by the managing underwriter in such Cutback
Notice that may be distributed without adversely affecting the price, timing or
distribution of the Company Shares. Such
<PAGE>
5
maximum number of shares that may be so sold, excluding the Company Shares, are
referred to as the "Maximum Shares."
--------------
If the managing underwriter delivers such Cutback Notice, the number
of shares that may be included in the offering shall be allocated as follows:
(i) first, the Company Shares, (ii) second, the Warrant Shares held by Holders
which have been requested to be included in such offering pursuant to Section
2(d) of this Agreement, (iii) third, the securities of any other stockholders
entitled to exercise "piggy-back" registration rights pursuant to contractual
commitments of the Company, and (iv) fourth, any other Common Shares requested
to be included in such offering.
(c) If a proposed public offering is entirely a secondary offering,
the provisions of this Section 2(c) shall be applicable if the managing
underwriter delivers a Cutback Notice stating that, in its opinion, the
aggregate number of Warrant Shares and Other Shares proposed to be sold therein
exceeds the maximum number of shares (the "Maximum Secondary Shares") specified
------------------------
by the managing underwriter in such Cutback Notice that may be distributed
without adversely affecting the price, timing or distribution of the Common
Shares being distributed. If the managing underwriter delivers such Cutback
Notice, the number of shares that may be included in the offering shall be
allocated as follows: (i) first, the Warrant Shares held by Holders which have
been requested to be included in such offering pursuant to Section 2(d) of this
Agreement, (ii) second, the securities of any other stockholders entitled to
exercise "piggy-back" registration rights pursuant to contractual commitments of
the Company, (iii) third, the securities which the Company proposes to register,
and (iv) fourth, any other Common Shares requested to be included in such
offering.
(d) The underwriting agreement for such public offering shall provide
that each requesting Holder shall have the right to sell its Warrant Shares
(other than Warrant Shares excluded from such public offering pursuant to a
Cutback Notice and the terms of Sections 2(b) and 2(c)) to the underwriters and
that the underwriters shall purchase the Warrant Shares at the price paid by the
underwriters for the Common Shares sold by the Company and/or other selling
stockholders, as the case may be. Each Holder participating in such public
offering shall (i) enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriter(s) of such
offering and (ii) be entitled to conduct due diligence, have its Warrant Shares
listed, receive copies of the prospectus included in the Registration Statement
relating to such offering and receive an Opinion and Comfort Letter upon
effectiveness of any such Registration Statement, in each case in the same
manner as provided for in Section 3(b)(i) through (iv) of this Agreement with
respect to a Resale Shelf.
<PAGE>
6
3. Shelf Registration.
------------------
(a) If only the Company sells Common Shares in an initial public
offering or all of the Warrant Shares have not been registered under the
Securities Act or sold in a public offering of Common Shares, the Company shall
file pursuant to Rule 415 under the Securities Act a shelf registration
statement on the appropriate form (the "Warrant Registration Statement")
------------------------------
covering the issuance of the Warrant Shares upon exercise of the Warrants and
shall use its best efforts to cause the Warrant Registration Statement to become
effective under the Securities Act within 180 days after the closing date of the
initial public offering of Common Shares; provided, however, that (1) in no
-------- -------
event may the Warrant Registration Statement be declared effective prior to the
first anniversary of the Closing Date and (2) if the Commission shall request
that the Company register the resale of the Warrant Shares instead of the
issuance thereof, the Warrant Registration Statement shall register such resale
as opposed to such issuance. The Company shall use reasonable efforts to keep
the Warrant Registration Statement continuously effective until the earlier of
(i) such time as all Warrants have been exercised thereunder or all Warrant
Shares have been sold thereunder, as the case may be, and (ii) the second
anniversary of the Closing Date (the "Shelf Expiration Date"). Prior to filing
---------------------
the Warrant Registration Statement or any amendment thereto, the Company shall
provide a copy thereof to the Placement Agent and its counsel and afford them a
reasonable time to comment thereon.
(b) If the Warrant Registration Statement shall register the resale
of the Warrant Shares (a "Resale Shelf") as provided in clause (2) of the
------------
proviso to the first sentence of Section 3(a) above, the Company agrees to:
(i) make available for inspection by a representative of the
Holders, any underwriter participating in any disposition pursuant to such
Resale Shelf and attorneys and accountants designated by the Holders, at
reasonable times and in a reasonable manner, financial and other records,
documents and properties of the Company that are pertinent to the conduct
of due diligence, and cause the officers, directors and employees of the
Company to supply all information reasonably requested by any such
representative, underwriter, attorney or accountant in connection with a
Resale Shelf;
(ii) use its best efforts to cause all Warrant Shares sold under a
Resale Shelf to be listed on any securities exchange or any automated
quotation system on which similar securities issued by the Company are then
listed if requested by the Holders of Warrant Shares representing a
majority of the Warrants originally issued, to the extent such Warrant
Shares satisfy applicable listing requirements;
(iii) provide copies of the prospectus included in such Resale Shelf
to Holders that are selling Warrant Shares pursuant to such Resale Shelf;
<PAGE>
7
(iv) cause to be provided to the Holders and beneficial owners of
Warrant Shares, upon the effectiveness of such Resale Shelf, a customary
"10b-5" opinion of independent counsel (an "Opinion") and a customary "cold
-------
comfort" letter of independent auditors (a "Comfort Letter");
--------------
(v) cause to be provided to the Holders and beneficial owners of
Warrant Shares an Opinion and Comfort Letter with respect to each Form 10-K
and Form 10-Q, including any amendments thereto, that is incorporated by
reference in such Resale Shelf; and
(vi) notify the Holders, (A) when the Resale Shelf has become
effective and when any post-effective amendment thereto has been filed and
becomes effective, (B) of any request by the Commission or any state
securities authority for amendments and supplements to the Resale Shelf or
of any material request by the Commission or any state securities authority
for additional information after the Resale Shelf has become effective, (C)
of the issuance by the Commission or any state securities authority of any
stop order suspending the effectiveness of the Resale Shelf or the
initiation of any proceedings for that purpose, (D) if, between the
effective date of the Resale Shelf and the closing of any sale of Warrant
Shares covered thereby, the representations and warranties of the Company
contained in any underwriting agreement, securities sales agreement or
other similar agreement, including this Agreement, relating to disclosure
cease to be true and correct in all material respects or if the Company
receives any notification with respect to the suspension of the
qualification of the Warrant Shares for sale in any jurisdiction or the
initiation of any proceeding for such purpose, (E) of the happening of any
event during the period the Resale Shelf is effective such that such Resale
Shelf or the related prospectus contains an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make statements therein not misleading and (F) of any
determination by the Company that a post-effective amendment to a
Registration Statement would be appropriate.
4. Suspension.
----------
Notwithstanding the foregoing, during any consecutive 365-day period,
the Company shall have the privilege to suspend availability of the Warrant
Registration Statement and the related prospectus for one 60-consecutive-day
period, except during the 60 days immediately prior to the Expiration Date, if
the Board determines in good faith that there is a valid purpose for such
suspension and provides notice of such determination (but not the purpose) to
the Holders at their addresses appearing in the register of Warrants maintained
by the Warrant Agent.
<PAGE>
8
5. Blue Sky.
--------
The Company shall use its reasonable best efforts to register or
qualify the Underlying Securities proposed to be sold or issued pursuant to the
Registration Statement or the Warrant Registration Statement under all
applicable securities or "blue sky" laws of all jurisdictions in the United
States in which any Holder of Warrants may or may be deemed to purchase
Underlying Securities upon the exercise of Warrants or resale of the Warrant
Shares, as the case may be, and shall use its reasonable best efforts to
maintain such registration or qualification through the earliest of (A) in the
case of the Registration Statement, the date upon which all of the Warrant
Shares have been sold or such other date as shall be required by applicable law,
(B) the date upon which all Warrants have been exercised or all Warrant Shares
have been resold, as the case may be, under the Warrant Registration Statement
and (C) the Expiration Date; provided, however, that the Company shall not be
required to (i) qualify as a foreign corporation or as a broker or a dealer in
securities in any jurisdiction where it would not otherwise be required to
qualify but for this Section 5, (ii) file any general consent to service of
process or (iii) subject itself to taxation in any jurisdiction if it is not
otherwise so subject.
6. Accuracy of Disclosure.
----------------------
The Company (and its successors) represents and warrants to each
Holder (and each beneficial owner of a Warrant or Warrant Share) and agrees for
the benefit of each Holder (and each beneficial owner of a Warrant or Warrant
Share) that, except during any period in which the availability of the Warrant
Registration Statement has been suspended, (i) the Warrant Registration
Statement and the documents incorporated by reference therein will not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein not misleading; and (ii) the prospectus
delivered to such Holder upon its exercise of Warrants or pursuant to which such
Holder sells its Warrant Shares, as the case may be, and the documents
incorporated by reference therein will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
7. Indemnity.
---------
The Company hereby indemnifies each beneficial owner of a Warrant and
each person, if any, who controls any beneficial owner of a Warrant within the
meaning of either Section 15 of the Securities Act or Section 20 of the
Securities Exchange Act of 1934 (the "Exchange Act"), or is under common control
------------
with, or is controlled by, any beneficial owner of a Warrant (whether or not it
is, at the time the indemnity provided for in this Section 7 is sought, such a
beneficial owner), from and against all losses, damages or liabilities which
such beneficial owner or any such controlling or affiliated person suffers as a
result of any breach,
<PAGE>
9
on the date of any exercise of a Warrant by such beneficial owner or the resale
of any Warrant Share by such Holder, in either case pursuant to the Warrant
Registration Statement, of the representations, warranties or agreements
contained in Section 6. Each beneficial owner of a Warrant Share sold pursuant
to a Resale Shelf or a Registration Statement, by accepting its beneficial
ownership of a Warrant, hereby (i) agrees to provide the Company with
information with respect to it that the Company reasonably requests in
connection with any Resale Shelf or a Registration Statement, if applicable, and
(ii) agrees, severally and not jointly, to indemnify the Company, its directors
and officers and each person, if any, who controls the Company within the
meaning of either Section 15 of the Securities Act or Section 20 of the Exchange
Act against any liability incurred by it or such controlling person as a result
of any misstatement of information provided by such beneficial owner to the
Company in writing expressly for inclusion in the Resale Shelf or a Registration
Statement, if applicable.
8. Expenses.
--------
All expenses incident to the Company's performance of or compliance
with its obligations under this Agreement will be borne by the Company,
regardless of whether a Registration Statement or Warrant Registration Statement
becomes effective, including without limitation (i) all Commission or National
Association of Securities Dealers, Inc. registration and filing fees, (ii) all
reasonable fees and expenses incurred in connection with compliance with state
securities or "blue sky" laws, (iii) all reasonable expenses of any persons
incurred by or on behalf of the Company in preparing or assisting in preparing,
word processing, printing and distributing any registration statement, any
prospectus, any amendments or supplements thereto and other documents relating
to the performance of and compliance with this Agreement, (iv) the reasonable
fees (including legal fees and expenses) and disbursements of the Warrant Agent,
(v) the reasonable fees and disbursements of counsel for the Company and (vi)
the fees and disbursements, if any, of the Auditors but excluding (x) fees and
disbursements of counsel retained by the participating Holders and (y) the
Holders' share of underwriting discounts and commissions.
9. Miscellaneous.
-------------
(a) The Company agrees, for the sole benefit of the Placement Agent:
(i) prior to the consummation of the Exchange Offer or the
effectiveness of a Shelf Registration Statement if, in the reasonable
judgment of the Placement Agent, the Placement Agent or any of its
affiliates (as such term is defined in the rules and regulations under the
Securities Act) is required to deliver an offering memorandum in connection
with sales of, or market-making activities with respect to, the Securities
or the Exchange Securities, (A) to periodically amend or supplement the
Final Memorandum so that the information contained in the Final Memorandum
complies
<PAGE>
10
with the requirements of Rule 144A of the Securities Act, (B) to amend or
supplement the Final Memorandum when necessary to reflect any material
changes in the information provided therein so that the Final Memorandum
will not contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein, in
light of the circumstances existing as of the date the Final Memorandum is
so delivered, not misleading and (C) to provide the Placement Agent with
copies of each such amended or supplemental Final Memorandum, as the
Placement Agent may reasonably request;
(ii) following the consummation of the Exchange Offer or the
effectiveness of a Shelf Registration Statement and for so long as the
Securities or the Exchange Securities are outstanding if, in the reasonable
judgment of the Placement Agent, the Placement Agent or any of its
affiliates (as such term is defined in the rules and regulations under the
Securities Act) is required to deliver a prospectus in connection with
sales of, or market-making activities with respect to, such securities, (A)
to periodically amend the applicable registration statement so that the
information contained therein complies with the requirements of Section
10(a) of the Securities Act, (B) if requested by the Placement Agent,
within 45 days following the end of the Company's most recent fiscal
quarter, file a supplement to the prospectus included in the applicable
registration statement which sets forth the financial results of the
Company for the previous quarter, (C) to amend the applicable registration
statement or supplement the related prospectus or the documents
incorporated therein when necessary to reflect any material changes in the
information provided therein so that the registration statement and the
prospectus will not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements
therein, in light of the circumstances existing as of the date the
prospectus is so delivered, not misleading and (D) to provide the Placement
Agent with copies of each such amendment or supplement as the Placement
Agent may reasonably request;
(iii) notwithstanding clauses (i) and (ii) above, (A) prior to
amending the Final Memorandum or to filing any post-effective amendment to
any registration statement or supplementing any related prospectus, to
furnish to the Placement Agent and its counsel, copies of all such
documents proposed to be amended, filed or supplemented, and (B) not to
issue any amendment to the Final Memorandum, any post-effective amendment
to a registration statement or any supplement to a prospectus to which the
Placement Agent or its counsel shall object;
(iv) it shall promptly notify the Placement Agent and its counsel
and (if requested by any such person) confirm such advice in writing, (A)
when any amendment to the Final Memorandum has been issued, when any
prospectus supplement or amendment or post-effective amendment has been
filed, and, with
<PAGE>
11
respect to any post-effective amendment, when the same has become
effective, (B) of any request by the SEC for any post-effective amendment
or supplement to a registration statement, any supplement or amendment to a
prospectus or for additional information, (C) of the issuance by the SEC of
any stop order suspending the effectiveness of a registration statement or
the initiation of any proceedings for that purpose, (D) of the receipt by
the Company of any notification with respect to the suspension of the
qualification of the Securities or the Exchange Securities for sale in any
jurisdiction or the initiation or threatening of any proceedings for such
purpose and (E) of the happening of any event which makes any statement
made in the Final Memorandum, a registration statement, a prospectus or any
amendment or supplement thereto untrue or which requires the making of any
change in the Final Memorandum, a registration statement, a prospectus or
any amendment or supplement thereto, in order to make the statements
therein not misleading;
(v) it consents to the use of the Final Memorandum and any
prospectus referred to in this Section 9(a) or any amendment or supplement
thereto, by the Placement Agent in connection with the offering and sale of
the Securities or Exchange Securities, as the case may be;
(vi) it will comply with the provisions of this Section 9 subpart
(a) at its own expense and will reimburse the Placement Agent for its
reasonable expenses associated with this Section 9(a) (including reasonable
fees of counsel); and
(vii) it hereby expressly acknowledges that the indemnification and
contribution provisions of Section 8 of the Placement Agreement shall be
specifically applicable and relate to each offering memorandum,
registration statement, prospectus, amendment or supplement referred to in
this Section 9(a).
(b) No Inconsistent Agreements. Each of the Company and the
--------------------------
Placement Agent represent to the other that it has not entered into, and agrees
that on or after the date of this Agreement it will not enter into, any
agreement which is inconsistent with the rights granted to the Holders of
Warrants or Warrant Shares in this Agreement or otherwise conflicts with the
provisions hereof. The Company represents that the rights granted to the Holders
hereunder do not in any way conflict with and are not inconsistent with the
rights granted to the holders of the Company's other issued and outstanding
securities under any agreements.
(c) Amendments and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of Holders
of at least a majority of the outstanding Warrants affected by such amendment,
modification, supplement, waiver or consent; provided that any
--------
<PAGE>
12
amendment, modification or supplement to this Agreement which, in the good faith
opinion of the Board of Directors of the Company (and evidenced by a resolution
of such board), does not adversely affect any Holder, shall not be subject to
such requirement for written consent.
(d) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivery, registered first-
class mail, telex, telecopier, or any courier guaranteeing overnight delivery
(i) if to a Holder, at the most current address given by such Holder to the
Company by means of a notice given in accordance with the provisions of this
Section 9(d); and (ii) if to the Company, initially at the Company's address set
forth in the Indenture and thereafter at such other address, notice of which is
given in accordance with the provisions of this Section 9(d).
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt is acknowledged, if telecopied; and on
the next business day if timely delivered to an air courier guaranteeing
overnight delivery.
(e) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors, assigns and transferees of each of the
parties, including, without limitation, subsequent Holders; provided that
--------
nothing herein shall be deemed to permit any assignment, transfer or other
disposition of Warrants in violation of the terms of the Placement Agreement,
the Warrant Agreement or applicable law. If any transferee of any Holder shall
acquire Warrants, in any manner, whether by operation of law or otherwise, such
Warrants shall be held subject to all of the terms of this Agreement and the
Warrant Agreement, and by taking and holding such Warrants such person shall be
conclusively deemed to have agreed to be bound by and to perform all of the
terms and provisions of this Agreement or the Warrant Agreement and such person
shall be entitled to receive the benefits hereof.
(f) Purchases and Sales of Warrants. The Company shall not, and shall
-------------------------------
use its best efforts to cause its affiliates (as defined in Rule 405 under the
Securities Act) not to, purchase and then resell or otherwise transfer any
Warrants other than Warrants acquired and canceled.
(g) Third Party Beneficiary. The Holders shall be third party
-----------------------
beneficiaries to the agreements made hereunder among the Company and the
Placement Agent, and each Holder shall have the right to enforce such agreements
directly to the extent it deems such enforcement necessary or advisable to
protect its rights or the rights of Holders hereunder.
<PAGE>
13
(h) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(i) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(j) Governing Law. This Agreement shall be governed by the laws of
-------------
the State of New York.
(k) Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(l) Waiver of Immunity. To the extent that the Company has or
------------------
hereafter may acquire any immunity from jurisdiction of any court or from any
legal process (whether through service of notice, attachment prior to judgement,
attachment in aid of execution, execution or otherwise) with respect to itself
or its property, it hereby irrevocably waives such immunity in respect of its
obligations under this Agreement to the fullest extent permitted by law.
(m) Initial Public Offering. Notwithstanding anything to the contrary
-----------------------
herein contained, if the Company conducts an initial public offering of equity
securities (other than Common Shares), the Company will give the Holders the
opportunity to convert such Warrants into warrants to purchase such equity
<PAGE>
14
securities and their Warrant Shares into such equity securities. Such conversion
opportunity will be on terms and conditions determined to be fair and reasonable
by the Company's Board of Directors.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
TVN ENTERTAINMENT CORPORATION
By: /s/ Arthur Fields
______________________________
Name: Arthur Fields
Title: Senior Executive
Vice President
Confirmed and accepted as of
the date first above written:
MORGAN STANLEY & CO. INCORPORATED
By: /s/ David J. Frey
_____________________________
Name: David J. Frey
Title: Vice President
<PAGE>
EXHIBIT 4.7
________________________________________________________________________________
NOTES REGISTRATION RIGHTS AGREEMENT
Dated July 29, 1998
between
TVN ENTERTAINMENT CORPORATION
and
MORGAN STANLEY & CO. INCORPORATED
________________________________________________________________________________
<PAGE>
NOTES REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered
---------
into July 29, 1998, between TVN ENTERTAINMENT CORPORATION, a Delaware
corporation (the "Company"), and MORGAN STANLEY & CO. INCORPORATED (the
-------
"Placement Agent").
- ----------------
This Agreement is made pursuant to the Placement Agreement, dated July 24,
1998, between the Company and the Placement Agent (the "Placement Agreement"),
-------------------
which provides for the sale by the Company to the Placement Agent of 200,000
Units, each consisting of one 14% Senior Note due 2008 with a principal amount
of $1,000 (collectively, the "Notes") and one Warrant entitling the holder
-----
thereof to purchase initially 10.777 shares of Common Stock, par value $0.001
per share, of the Company. In order to induce the Placement Agent to enter into
the Placement Agreement, the Company has agreed to provide to the Placement
Agent and their direct and indirect transferees the registration rights set
forth in this Agreement. The execution of this Agreement is a condition to the
closing under the Placement Agreement.
In consideration of the foregoing, the parties hereto agree as follows:
1. Definitions.
-----------
Defined terms used herein without other definition shall have the
respective meanings ascribed thereto, whether directly or indirectly by
reference, in the Placement Agreement.
As used in this Agreement, the following capitalized defined terms shall
have the following meanings:
"Business Day" shall have the meaning specified in the Indenture.
------------
"Closing Date" shall mean the Closing Date as defined in the Placement
------------
Agreement.
"Company" shall have the meaning set forth in the preamble and shall also
-------
include the Company's successors.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended
------------
from time to time.
"Exchange Offer" shall mean the exchange offer by the Company of Exchange
--------------
Securities for Registrable Securities pursuant to Section 2(a) hereof.
<PAGE>
2
"Exchange Offer Registration" shall mean a registration under the
---------------------------
Securities Act effected pursuant to Section 2(a) hereof.
"Exchange Offer Registration Statement" shall mean an exchange offer
-------------------------------------
registration statement on Form S-4 (or, if applicable, on another appropriate
form) and all amendments and supplements to such registration statement, in each
case including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"Exchange Securities" shall mean securities issued by the Company under the
-------------------
Indenture containing terms identical to the Notes (except that (i) interest
thereon shall accrue from the last date on which interest was paid on the Notes
and (ii) the Exchange Securities will not contain restrictions on transfer) and
to be offered to Holders of Notes in exchange for Notes pursuant to the Exchange
Offer.
"Holder" shall mean the Placement Agent, for so long as it owns any
------
Registrable Securities, and each of its successors, assigns and direct and
indirect transferees who become registered owners of Registrable Securities
under the Indenture; provided that for purposes of Sections 4 and 5 of this
Agreement, the term "Holder" shall include Participating Broker-Dealers (as
defined in Section 4(a)).
"Indenture" shall mean the Indenture relating to the Notes dated as of July
---------
29, 1998, between the Company and The Bank of New York, as trustee, and as the
same may be amended from time to time in accordance with the terms thereof.
"Majority Holders" shall mean the Holders of a majority of the aggregate
----------------
principal amount of outstanding Registrable Securities; provided that whenever
the consent or approval of Holders of a specified percentage of the outstanding
principal amount of Registrable Securities is required hereunder, Registrable
Securities held by the Company or any of its affiliates (as such term is defined
in Rule 405 under the Securities Act) (other than the Placement Agent or
subsequent holders of Registrable Securities if such subsequent holders are
deemed to be such affiliates solely by reason of their holding of such
Registrable Securities) shall not be counted in determining whether such consent
or approval was given by the Holders of such required percentage or amount.
"Person" shall mean an individual, partnership, corporation, limited
------
liability company, trust or unincorporated organization, or a government or
agency or political subdivision thereof.
"Placement Agent" shall have the meaning set forth in the preamble.
---------------
"Placement Agreement" shall have the meaning set forth in the preamble.
-------------------
<PAGE>
3
"Prospectus" shall mean the prospectus included in a Registration
----------
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including a prospectus
supplement with respect to the terms of the offering of any portion of the
Registrable Securities covered by a Shelf Registration Statement, and by all
other amendments and supplements to such prospectus, and in each case including
all material incorporated by reference therein.
"Registrable Securities" shall mean the Notes; provided, however, that the
----------------------
Notes shall cease to be Registrable Securities (i) when a Registration Statement
with respect to such Notes shall have been declared effective under the
Securities Act and such Notes shall have been disposed of or exchanged pursuant
to such Registration Statement, (ii) when such Notes have been sold to the
public pursuant to Rule 144(k) (or any similar provision then in force, but not
Rule 144A) under the Securities Act or (iii) when such Notes shall have ceased
to be outstanding.
"Registration Expenses" shall mean any and all expenses incident to
---------------------
performance of or compliance by the Company with this Agreement, including
without limitation: (i) all SEC, stock exchange or National Association of
Securities Dealers, Inc. registration and filing fees, (ii) all fees and
expenses incurred in connection with compliance with state securities or blue
sky laws (including reasonable fees and disbursements of one counsel for any
underwriters or Holders in connection with blue sky qualification of any of the
Exchange Securities or Registrable Securities), (iii) all expenses of any
Persons in preparing or assisting in preparing, word processing, printing and
distributing any Registration Statement, any Prospectus, any amendments or
supplements thereto, any underwriting agreements, securities sales agreements
and other documents relating to the performance of and compliance with this
Agreement, in each case to the extent not paid or payable by any other Person,
(iv) all fees and disbursements relating to the qualification of the Indenture
under applicable securities laws, (v) the fees and disbursements of the Trustee
and its counsel, (vi) the fees and disbursements of counsel for the Company and,
in the case of a Shelf Registration Statement, the reasonable fees and
disbursements of one counsel for the Holders (which counsel shall be selected by
the Majority Holders and which counsel may also be counsel for the Placement
Agent) and (vii) the fees and disbursements of the independent public
accountants of the Company, including the expenses of any special audits or
"cold comfort" letters required by or incident to such performance and
compliance, but excluding fees and expenses of counsel to the underwriters
(other than fees and expenses set forth in clause (ii) above) or the Holders
(other than fees and expenses set forth in clause (vi) above) or accountants to
the Holders and underwriting discounts and commissions and transfer taxes, if
any, relating to the sale, disposition or exchange of Registrable Securities by
a Holder.
"Registration Statement" shall mean any registration statement of the
----------------------
Company that covers any of the Exchange Securities or Registrable Securities
pursuant to the provisions of this Agreement and all amendments and supplements
to any such Registration Statement, including
<PAGE>
4
post-effective amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by reference
therein.
"SEC" shall mean the Securities and Exchange Commission.
---
"Securities Act" shall mean the Securities Act of 1933, as amended from
--------------
time to time.
"Shelf Registration" shall mean a registration effected pursuant to Section
------------------
2(b) hereof.
"Shelf Registration Statement" shall mean a "shelf" registration statement
----------------------------
of the Company pursuant to the provisions of Section 2(b) of this Agreement
which covers all of the Registrable Securities (but no other securities unless
approved by the Majority Holders whose Registrable Securities are covered by
such Shelf Registration Statement) on an appropriate form under Rule 415 under
the Securities Act, or any similar rule that may be adopted by the SEC, and all
amendments and supplements to such registration statement, including post-
effective amendments, in each case including the Prospectus contained therein,
all exhibits thereto and all material incorporated by reference therein.
"Trustee" shall mean the trustee with respect to the Notes under the
-------
Indenture.
"Underwritten Registration" or "Underwritten Offering" shall mean a
------------------------- ---------------------
registration in which Registrable Securities are sold to an Underwriter (as
hereinafter defined) for reoffering to the public.
2. Registration Under the Securities Act. (a) To the extent not prohibited
-------------------------------------
by any applicable law or applicable interpretations of the Staff of the SEC, the
Company shall use its best efforts to cause to be filed an Exchange Offer
Registration Statement covering the offer by the Company to the Holders to
exchange all of the Registrable Securities for Exchange Securities and to have
such Registration Statement remain effective until the closing of the Exchange
Offer. The Company shall commence the Exchange Offer promptly after the Exchange
Offer Registration Statement has been declared effective by the SEC. The Company
shall commence the Exchange Offer by mailing the related exchange offer
Prospectus and accompanying documents to each Holder stating, in addition to
such other disclosures as are required by applicable law:
(i) that the Exchange Offer is being made pursuant to this
Registration Rights Agreement and that all Registrable Securities validly
tendered will be accepted for exchange;
(ii) the dates of acceptance for exchange (which shall be a period of
at least 20 Business Days from the date such notice is mailed) (the
"Exchange Dates");
--------------
<PAGE>
5
(iii) that any Registrable Security not tendered will remain
outstanding and continue to accrue interest, but will not retain any rights
under this Registration Rights Agreement;
(iv) that Holders electing to have a Registrable Security exchanged
pursuant to the Exchange Offer will be required to surrender such
Registrable Security, together with the enclosed letters of transmittal, to
the institution and at the address (located in the Borough of Manhattan,
The City of New York) specified in the notice prior to the close of
business on the last Exchange Date; and
(v) that any Holder will be entitled to withdraw its election, not
later than the close of business on the last Exchange Date, by sending to
the institution and at the address (located in the Borough of Manhattan,
The City of New York) specified in the notice a telegram, telex, facsimile
transmission or letter setting forth the name of such Holder, the principal
amount of Registrable Securities delivered for exchange and a statement
that such Holder is withdrawing its election to have such Notes exchanged.
As soon as practicable after the last Exchange Date, the Company shall:
(i) accept for exchange Registrable Securities or portions thereof
tendered and not validly withdrawn pursuant to the Exchange Offer; and
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all Registrable Securities or portions thereof so accepted for
exchange by the Company and issue, and cause the Trustee to promptly
authenticate and mail to each Holder, an Exchange Security equal in
principal amount to the principal amount of the Registrable Securities
surrendered by such Holder.
The Company shall use its best efforts to complete the Exchange Offer as
provided above and shall comply with the applicable requirements of the
Securities Act, the Exchange Act and other applicable laws and regulations in
connection with the Exchange Offer. The Exchange Offer shall not be subject to
any conditions, other than that the Exchange Offer does not violate applicable
law or any applicable interpretation of the Staff of the SEC. The Company shall
inform the Placement Agent of the names and addresses of the Holders to whom the
Exchange Offer is made, and the Placement Agent shall have the right, subject to
applicable law, to contact such Holders and otherwise facilitate the tender of
Registrable Securities in the Exchange Offer.
(b) In the event that (i) the Company determines that the Exchange Offer
Registration provided for in Section 2(a) above is not available or may not be
consummated as soon as practicable after the last Exchange Date because it would
violate applicable law or applicable interpretations of the Staff of the SEC,
(ii) the Exchange Offer is not for any other reason consummated by July 29, 1999
or (iii) the Exchange Offer has been completed and in the written
<PAGE>
6
opinion of counsel for the Placement Agent a Registration Statement must be
filed and a Prospectus must be delivered by the Placement Agent in connection
with any offering or sale of Registrable Securities (other than in situations
covered by Section 2(f) below), the Company shall use its best efforts to cause
to be filed as soon as practicable after such determination, date or notice of
such opinion of counsel is given to the Company, as the case may be, a Shelf
Registration Statement providing for the sale by the Holders of all of the
Registrable Securities and to have such Shelf Registration Statement declared
effective by the SEC. Subject to the penultimate paragraph of Section 3 hereof,
the Company agrees to use its best efforts to keep the Shelf Registration
Statement continuously effective until the second anniversary of the Closing
Date or such shorter period that will terminate when all of the Registrable
Securities covered by the Shelf Registration Statement have been sold pursuant
to the Shelf Registration Statement or all of the Notes cease to be Registrable
Securities. The Company further agrees to supplement or amend the Shelf
Registration Statement if required by the rules, regulations or instructions
applicable to the registration form used by the Company for such Shelf
Registration Statement or by the Securities Act or by any other rules and
regulations thereunder for shelf registration or if reasonably requested by a
Holder with respect to information relating to such Holder, and, subject to the
penultimate paragraph of Section 3 hereof, to use its best efforts to cause any
such amendment to become effective and such Shelf Registration Statement to
become usable as soon as thereafter practicable. The Company agrees to furnish
to the Holders of Registrable Securities copies of any such supplement or
amendment promptly after its being used or filed with the SEC.
(c) The Company shall pay all Registration Expenses in connection with the
registration pursuant to Section 2(a) or Section 2(b). Each Holder shall pay all
underwriting discounts and commissions and transfer taxes, if any, relating to
the sale or disposition of such Holder's Registrable Securities pursuant to the
Shelf Registration Statement.
(d) An Exchange Offer Registration Statement pursuant to Section 2(a)
hereof or a Shelf Registration Statement pursuant to Section 2(b) hereof will
not be deemed to have become effective unless it has been declared effective by
the SEC; provided, however, that, if, after it has been declared effective, the
offering of Registrable Securities pursuant to a Shelf Registration Statement is
interfered with by any stop order, injunction or other order or requirement of
the SEC or any other governmental agency or court, such Registration Statement
will be deemed not to have become effective during the period of such
interference until the offering of Registrable Securities pursuant to such
Registration Statement may legally resume. As provided for in the Indenture, the
Notes will accrue interest at the rate of 14% per annum payable semiannually in
arrears on February 1 and August 1 of each year commencing February 1, 1999;
provided that if by July 29, 1999 the Company has not consummated the Exchange
Offer or caused the Shelf Registration Statement to be declared effective,
interest (in addition to interest otherwise due on the Exchange Securities on
such date) will accrue at a rate of 0.5% per annum and be payable in cash
semiannually on February 1 and August 1 of each year, commencing February 1,
1999, until the Exchange Offer is consummated or the Shelf Registration
Statement is declared effective.
<PAGE>
7
(e) In the event that, at any time after consummation of the Exchange Offer
or the effectiveness of the Shelf Registration Statement, the Placement Agent,
or any successor thereto, in its reasonable judgment becomes an affiliate (as
such term is defined in Rule 144 under the Securities Act) of the Company, or
any successor thereto, the Company (or its successor) shall use its best efforts
to cause to be filed as soon as practicable after receiving notice thereof from
the Placement Agent (or any successor thereto) a shelf registration statement
(the "Resale Registration Statement") under the Securities Act providing for the
sale by the Placement Agent (or any successor thereto) of all Notes or Exchange
Securities it acquires from time to time in connection with market-making
activities and to have such shelf registration statement declared effective by
the SEC. The provisions of this Agreement concerning the Shelf Registration
Statement shall apply to any Resale Registration Statement as if such
Registration Statement were the Shelf Registration Statement filed pursuant to
Section 2(b) hereof (except that the Company (or its successor) will use its
best efforts to keep the Resale Registration Statement effective until the
earlier of (i) the date on which no Notes or Exchange Securities remain
outstanding and (ii) such time as such Placement Agent shall, in its opinion,
have ceased to be an affiliate of the Company, as evidenced by written notice,
which shall be sent promptly upon such event). Notwithstanding the foregoing,
the Company shall not be required to maintain the effectiveness of any Resale
Registration Statement if the Placement Agent shall have ceased to make a market
in the Notes or the Exchange Securities.
3. Registration Procedures. In connection with the obligations of the
-----------------------
Company with respect to the Registration Statements pursuant to Section 2(a) and
Section 2(b) hereof, the Company shall as expeditiously as is practicable:
(a) prepare and file with the SEC a Registration Statement on the
appropriate form under the Securities Act, which form (x) shall be selected by
the Company and (y) shall, in the case of a Shelf Registration, be available for
the sale of the Registrable Securities by the selling Holders thereof and (z)
shall comply as to form in all material respects with the requirements of the
applicable form and include all financial statements required by the SEC to be
filed therewith, and use its best efforts to cause such Registration Statement
to become effective and remain effective in accordance with Section 2 hereof;
(b) prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary to keep such
Registration Statement effective for the applicable period and cause each
Prospectus to be supplemented by any required prospectus supplement and, as so
supplemented, to be filed pursuant to Rule 424 under the Securities Act; to keep
each Prospectus current during the period described under Section 4(3) and Rule
174 under the Securities Act that is applicable to transactions by brokers or
dealers with respect to the Registrable Notes or Exchange Notes;
(c) in the case of a Shelf Registration, furnish to each Holder of
Registrable Securities, to counsel for the Placement Agent, to counsel for the
Holders and to each Underwriter of an
<PAGE>
8
Underwritten Offering of Registrable Securities, if any, without charge, as many
copies of each Prospectus, including, until a final Prospectus has been
prepared, each preliminary Prospectus, and any amendment or supplement thereto
and such other documents as such Holder or Underwriter may reasonably request,
in order to facilitate the public sale or other disposition of the Registrable
Securities; and the Company consents to the use of such Prospectus and any
amendment or supplement thereto in accordance with applicable law by each of the
selling holders of Registrable Securities and any such Underwriters in
connection with the offering and sale of the Registrable Securities covered by
and in the manner described in such Prospectus or any amendment or supplement
thereto in accordance with applicable law;
(d) use its best efforts to register or qualify the Registrable Securities
under all applicable state securities or "blue sky" laws of such jurisdictions
as any Holder of Registrable Securities covered by a Registration Statement
shall reasonably request in writing by the time the applicable Registration
Statement is declared effective by the SEC, to cooperate with such Holders in
connection with any filings required to be made with the National Association of
Securities Dealers, Inc. and do any and all other acts and things which may be
reasonably necessary or advisable to enable such Holder to consummate the
disposition in each such jurisdiction of such Registrable Securities owned by
such Holder; provided, however, that the Company shall not be required to (i)
qualify as a foreign corporation or as a dealer in securities in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(d), (ii) file any general consent to service of process or (iii)
subject itself to taxation in any such jurisdiction if it is not so subject;
(e) in the case of a Shelf Registration, notify each Holder of Registrable
Securities, counsel for the Holders and counsel for the Placement Agent promptly
and, if requested by any such Holder or counsel, confirm such advice in writing
(i) when a Shelf Registration Statement has become effective and when any post-
effective amendment thereto has been filed and becomes effective, (ii) of any
request by the SEC or any state securities authority for amendments and
supplements to a Shelf Registration Statement and Prospectus or for additional
information after the Shelf Registration Statement has become effective, (iii)
of the issuance by the SEC or any state securities authority of any stop order
suspending the effectiveness of a Shelf Registration Statement or the initiation
of any proceedings for that purpose, (iv) if, between the effective date of a
Shelf Registration Statement and the closing of any sale of Registrable
Securities covered thereby, the representations and warranties of the Company
contained in any underwriting agreement, securities sales agreement or other
similar agreement, if any, relating to the offering cease to be true and correct
in all material respects or if the Company receives any notification with
respect to the suspension of the qualification of the Registrable Securities for
sale in any jurisdiction or the initiation of any proceeding for such purpose,
(v) of the happening of any event during the period a Shelf Registration
Statement is effective which makes any statement made in such Registration
Statement or the related Prospectus untrue in any material respect or which
requires the making of any changes in such Registration Statement or Prospectus
in order to make the statements therein not misleading and (vi) of any
determination
<PAGE>
9
by the Company that a post-effective amendment to a Registration Statement would
be appropriate;
(f) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement at the earliest
possible moment and provide notice as promptly as practicable to each Holder of
the withdrawal of any such order;
(g) in the case of a Shelf Registration, furnish to each Holder of
Registrable Securities, without charge, at least one conformed copy of each
Registration Statement and any post-effective amendment thereto (without
documents incorporated therein by reference or exhibits thereto, unless
requested);
(h) in the case of a Shelf Registration, cooperate with the selling Holders
of Registrable Securities to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold and not bearing any
restrictive legends and to enable such Registrable Securities to be in such
denominations (consistent with the provisions of the Indenture) and registered
in such names as the selling Holders may reasonably request at least two
business days prior to the closing of any sale of Registrable Securities;
(i) in the case of a Shelf Registration, upon the occurrence of any event
contemplated by Section 3(e)(v) or (vi) hereof, use its best efforts to prepare
and file with the SEC a supplement or post-effective amendment to a Registration
Statement or the related Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter delivered
to the purchasers of the Registrable Securities, such Prospectus will not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The Company agrees to notify the Holders
to suspend use of the Prospectus as promptly as practicable after the occurrence
of such an event, and the Holders hereby agree to suspend use of the Prospectus
until the Company has amended or supplemented the Prospectus to correct such
misstatement or omission;
(j) a reasonable time prior to the filing of any Registration Statement,
any Prospectus, any amendment to a Registration Statement or amendment or
supplement to a Prospectus or any document which is to be incorporated by
reference into a Registration Statement or a Prospectus after initial filing of
a Registration Statement, provide copies of such document to the Placement Agent
and their counsel (and, in the case of a Shelf Registration Statement, the
Holders and their joint counsel) and make such of the representatives of the
Company as shall be reasonably requested by the Placement Agent or their counsel
(and, in the case of a Shelf Registration Statement, the Holders or their joint
counsel) available for discussion of such document, and shall not at any time
file or make any amendment to the Registration Statement, any Prospectus or any
amendment of or supplement to a Registration Statement or a Prospectus or file
any document which is to be incorporated by reference into a Registration
Statement or a Prospectus,
<PAGE>
10
of which the Placement Agent and their counsel (and, in the case of a Shelf
Registration Statement, the Holders and their counsel) shall not have previously
been advised and furnished a copy or to which the Placement Agent or their
counsel (and, in the case of a Shelf Registration Statement, the Holders or
their counsel) shall reasonably object without unreasonable delay;
(k) obtain a CUSIP number for all Exchange Securities or Registrable
Securities, as the case may be, not later than the effective date of a
Registration Statement;
(l) cause the Indenture to be qualified under the Trust Indenture Act of
1939, as amended (the "TIA"), in connection with the registration of the
---
Exchange Securities or Registrable Securities, as the case may be, cooperate
with the Trustee and the Holders to effect such changes to the Indenture as may
be required for the Indenture to be so qualified in accordance with the terms of
the TIA and execute, and use its best efforts to cause the Trustee to execute,
all documents as may be required to effect such changes and all other forms and
documents required to be filed with the SEC to enable the Indenture to be so
qualified in a timely manner;
(m) in the case of a Shelf Registration, make available for inspection by a
representative of the Holders of the Registrable Securities, any Underwriter
participating in any disposition pursuant to such Shelf Registration Statement,
and one firm each of attorneys and accountants designated by the Holders, at
reasonable times and in a reasonable manner, all financial and other records,
pertinent documents and properties of the Company as shall reasonably be
requested, and cause the respective officers, directors and employees of the
Company to supply all information reasonably requested by any such
representative, Underwriter, attorney or accountant in connection with a Shelf
Registration Statement; provided, however, that any such representative,
Underwriter, attorney or accountant agrees to keep confidential any records,
documents or other information (collectively, "Information") received from the
-----------
Company and designated by the Company as confidential and to use such
Information obtained pursuant to this provision only in connection with the
transaction for which such Information was obtained, and not for any other
purpose; provided further, however, that the foregoing confidentiality
obligation shall not apply to the extent that (i) such Information (x) is
available to the public, (y) subject to clause (z) below, is already in such
representative's, Underwriters', attorney's or accountant's possession prior to
receipt from the Company and such Person does not otherwise have any obligation
to keep such Information confidential or (z) is obtained by such representative,
Underwriter, attorney or accountant from a third Person who, insofar as is known
to such representative, Underwriter, attorney or accountant after due inquiry,
is not required to keep such Information confidential or (ii) disclosure of such
Information is required by court or administrative order after the exhaustion of
all appeals therefrom;
(n) in the case of a Shelf Registration, use its best efforts to cause all
Registrable Securities to be listed on any securities exchange or any automated
quotation system on which similar securities issued by the Company are then
listed if requested by the Majority Holders, to the extent such Registrable
Securities satisfy applicable listing requirements;
<PAGE>
11
(o) if reasonably requested by any Holder of Registrable Securities covered
by a Registration Statement, (i) promptly incorporate in a Prospectus supplement
or post-effective amendment such information with respect to such Holder as such
Holder reasonably requests to be included therein and (ii) make all required
filings of such Prospectus supplement or such post-effective amendment as soon
as practicable after the Company has received notification of the matters to be
incorporated in such filing; and
(p) in the case of a Shelf Registration, enter into such customary
agreements and take all such other customary actions in connection therewith
(including those requested by the Holders of a majority of the Registrable
Securities being sold) in order to expedite or facilitate the disposition of
such Registrable Securities including, but not limited to, an Underwritten
Offering and in such connection, (i) to the extent possible, make such
representations and warranties to the Holders and any Underwriters of such
Registrable Securities with respect to the business of the Company and its
subsidiaries, the Registration Statement, Prospectus and documents incorporated
by reference or deemed incorporated by reference, if any, in each case, in form,
substance and scope as are customarily made by issuers to underwriters in
underwritten offerings and confirm the same if and when requested, (ii) obtain
opinions of counsel to the Company (which counsel and opinions, in form, scope
and substance, shall be reasonably satisfactory to the Holders of a majority in
principal amount of the Registrable Securities to be sold in such Underwritten
Offering and any Underwriters and their respective counsel) addressed to each
selling Holder and Underwriter of Registrable Securities, covering the matters
customarily covered in opinions requested in underwritten offerings, (iii)
obtain "cold comfort" letters from the independent certified public accountants
of the Company (and, if necessary, any other certified public accountant of any
subsidiary of the Company, or of any business acquired by the Company for which
financial statements and financial data are or are required to be included in
the Registration Statement) addressed to each selling Holder and Underwriter of
Registrable Securities, such letters to be in customary form and covering
matters of the type customarily covered in "cold comfort" letters in connection
with underwritten offerings, and (iv) deliver such documents and certificates as
may be reasonably requested by the Holders of a majority in principal amount of
the Registrable Securities being sold or the Underwriters, and which are
customarily delivered in underwritten offerings, to evidence the continued
validity of the representations and warranties of the Company made pursuant to
clause (i) above and to evidence compliance with any customary conditions
contained in an underwriting agreement; provided that the Company shall be
required to use its best efforts to make an Underwritten Offering only upon the
request of Holders of at least (1) 25% of the aggregate principal amount of the
Registrable Securities outstanding at the time such request is delivered to the
Company and (2) 10% of the aggregate principal amount of the Notes outstanding
on the date hereof. In the case of any Underwritten Offering, the Company shall
provide written notice to the Holders of all Registrable Securities of such
Underwritten Offering at least 30 days prior to the filing of a prospectus
supplement for such Underwritten Offering, (y) specifying a date, which shall be
no earlier than 10 days following the date of such notice, by which each such
Holder must inform
<PAGE>
12
the Company of its intent to participate in such Underwritten Offering and (z)
including the instructions such Holder must follow in order to participate in
such Underwritten Offering.
In the case of a Shelf Registration Statement, the Company may require each
Holder of Registrable Securities to furnish to the Company such information
regarding the Holder and the proposed distribution by such Holder of such
Registrable Securities as the Company may from time to time reasonably request
in writing.
In the case of a Shelf Registration Statement, each Holder agrees that,
upon receipt of any notice from the Company of the happening of any event of the
kind described in Section 3(e)(v) hereof, such Holder will forthwith discontinue
disposition of Registrable Securities pursuant to a Shelf Registration Statement
until such Holder's receipt of the copies of the supplemented or amended
Prospectus contemplated by Section 3(i) hereof, and, if so directed by the
Company, such Holder will deliver to the Company (at its expense) all copies in
its possession, other than permanent file copies then in such Holder's
possession, of the Prospectus covering such Registrable Securities current at
the time of receipt of such notice. If the Company shall give any such notice to
suspend the disposition of Registrable Securities pursuant to a Shelf
Registration Statement, the Company shall extend the period during which the
Shelf Registration Statement shall be maintained effective pursuant to this
Agreement by the number of days during the period from and including the date of
the giving of such notice to and including the date when the Holders shall have
received copies of the supplemented or amended Prospectus necessary to resume
such dispositions. In addition, the Company may, for a good-faith business
purpose, provide the Holders with notice of the suspension of the disposition of
Registrable Securities pursuant to a Shelf Registration Statement. The Company
may give any such notice pursuant to the preceding sentence only twice during
any 365 day period and any such suspensions may not exceed 30 days for each
suspension and there may not be more than two suspensions in effect during any
365 day period (which may be consecutive).
The Holders of Registrable Securities covered by a Shelf Registration
Statement who desire to do so may sell such Registrable Securities in an
Underwritten Offering, subject to such terms and conditions as shall be
established by the Underwriters thereof. In any such Underwritten Offering, the
investment banker or investment bankers and manager or managers (the
"Underwriters") that will administer the offering will be selected by the
- -------------
Majority Holders of the Registrable Securities included in such offering,
subject to the approval of the Company, which approval shall not be unreasonably
withheld.
4. Participation of Broker-Dealers in Exchange Offer. (a) The Staff of the
-------------------------------------------------
SEC has taken the position that any broker-dealer that receives Exchange
Securities for its own account in the Exchange Offer in exchange for Notes that
were acquired by such broker-dealer as a result of market-making or other
trading activities (a "Participating Broker-Dealer"), may be deemed to be an
---------------------------
"underwriter" within the meaning of the Securities Act and must deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such Exchange Securities.
<PAGE>
13
The Company understands that it is the position of the Staff of the SEC
that if the Prospectus contained in the Exchange Offer Registration Statement
includes a plan of distribution containing a statement to the above effect and
the means by which Participating Broker-Dealers may resell the Exchange
Securities, without naming the Participating Broker-Dealers or specifying the
amount of Exchange Securities owned by them, such Prospectus may be delivered by
Participating Broker-Dealers to satisfy their prospectus delivery obligation
under the Securities Act in connection with resales of Exchange Securities for
their own accounts, so long as the Prospectus otherwise meets the requirements
of the Securities Act.
(b) In light of the above, notwithstanding the other provisions of this
Agreement, the Company agrees that the provisions of this Agreement as they
relate to a Shelf Registration shall also apply to an Exchange Offer
Registration to the extent, and with such reasonable modifications thereto as
may be, reasonably requested by the Placement Agent or by one or more
Participating Broker-Dealers, in each case as provided in clause (ii) below, in
order to expedite or facilitate the disposition of any Exchange Securities by
Participating Broker-Dealers consistent with the positions of the Staff recited
in Section 4(a) above; provided that:
(i) the Company shall not be required to amend or supplement the
Prospectus contained in the Exchange Offer Registration Statement, as would
otherwise be contemplated by Section 3(i), for a period exceeding 180 days
after the last Exchange Date (as such period may be extended pursuant to
the penultimate paragraph of Section 3 of this Agreement) and Participating
Broker-Dealers shall not be authorized by the Company to deliver and shall
not deliver such Prospectus after such period in connection with the
resales contemplated by this Section 4; and
(ii) the application of the Shelf Registration procedures set forth in
Section 3 of this Agreement to an Exchange Offer Registration, to the
extent not required by the positions of the Staff of the SEC or the
Securities Act and the rules and regulations thereunder, will be in
conformity with the reasonable request to the Company by the Placement
Agent or with the reasonable request in writing to the Company by one or
more broker-dealers who certify to the Placement Agent and the Company in
writing that they anticipate that they will be Participating Broker-
Dealers; and provided further that, in connection with such application of
the Shelf Registration procedures set forth in Section 3 to an Exchange
Offer Registration, the Company shall be obligated (x) to deal only with
one entity representing the Participating Broker-Dealers as a whole, which
shall be the Placement Agent unless it elects not to act as such
representative, (y) to pay the reasonable fees and expenses of only one
counsel representing the Participating Broker-Dealers, which shall be
counsel to the Placement Agent unless such counsel elects not to so act and
(z) to cause to be delivered only one, if any, "cold comfort" letter with
respect to the Prospectus in the form existing on the last Exchange Date
and with respect to each subsequent amendment or supplement, if any,
effected during the period specified in clause (i) above.
<PAGE>
14
(c) The Placement Agent shall have no liability to the Company or any
Holder with respect to any request that it may make pursuant to Section 4(b)
above.
5. Indemnification and Contribution. (a) The Company agrees to indemnify
--------------------------------
and hold harmless the Placement Agent, and each person, if any, who controls
such Placement Agent within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act, or is under common control with, or is
controlled by, such Placement Agent, from and against any and all losses,
claims, damages and liabilities (including, without limitation, any legal or
other expenses reasonably incurred by the Placement Agent or any such
controlling of affiliated person in connection with defending or investigating
any such action or claim) caused by any untrue statement or alleged untrue
statement of a material fact contained in either Memorandum (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact necessary to make the statements therein in light of the
circumstances under which they were made not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
or omission or alleged untrue statement or omission based upon information
relating to the Placement Agent furnished to the Company in writing by the
Placement Agent expressly for use therein.
(b) The Placement Agent agrees to indemnify and hold harmless the
Company, its directors, its officers and each person, if any, who controls the
Company within the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act to the same extent as the foregoing indemnity from the
Company to the Placement Agent, but only with reference to information relating
to the Placement Agent furnished to the Company in writing by the Placement
Agent expressly for use in either Memorandum or any amendments or supplements
thereto.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to either paragraph (a) or (b) above, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It
<PAGE>
15
is understood that the indemnifying party shall not, in respect of the legal
expenses of any indemnified party in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the fees and expenses of
more than one separate firm (in addition to any necessary local counsel) for all
such indemnified parties and that all such fees and expenses shall be reimbursed
as they are incurred. Such firm shall be designated in writing by Morgan Stanley
& Co. Incorporated in the case of parties indemnified pursuant to paragraph (a)
above and by the Company in the case of parties indemnified pursuant to
paragraph (b) above. The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent, but if
settled with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment. Notwithstanding
the foregoing sentence, if at any time an indemnified party shall have requested
an indemnifying party to reimburse the indemnified party for fees and expenses
of counsel as contemplated by the second and third sentences of this paragraph,
the indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such indemnifying party of the
aforesaid request and (ii) such indemnifying party shall not have reimbursed the
indemnified party in accordance with such request prior to the date of such
settlement. No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such
proceeding.
(d) To the extent the indemnification provided for in paragraph (a) or
(b) of this Section 5 is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages or liabilities, then each indemnifying
party under such paragraph, in lieu of indemnifying such indemnified party
thereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages or liabilities (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company, on the one hand, and the Placement Agent, on the other hand, from the
offering of the Units, Notes and Warrants or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and the
Placement Agent on the other hand in connection with the statements or omissions
that resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Placement Agent on the other hand in connection
with the offering of the Notes shall be deemed to be in the same respective
proportions as the net proceeds from the offering of the Notes (before deducting
expenses) received by the Company and the total discounts and commissions
received by the Placement Agent in respect thereof bear to the aggregate
offering price of the Notes. The
<PAGE>
16
relative fault of the Company on the one hand and of the Placement Agent on the
other hand shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or by the Placement Agent and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
(e) The Company and the Placement Agent agree that it would not be
just or equitable if contribution pursuant to this Section 5 were determined by
pro rata allocation or by any other method of allocation that does not take
- --- ----
account of the equitable considerations referred to in paragraph (d) above. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in paragraph (d) above shall be
deemed to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 5, the Placement Agent shall not be required to
contribute any amount in excess of the amount by which the total price at which
the Notes resold by it in the initial placement of the Notes were offered to
investors exceeds the amount of any damages that the Placement Agent has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The remedies provided for in this Section 5 are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
(f) The indemnity and contribution provisions contained in this
Section 5 and the representations, warranties and other statements of the
Company contained in this Agreement shall remain operative and in full force and
effect regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of any Placement Agent or any Person
controlling any Placement Agent or by or on behalf of the Company, its officers
or directors or any Person controlling the Company and (iii) acceptance of and
payment for any of the Notes.
6. Miscellaneous. (a) The Company agrees, for the sole benefit of the
-------------
Placement Agent:
(i) prior to the consummation of the Exchange Offer or the
effectiveness of a Shelf Registration Statement if, in the reasonable judgment
of the Placement Agent, the Placement Agent or any of its affiliates (as such
term is defined in the rules and regulations under the Securities Act) is
required to deliver an offering memorandum in connection with sales of, or
market-making activities with respect to, the Securities or the Exchange
Securities, (A) to periodically amend or supplement the Final Memorandum so that
the information contained in the Final Memorandum complies with the requirements
of Rule 144A of the Securities Act, (B)
<PAGE>
17
to amend or supplement the Final Memorandum when necessary to reflect any
material changes in the information provided therein so that the Final
Memorandum will not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
light of the circumstances existing as of the date the Final Memorandum is so
delivered, not misleading and (C) to provide the Placement Agent with copies of
each such amended or supplemental Final Memorandum, as the Placement Agent may
reasonably request;
(ii) following the consummation of the Exchange Offer or the
effectiveness of a Shelf Registration Statement and for so long as the
Securities or, the Exchange Securities are outstanding if, in the reasonable
judgment of the Placement Agent, the Placement Agent or any of its affiliates
(as such term is defined in the rules and regulations under the Securities Act)
is required to deliver a prospectus in connection with sales of, or market-
making activities with respect to, such securities, (A) to periodically amend
the applicable registration statement so that the information contained therein
complies with the requirements of Section 10(a) of the Securities Act, (B) if
requested by the Placement Agent, within 45 days following the end of the
Company's most recent fiscal quarter, file a supplement to the prospectus
included in the applicable registration statement which sets forth the financial
results of the Company for the previous quarter, (C) to amend the applicable
registration statement or supplement the related prospectus or the documents
incorporated therein when necessary to reflect any material changes in the
information provided therein so that the registration statement and the
prospectus will not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
light of the circumstances existing as of the date the prospectus is so
delivered, not misleading and (D) to provide the Placement Agent with copies of
each such amendment or supplement as the Placement Agent may reasonably request;
(iii) notwithstanding clauses (i) and (ii) above, (A) prior to
amending the Final Memorandum or to filing any post-effective amendment to any
registration statement or supplementing any related prospectus, to furnish to
the Placement Agent and its counsel, copies of all such documents proposed to be
amended, filed or supplemented, and (B) not to issue any amendment to the Final
Memorandum, any post-effective amendment to a registration statement or any
supplement to a prospectus to which the Placement Agent or its counsel shall
reasonably object;
(iv) it shall notify the Placement Agent and its counsel and (if
requested by any such Person) confirm such advice in writing, (A) when any
amendment to the Final Memorandum has been issued, when any prospectus
supplement or amendment or post-effective amendment has been filed, and, with
respect to any post-effective amendment, when the same has become effective, (B)
of any request by the SEC for any post-effective amendment or supplement to a
registration statement, any supplement or amendment to a prospectus or for
additional information, (C) of the issuance by the SEC of any stop order
suspending the effectiveness of a registration statement or the initiation of
any proceedings for that purpose, (D) of the receipt by the Company of any
notification with respect to the suspension of the
<PAGE>
18
qualification of the Registrable Securities or the Exchange Securities for sale
in any jurisdiction or the initiation or threatening of any proceedings for such
purpose and (E) of the happening of any event which makes any statement made in
the Final Memorandum, a registration statement, a prospectus or any amendment or
supplement thereto untrue or which requires the making of any change in the
Final Memorandum, a registration statement, a prospectus or any amendment or
supplement thereto, in order to make the statements therein not misleading;
(v) it consents to the use of the Final Memorandum and any
prospectus referred to in this Section 6 (a) or any amendment or supplement
thereto, by the Placement Agent in connection with the offering and sale of the
Registrable Securities or Exchange Securities, as the case may be;
(vi) it will comply with the provisions of this Section 6 (a) at its
own expense and will reimburse the Placement Agent for its reasonable expenses
associated with this Section 6 (a) (including reasonable fees of counsel); and
(vii) it hereby expressly acknowledges that the indemnification
and contribution provisions of Section 8 of the Placement Agreement shall be
specifically applicable and relate to each offering memorandum, registration
statement, prospectus, amendment or supplement referred to in this Section 6
(a).
(b) No Inconsistent Agreements. The Company has not entered into, and on or
--------------------------
after the date of this Agreement will not enter into, any agreement which is
inconsistent with the rights granted to the Holders of Registrable Securities in
this Agreement or otherwise conflicts with the provisions hereof. The rights
granted to the Holders hereunder do not in any way conflict with and are not
inconsistent with the rights granted to the holders of the Company's other
issued and outstanding securities under any such agreements.
(c) Amendments and Waivers. The provisions of this Agreement, including the
----------------------
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given
unless the Company has obtained the written consent of Holders of at least a
majority in aggregate principal amount of the outstanding Registrable Securities
affected by such amendment, modification, supplement, waiver or consent;
provided, however, that no amendment, modification, supplement, waiver or
consents to any departure from the provisions of Section 5 hereof shall be
effective as against any Holder of Registrable Securities unless consented to in
writing by such Holder.
(d) Notices. All notices and other communications provided for or permitted
-------
hereunder shall be made in writing by hand-delivery, registered first-class
mail, telex, telecopier, or any courier guaranteeing overnight delivery (i) if
to a Holder, at the most current address given by such Holder to the Company by
means of a notice given in accordance with the provisions of this Section 6(d),
which address initially is, with respect to the Placement Agent, the address set
forth
<PAGE>
19
in the Placement Agreement; and (ii) if to the Company, initially at the
Company's address set forth in the Placement Agreement and thereafter at such
other address, notice of which is given in accordance with the provisions of
this Section 6(d).
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt is acknowledged, if telecopied; and on
the next business day if timely delivered to an air courier guaranteeing
overnight delivery.
Copies of all such notices, demands, or other communications shall be
concurrently delivered by the Person giving the same to the Trustee, at the
address specified in the Indenture.
(e) Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
and be binding upon the successors, assigns and transferees of each of the
parties. including, without limitation and without the need for an express
assignment, subsequent Holders; provided that nothing herein shall be deemed to
permit any assignment, transfer or other disposition of Registrable Securities
in violation of the terms of the Placement Agreement or applicable law. If any
transferee of any Holder shall acquire Registrable Securities, in any manner,
whether by operation of law or otherwise, such Registrable Securities shall be
held subject to all of the terms of this Agreement, and by taking and holding
such Registrable Securities such Person shall be conclusively deemed to have
agreed to be bound by and to perform all of the terms and provisions of this
Agreement and such Person shall be entitled to receive the benefits hereof. The
Placement Agent (in its capacity as Placement Agent) shall have no liability or
obligation to the Company with respect to any failure by any other Holder to
comply with, or any breach by any other Holder of, any of the obligations of
such Holder under this Agreement.
(f) Third Party Beneficiary. The Holders shall be third party beneficiaries
------------------------
to the agreements made hereunder between the Company, on the one hand, and the
Placement Agent, on the other hand, and shall have the right to enforce such
agreements directly to the extent it deems such enforcement necessary or
advisable to protect its rights or the rights of Holders hereunder.
(g) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the internal laws of the State of New York.
<PAGE>
20
(j) Severability. In the event that any one or more of the provisions
-------------
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(k) Purchases and Sales of Registrable Securities. The Company shall not
---------------------------------------------
purchase and then resell or otherwise transfer any Registrable Securities.
<PAGE>
21
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
TVN ENTERTAINMENT CORPORATION
By: /s/ Arthur Fields
----------------------------------
Name: Arthur Fields
Title: Senior Executive Vice President
Confirmed and accepted as of
the date first above written:
MORGAN STANLEY & CO. INCORPORATED
By: /s/ David J. Frey
-----------------------
Name: David J. Frey
Title: Vice President
<PAGE>
EXHIBIT 5.1
[IRELL & MANELLA LLP LETTERHEAD]
May 20, 1999
TVN Entertainment Corporation
2901 Alameda Avenue
Seventh Floor
Burbank, California 91505
Re: New 14% Senior Notes Due 2008
Covered by Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as bond counsel to TVN Entertainment Corporation, a Delaware
corporation (the "Company"), in connection with the filing by the Company with
the Securities and Exchange Commission (the "Commission") of a registration
statement on Form S-4 (the "Registration Statement") under the Securities Act of
1933, as amended (the "Securities Act"). The Registration Statement relates to
the proposed issuance by the Company to exchange $1,000 principal amount of its
14% Senior Notes due 2008 (the "New Notes") for each $1,000 principal amount of
its outstanding 14% Senior Notes due 2008 (the "Old Notes"), of which
$200,000,000 aggregate principal amount is outstanding as of the date hereof.
The Old Notes are, and the New Notes will upon issuance be, covered by that
certain indenture dated July 29, 1998 (the "Indenture") by and between the
Company and The Bank of New York, as trustee (the "Trustee"). This opinion
letter is delivered in accordance with the requirements of Item 601(b)(5) of
Regulation S-K under the Securities Act.
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of: (i) the Registration
Statement, in the form filed with the Commission; (ii) the charter documents of
the Company, as currently in effect; (iii) the Indenture; (iv) the form of the
New Notes; and (v) resolutions of the Board of Directors of the Company relating
to, among other things, the issuance and exchange of the New Notes for the Old
Notes and the filing of the Registration Statement. We also have examined such
other documents as we have deemed necessary or appropriate as a basis for the
opinions set forth below.
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies, and the
authenticity of the originals of such latter documents. As to certain facts
material to this opinion, we have relied without independent verification upon
<PAGE>
TVN Entertainment Corporation
May 20, 1999
Page 2
oral or written statements and representations of officers and other
representatives of the Company and others.
Based upon the foregoing, and subject to the assumptions and limitations
set forth herein, we are of the opinion that, when (i) the Registration
Statement, as finally amended (including all necessary post-effective
amendments, if any), shall have become effective under the Securities Act and
(ii) when the New Notes are duly executed, attested, issued and delivered by
duly authorized officers of the Company, and authenticated by the Trustee, all
in accordance with the terms of the Indenture and the prospectus contained in
the Registration Statement, against surrender and cancellation of a like
principal amount of Old Notes, the New Notes issued by the Company will be
legally issued, and the New Notes will constitute valid and binding obligations
of the Company, enforceable against the Company in accordance with their terms,
except to the extent that enforcement thereof may be limited by (i) bankruptcy,
insolvency, reorganization, arrangement, moratorium, fraudulent conveyance and
other laws relating to or affecting creditors' rights generally, (ii) general
principles of equity, whether such enforcement is considered in a proceeding in
equity or at law and (iii) any applicable public policy considerations.
We express no opinion as to the enforceability of provisions of the
Indenture or the New Notes which provide that the assertion or employment of any
right or remedy shall not prevent the concurrent assertion or employment of any
other right or remedy, or that every right and remedy shall be cumulative and in
addition to every other right and remedy, or that any delay or omission to
exercise any right or remedy shall not impair any other right or remedy or
constitute a waiver thereof.
To the extent relevant to the opinions set forth above, we have assumed
that the Trustee is duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization; that the Trustee is duly qualified
to engage in the activities contemplated by the Indenture and is duly qualified
and eligible under the terms of the Indenture to act as trustee thereunder; that
the Indenture was duly authorized, executed and delivered by the Trustee; that
the Indenture is a valid and binding obligation of the Trustee; that the Trustee
is in compliance, generally with respect to acting as a trustee under the
Indenture, with all applicable laws and regulations; and that the Trustee has
the requisite organizational and legal power and authority to perform its
obligations under the Indenture.
This opinion is given in respect of the Indenture and the New Notes only,
and we express no opinion as to the legality, validity or binding effect of any
related document, instrument or agreement or any other matter beyond the matters
expressly set forth herein.
Members of our firm are admitted to the bar of the State of California and
we do not express any opinion as to the laws of any jurisdiction other than the
laws of the State of California, the General Corporation Law of the State of
Delaware and the federal laws of the United States, and we express no opinion
with respect to the applicability thereto, or the effect thereon, of the laws of
any other jurisdiction. In this regard, we note that Section 11.07 of the
Indenture provides that the Indenture and the New Notes are to be governed by
the law of the State of New York. The opinions expressed herein concerning the
validity,
<PAGE>
TVN Entertainment Corporation
May 20, 1999
Page 3
binding effect and enforceability of the Indenture and the New Notes are
intended to express our views on those matters as if the substantive law of
California were applicable. In rendering such opinion as if California
substantive law were applicable, we have not compared the law of the State of
California to the law of the State of New York nor evaluated whether there are
any differences between such laws which could be material to such opinion, and
we express no view whatsoever as to the similarity or differences between the
laws of such two states. We render no opinion with respect to said Section 11.07
(and the corresponding provisions of the New Notes) or the appropriate choice of
laws with respect to the Indenture or the New Notes. Moreover, we express no
opinion with respect to compliance with state securities laws or as to the
applicability to the obligations of the Company under the Indenture or the New
Notes of Sections 547 and 548 of Title 11 of the United States Code or
applicable state law (including, without limitation, Article 10 of the New York
Debtor & Creditor Law and Sections 3439 et seq. of the California Civil Code)
relating to fraudulent transfers.
This opinion is rendered solely for your benefit in connection with the
transactions described above. This opinion may not be used or relied upon by
any other person and may not be disclosed, quoted, filed with a governmental
agency or otherwise referred to without our prior written consent. However, we
consent to the filing of this opinion as an exhibit to the Registration
Statement and prospectus and to the use of our name under the caption "Legal
Matters" in the Registration Statement and any amendments thereto. In giving
such consent, we do not concede that we are experts within the meaning of the
Securities Act or the rules and regulations thereunder or that this consent is
required by Section 7 of the Securities Act.
Very truly yours,
IRELL & MANELLA LLP
/s/ Irell & Manella LLP
<PAGE>
TRANSPONDER LEASE AGREEMENT
FOR GALAXY III R
BETWEEN
HUGHES COMMUNICATIONS GALAXY, INC. AND
TVN ENTERTAINMENT CORPORATION
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C> <C>
1. The Satellites....................................... 1
1.01 Satellites..................................... 1
1.02 Galaxy Fleet Satellites........................ 1
1.03 C-Band Transponders............................ 1
1.04 Ku-Band Transponders........................... 2
1.05 Specifications and Components.................. 2
1.06 Rights to Reserves or Spares................... 2
2. Lease of Transponders................................ 3
3. Lease Rate........................................... 3
3.01 Base Lease Rate Description.................... 3
3.02 Base Lease Rate Amount......................... 3
3.03 Place of Payment............................... 5
3.04 Prompt Repayment............................... 5
3.05 Term of Lease.................................. 5
3.06 Late Payment................................... 5
4. Delivery and Related Matters......................... 5
4.01 Delivery....................................... 5
4.02 Condition to Lessee's Right to Lease........... 6
4.03 Acceptance..................................... 6
4.04 Delivery Failure Defined....................... 6
4.05 In Orbit Protection From Galaxy Backup......... 6
4.06 [Reserved]..................................... 6
4.07 Galaxy Backup Option........................... 6
4.08 [Reserved]..................................... 7
4.09 Use of Galaxy Backup By Lessee................. 7
4.10 [Reserved]..................................... 7
4.11 Use of Galaxy Backup for Catastrophic Failure.. 8
4.12 Galaxy Backup Protection Without Movement...... 8
4.13 Entitlement to Usage........................... 9
5. Representations and Warranties....................... 9
5.01 Authority, No Breach........................... 9
5.02 Corporate Action............................... 10
5.03 Consents....................................... 10
5.04 Litigation..................................... 11
5.05 No Broker...................................... 11
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <S> <C>
6. Additional Representations, Warranties and
Obligations of HCG................................. 11
6.01 Authorization Description...................... 11
6.02 C-Band Transponder Performance Specifications.. 11
6.03 Right to Lease................................. 11
6.04 Government Regulations......................... 11
6.05 Not a Common Carrier........................... 12
6.06 TT&C........................................... 12
6.07 [Reserved]..................................... 12
6.08 Transfers by HCG............................... 12
7. Additional Representations, Warranties and
Obligations of Lessee.............................. 12
7.01 [Reserved]..................................... 12
7.02 Non-Interference............................... 12
7.03 Laws........................................... 13
7.04 Additional Usage Representations and
Obligations........................................ 13
8. Preemptive Rights and Inspection of Facilities....... 14
9. Transponder Spares, Reserve Transponders and
Retained Transponders.............................. 14
9.01 Use of Transponder Spares...................... 14
9.02 Use of Reserve Transponders.................... 15
9.03 Simultaneous Failure -- Priority with
Respect to Use of C-Band Transponder
Spares....................................... 16
9.04 Simultaneous Failure -- Priority with Respect to
Use of Reserve C-Band Transponders........... 16
9.05 HCG's Ownership of C-Band Transponders......... 16
9.06 Notice of Intent to Substitute a Reserve C-Band
Transponder.................................. 17
10. Termination Rights.................................... 17
10.01 [Reserved]..................................... 17
10.02 Cancellation by HCG............................ 17
10.03 HCG's Right to Transfer for Non-Payment........ 19
10.04 [Reserved]..................................... 19
10.05 Transponder Lease Termination.................. 19
10.06 Right to Deny Access........................... 20
10.07 Return of Transponders......................... 22
11. Force Majeure......................................... 23
11.01 Failure to Deliver............................. 23
11.02 Failure of Performance......................... 23
12. Limitation of Liability/Breach of Warranty............ 23
12.01 Liability of HCG............................... 23
12.02 Confirmed Failure.............................. 23
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
12.03 Repayment for Failed Transponder................. 24
12.04 Limitation Of Liability.......................... 24
12.05 Obligations of Lessee to Cooperate............... 25
13. Transfers............................................... 26
13.01 Transfers by Lessee.............................. 26
13.02 Transfers by HCG................................. 27
13.03 Additional Requirements for Transfer............. 27
14. Affiliate............................................... 27
15. Monthly Satellite Reports........................ 27
16. Confidentiality and Press Releases............... 27
16.01 Confidential Information......................... 27
16.02 Press Releases................................... 28
17. Disposition of Satellite................................ 28
17.01 Continued Access to C-Band Transponder Spares and
C-Band Reserve Transponders.................... 28
17.02 Disposition of Satellite......................... 28
18. HCG's Option to Cancel the Lease of Lessee's
Transponders.......................................... 29
18.01 Duration......................................... 29
18.02 Condition to Lessee's Exercise of the Option..... 29
18.03 Method of Option Exercise........................ 29
18.04 Effect of Option Exercise........................ 31
18.05 Obligations of Lessee Upon Option Exercise....... 31
18.06 Obligations of HCG............................... 31
18.07 Resolution of Disputes........................... 31
18.08 Cessation Fees................................... 32
19. Outage Allowance........................................ 32
20. Miscellaneous........................................... 33
20.01 Interest......................................... 33
20.02 Applicable Law; Entire Agreement; Modification... 33
20.03 Notices.......................................... 33
20.04 Severability..................................... 34
20.05 Taxes............................................ 35
20.06 Successors; Assignment........................... 35
20.07 Headings......................................... 35
20.08 Survival of Representations and Warranties....... 35
20.09 No Third-Party Beneficiary....................... 35
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C> <C>
20.10 Non-Waiver of Breach............................. 35
20.11 Counterparts..................................... 36
20.12 Documents........................................ 36
20.13 Risk of Loss..................................... 36
21. Periodic Signal Transmission............................ 36
22. HCG's Use of Eight (8) Transponders..................... 36
23. Additional Transponder(s)............................... 36
</TABLE>
iv
<PAGE>
EXHIBITS
A Galaxy Fleet Satellites
B-1 C-Band Transponder Performance Specifications: Galaxy IIIR
B-2 C-Band Transponder Performance Specifications: Galaxy Backup
C-1 [Intentionally Omitted]
C-2 [Intentionally Omitted]
Description of C-Band Transponder Spares
ADDENDUM
I. Defined Terms
v
<PAGE>
GALAXY IIIR TRANSPONDER LEASE AGREEMENT
---------------------------------------
This Transponder Lease Agreement (the "Agreement") (all such defined terms
herein are so capitalized and referenced in Addendum I) is made and entered into
as of October 21, 1994, (the "Execution Date"), by and between Hughes
Communications Galaxy, Inc. ("HCG"), a California corporation, and TVN
Entertainment Corporation ("Lessee"), a Delaware corporation;
RECITALS
--------
WHEREAS, HCG intends to construct, launch and operate a number of
satellites, each containing C-Band capacity, and desires to lease C-Band
capacity on such satellites; and
WHEREAS, Lessee desires to lease from HCG and HCG desires to lease to
Lessee certain transponders on one of such satellites.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the mutual promises set forth below,
and for other good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, HCG and Lessee hereby mutually agree as follows:
1. The Satellites
--------------
1.01 Satellites. HCG has launched a satellite referred to hereinafter as
----------
"Galaxy Backup" and shall launch one other Satellite referred to as hereinafter
as "Galaxy IIIR" (or "G-IIIR") (collectively, the "Two Satellites"). HCG plans
to launch certain other satellites to be located at the orbital positions listed
on Exhibit A or at such other positions as to which such satellites, or their
replacements in the event of a failure, may be assigned by the Federal
Communications Commission or any successor agency ("FCC") (with all such
satellites hereinafter referred to as the "Galaxy Fleet"). The term "Satellite"
shall mean any one of the Galaxy Fleet satellites. Galaxy IIIR shall be a hybrid
satellite (i.e., it shall contain both Ku-Band capacity ("Ku-Band Transponders")
---
and C-Band capacity ("C-Band Transponders")). Collectively, Galaxy IIIR's C-Band
and Ku-Band Transponders are referred to as the "Galaxy IIIR Transponders".
1.02 Galaxy Fleet Satellites. The orbital position of the Galaxy Fleet
-----------------------
Satellites are set forth on Exhibit A. HCG currently plans to launch Galaxy IIIR
into the 95th West Longitude orbital location in the fourth quarter of 1995.
1.03 C-Band Transponders. Each of the Two Satellites shall have twenty-
-------------------
four (24) C-Band Transponders (collectively, the "Transponders"). Twenty-two
(22)
1
<PAGE>
of the C-Band Transponders on Galaxy IIIR shall be designated "Primary." The
remaining two (2) C-Band Transponders on Galaxy IIIR shall be designated as
"Reserve." "Primary C-Band Transponders" shall mean C-Band Transponders on
Galaxy IIIR which are not preemptible and as to which the Owners of C-Band
Transponders on the same Satellite, if a Confirmed Failure occurs, shall have
the right to preempt a Reserve C-Band Transponder in accordance with Section
9.02. "Reserve C-Band Transponders" shall mean C-Band Transponders on Galaxy
IIIR which shall be preemptible, in accordance with Section 9.02, by Owners of
Primary C-Band Transponders located on the same Satellite that have suffered a
Confirmed Failure. Each such Satellite also shall have six (6) "C-Band
Transponder Spares", as defined in Section 9.01. All of Galaxy Backup's twenty-
four (24) C-Band Transponders are preemptible in order to satisfy HCG's backup
obligations set forth in Section 4. As used in this Agreement, "Owner" shall
include the actual owner of a C-Band or Ku-Band Transponder on Galaxy IIIR,
including HCG if there remain any unsold Galaxy IIIR Transponders, or any
permitted assignee of such owner's Galaxy IIIR Transponder, or any lessee or
licensee of HCG's, or any entity to which HCG (or any Affiliate of HCG) provides
services. The term "purchase" shall include the execution of an agreement with
HCG for a lease of Transponder(s).
1.04 Ku-Band Transponders. Galaxy IIIR shall have twenty-four (24) Ku-Band
--------------------
Transponders. Eight (8) of the Ku-Band Transponders on Galaxy IIIR shall have a
frequency bandwidth of 54 MHz (the "54 MHz Transponders") and the remaining
sixteen (16) Ku-Band Transponders on Galaxy IIIR shall have a frequency
bandwidth of 27 MHz (the "27 MHz Transponders"), all twenty-four (24) of which
shall be designated as "Primary" (collectively, the "Primary Ku-Band
Transponders"). Galaxy IIIR shall have six (6) Ku-Band Transponder Spares.
1.05 Specifications and Components. Exhibit B-1 sets forth the "C-Band
-----------------------------
Transponder Performance Specifications", defined as certain technical
specifications for the C-Band Transponders on Galaxy IIIR, including values for
each C-Band Transponder for polarization isolation, interference between C-Band
Transponders, frequency response, group delay, amplitude non-linearity, spurious
outputs, phase shift, cross talk, stability, transmit EIRP, uplink saturation
flux density, and G/T. Exhibit B-2 lists "C-Band Transponder Performance
Specifications" for Galaxy Backup. HCG shall make copies of the antenna range
gain contour test data available to Lessee. Exhibit C sets forth a list of the
Satellite components which constitute Lessee's Transponders.
1.06 Rights to Reserves or Spares. Ownership or the lease of C-Band
----------------------------
Transponders shall not give an Owner the right to preempt or use any Primary Ku-
Band Transponders or Ku-Band Transponder Spares on Galaxy IIIR. Ownership or the
lease of Ku-Band Transponders shall not give an Owner the right to preempt or
use any Primary or Reserve C-Band Transponders or C-Band Transponder Spares on
Galaxy IIIR.
2
<PAGE>
2. Lease of Transponders
---------------------
HCG shall lease to Lessee, and Lessee shall lease from HCG, eight (8)
Primary C-Band Transponders on Galaxy IIIR ("Lessee's Primary Transponders") and
two (2) Reserve C-Band Transponders on Galaxy IIIR ("Lessee's Reserve
Transponders") (Lessee's Primary Transponders and Lessee's Reserve Transponders
collectively referred to as "Lessee's G-IIIR Transponders" or "Lessee's
Transponders"). Lessee's Transponders shall be Transponder No. 1 through
Transponder No. 10 on Galaxy IIIR: Lessee's Primary Transponders shall be
Transponders No. 1 through 8 and Lessee's Reserve Transponders shall be
Transponders No. 9 and 10.
3. Lease Rate
----------
3.01 Base Lease Rate Description. The lease rate for each of Lessee's
---------------------------
Transponders shall consist of a "Base Lease Rate" and, if Lessee elects to
purchase the In Orbit Galaxy Backup protection pursuant to which Lessee shall be
entitled to certain rights to utilize C-Band Transponders on Galaxy Backup in
accordance with Sections 4.09 through 4.13, an "In Orbit Satellite Backup Fee".
The Base Lease Rate includes payment of $[*] per month for tracking, telemetry
and control service (the "TT&C Fee"). Pursuant to the TT&C Fee, the services
described in Section 6.06 will be provided. Pursuant to the In Orbit Satellite
Backup Fee, Lessee is entitled to utilize C-Band Transponders on Galaxy Backup
in accordance with Sections 4.09, 4.11, 4.12 and 4.13. The Base Lease Rate and
the In Orbit Satellite Backup Fee set forth below are on a per Transponder
basis.
3.02 Base Lease Rate Amount. The Base Lease Rate and lease terms for
----------------------
Lessee's Transponders shall be as follows:
(a) The Base Lease Rate per month for each of Lessee's Transponders
shall be as described in the following table, and shall be due and payable
in advance on Delivery and the first day of each month thereafter through
the Lease Termination Date. Lessee shall pay to HCG a deposit of $[*]
payable as follows: $[*] as of the Execution Date, $[*] on or before
December 31, 1994, $[*] on or before March 31, 1995, and $[*] as of
Delivery. HCG shall apply the deposit toward the total Base Lease Rate due
for the last month(s) of service. If one of Lessee's Transponders becomes a
Failed Transponder, Lessee's rights and obligations to continue making Base
Lease Rate payments, with respect to such Failed Transponder, shall be
governed by Sections 12.01 and 12.03. Payments for a partial month shall be
pro-rated.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
3
<PAGE>
<TABLE>
<CAPTION>
(per Transponder basis)
Year Lessee's Primary Transponder Lessee's Reserve Transponder
- ---- ---------------------------- ----------------------------
<S> <C> <C>
1 $[*] $[*]
2 $[*] $[*]
3 $[*] $[*]
4 $[*] $[*]
5 $[*] $[*]
6 $[*] $[*]
7 $[*] $[*]
8 $[*] $[*]
9 $[*] $[*]
10 $[*] $[*]
</TABLE>
(b) Lessee shall have the right to purchase the In Orbit Satellite
protection for all of Lessee's Transponders or for at the minimum of all
eight (8) of Lessee's Primary Transponders by delivering to HCG a written
notice of Lessee's decision to purchase the In Orbit Backup protection at
any time between the Execution Date and thirty (30) days prior to the
scheduled launch date. HCG shall deliver a written notice to Lessee at
least sixty (60) days prior to the scheduled launch date. Lessee and HCG
agree that HCG shall not be obligated to issue more than one (1) such
written notice as a result of any change in the scheduled launch date.
Lessee's decision to purchase such protection shall be irrevocable. If
Lessee elects to purchase the In Orbit Satellite Backup protection, then
the In Orbit Satellite Backup Fee for each of Lessee's Transponders shall
be a per month fee of $[*], payable on Delivery and on the first day of
each month thereafter until the Lease Termination Date. The In Orbit
Satellite Backup Fee shall be payable as to each of Lessee's Transponders
only if (i) Galaxy Backup (or any replacement of Galaxy Backup) is
Available (as defined in Section 3.02(c)) to be used as a backup for such
Transponder and (ii) Lessee is not paying the Monthly Lease Rate (as
defined in Section 4.09(b)) for such Transponder. The In Orbit Satellite
Backup Fee shall cease prior to the Lease Termination Date either when
Galaxy Backup is not Available or when the Monthly Lease Rate is being paid
by Lessee, but shall resume if, and when, prior to the Lease Termination
Date, Galaxy Backup becomes Available or the Monthly Lease Rate is not
being paid by Lessee. Payments for a partial month shall be pro-rated. If
Lessee elects not to purchase the In Orbit Satellite Backup protection for
Lessee's Transponders, then Lessee shall not have any right to utilize
Galaxy Backup Transponders.
(c) Galaxy Backup shall be "Available" if each of the following
conditions is satisfied: (i) Galaxy Backup has been launched successfully
with at least twenty-two (22) C-Band Transponders meeting its C-Band
Transponder Performance Specifications, is in orbit and has not itself
suffered
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
4
<PAGE>
a "Catastrophic Failure," and has sufficient C-Band Transponders on it that
meet its C-Band Transponder Performance Specifications to satisfy HCG's
backup commitment to Lessee under this Agreement; (ii) Galaxy Backup is not
already located or required to be located in the orbital position of
another Galaxy Fleet Satellite for use as a replacement for such other
Satellite which has experienced a late delivery, Delivery Failure or
Catastrophic Failure (as defined for all Satellites pursuant to Section
4.11); and (iii) if Galaxy Backup has been moved to the orbital position of
another Satellite, and no transponder owner on the failed Satellite
previously in the orbital position to which Galaxy Backup has been moved
contracted for the In Orbit Satellite Backup Fee or its equivalent.
3.03 Place of Payment. All payments by Lessee shall be made to HCG at its
----------------
principal place of business, as designated in Section 20.03, and shall be deemed
to be made only upon actual receipt by HCG. All refunds by HCG shall be made to
Lessee at its principal place of business as designated in Section 20.03, and
shall be deemed to be made only upon actual receipt by Lessee.
3.04 Prompt Repayment. All refunds provided for in this Agreement to be
----------------
made by HCG shall be due and paid within fifteen (15) business days of
notification to HCG of the occurrence of the event giving rise to such refund
and any late payment by HCG to Lessee shall be with interest calculated at the
rate set forth in Section 20.01, payable with the amount due and calculated from
the date payment was due until the date it is received by Lessee.
3.05 Term of Lease. Subject to Section 4.02, the term of the lease of each
-------------
Lessee's Transponder provided for in this Agreement shall commence on Delivery
and shall terminate, cancel, or expire on the tenth anniversary, unless
terminated earlier pursuant to Section 10, Section 12.01, or Section 17.02 or
extended pursuant to Section 10.05. The parties' rights upon the termination,
cancellation, or expiration of this Agreement are set forth in Sections 10 and
12.
3.06 Late Payment. Any late payments by Lessee of amounts due and payable
------------
hereunder (including, but not limited to, specified payments, damages and
indemnification) to HCG shall be with interest calculated at the rate set forth
in Section 20.01 payable with the amount due and calculated from the date
payment was due until the date it is received by HCG.
4. Delivery and Related Matters
----------------------------
4.01 Delivery. Galaxy IIIR Delivery shall occur upon, and "Delivery,"
--------
"Delivered" and "Deliver" as to Galaxy IIIR shall mean, (i) the placing of
Galaxy IIIR in its assigned orbital position with a minimum of thirteen (13) C-
Band Transponders and thirteen (13) Ku-Band Transponders meeting the requisite
5
<PAGE>
transponder performance specifications on such Satellite (which requirement may
be met through the use of Reserve Transponders or Transponder Spares), (ii)
Lessee's acceptance of such Transponders as provided for in Section 4.03, and
(iii) full payment by Lessee of all amounts due on or prior to Delivery pursuant
to Section 3 or other Sections of the Agreement.
4.02 Condition to Lessee's Right to Lease. A condition to HCG's obligation
------------------------------------
to lease Lessee's Transponders to Lessee, and of Lessee's right to so lease
Lessee's Transponders, shall be the timely payment, both before and after
Delivery, by Lessee of all amounts due to HCG pursuant to the provisions of
Section 3 or other Sections of this Agreement.
4.03 Acceptance. HCG shall test each of Lessee's Transponders in
----------
accordance with an acceptance test plan to be prepared by HCG in advance of the
launch of Galaxy IIIR and delivered to Lessee. Acceptance of Lessee's
Transponders by Lessee shall be deemed to have occurred upon completion of the
following: (a) Lessee's Transponders have passed all tests set forth in the
aforementioned acceptance test plan and meet the C-Band Transponder Performance
Specifications; and (b) HCG has notified Lessee in writing that it has
successfully completed testing Lessee's Transponders and that Lessee's
Transponders are available for service.
4.04 Delivery Failure Defined. "Delivery Failure" of Galaxy IIIR shall
------------------------
mean failure, after a launch attempt has occurred, to place such Satellite in
its assigned orbital position with a minimum of thirteen (13) C-Band
Transponders and thirteen (13) Ku-Band Transponders meeting the requisite
transponder performance specifications on such Satellite (which requirement may
be met through the use of Transponder Spares or Reserve Transponders) within
ninety (90) days after the launch date. As used herein, "launch attempt" shall
mean the actual lift off of the launch vehicle.
4.05 In Orbit Protection From Galaxy Backup. Galaxy Backup has been
--------------------------------------
launched in advance of launching Galaxy IIIR in order to provide actual, in
orbit C-Band protection for the Galaxy Fleet.
4.06 [Reserved.]
--------
4.07 Galaxy Backup Option.
---------------------
(a) If Galaxy Backup is not Available at any time prior to the
expiration of ten (10) years from the date of Delivery of Galaxy IIIR, then
HCG may launch a second satellite to function as the Galaxy Backup (the
"Galaxy Backup Replacement").
6
<PAGE>
(b) HCG shall determine the minimum price and payment terms needed by it to
build and launch the Galaxy Backup Replacement, which satellite shall have at
least equivalent C-Band Transponder Performance Specifications to those of
Galaxy Backup, and shall determine an estimated launch and delivery date. The
Galaxy Backup Replacement shall then be offered by HCG to all entities that have
committed to purchase or lease C-Band Transponders on any Galaxy Fleet Satellite
and have paid a "Launch Backup Fee" or its equivalent on the same basis as it is
offered to Lessee (the "Galaxy Backup Option"). Such entities shall have sixty
(60) days to deliver their response to such offer to HCG. If HCG obtains
commitments for the minimum price needed by it to build and launch the Galaxy
Backup Replacement, then HCG shall be obligated, subject to FCC approval, to
launch the Galaxy Backup Replacement. HCG shall use its reasonable best efforts
to obtain such FCC approval and to cause construction to commence and to obtain
a launch date so that the Galaxy Backup Replacement is ready for delivery to a
launch facility within forty (40) months, and placed in its assigned orbital
position and operational within sixty (60) months, of HCG's receipt of the
requisite commitments. The Galaxy Backup Replacement shall then function as
Galaxy Backup.
4.08 [Reserved.]
--------
4.09 Use of Galaxy Backup By Lessee.
------------------------------
(a) Pursuant to Sections 4.09 through 4.13, Lessee shall have certain
rights to use C-Band Transponders on Galaxy Backup, provided that Lessee has
paid the In Orbit Satellite Backup Fee in accordance with Section 3.02 (b).
(b) If and when a C-Band Transponder on Galaxy Backup is leased by Lessee
in accordance with Sections 4.11 through 4.12, Lessee shall begin paying a
monthly lease payment in the amount of the Base Lease Rate per C-Band
Transponder (the "Monthly Lease Rate") (which payment shall include the TT&C Fee
of $[*]).
(c) Nothing shall prevent HCG from using Galaxy Backup for other services
or as a backup for satellites not part of the Galaxy Fleet so long as, if Galaxy
Backup is needed to backup Galaxy IIIR (in accordance with Sections 4.11 and
4.12) or the other Galaxy Fleet Satellites, then such other service or use is
preemptible. HCG shall be entitled to use Galaxy Backup only in orbital
positions assigned to it by the FCC or to which the FCC allows it to be moved.
Galaxy Backup shall not be moved to another orbital position at a rate faster
than 1.5 degrees per day unless backing up a failure of Galaxy IIIR or another
Galaxy Fleet Satellite which has suffered a Catastrophic Failure (as defined in
the equivalent to Section 4.11 in the purchase agreement of any other Owner).
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
7
<PAGE>
4.10 [Reserved.]
--------
4.11 Use of Galaxy Backup for Catastrophic Failure. If, after successful
---------------------------------------------
Delivery of Lessee's Transponders on Galaxy IIIR, Galaxy IIIR experiences a
"Catastrophic Failure" (which shall mean twelve (12) or more C-Band Transponders
on such Satellite becoming Failed Transponders), then the following shall occur:
(a) HCG, subject to FCC approval (which HCG shall promptly use its
best efforts to obtain), shall, at HCG's option, either (i) cause Galaxy
Backup, provided it is Available, to be moved to the orbital position of
Galaxy IIIR within seven (7) days of the earlier of notification to HCG or
HCG's knowledge of such Catastrophic Failure or (ii) lease to Lessee an
equivalent number of C-Band Transponders on Galaxy Backup, up to the number
of Lessee's Transponders that have become Failed Transponders at Galaxy
Backup's then-existing orbital location, provided Galaxy Backup is
Available;
(b) Subject to Section 4.13, Lessee shall lease a number of C-Band
Transponders on Galaxy Backup equal to the number of Lessee's Transponders
and shall pay the Monthly Lease Rate for each such C-Band Transponder on
Galaxy Backup that it is leasing. However, if HCG selects the option
specified in this Section 4.11(a)(ii), above, then, subject to Section
4.13, Lessee shall have the right, provided that such C-Band Transponders
are "non-committed" (as defined below), to lease an equivalent number of C-
Band Transponders on Galaxy Backup, up to the number of Lessee's
Transponders that have become Failed Transponders within thirty (30) days
after the occurrence of the event giving rise to the right; and
(c) Lessee shall continue such lease of Galaxy Backup C-Band
Transponders until the earlier to occur of (i) the successful placement
with the requisite number of C-Band Transponders (i.e., thirteen (13))
---
meeting the C-Band Transponder Performance Specifications by HCG of a
replacement Satellite in Galaxy IIIR orbital position, or (ii) the end of
Galaxy Backup's useful life, (iii) in the event HCG has selected the option
as set forth in Section 4.11(a)(ii), above, the movement or use of Galaxy
Backup in the event of a late delivery, Delivery Failure, or Catastrophic
Failure of any other Galaxy Fleet Satellite, or (iv) with respect to
Lessee's Reserve Transponders, HCG's cancellation of the lease of Lessee's
Reserve Transponders pursuant to Section 18.
HCG agrees that the "Delivery Failure" and "Catastrophic Failure" definitions
shall require the same or a greater level of failure for all other Galaxy Fleet
Satellites for the purposes of determining whether HCG is obligated to move
Galaxy Backup to a new orbital location.
8
<PAGE>
4.12 Galaxy Backup Protection Without Movement. If any of Lessee's
-----------------------------------------
Transponders become Failed Transponders, then the following shall occur:
(a) Subject to Section 4.13, Lessee shall have the right, provided
that such C-Band Transponders are "non-committed" (as defined below), to
lease an equivalent number of C-Band Transponders on Galaxy Backup, up to
the number of Lessee's Transponders that have become Failed Transponders.
Lessee shall have the right to lease such C-Band Transponders in whatever
location Galaxy Backup may then be, provided that Lessee commits to such a
lease within thirty (30) days following the occurrence of the event giving
rise to the right;
(b) Lessee shall pay the Monthly Lease Rate for each such C-Band
Transponder on Galaxy Backup that it is leasing; and
(c) Lessee shall continue such lease of Galaxy Backup C-Band
Transponders until the earliest to occur of (i) the successful placement
with the requisite number of C-Band Transponders meeting the C-Band
Transponder Performance Specifications by HCG of a replacement Satellite
(excluding Galaxy Backup), in the Galaxy IIIR orbital position, at which
time Lessee, if Galaxy Backup is Available, shall commence or resume, as
appropriate, paying the monthly In Orbit Satellite Backup Fee, (ii) the end
of Galaxy Backup's useful life, or (iii) the movement or use of Galaxy
Backup in the event of a late delivery, Delivery Failure, or Catastrophic
Failure of any other Galaxy Fleet Satellite, or (iv) with respect to
Lessee's Reserve Transponders, HCG's cancellation of the lease of Lessee's
Reserve Transponders pursuant to Section 18.
A C-Band Transponder on Galaxy Backup shall be deemed to be "non-committed"
if such C-Band Transponder is not already being used by an entity having
priority over Lessee pursuant to the exercise of its right to use such C-Band
Transponder as a result of payment to HCG for an "In Orbit Satellite Backup Fee"
or its equivalent, in connection with its purchase or lease of a transponder or
transponders on a Satellite.
4.13 Entitlement to Usage. If Owners of Primary C-Band Transponders on
--------------------
Galaxy IIIR become simultaneously entitled to lease C-Band Transponders on
Galaxy Backup, then the Owner of the Primary C-Band Transponder (or Owner's
predecessor in interest) who first executed a transponder purchase agreement
with HCG for the purchase of a Primary Transponder shall have a priority as to
the Galaxy Backup Transponders. Owners of Primary C-Band Transponders on Galaxy
IIIR shall have priority over Owners of Reserve C-Band Transponders on Galaxy
IIIR, in all instances, as to the use of Galaxy Backup Transponders, and the
Reserve
9
<PAGE>
C-Band Transponder Owner's use of Galaxy Backup shall therefore be preemptible
as provided for herein.
5. Representations and Warranties
------------------------------
HCG and Lessee each, except as expressly indicated herein, represent and
warrant to, and agree with, the other that:
5.01 Authority, No Breach. It has the right, power and authority to enter
--------------------
into, and perform its obligations under, this Agreement. The execution, delivery
and performance of this Agreement shall not result in the breach or
nonperformance of any agreements it has with third parties.
5.02 Corporate Action. It has taken all requisite corporate (or
----------------
partnership, as appropriate) action to approve the execution, delivery and
performance of this Agreement, and this Agreement constitutes a legal, valid and
binding obligation upon itself in accordance with its terms.
5.03 Consents. The fulfillment of its obligations hereunder will not
--------
constitute a material violation of any existing applicable law, rule, regulation
or order of any governmental authority. All necessary or material appropriate
public or private consents, permissions, agreements, licenses, or authorizations
to which it or any Transponder or any Satellite may be subject have been or
shall be obtained in a timely manner; provided, however, that it shall be HCG's
sole responsibility to obtain any regulatory approvals needed to enable it to
lease Transponders as provided for in this Agreement. Notwithstanding the above,
HCG and Lessee acknowledge that the transactions set forth in this Agreement may
be challenged before the FCC or a court of competent jurisdiction by other
persons or entities not parties hereto. In such event, HCG and Lessee agree that
HCG shall use its best efforts, and Lessee shall use reasonable efforts, before
the FCC, and the courts if an appeal from an FCC order is taken, to support
HCG's right to lease and Lessee's right to lease Lessee's Transponders and shall
fully cooperate with each other in these endeavors. Lessee alone shall have the
right to determine how much and to whom it will incur legal expenses in
connection with any proceeding arising out of its obligations under this Section
5.03. If, however, by written order, the FCC or a court of competent
jurisdiction shall determine that HCG may not lease and Lessee may not lease
Lessee's Transponders under the terms and conditions set forth herein, then HCG
and Lessee shall seek immediate review of such order before the FCC or an
appellate court or shall, if possible, reconstitute the transaction to comply
with such order and to provide Lessee with use of "equivalent capacity" on the
Satellites and to provide HCG with the "price provided for herein." As used
herein, "equivalent capacity" shall mean the same number of Transponders leased
by Lessee pursuant to this Agreement; provided that there is no material adverse
change in the provisions of this Agreement regarding lease rate taking into
account payment
10
<PAGE>
terms using a present value analysis, Warranty Period, use of Transponder Spares
and Reserve Transponders, and C-Band Transponder Performance Specifications. As
used herein, "price provided for herein" shall mean the total lease rate payable
to HCG, taking into account payment terms, using a present value analysis. If an
appellate court issues a written order, which is no longer subject to further
judicial rehearing or review, upholding the determination of the FCC or a court
or competent jurisdiction that HCG may not lease and Lessee may not lease
Lessee's Transponders, then HCG and Lessee shall, if possible, reconstitute the
transaction as set out herein.
5.04 Litigation. To the best of its knowledge, there is no outstanding or
----------
threatened judgment, threatened or pending litigation or proceeding, involving
or affecting the transactions provided for in, or contemplated by, this
Agreement, except as has been previously, or is concurrently being, disclosed in
writing by either party to the other.
5.05 No Broker. It does not know of any broker, finder or intermediary
---------
involved in connection with the negotiations and discussions incident to the
execution of this Agreement, or of any broker, finder or intermediary who might
be entitled to a fee or commission upon the consummation of the transactions
contemplated by this Agreement.
6. Additional Representations, Warranties and Obligations of HCG
-------------------------------------------------------------
6.01 Authorization Description. HCG has obtained from the FCC the
-------------------------
authority to launch and operate the Two Satellites and to sell or lease
Transponders on each of the Two Satellites on a private non-common carrier
basis. HCG has obtained from the FCC the authority to place Galaxy IIIR in
geostationary orbit at 95th West Longitude and shall utilize such orbital
location unless prevented by subsequent order of the FCC or any successor
thereto, in which event HCG shall utilize such other orbital position closest to
such position that the FCC or any successor thereto may designate for such
Satellite and, to the extent possible, the orbital position closest to those
positions outlined above. The Two Satellites will be "communications satellites"
(as defined in Section 1.03(3) of the Communications Satellite Act of 1962, 47
U.S.C. 702(3)).
6.02 C-Band Transponder Performance Specifications. Each of Lessee's
---------------------------------------------
Transponders, upon Delivery, shall meet the C-Band Transponder Performance
Specifications.
6.03 Right to Lease. Upon Delivery and subject to Section 4.02, Lessee
--------------
shall be entitled to lease each of Lessee's Transponders free from all liens,
charges, claims or encumbrances (collectively, "Encumbrances"), except: (i)
Encumbrances resulting from (a) Lessee's lease of Lessee's Transponders; (b) any
actions taken by Lessee; and
11
<PAGE>
(c) the right and interest of any financing entity purchasing the Transponders
on Galaxy IIIR and leasing them back to HCG pursuant to a sale and leaseback
transaction; and (ii) Encumbrances which do not have an adverse effect on
Lessee's rights hereunder. However, HCG shall have an option to cancel the lease
of Lessee's Reserve Transponders as set forth in Section 18.
6.04 Government Regulations. HCG has or shall use its best efforts until
----------------------
the disposition of Galaxy IIIR pursuant to Section 17 to obtain and maintain, in
all material respects, all applicable federal, state and municipal
authorizations or permissions to construct, launch and operate the Two
Satellites, applicable to HCG; and to comply, in all material respects, with all
such government regulations regarding the construction, launch and operation of
the Two Satellites and Transponders applicable to HCG.
6.05 Not a Common Carrier. Unless required to do so by the FCC, HCG shall
--------------------
not hold itself out, publicly or privately, as a provider of common carrier
communications services on Galaxy IIIR and is not purporting herein to provide
to Lessee or to any other party any such services with respect to Galaxy IIIR.
6.06 TT&C. Tracking, telemetry and control ("TT&C") shall be provided by
----
Hughes Communications Satellite Services, Inc. ("HCSS"), an Affiliate of HCG,
for the life of the Two Satellites, pursuant to a separate "Transponder Service
Agreement" which has been executed by HCSS and Lessee concurrently herewith. The
TT&C Fee for the Two Satellites is included in the Base Lease Rate and the
Monthly Lease Rate, as appropriate.
6.07 [Reserved.]
--------
6.08 Transfers by HCG. HCG shall not Transfer, as defined below, other
----------------
than for part time video or for leases with a term of two (2) years or less, any
of the C-Band Transponders on Galaxy IIIR to any third party without requiring,
in all such agreements, clauses substantially identical to, or terms the effect
of which shall be as or more restrictive with respect to such third party than,
the provisions in Sections 1.06, 4.13, 7.02, 7.03, 7.04(a), 7.04(b), 7.04(c), 8,
9.01, 9.02, 9.03, 9.04, 9.05, 10.03, 11.01, 11.02, 12.02, 12.04, 12.05, 17, the
first sentence of 20.02, 20.05 and 20.09. "Transfer" shall mean to grant, sell,
assign, encumber, permit the utilization of, license, lease, sublease or
otherwise convey, directly or indirectly, in whole or in part. Any Transfer by
HCG for part time video or under a lease for a term of two (2) years or less
without such clauses shall be consistent, in all material respects, with HCG's
obligations to Lessee under this Agreement.
12
<PAGE>
7. Additional Representations, Warranties and Obligations of Lessee
----------------------------------------------------------------
7.01 [Reserved.]
--------
7.02 Non-Interference. Lessee's radio transmissions (and those of its
----------------
uplinking agents) to the Two Satellites shall comply, in all material respects,
with all FCC and all other governmental (whether international, federal, state,
municipal, or otherwise) statutes, laws, rules, regulations, ordinances, codes,
directives and orders, of any such governmental agency, body, or court
(collectively, "Laws") applicable to it regarding the operation of the Two
Satellites, Lessee's Transponders and any Galaxy Backup C-Band Transponders to
which Lessee is given access pursuant to this Agreement and shall not interfere
with the use of any other Transponder. Lessee shall not utilize (or permit or
allow any of its uplinking agents to utilize) any of Lessee's Transponders or
any Galaxy Backup C-Band Transponders to which Lessee is given access pursuant
to this Agreement in a manner which will or may interfere with the use of any
other Transponder or cause physical harm to any of Lessee's Transponders, any
Galaxy Backup C-Band Transponders to which Lessee is given access pursuant to
this Agreement, any other Transponders, or to either of the Two Satellites.
Further, Lessee will coordinate (and will require its uplinking agents to
coordinate) with HCG, in accordance with procedures reasonably established by
HCG and uniformly applied to all users of Transponders on the Two Satellites,
its transmissions to the Satellites, so as to minimize adjacent channel and
adjacent satellite interference. For purposes of this Section 7.02, interference
shall also mean acts or omissions which cause a Transponder to fail to meet its
Transponder Performance Specifications. Without limiting the generality of the
foregoing, Lessee (and its uplinking agents) shall comply with all FCC rules and
regulations regarding use of automatic transmitter identification systems
(ATIS).
7.03 Laws. Lessee shall comply (and shall require its uplinking agents
----
to comply), in all material respects, with all Laws applicable to it regarding
the operation or use of the Two Satellites, Lessee's Transponders, and any
Galaxy Backup C-Band Transponders to which Lessee is given access pursuant to
this Agreement.
7.04 Additional Usage Representations and Obligations.
-------------------------------------------------
(a) Lessee has not been convicted for the criminal violation of, and
has not been found by the FCC or other federal, state or local governmental
authority with appropriate jurisdiction (collectively, the "Governmental
Authority") to have violated, any federal, state or local law or regulation
as applicable concerning illegal or obscene program material or the
transmission thereof (the "Obscenity Laws"), and Lessee is not aware of any
pending investigation (including, without limitation, a grand jury
investigation)
13
<PAGE>
involving Lessee's programming or any pending proceeding against Lessee for
the violation of any Obscenity Laws.
(b) Lessee will notify HCG as soon as it receives notification of, or
becomes aware of, any pending investigation by any Governmental Authority,
or any pending criminal proceeding against Lessee, which investigation or
proceeding concerns transmissions by Lessee potentially in violation of any
law, including without limitation, Obscenity Laws.
(c) Any use of Lessee's Transponders shall comply, in all material
respects, with all applicable laws regarding the operation or use of the
Satellite(s), Lessee's Transponders, and any other satellite and
transponder to which Lessee is given access pursuant to this Agreement
(including, but not limited to, any Obscenity Laws).
(d) Lessee will not use, or allow the use of, Lessee's Transponders
for direct distribution of programming to television viewers unless the
programming is scrambled such that television viewers can receive the
programming only through the use of a decoder authorized by Lessee or
Lessee's authorized agent.
8. Preemptive Rights and Inspection of Facilities
----------------------------------------------
Lessee recognizes that it may be necessary in unusual or abnormal
situations or conditions for HCG deliberately to preempt or interrupt Lessee's
use of each of its Transponders, in order to protect the overall performance of
the Satellites. Such decisions shall be made by HCG in its sole discretion;
provided, however, that, to the extent it is technically feasible, HCG shall
preempt or interrupt the use of either or both of Reserve C-Band Transponders
before preempting or interrupting the use of any Primary C-Band Transponder on
Galaxy IIIR and, with respect to Primary C-Band Transponders on Galaxy IIIR, in
the inverse order in which the Owners (or such Owner's predecessors in interest)
on such Satellite executed transponder purchase agreements for its Transponders
on such Satellite. To the extent technically feasible and, with respect to
Lessee's Reserve Transponders, not inconsistent with HCG's right to cancel the
lease of Lessee's Reserve Transponders pursuant to the provisions of Section
9.02 and 18, HCG shall give Lessee at least forty-eight (48) hours' notice of
such preemption or interruption, and HCG shall use its reasonable best efforts
to schedule and conduct its activities during periods of such preemption or
interruption so as to minimize the disruption to the use of Transponders on such
Satellites. To the extent that such preemption results in a loss to Lessee of
the use of Lessee's Transponders sufficient to constitute a breach of HCG's
obligations as set forth in Section 12, then Lessee shall have all of the rights
and remedies set forth in Sections 4, 9 and 12.
14
<PAGE>
9. Transponder Spares, Reserve Transponders and Retained Transponders
------------------------------------------------------------------
9.01 Use of Transponder Spares. HCG shall cause Galaxy IIIR to contain
-------------------------
certain redundant equipment units (collectively, the "Transponder Spares";
individually, a "C-Band Transponder Spare," or a "Ku-Band Transponder Spare", a
C-Band Transponder Spare being as described in Exhibit F) which are designed as
substitutes for such equipment units of the same frequency, the failure of which
could cause a Galaxy IIIR Transponder to fail to meet the requisite transponder
performance specifications. HCG, as soon as possible and to the extent
technically feasible, shall employ a C-Band Transponder Spare in such Satellite
as a substitute for Lessee's Transponder equipment unit which has caused one of
Lessee's Transponders to suffer a Confirmed Failure in order to enable Lessee's
Transponders to meet the C-Band Transponder Performance Specifications. To the
extent technically feasible, a C-Band Transponder Spare will be substituted for
the faulty equipment unit on a first-needed, first-served basis to satisfy HCG's
obligations to Lessee and to other Owners of C-Band Transponders which have
suffered Confirmed Failures; provided, however, that HCG's obligations to
provide such Transponder Spares shall continue until such time as all of the C-
Band Transponder Spares are committed to use as substitutes for C-Band
Transponders which have suffered Confirmed Failures. If HCG furnishes a C-Band
Transponder Spare to Lessee as a substitute for an equipment unit which has
caused a Lessee's Transponder to suffer a Confirmed Failure, then such
Transponder Spare shall become part of the Transponder which is leased to Lessee
hereunder, and Lessee, concurrently, shall no longer have any right to lease or
otherwise use the failed equipment unit. Lessee's Transponder equipment unit
which has been returned shall be made available by HCG, to the extent
technically feasible, to satisfy its obligations to Owners on the same
Satellite. HCG also shall have the right, until the Transponder Spares are
needed, to utilize such Transponder Spares in any manner HCG determines.
9.02 Use of Reserve Transponders. If no C-Band Transponder Spare is
---------------------------
available at the time that Lessee's Primary Transponder suffers a Confirmed
Failure or if the use of such C-Band Transponder Spare would not correct the
failure, then HCG shall employ, as soon as possible and to the extent
technically feasible (unless any delay is requested by Lessee), a Reserve C-Band
Transponder as a substitute for such Transponder which has suffered a Confirmed
Failure; provided, however, that HCG's obligation to provide Reserve C-Band
Transponders to Owners of Primary C-Band Transponders (including Lessee) shall
continue only until such time as all of the Reserve C-Band Transponders are
committed to use as substitutes for Primary C-Band Transponders which have
suffered a Confirmed Failure. HCG shall include in the purchase or lease
agreement of any Owner who has purchased or leased a Reserve C-Band Transponder
(or in any other agreement providing for the Transfer of a Reserve C-Band
Transponder) a requirement that HCG may preempt such Reserve C-Band
Transponder(s) after two (2) hours' notice from HCG. Reserve C-
15
<PAGE>
Band Transponders utilized as substitutes for Lessee's Primary Transponders
shall meet the C-Band Transponder Performance Specifications. Reserve C-Band
Transponders, or any one of them, will be substituted and utilized on a first-
needed, first-served basis to satisfy HCG's obligations to Lessee and to other
Owners with respect to the performance of their Primary C-Band Transponders. HCG
shall have the right, in its sole discretion, to utilize first a C-Band
Transponder Spare prior to furnishing a Reserve C-Band Transponder to the Owner
of Primary C-Band Transponders (including Lessee). If HCG furnishes a Reserve C-
Band Transponder to the Owner of Primary C-Band Transponder (including Lessee),
then HCG shall lease such Reserve C-Band Transponder to such Owner as a
substitute, and such Owner, concurrently, shall no longer have any right to
lease or otherwise use the failed equipment unit. Such Owner's Primary C-Band
Transponder which has been returned to HCG shall thereafter be made available by
HCG, to the extent technically feasible, to satisfy its obligations to other
Owners. If HCG preempts Lessee's Reserve Transponders in order to furnish a
Reserve C-Band Transponder to the Owner of a Primary C-Band Transponder
(including Lessee), then Lessee shall no longer have any right to lease or
otherwise use Lessee's Reserve Transponders.
9.03 Simultaneous Failure -- Priority with Respect to Use of C-Band
--------------------------------------------------------------
Transponder Spares. In the event that Primary C-Band Transponders of more than
- ------------------
one Owner simultaneously suffer a Confirmed Failure, then the Owner of the
Primary C-Band Transponder (or such Owner's predecessor in interest) who first
executed a C-Band transponder purchase agreement with HCG for the purchase of a
Primary C-Band Transponder on Galaxy IIIR shall have priority as to the use of
C-Band Transponder Spares with respect to said Owner's Primary Transponder or
Transponders which have suffered a Confirmed Failure, to the extent technically
feasible. As used in this Section 9, the term "simultaneously" shall be deemed
to mean occurring within a 24-hour period.
9.04 Simultaneous Failure-- Priority with Respect to Use of Reserve C-Band
---------------------------------------------------------------------
Transponders. In the event that Primary C-Band Transponders of more than one
- ------------
Owner simultaneously suffer a Confirmed Failure, and no C-Band Transponder Spare
of the same frequency is available or if the use of such C-Band Transponder
Spare would not correct the failure, then the Owner of the Primary C-Band
Transponder (or such Owner's predecessor in interest) who first executed a C-
Band transponder purchase agreement with HCG for the purchase of a Primary C-
Band Transponder on Galaxy IIIR shall have priority as to the use of Reserve C-
Band Transponders with respect to said Owner's Primary C-Band Transponder or
Transponders which have suffered a Confirmed Failure.
9.05 HCG's Ownership of C-Band Transponders. If HCG is unable to sell all
--------------------------
of the C-Band Transponders, then HCG may retain ownership of such unsold C-Band
Transponders ("HCG's Transponders"). In such event, HCG shall have the same
rights to use HCG's Transponders as any other Owner would have, including,
16
<PAGE>
without limitation, the right to utilize C-Band Transponder Spares and Reserve
C-Band Transponders (if the Transponder is a Primary C-Band Transponder) in the
event HCG's Transponders do not meet the C-Band Transponder Performance
Specifications. HCG also shall have the right, but not the obligation, to
utilize HCG's Transponders to satisfy HCG's obligations to Lessee and to other
Owners of C-Band Transponders. HCG shall be deemed to have been the last entity
to execute a transponder purchase agreement for purposes of determining its
priority under the provisions of this Section 9 and other Sections of this
Agreement; provided, however, that if HCG Long Term Leases any unsold C-Band
Transponder to a third party for a term of eight (8) or more years, such third
party shall, for purposes of determining its priority under the provisions of
this Section 9, or elsewhere in this Agreement, be deemed to have "purchased"
such Transponder and to have executed a transponder purchase agreement on the
date it executed such Long Term Lease.
9.06 Notice of Intent to Substitute a Reserve C-Band Transponder. With
-----------------------------------------------------------
respect to Lessee's Primary Transponders, prior to the substitution of a Reserve
C-Band Transponder for Lessee in accordance with this Section 9, HCG shall
notify Lessee in advance of its intention to so substitute the Reserve C-Band
Transponder and the substitution shall be made at such time as the parties
mutually agree.
10. Termination Rights
------------------
10.01 Termination for Cause. In the event that HCG or Lessee materially
---------------------
defaults in the performance of any of its duties or obligations set forth in
this Agreement and such default is not cured within thirty (30) days after
written notice is given to the defaulting party specifying the default, then the
party may, by giving written notice thereof to the defaulting party, terminate
this Agreement as of a date specified in such notice of termination, and the
non-defaulting party shall have no further obligation to the defaulting party.
In no event shall the terms of this Section 10.01 diminish other rights and
remedies of HCG described elsewhere in this Agreement.
10.02 Cancellation by HCG.
--------------------
(a) Upon the occurrence of any Event of Default (as defined below) and
only after any relevant cure period, HCG may, for so long as such Event of
Default shall continue, declare this Agreement to be in default (provided,
however, that this Agreement shall be deemed to be in default immediately
upon the occurrence and during the continuation of any Event of Default
under Section 10.02(b)(iv), (v) or (vi)), and at any time thereafter, HCG
may in its sole and absolute discretion declare immediately due and payable
all sums due and to become due hereunder for the full term of this
Agreement, require Lessee to redeliver Lessee's Transponders to HCG as set
forth in
17
<PAGE>
Section 10.07 hereof, render Lessee's Transponders unusable without removal,
cancel this Agreement, obtain damages without canceling this Agreement, and
exercise any other right or remedy which is provided for in this Agreement or
which may be available under the California Uniform Commercial Code or other
applicable Law, including without limitation exercising any right or remedy
applicable to default under Section 10523(1) of the California Uniform
Commercial Code for any Event of Default hereunder (the "Default Option"). A
cancellation hereunder shall occur only upon written notice from HCG to Lessee
stating that such cancellation is made and only as to such Transponders as HCG
specifically elects to cancel and this Agreement shall continue in full force
and effect as to the remaining Transponders. No remedy referred to in this
Section 10.02 is intended to be exclusive, but each remedy shall be cumulative
and in addition to any other remedy referred to above or otherwise available to
HCG at law or in equity. HCG shall mitigate its damages should it elect to seek
from Lessee the full amount due hereunder in the event of an Event of Default by
Lessee as so required under the California Uniform Commercial Code. HCG's
failure in any case to exercise the Default Option shall not constitute a waiver
of any breach or Event of Default or a continuing waiver of similar or other
breaches or Events of Default.
(b) The following events shall constitute "Event(s) of Default" by Lessee
(whether any such event shall arise as the result of the voluntary or
involuntary action or inaction of Lessee or come about or be effected by
operation of, or pursuant to or in compliance with, any Law):
(i) Lessee shall fail to make any payment due hereunder when due and
such failure shall continue for ten (10) days after HCG has given Lessee
written notice of such failure; or
(ii) Lessee shall fail to perform or observe in any material respect
any covenant, condition or agreement to be performed or observed by it
under this Agreement and such failure shall continue unremedied for a
period of thirty (30) days following notice from HCG; provided, however,
-------- -------
nothing in this Section 10.02(b)(ii) shall restrict HCG's rights to deny
Lessee access pursuant to Section 10.06 hereof during such thirty (30) day
period or otherwise; or
(iii) Any representation or warranty made by Lessee in this Agreement
or in any statement furnished by Lessee in connection herewith after
execution of this Agreement shall have been incorrect in any material
respect at the time made but only if such incorrect representation,
warranty or statement shall have a material adverse effect on HCG or its
rights or obligations hereunder and shall continue
18
<PAGE>
unremedied for a period of ten (10) days after HCG has given written notice
to Lessee of such incorrect representation, warranty or statement; or
(iv) Lessee shall consent to the appointment of, or taking possession
by, a receiver, trustee, custodian or liquidator of itself or of a
substantial part of its assets, or Lessee shall make a general assignment
for the benefit of creditors; or
(v) Lessee shall file a voluntary petition in bankruptcy or a
voluntary petition or an answer seeking reorganization in a proceeding
under any applicable bankruptcy or insolvency laws (as now or hereafter in
effect) or an answer admitting the material allegations of a petition filed
against such person in any such proceeding, or Lessee shall, by voluntary
petition, answer or consent, seek relief under the provisions of any now
existing or future bankruptcy, insolvency or other similar law providing
for the liquidation, reorganization or dissolution of corporations, or
providing for an agreement, composition, extension or adjustment with its
creditors; or
(vi) A receiver, trustee, liquidator or custodian of Lessee or of a
substantial part of its property shall be appointed by court order and such
order shall remain in effect for more than sixty (60) days; or any
substantial part of the property of Lessee shall be sequestered by court
order and such order shall remain in effect for more than sixty (60) days;
or a petition shall be filed against Lessee under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution
or liquidation law of any jurisdiction, whether now or hereafter in effect,
and shall not be dismissed within sixty (60) days after such filing.
10.03 HCG's Right to Transfer for Non-Payment.
----------------------------------------
(a) If, for any reason whatsoever, Lessee does not make the payments in the
amounts and on the dates set forth in (and in accordance with) Section 3 and
Lessee fails to cure such default as set forth in section 10.02, then, in
addition to all of its other remedies at law or in equity, HCG shall be entitled
to Transfer (as defined in section 6.08) Lessee's Transponders immediately to
whomever HCG sees fit, Lessee shall not be entitled to any equitable or other
relief as a result thereof, and Lessee's exclusive remedy shall be limited to
recovery, without interest, of any lease payments actually paid by Lessee to HCG
pursuant to Section 3, less any claim HCG has against Lessee by reason of
Lessee's default.
19
<PAGE>
(b) If, for any reason whatsoever, Lessee does not make the payments
in the amounts and on the dates set forth in (and in accordance with)
Section 4 with respect to Transponders provided hereunder other than
Lessee's Transponders and Lessee fails to cure such default as set forth in
Section 10.02, then, in addition to all of its other remedies at law or in
equity, HCG shall be entitled to Transfer (as defined in Section 6.08) such
Transponders immediately to whomever HCG sees fit, Lessee shall not be
entitled to any equitable or other relief as a result thereof, and Lessee's
exclusive remedy shall be limited to recovery, without interest, of any
lease payments actually paid by Lessee to HCG pursuant to Section 4, less
any claim HCG has against Lessee by reason of Lessee's default.
10.04 [Reserved.]
--------
10.05 Transponder Lease Termination. Unless this Agreement terminates,
-----------------------------
expires, or is canceled earlier in accordance with any other subsection of this
Section 10 or pursuant to Section 12.01 or Section 17.02, this Agreement shall
expire on the tenth anniversary of Delivery. In the event that Galaxy VII has
not reached its end-of-life prior to the tenth anniversary of Delivery in
accordance with Section 17.02, then Lessee may extend the lease of all of
Lessee's Transponders for the then remaining useful commercial life of Galaxy
VII, on the terms and conditions contained in the Agreement by delivery of
written notice to do so to HCG at least [180 days prior to the expiration of the
lease term, except that the Base Lease Rate shall be the then-prevailing market
rate]. Upon the date of any termination, expiration, or cancellation pursuant to
any subsection of this Section 10 (the "Lease Termination Date"), HCG shall have
no further obligations to Lessee under this Agreement.
10.06 Right to Deny Access.
---------------------
(a) If, in connection with using Lessee's Transponders and/or Galaxy
Backup Transponders,
(i) "User" (as defined below) is indicted or is otherwise charged
as a defendant in a criminal proceeding based upon, or is convicted
under, any Obscenity Law or has been found by any Governmental
Authority to have violated any such law;
(ii) based on any User's use of Lessee's Transponders or Galaxy
Backup Transponders, HCG is indicted or otherwise charged as a
criminal defendant, becomes the subject of a criminal proceeding or a
governmental action seeking a fine, license revocation or other
sanctions, or any Governmental Authority seeks a cease and desist or
other similar order or filing;
20
<PAGE>
(iii) the FCC has issued an order initiating a proceeding to
revoke HCG's authorization to operate the Satellite;
(iv) HCG obtains a court order pursuant to Section 10.06(c),
below, or a court or Governmental Authority of competent jurisdiction
orders HCG to deny access to User or orders User to cease
transmission; or
(v) HCG receives notice (the "Illegal Programming Notice"),
written or oral, from a Governmental Authority that such authority
considers Lessee and/or any other User's programming to be in
violation of Obscenity Laws (the "Illegal Programming"), and that if
HCG does not cease transmitting such Illegal Programming, then HCG
and/or its Affiliates and/or any of their executives will be indicted
or otherwise charged as a criminal defendant, will become the subject
of a criminal proceeding or a governmental action seeking a fine,
license revocation or other sanctions, or that such Governmental
Authority will seek a cease and desist or other similar order or
filing (with HCG being obligated, to the extent permitted by law, to
provide Lessee with a copy of such Illegal Programming Notice, if
written, or with other verification, including the details thereof, if
oral);
then, upon notice from HCG to Lessee (the "Denial of Access Notice"), User
shall cease using Lessee's Transponders or Galaxy Backup Transponders,
immediately, in the case of a denial of access pursuant to subparagraphs
(i), (ii), (iii) or (iv) above, or within 24 hours following receipt of
such notice, in the case of a denial of access pursuant to subparagraph
(v), above; and if User does not voluntarily cease using such capacity at
the appropriate time, then HCG shall have the right to take such steps as
HCG deems necessary to prevent User from accessing Lessee's Transponders or
Galaxy Backup Transponders. Provided, however, that if User has more than
one programming service, then the denial of access by HCG shall apply only
to the Transponder used to provide the Illegal Programming service; and
provided further, however, that if, upon receipt of the Denial of Access
Notice from HCG, User does not immediately cease transmission of such
Illegal Programming service, then HCG shall have the right to take such
steps as HCG deems necessary to prevent User from accessing the transponder
used to transmit such Illegal Programming service (and if, thereafter,
Lessee transmits such Illegal Programming service using any of Lessee's
Transponders or Galaxy Backup Transponders, then HCG shall have the
immediate right, without further notification, to take such steps as HCG
deems necessary to prevent Lessee from accessing any of Lessee's
Transponders or Galaxy Backup Transponders). As used herein, "User" shall
21
<PAGE>
mean Lessee and any person to whom Lessee Transfers all or part of its
right to use Lessee's Transponders or Galaxy Backup Transponders, including
without limitation, a lessee, licensee or assignee. Lessee agrees to
maintain a properly operating facsimile machine at all times to receive the
Denial of Access Notice from HCG.
(b) If HCG denies, or has given Lessee notice of its intent to deny,
access to Lessee's Transponders or Galaxy Backup Transponders pursuant to
the provisions of this Section 10.06, and if Lessee does not believe the
conditions set forth in this Agreement to HCG's denial of access have been
met, then Lessee shall have the immediate right to seek injunctive relief,
including a temporary restraining order on notice of four (4) hours or more
to HCG, to prevent the denial or continuing denial of such access by HCG.
(c) HCG shall also have the right to seek: (i) injunctive relief,
including a temporary restraining order on notice of four (4) hours or more
to Lessee, to prevent, suspend or otherwise limit User's continued access
to Lessee's Transponders or Galaxy Backup Transponders where HCG believes
such use has resulted or will result in a violation of any Obscenity Law;
or (ii) declaratory relief to establish its right to deny User's access to
Lessee's Transponders or Galaxy Backup Transponders under this Agreement.
(d) Either party shall be entitled to oppose the other's attempt to
obtain equitable relief. However, in order to enable either party to obtain
a resolution of any such dispute as expeditiously as possible, both parties
hereby agree that: (i) neither party will contest the jurisdiction of, or
the venue of, any action for equitable relief brought by the other party in
the following courts:
and the U.S. District Court for the Central District of California; (ii)
the party opposing equitable relief (the "Opposing Party") will make itself
available to accept service by telecopy or personal delivery on a 24
hour-a-day basis for five (5) consecutive days following receipt by the
Opposing Party of the other party's notice of its intent to seek such
equitable relief; and (iii) if either party seeks a temporary restraining
order and provides notice to the Opposing Party at least four (4) hours
before the scheduled court hearing, then the Opposing Party will not
challenge the timeliness of such notice.
(e) If it is determined by final judicial order that HCG prevented
Lessee from accessing any or all of Lessee's Transponders or Galaxy Backup
Transponders at a time when it did not have the right to do so, pursuant to
this Section 10.06, then Lessee's sole and exclusive remedy shall be HCG's
payment to Lessee of liquidated damages equal to two (2) times a pro-rated
amount of Lessee's monthly Base Lease Rate or the Monthly Lease Rate, as
22
<PAGE>
applicable, for the terminated capacity, such pro-ration to be based on the
period of time of loss of use of such capacity.
(f) All remedies of HCG set forth in this Section 10.06 shall be
cumulative and in addition to, and not in lieu of any other remedies
available to HCG at law, in equity or otherwise, and may be enforced by HCG
concurrently or from time to time.
(g) In addition to any other indemnification obligations found
elsewhere in this Agreement, Lessee shall indemnify and save HCG, its
directors, officers, employees, and its Affiliates from any liability or
expense arising out of or related to User's use of Lessee's Transponders or
Galaxy Backup Transponder under this Section 10.06. Lessee shall pay all
expenses (including reasonable attorneys' fees) incurred by HCG in
connection with all legal or other formal or informal proceedings,
instituted by any private third party or any Governmental Authority, and
arising out of or related to User's use of Lessee's Transponders or Galaxy
Backup Transponders under this Section 10.06, and Lessee shall satisfy all
judgments, fines, penalties, costs, or other awards which may be incurred
by or rendered against HCG as a result thereof, as and to the extent
permitted by law.
10.07 Return of Transponders. Upon the expiration, termination, or
----------------------
cancellation of this Agreement as to any Transponder for any reason whatsoever
(including, without limitation, expiration of this Agreement in accordance with
its terms and cancellation by HCG as a result of an Event of Default by Lessee),
such Transponder shall be deemed, without any further action by any party, to be
redelivered to HCG and HCG shall be entitled to immediate possession thereof.
HCG shall thereafter have the right to utilize such redelivered Transponder in
any manner it determines.
11. Force Majeure
-------------
11.01 Failure to Deliver. Any failure or delay in the performance by HCG
------------------
of its obligations to Deliver or provide any Transponders shall not be a breach
of this Agreement if such failure or delay results from any acts of God,
governmental action or Law (whether in its sovereign or contractual capacity) or
any other circumstances reasonably beyond the control of HCG, including, but not
limited to, weather or acts or omissions of Lessee or any third parties
(excluding the Hughes Aircraft Company and all of its direct and indirect
subsidiaries, and any other Affiliates of HCG or the Hughes Aircraft Company
with whom HCG or the Hughes Aircraft Company contracts for any components of the
Two Satellites or any services with respect thereto).
23
<PAGE>
11.02 Failure of Performance. Any failure in the performance of the
----------------------
Transponders, once Delivered or provided, shall not be a breach of this
Agreement if such failure results from acts of God, governmental action or Law
(whether in its sovereign or contractual capacity) or any other circumstances
reasonably beyond the control of HCG, including, but not limited to, earth
station sun outage, weather, or acts or omissions of Lessee or any third parties
(excluding the Hughes Aircraft Company and all of its direct and indirect
subsidiaries, and any other Affiliates of HCG or the Hughes Aircraft Company
with whom HCG or the Hughes Aircraft Company contracts for any components of the
Two Satellites or any services with respect thereto). Nothing in this Section
11.02 shall excuse HCG's obligations to provide Transponder Spares or Reserve
Transponders, to the extent available and technically feasible, to satisfy its
obligations as set forth in Sections 4 and 9.
12. Limitation of Liability/Breach of Warranty
------------------------------------------
12.01 Liability of HCG. If (i) any one or more of Lessee's Transponders
---------- ---
fails to meet the C-Band Transponder Performance Specifications prior to the
Lease Termination Date, (ii) such failure is deemed to be a Confirmed Failure,
and (iii) HCG is unable to furnish the necessary Transponder Spare or Reserve
Transponder as a substitute for the Lessee's Transponder pursuant to Section 9,
then such Transponder shall be deemed to be a "Failed Transponder," and, unless
such failure of the Lessee's Transponder is excused by an event set forth in
Section 11.02, Lessee shall be entitled to cease making the Base Lease Rate
payments, as to such Failed Transponder, as set forth in Section 3.02(a).
12.02 Confirmed Failure. A Lessee's Transponder shall be deemed to have
-----------------
suffered a "Confirmed Failure" if (a) it fails to meet the C-Band Transponder
Performance Specifications for a cumulative period of more than ten (10) hours
during any consecutive thirty (30) day period, (b) twenty (20) or more "outage
units" (as defined below) occur within a consecutive thirty (30) day period, or
(c) it fails to meet the C-Band Transponder Performance Specifications for any
period of time under circumstances that make it clearly ascertainable or
predictable technically that the failure set forth in either (a) or (b) of this
Section 12.02 will occur. An "outage unit" shall mean the failure of a Lessee's
Transponder to meet the C-Band Transponder Performance Specifications for a
fifteen (15) minute period in one day (with each such fifteen (15) minute period
in the same day constituting a separate outage unit). Lessee shall give HCG
immediate notification of any such failure, as soon after commencement of any
such failure as is reasonably possible, and of the relevant facts concerning
such failure. Upon HCG's verification that a Lessee's Transponder has suffered a
Confirmed Failure, such failure shall be deemed to have commenced upon receipt
by HCG of notification from Lessee, or HCG's actual knowledge, whichever first
occurs, of the Confirmed Failure. As used herein, the term "day" shall mean a
24-hour period of time commencing on 12:00 Midnight Eastern Time.
24
<PAGE>
12.03 Repayment for Failed Transponder. For each of Lessee's Transponders
---------------------
which has become a Failed Transponder, for which Lessee is entitled to cease
making Base Lease Rate payments, and for which Lessee has ceased making Base
Lease Rate payments, Lessee shall be entitled to a refund equal to the product
of a fraction, the numerator of which is the number of days from the date of
such failure until the end of the calendar month in which such failure occurred
and the denominator of which is the total number of days in the calendar month
in which such failure occurred, multiplied by the Base Lease Rate actually paid
---------- --
by Lessee for such Transponder for the calendar month in which such failure
occurred. HCG may offset against any refund due to Lessee pursuant to this
Section 12.03 any amounts due from Lessee to HCG under this Agreement. In
addition, if the performance of a Lessee's Transponder is such that, while it
fails to meet the C-Band Transponder Performance Specifications, its performance
is nonetheless of some value to Lessee, then prior to accepting repayment
calculated as aforesaid, Lessee shall have the right to negotiate with HCG to
determine if there is a mutually agreeable reduced lease rate upon which Lessee
is willing to continue leasing such Transponder.
12.04 Limitation of Liability.
------------------------
(a) ANY AND ALL EXPRESS AND IMPLIED WARRANTIES, INCLUDING, BUT NOT
LIMITED TO, WARRANTIES OF MERCHANTABILITY OR FITNESS FOR ANY PURPOSE OR
USE, ARE EXPRESSLY EXCLUDED AND DISCLAIMED EXCEPT TO THE EXTENT
SPECIFICALLY AND EXPRESSLY PROVIDED FOR IN SECTION 6.02, ABOVE. IT
EXPRESSLY IS AGREED THAT HCG'S SOLE OBLIGATIONS AND LIABILITIES RESULTING
FROM A BREACH OF THIS AGREEMENT, AND LESSEE'S EXCLUSIVE REMEDIES FOR ANY
CAUSE WHATSOEVER (INCLUDING, WITHOUT LIMITATION, LIABILITY ARISING FROM
NEGLIGENCE) ARISING OUT OF OR RELATING TO THIS AGREEMENT AND/OR THE
TRANSACTIONS CONTEMPLATED HEREBY, ARE LIMITED TO THOSE SET FORTH IN
SECTIONS 4, 9, 10 AND 12, HEREOF, AND ALL OTHER REMEDIES OF ANY KIND ARE
EXPRESSLY EXCLUDED, INCLUDING, WITHOUT LIMITATION, ALL RIGHTS AND REMEDIES
OF LESSEE UNDER DIVISION 10, CHAPTER 5, ARTICLE 2 AND SECTIONS 10209, 10406
AND 10504 OF THE CALIFORNIA UNIFORM COMMERCIAL CODE.
(b) IN NO EVENT SHALL HCG BE LIABLE FOR ANY INCIDENTAL OR
CONSEQUENTIAL DAMAGES, WHETHER FORESEEABLE OR NOT, OCCASIONED BY ANY DEFECT
IN THE TRANSPONDERS, DELAY IN DELIVERY OR PROVISION OF THE TRANSPONDERS,
FAILURE OF THE TRANSPONDERS TO PERFORM OR
25
<PAGE>
ANY OTHER CAUSE WHATSOEVER. HCG MAKES NO WARRANTY, EXPRESS OR IMPLIED, TO
ANY OTHER PERSON OR ENTITY CONCERNING THE TRANSPONDERS OR THE SATELLITES
AND LESSEE SHALL DEFEND AND INDEMNIFY HCG FROM ANY CLAIMS MADE UNDER ANY
WARRANTY OR REPRESENTATION BY LESSEE TO ANY THIRD PARTY. THE LIMITATIONS OF
LIABILITY SET FORTH HEREIN SHALL ALSO APPLY TO THE HUGHES AIRCRAFT COMPANY
(THE MANUFACTURER OF THE SATELLITES AND THE TRANSPONDERS) AND ALL
AFFILIATES THEREOF.
(c) Notwithstanding the limitations of the first sentence of Section
12.04(a) above, Lessee and HCG each shall have the right to obtain
injunctive relief, if necessary, in order to prevent the other party from
willfully breaching its obligations under this Agreement or to compel the
other party to perform its obligations under this Agreement.
12.05 Obligations of Lessee to Cooperate. If any of Lessee's Transponders
----------------------------------
fails to meet the C-Band Transponder Performance Specifications, then Lessee
shall use reasonable efforts to cooperate and aid HCG in curing such failure,
provided that such efforts can be done at minimal or no cost to Lessee.
(a) These obligations of Lessee shall include, but not be limited to,
the following:
(i) If there is a problem which can be compensated for by
increasing the power of its transmission to Lessee's Transponder, then
Lessee shall do so, at HCG's cost and expense, to the extent it can
with existing equipment, provided, however, that HCG shall not be able
to require Lessee to increase the power of its transmission if, by
doing so, it would cause interference with other Transponders on such
Satellite which is prohibited by Section 7.02 of this Agreement, or
interference with any other satellite; and
(ii) Permitting HCG, at HCG's cost and expense, to upgrade and
install Lessee's equipment, provided that Lessee shall be entitled to
select and install such equipment and determine its configuration in
accordance with its own existing operating procedures and technical
requirements, and in accordance with applicable Laws.
(b) HCG shall give notice to Lessee if and when it requires the
increase of power of the transmission of any other Owner pursuant to such
Owner's obligation equivalent to this Section 12.05. HCG shall also give
notice to Lessee when it acquires knowledge of any other Transponder Owner
uplinking at power levels which might cause interference with Lessee's
26
<PAGE>
Transponders. If, after such increase in power, a Lessee's Transponder(s) no
longer meets its C-Band Transponder Performance Specifications, HCG shall
promptly take steps to reduce interference, if any, prohibited by Section 7.02.
(c) Lessee's priority for the use of Transponder Spares or Reserve
Transponders under Section 9 shall be determined at the time that its
Transponder would otherwise have become a Failed Transponder without
Lessee's cooperation under this Section 12.05. Regardless of Lessee's
cooperation under this Section 12.05, Lessee shall have the right to
exercise its right to the use of a Transponder Spare or Reserve Transponder
to which it would have been entitled at the time that Lessee's Transponder
was initially determined to have failed had Lessee not taken such action.
13. Transfers
---------
13.01 Transfers by Lessee.
-------------------
(a) Except as specifically set forth in this Section 13.01,
Lessee shall not Transfer (defined in Section 6.08) any of its rights
or obligations under this Agreement except with the prior written
consent of HCG, which consent may be given or withheld in HCG's sole
and absolute discretion.
(b) Lessee may Transfer, in whole, its rights and obligations
hereunder to any Lessee's Affiliate, provided that such Lessee's
Affiliate executes any Transfer documents as reasonably requested by
HCG. In the event of any such Transfer by Lessee, (i) Lessee shall
remain fully liable along with its Transferee for all its obligations
under this Agreement and under the Transponder Service Agreement; and
(ii) such Transferee shall not be permitted to Transfer Lessee's
Transponders.
(c) Lessee shall have the right to sublease its rights to use
Lessee's Transponders hereunder to a third party (the "Third-Party
Sublessee"); provided, however, that the Third-Party Sublessee will be
able to meet HCG's legal, technical and operational requirements as
set forth in this Agreement. HCG shall have the right to withhold its
approval of the sublease to the Third-Party Sublessee based on such
Third-Party Sublessee's proposed program content which HCG deems
objectionable, consistent with HCG's practice and policy concerning
the use of the Transponder to transmit programming that violates or
potentially violates the Obscenity Laws. A condition precedent to the
effectiveness of any such sublease shall be the prior execution by the
Third-Party Sublessee of a document, in form and substance as
27
<PAGE>
reasonably required by HCG, by which the Third-Party Sublessee agrees
to abide by all of the provisions regarding the operation of the
Satellite and the use of the Transponder, including without
limitation, Sections 7, 8, 10.06 and 13 of the Agreement, as though
the Third-Party Sublessee were the Lessee (the "Sublease"). In the
event of the Sublease, Lessee shall remain fully liable for, and shall
not be relieved of, its obligations to HCG hereunder. In the event the
Third-Party Sublessee breaches any of its obligations described in the
Sublease, then HCG may, at its option and in addition to the exercise
of its other rights against Lessee, require the Third-Party Sublessee
to cease transmissions to the Satellite and, after providing a written
notice to Lessee of the Third-Party Sublessee's breach, take actions
necessary to enforce HCG's rights against the Third-Party Sublessee.
Lessee will pay to HCG all expenses (including attorney's fees)
incurred in connection with HCG's enforcement against the Third-Party
Sublessee and/or Lessee arising out of the Third-Party Sublessee's use
of the Transponder under the Sublease. Lessee's Transponders or Galaxy
Backup Transponders shall not be used for occasional video services to
third parties as of the time from which and for so long as the
provisions of Section 22 cease to be in full force and effect pursuant
to the terms of Section 22.
13.02 Transfers by HCG. HCG may Transfer its rights and/or obligations
------------ ---
hereunder, in whole or in part, to any corporation or other entity wholly-owned,
directly or indirectly, by HCG or to the Hughes Aircraft Company or any
corporation or other entity wholly-owned, directly or indirectly by Hughes
Aircraft Company, including, without limitation, Hughes Communications, Inc.,
HCG's immediate parent corporation, or any corporation or other entity wholly-
owned, directly or indirectly, by Hughes Communications, Inc. Any Transfer by
HCG set forth herein shall not interfere with or impact the use of Lessee's
Transponders hereunder.
13.03 Additional Requirements for Transfer. Notwithstanding anything else
------------------------------------
contained in this Agreement, Lessee shall not be permitted to Transfer Lessee's
Reserve Transponders unless the transferee executes an agreement in favor of HCG
expressly agreeing that HCG shall have the right to preempt the use of and
Transfer such Reserve C-Band Transponder after two (2) hours notice from HCG as
set forth in Section 9.02 and Section 18.
14. Affiliate
---------
Unless otherwise specifically defined elsewhere in the Agreement,
"Affiliate" means any corporation or other entity controlling, controlled by, or
under common control with, Lessee, HCG, or the Hughes Aircraft Company, as the
case may be.
28
<PAGE>
15. Monthly Satellite Reports
-------------------------
After Delivery of Lessee's Transponders, Lessee shall receive monthly
reports
on the overall performance of Galaxy IIIR and Galaxy Backup in the form of the
Galaxy Satellite status reports similar to the Galaxy I Satellite Services
Monthly report, plus information furnished to insurers. Anomalous operations
shall be reported to Lessee as soon as possible.
16. Confidentiality and Press Releases
----------------------------------
16.01 Confidential Information. HCG and Lessee shall hold in confidence
------------------------
this Agreement and all Exhibits hereto, including the financial terms and
provisions hereof, and all information provided to Lessee hereby, and HCG and
Lessee hereby acknowledge and agree that all information received in connection
with or related to this Agreement, not otherwise known to the public, is
confidential and proprietary and is not to be disclosed to third persons (other
than to Affiliates, or to the officers, directors, employees and agents of HCG
or Lessee, each of whom is bound by this Section 16.01) without the prior
written consent of both HCG and Lessee, except as follows:
(a) to the extent necessary to comply with applicable Law, provided,
that the party making such disclosure shall seek confidential treatment of
such information;
(b) as part of its normal reporting or review procedure to regulatory
agencies, its parent company, its auditors and its attorneys, provided,
that the party making such disclosure to any such regulatory agency shall
seek confidential treatment of such information, and, provided, that any
other third party to whom disclosure is made agrees to the confidential
treatment of such information;
(c) in order to enforce its rights and/or perform its obligations
pursuant to this Agreement;
(d) to the extent necessary to obtain appropriate insurance, to its
insurance agent, provided, that such agent agrees to the confidential
treatment of such information; and
(e) to the extent necessary to satisfy its obligations to other
Owners
of Galaxy IIIR Transponders or to negotiate clauses that will be common to
all Galaxy IIIR Transponder purchase or lease agreements.
29
<PAGE>
16.02 Press Releases. The parties agree that no press release relating to
--------------
this Agreement shall be issued without the approval of both parties.
17. Disposition of Satellite
------------------------
17.01 Continued Access to C-Band Transponder Spares and C-Band Reserve
----------------------------------------------------------------
Transponders. Until Galaxy IIIR is disposed of pursuant to Section 17.02, HCG
- ------------
shall continue to make available to Lessee, on the terms and conditions
contained in this Agreement, C-Band Transponder Spares and C-Band Reserve
Transponders.
17.02 Disposition of Satellite. At the earlier of the time that (i) the
------------------------
remaining fuel on board Galaxy IIIR is less than 6% of the initial mass prior to
launch, including uncertainty in estimate of fuel, (ii) there are fewer than
thirteen (13) Galaxy IIIR C-Band Transponders capable of meeting the requisite
transponder performance specifications, or (iii) 145 months after the Delivery
of Galaxy IIIR, HCG, in its sole discretion, may remove Galaxy IIIR from its
assigned orbital location and have no further obligations to Lessee under this
Section 17 or this Agreement (other than those pursuant to Sections 4.11, 4.12,
and 12); provided, however, that until HCG so removes Galaxy IIIR, HCG shall
continue to make available to Lessee its Transponder or Transponders,
Transponder Spares and Reserve Transponders as provided for in this Agreement.
HCG will, to the extent possible, provide Lessee with ninety (90) days' notice
prior to the disposition of Galaxy IIIR pursuant to this Section 17.02.
18. HCG's Option to Cancel the Lease of Lessee's Reserve Transponders.
-----------------------------------------------------------------
18.01 Duration. HCG may, at its option, cancel the lease of Lessee's
--------
Reserve Transponder(s) (the "Option"). The Option may be exercised by HCG at any
time, or, if Lessee is leasing more than one Reserve C-Band Transponder, from
time to time, up to and including the date on which Galaxy IIIR has been
disposed of pursuant to Section 17.
18.02 Condition to Exercise of the Option. HCG may exercise the Option
-----------------------------------
at any time after it has determined, in its sole discretion, that such exercise
is necessary in order to enable HCG to satisfy its obligations to furnish
Reserve C-Band Transponders to the Owners of Primary C-Band Transponders on
Galaxy IIIR, as set forth in various sections of this Agreement and in other
transponder purchase agreements.
18.03 Method of Option Exercise.
--------------------------
(a) HCG may give Lessee notice of its exercise of the Option at
any time after the condition to exercise set forth in Section 18.02,
above, has been met and such notice shall be effective as of the times
set forth below.
30
<PAGE>
(b) Notice shall be given by HCG through one of its authorized
agents ("HCG's Agents") to one of Lessee's authorized agents
("Lessee's Agents") or to Lessee's Authorized Address or Facsimile
Number. Lessee agrees to have one or more of Lessee's Agents available
to receive such notice at all times, seven days per week, 24 hours per
day, during the duration of the Option.
(c) Notice shall be effective immediately if personally delivered
in writing or orally, or if conveyed by telephone by one of HCG's
Agents to one of Lessee's Agents. Notice shall also be effective
immediately if one of HCG's Agents attempts to give notice by
telephone to each of the three Lessee's Agents, listed below, in the
order shown below, and no such Lessee's Agent is available to receive
such notice. Notice shall be effective upon actual delivery to
Lessee's Authorized Address or Authorized Facsimile Number if by
telegram or facsimile or by U.S. mail or by Federal Express or any
other established delivery service. Any oral notice shall be confirmed
in writing and delivered by HCG's Agent within 24 hours of giving such
notice, but the effectiveness of such oral notice shall not be
dependent upon such written confirmation.
(d) Lessee's Agents and their telephone and facsimile numbers
are as follows:
Name Telephone Number
---- ----------------
Stuart Levin Office Telephone: (818) 846-4886
---------------------- After Hours: (___) ___-____
Home Telephone: (___) ___-____
Facsimile: (818) 846-4626
Gregory Pasetta Office Telephone: (818) 846-4886
---------------------- After Hours: (818) 973-8672
Home Telephone: (818) 995-7766
Facsimile: (818) 846-4626
(e) Lessee's Authorized Address and Facsimile Number are as
follows:
2901 W. Alameda Ave.
7th Floor
Burbank, CA 91505
Telephone: (818) 846-4886
Facsimile: (818) 846-4626
31
<PAGE>
(f) HCG's Agents and their telephone and facsimile numbers are as
follows:
<TABLE>
<CAPTION>
Name or Position Number
- ---------------- ------
<S> <C>
Controller on Duty Office Telephone: (310) 607-4600
Facsimile: (310) 414-0974
Enrique Guerra Office Telephone: (310) 607-4627
Supervisor Home Telephone: (310) 675-6614
Facsimile: (310) 414-0974
Michael Harabin Office Telephone: (310) 607-4386
Manager Pager Telephone: (800) SKY-PAGE
Pin No.: 8624364
Facsimile: (310) 607-4120
</TABLE>
(g) Either Lessee or HCG may change its agents and Lessee may
change its Authorized Address and Facsimile Number by giving the other
party notice in the manner set forth in this Section 18.03.
18.04 Effect of Option Exercise. Immediately upon HCG's notice to
-------------------------
Lessee of HCG' s exercise of the Option, as set forth in Section 18.03, above,
Lessee's right to use Lessee's Reserve Transponder(s) shall automatically and
without further action on Lessee's or HCG's part cease.
18.05 Obligations of Lessee Upon Option Exercise. Upon HCG's exercise
------------------------------------------
of the Option, Lessee shall immediately discontinue all use of the canceled
Lessee's Reserve Transponder(s), and Lessee shall immediately cause its
sublessees, successors, assigns, transferees and all their sublessees,
successors, assigns, and transferees (collectively referred to as "Assignees")
to discontinue use of the canceled Lessee's Reserve Transponder(s) immediately
upon exercise of the Option. Lessee shall also execute such additional documents
as HCG shall reasonably request in order to confirm or implement the
cancellation of Lessee's Reserve Transponder(s) provided for herein; provided,
however, that the execution of such additional documents by Lessee shall not be
a condition precedent to the actual effectiveness of the cancellation, since
such cancellation shall, as set forth in Section 18.03, above, be deemed to have
occurred, for all purposes, immediately upon HCG's notice to Lessee of the
exercise of the Option, as set forth in Sections 18.03 and 18.04, above. Lessee
further agrees that if any Assignee does not immediately cease the use of and
relinquish all rights to the use of Lessee's Reserve Transponder(s) canceled by
HCG upon its exercise of the Option, then Lessee shall immediately thereafter
pursue all legal and equitable remedies against said Assignee as are necessary
to effectuate such cessation of use and relinquishment of all rights to use such
Lessee's
32
<PAGE>
Reserve Transponder(s). HCG shall also have the right to preempt any and all use
of Lessee's Reserve Transponder(s) by Lessee or Assignee after two (2) hours'
notice to Lessee of exercise of the Option.
18.06 Obligations of HCG. HCG agrees that it will not exercise the
------------------
Option unless it believes that such exercise is necessary in order to enable HCG
to satisfy its obligations to the Owners of Primary C-Band Transponders
(including Lessee) as set forth in this Agreement and in other transponder
purchase agreements with said Owners.
18.07 Resolution and Disputes. If Lessee does not believe HCG was
-----------------------
justified in its belief that the exercise of the Option was necessary, as set
forth in Section 18.02, above, then Lessee shall have the right to seek a
judicial determination of whether HCG acted in bad faith in exercising the
Option. If a court of competent jurisdiction makes a final determination that
HCG did, in fact, act in bad faith in exercising the Option, then Lessee's sole
right shall be to obtain liquidated damages as set forth in this Section 18.07.
The liquidated damages to which Lessee shall be entitled shall be the higher of
either: (a) $1,000 per day for each day that Lessee was wrongfully deprived of
the use of Lessee's Reserve Transponders; or (b) the amount received by HCG from
all third parties for such third parties' use of the wrongfully canceled
Lessee's Reserve Transponder(s) for each day that Lessee was wrongfully deprived
of the use of the wrongfully canceled Lessee's Reserve Transponder(s). Except
for the remedies and damages specifically provided for in this Section 18.07,
the limitations of liability set forth in Section 12.04 shall apply. Lessee
shall not be entitled to a court order requiring HCG to return Lessee the right
to lease the Transponder or Transponders that were taken in bad faith by HCG.
18.08 Cessation of Fees. Upon cancellation, Lessee shall cease paying
-----------------
the Base Lease Rate and In Orbit Satellite Backup Fee for such Lessee's Reserve
Transponder.
19. Outage Allowance
----------------
HCG shall grant Lessee an Outage Allowance as follows:
If an "Outage Allowance Failure Period" (as defined below) occurs,
then for each hour of such Outage Allowance Failure Period HCG shall grant
Lessee a pro rata Outage Allowance based upon the monthly charge for the
Lessee's Transponder experiencing the Transponder capacity failure, the length
of the Outage Allowance Failure Period, and a standard of 720 hours per month,
calculated pursuant to the equation below. Any such Outage Allowance shall be
applied to the next succeeding monthly billing to Lessee and shall not in any
case exceed one month's standard billing. "Outage Allowance Failure Period"
shall mean the aggregate period--only where such aggregation exceeds one (1)
hour during any consecutive thirty (30) day period on such Transponder--during
which a Transponder capacity failure(s) occurs.
33
<PAGE>
A Transponder capacity failure shall be measured from the time HCG receives
notice from Lessee of a claimed Transponder capacity failure until the time the
Transponder has been restored to operation, but shall not begin in any event
until Lessee ceases to use Lessee's Transponder. HCG shall accept or reject such
outage claim within 24 hours of notice from Lessee, or else such claim will be
deemed accepted.
<TABLE>
<S> <C>
Outage Allowance = Outage Allowance Failure Period (in Hours) x Monthly Base Lease Rate
--------------------------------------------------------------------
720
</TABLE>
In no case shall an Outage Allowance be made for any Transponder capacity
failure caused primarily by: (i) any failure on the part of Lessee to perform
its transmission or other material or operational obligations pursuant to this
Agreement, (ii) failure of facilities provided by Lessee, (iii) reasonable
periodic maintenance, provided, however, that HCG will inform Lessee of any
-------- -------
proposed periodic maintenance in advance and will use best reasonable efforts to
agree upon the times at which such periodic maintenance will be performed on
Lessee's Transponder, (iv) interference from sun outage or from third party
transmissions or usage, (v) cooperative testing, except where trouble or fault
is found in the Lessee's Transponder or (vi) any other act or failure to act by
Lessee.
20. Miscellaneous
-------------
20.01 Interest. The rate of interest referred to herein shall be 12%
--------
per annum, or the highest legally permissible rate of interest, whichever is
lower, and all interest or discounting shall be compounded on a monthly basis.
The term "prorated" shall mean an allocation on a straight line basis based on a
number of days. All present value analyses shall use a 12% annual discount rate,
compounded monthly.
20.02 Applicable Law; Entire Agreement; Modification. The existence,
----------------------------------------------
validity, construction, operation and effect of this Agreement, and the Exhibits
hereto, shall be determined in accordance with and be governed by the laws of
the State of California. This Agreement and the Exhibits hereto, consisting of
Exhibits A, B-l, B-2, C-1 and C-2 which are hereby incorporated by reference and
which constitute a part of this Agreement, along with the Transponder Service
Agreement, constitute the entire agreement between the parties concerning the
subject matter hereof, and supersede all previous understandings, commitments or
representations concerning the subject matter hereof. The parties each
acknowledge that the other party has not made any representations other than
those which are contained herein. This Agreement may not be amended or modified
in any way, and none of its provisions may be waived, except by a writing signed
by an authorized officer of the party against whom the amendment, modification
or waiver is sought to be enforced.
34
<PAGE>
20.03 Notices. All notices and other communications from either party
-------
to the other hereunder shall be in writing and shall be deemed received when
actually received if personally delivered, upon acknowledgement of receipt if
sent by facsimile, or upon the expiration of the third business day after being
deposited in the United States mails, postage prepaid, certified or registered,
addressed to the other party as follows'
TO HCG:
If by mail: Hughes Communications Galaxy, Inc.
Post Office Box 92424
Worldway Postal Center
Los Angeles, California 90009
Attention: Senior Vice President
cc: Vice President & Legal Counsel
If by FAX: Hughes Communications Galaxy, Inc.
Attention: Senior Vice President
(310) 640-1265
cc: Vice President & Legal Counsel
(310) 607-4256
If by personal
delivery to its
principal place
of business at: Hughes Communications Galaxy, Inc.
1990 Grand Avenue
E1 Segundo, California 90245
Attention: Senior Vice President
cc: Vice President & Legal Counsel
TO LESSEE:
If by mail: TVN Entertainment Corporation
2901 W. alameda Ave, 7th Floor
Burbank, CA 91505
Attention: Stuart Levin
cc: Arthur Fields
If by FAX:
Attention: 818-846-4626
Attn: Stuart Levin
cc: Arthur Fields
35
<PAGE>
If by personal
delivery to its
principal place
of business at: --------------------------------
--------------------------------
--------------------------------
--------------------------------
Attention:
---------------------
All payments to be made under this Agreement, if made by mail, shall be deemed
to have been made on the date of actual receipt thereof. The parties hereto may
change their addresses by giving notice thereof in conformity with this Section
20.03.
20.04 Severability. Nothing contained in this Agreement shall be
------------
construed so as to require the commission of any act contrary to any of the
Laws, and wherever there is any conflict between any provision of this Agreement
and any Law, such Law shall prevail; provided, however, that in such event the
provisions of this Agreement so affected shall be curtailed and limited only to
the extent necessary to permit compliance with the minimum legal requirement,
and no other provisions of this Agreement shall be affected thereby, and all
such other provisions shall continue in full force and effect.
20.05 Taxes. If any property or sales taxes are asserted against HCG
-----
after, or as a result of, Delivery, by any local, state, national or
international, public or quasi-public governmental entity, in respect of
Lessee's Transponders or the lease thereof to Lessee, or are asserted in respect
of the provision of any other Transponders provided hereunder, Lessee shall be
solely responsible for such taxes. If any taxes, charges or other levies are
asserted by reason of the use of the point in space or the frequency spectrum at
that point in space in which the Satellite containing Lessee's Transponders is
located, or the use or ownership of such Satellite (excluding any FCC license
fee imposed on the Satellite itself, as compared to the Transponders, which
license fee shall be paid by HCG), and such taxes are not specifically allocated
among the various components of such Satellite, then HCG, Lessee and the other
Owners of such Galaxy IIIR Transponders shall each pay a proportionate amount of
such taxes based on the number of Galaxy IIIR Transponders each of them owns or
leases.
20.06 Successors, Assignment. Subject to the limitations on Transfer
----------------------
set forth in Section 13, this Agreement shall be binding on and shall inure to
the benefit of any and all successors and assigns of the parties, provided, that
no Transfer of this Agreement shall relieve either party hereto of its
obligations to the other party. Any purported Transfer by either party not in
compliance with the provisions of this Agreement shall be null and void and of
no force and effect.
20.07 Headings. The descriptive headings of the several sections and
paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
36
<PAGE>
20.08 Survival of Representations and Warranties. All representations
------------------------------------------
and warranties contained herein or made by HCG or Lessee in connection herewith
shall survive any independent investigation made by HCG or Lessee.
20.09 No Third-Party Beneficiary. The provisions of this Agreement are
--------------------------
for the benefit only of the parties hereto and HCA, and no third party other
than HCA may seek to enforce, or benefit from, these provisions, except that
both parties acknowledge and agree that the provisions of Sections 7.02, 8,
9.01, 9.02, 9.03 and 9.04, are intended for the benefit of both HCG and all
other Owners. Both parties agree that any other such Owner shall have the right
to enforce, as a third-party beneficiary, the provisions of Sections 7.02, 8,
9.01, 9.02, 9.03 and 9.04, against Lessee directly, in an action brought solely
by such other Owner, or may join with HCG or any other Owner, in bringing an
action against Lessee for violation of such Sections.
20.10 Non-Waiver of Breach. Either party hereto may specifically waive
--------------------
any breach of this Agreement (including an Event of Default) by the other party,
provided that no such waiver shall be binding or effective unless in writing and
no such waiver shall constitute a continuing waiver of similar or other
breaches. A waiving party, at any time, and upon notice given in writing to the
breaching party, may direct future compliance with the waived term or terms of
this Agreement, in which event the breaching party shall comply as directed from
such time forward.
20.11 Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed an original, and all such
counterparts together shall constitute but one and the same instrument.
20.12 Documents. Each party hereto agrees to execute and, if
---------
necessary, to file with the appropriate governmental entities, such documents as
the other party hereto shall reasonably request in order to carry out the
purposes of this Agreement and to notify the other party of any such filing.
20.13 Risk of Loss. The provisions regarding risk of loss in this
------------
Agreement supersede Sections 10219 through 10221 of the California Uniform
Commercial Code.
21. Periodic Signal Transmission
----------------------------
HCG shall have the right to periodically transmit essential
stationkeeping signals to a single Lessee's Transponder selected by Lessee on
Galaxy IIIR; such transmissions will not degrade the performance of the
receiving Transponder. Prior to Delivery of Lessee's Transponders, Lessee shall
designate in writing to HCG which of Lessee's Transponders may be used for such
stationkeeping signal transmissions, and HCG shall use only such designated
Transponder for such purposes unless and until such
37
<PAGE>
designated Transponder becomes a Failed Transponder, immediately after which
Lessee designate in writing to HCG which other Lessee's Transponder may be so
used.
22. HCG's Use of Eight (8) Transponders
-----------------------------------
Notwithstanding anything to the contrary stated elsewhere in this Agreement,
during the term of this Agreement, HCG shall have the right to lease from Lessee
(8) of Lessees Primary Transponders to transmit [*] for [*] per [*] or extended
for [*] (however, not to exceed [*] during [*] in order to satisfy HCG's
obligations to [*], to provide such transponder capacity. HCG shall pay Lessee
$[*] per hour per the use of each of Lessee's Primary Transponders and the
payment shall be in the form of a credit against the monthly Base Lease Rate due
to HCG by Lessee for the next succeeding months of service. If and when HCG's
agreement with [*] to provide [*] with the transponder capacity as stated in
this Section 22 is terminated (i.e., as [*] no longer has any obligations to
provide the transponder capacity to [*]), then the terms of this Section 22
shall cease to be of any force and effect, except for the payment obligations
that have accrued prior to the effective date of the termination of HCG's
agreement with [*].
23. Additional Transponder(s)
-------------------------
Provided that Lessee is in compliance with all material terms of this
Agreement (including but not limited to being current on all payments owed to
HCG hereunder), Lessee may lease additional Primary C-Band Transponders on
Galaxy IIIR if such Primary C-Band Transponders on Galaxy IIIR are available to
be determined by HCG in HCG's sole discretion. If HCG determines in its sole
discretion that such requested additional Primary C-Band Transponders are
available, then Lessee shall lease additional Primary C-Band Transponders at the
same monthly Base Lease Rate as other Lessee's Primary C-Band Transponders
through the end of the full term of this Agreement. After lease of such
additional Primary C-Band Transponders pursuant to this Section 23 commences,
such additional Transponders shall be treated as an additional Lessee's Primary
Transponders and as an additional Lessee's Transponders. Lessee shall be
obligated to pay the In Orbit Satellite Backup Fee as set forth in Section 3.02
(b) for each of the Primary C-Band Transponders that have been added pursuant to
this Section 23, if Lessee has elected to purchase the In Orbit Satellite Backup
protection.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
38
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has duly executed and
delivered this Agreement as of the day and year first written above.
HUGHES COMMUNICATIONS TVN ENTERTAINMENT
GALAXY, INC. CORPORATION
By: /s/ Carl A. Brown By: /s/ Stuart Levin
--------------------------- ---------------------------
Carl A. Brown Stuart Levin
Senior Vice President President and Chief Executive
Officer
39
<PAGE>
Exhibit 10.2
GALAXY IIIR TRANSPONDER SERVICE AGREEMENT
BETWEEN
HUGHES COMMUNICATIONS SATELLITE SERVICES, INC. AND
TVN ENTERTAINMENT CORPORATION
<PAGE>
TABLE OF CONTENTS
-----------------
Article Page
------- ----
1 SERVICES AND TERM................................................ 2
1.01 Terms of Agreement......................................... 2
1.02 Services................................................... 2
2 SERVICE FEE AND PAYMENTS.......................................... 2
3 REPRESENTATIONS AND WARRANTIES.................................... 3
3.01 Authority, No Breach....................................... 3
3.02 Corporate Action........................................... 3
3.03 Common Clauses in Service Agreements....................... 3
3.04 Consents................................................... 3
3.05 Litigation................................................. 3
3.06 Non-Interference........................................... 3
4 OBLIGATIONS OF CONTRACTOR.......................................... 4
4.01 Satellite.................................................. 4
4.02 Use of the Transponder Spares.............................. 4
4.03 Reserve Transponders....................................... 4
4.04 Government Regulations..................................... 4
4.05 Tracking, Telemetry and Control............................ 4
5 FORCE MAJEURE...................................................... 5
6 LIMITATION OF LIABILITY............................................ 5
6.01 General Limitation......................................... 5
6.02 Equitable Relief........................................... 6
7 REPORTS............................................................ 6
7.01 Operational Reports........................................ 6
7.02 Anomalous Operation Notification........................... 6
7.03 Maneuver Notification...................................... 7
7.04 Inspection Rights of Owner................................. 7
8 CONFIDENTIALITY.................................................... 7
9 APPLICABLE LAW............................................. 8
10 FURTHER NOTIFICATIONS...................................... 8
11 MODIFICATION............................................... 8
i
<PAGE>
<TABLE>
<C> <S> <C>
12 TERMINATION......................................... 8
12.01 Contractor's Termination Rights............. 8
12.02 Contractor's Right to Deny Access........... 9
12.03 Automatic Termination....................... 9
13 MISCELLANEOUS....................................... 9
13.01 Entire Agreement and Amendment.............. 9
13.02 Non-Waiver of Breach........................ 9
13.03 Notices..................................... 9
13.04 Severability................................ 11
13.05 Counterparts................................ 11
13.06 Successors.................................. 11
13.07 Headings.................................... 11
13.08 No Third-Party Beneficiary.................. 11
13.09 Survival of Representations and Warranties.. 12
13.10 Transfer.................................... 12
13.11 Applicability to Galaxy Backup.............. 12
ii
</TABLE>
ADDENDUM
ADDENDUM
<PAGE>
GALAXY IIIR TRANSPONDER SERVICE AGREEMENT
-----------------------------------------
This Transponder Service Agreement (the "Agreement") (all such defined
terms herein are so capitalized and referenced in Addendum I) is made and
entered into as of October 21, 1994 (the "Execution Date") by and between
Hughes Communications Satellite Services, Inc. ("Contractor"), a California
corporation, and TVN Entertainment Corporation ("Owner"), a Delaware
corporation.
RECITALS
--------
WHEREAS, Hughes Communications Galaxy, Inc. ("HCG"), an Affiliate of
Contractor, has caused a domestic communications satellite, Galaxy IIIR, to be
built and Galaxy IIIR is a hybrid satellite, i.e., containing both Ku-Band
------
capacity (the "Ku-Band Transponders") and C-Band capacity (the "C-Band
Transponders"). Collectively, the Ku-Band Transponders and the C-Band
Transponders are referred to hereinafter as "Transponders." Galaxy IIIR shall
have 24 Ku-Band Transponders, all of which are designated as primary, and 24 C-
Band Transponders, 22 of which are designated primary (the "Primary
Transponders") and 2 of which are designated reserve (the "Reserve
Transponders"), and such satellite (hereinafter referred to as the "Satellite")
was placed in geostationary orbit by HCG;
WHEREAS, Owner has agreed, pursuant to a lease agreement between Owner and
HCG of even date herewith (the "Transponder Lease Agreement") to lease eight (8)
of the C-Band Primary Transponders on Galaxy IIIR and two (2) of the C-Band
Reserve Transponders on Galaxy IIIR (collectively, the "Owner's Transponder");
WHEREAS, HCG has caused certain redundant equipment units (collectively,
the "Transponder Spares" and individually, a "Transponder Spare") to be placed
on the Satellite to be used to replace C-Band Transponder equipment units that
fail to meet the C-Band Transponder Performance Specifications specified in
Exhibit B-1 to the Transponder Lease Agreement (the "C-Band Transponder
Performance Specifications"), and HCG has agreed to make said equipment units
available for use as set forth in the Transponder Lease Agreement;
WHEREAS, HCG and Owner have agreed that Contractor shall perform the
satellite operational services (the "Services") for Owner on the terms and
conditions specified in this Agreement and Contractor is willing to perform such
Services;
WHEREAS, Owner has, concurrently herewith, agreed to pay for such Services
as part of the Base Lease Rate or the Monthly Lease Rate, as applicable, (as
defined in the Transponder Lease Agreement) for Owner's Transponder, and HCG has
assigned its right to payment for such Services under the Transponder Lease
Agreement to Contractor, and Owner is agreeable to such assignment; and
1
<PAGE>
WHEREAS, Owner and Contractor desire this Agreement to become effective
only upon Transponder Delivery (as defined in the Transponder Lease Agreement)
of Owner's Transponder by HCG to Owner as set forth in the Transponder Lease
Agreement.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the mutual promises set forth below,
and for other good and valuable consideration the receipt and adequacy of which
are hereby acknowledged, HCG and Owner hereby mutually agree as follows'
ARTICLE 1. SERVICES AND TERM
-----------------
1.01 Terms of Agreement. Contractor shall provide the Services set forth
------------------
in Section 1.02 hereof for a continuous period from Transponder Delivery of
Owner's Transponder until the Transponder Lease Agreement is either terminated
or cancelled, or expires, in its entirety, or until the Satellite is disposed of
pursuant to Section 17 of the Transponder Lease Agreement (the "Service Term").
1.02 Services. The Services to be rendered by Contractor hereunder are as
--------
follows:
(a) Monitoring and managing the use of electric power on the Satellite
to operate Owner's Transponder;
(b) Monitoring and managing the use of the Satellite's propellant so
that the attitude and orbital position are maintained;
(c) Monitoring and managing all other functions of the Satellite which
support Owner's Transponder so as to enable Owner's Transponder to meet the
C-Band Transponder Performance Specifications;
(d) Monitoring and analyzing the Satellite's telemetry data; and
(e) Other services provided for in this Agreement.
ARTICLE 2. SERVICE FEE AND PAYMENTS
------------------------
The fee for the Services provided by Contractor hereunder (the "TT&C Fee"
or "Service Fee") is included in the Base Lease Rate or the Monthly Lease Rate,
as applicable, set forth in the Transponder Lease Agreement, and, pursuant
thereto, payment of the TT&C Fee to Contractor shall be the responsibility of
HCG.
2
<PAGE>
ARTICLE 3 REPRESENTATIONS AND WARRANTIES
------------------------------
Contractor and Owner each, except as expressly indicated herein, represent
and warrant to, and agree with, the other that:
3.01 Authority, No Breach. It has the right, power and authority to enter
--------------------
into, and perform its obligations under, this Agreement. The execution, delivery
and performance of this Agreement shall not result in the breach or non-
performance of any agreements it has with third parties.
3.02 Corporate Action. It has taken all requisite corporate (or
----------------
partnership, as appropriate) action to approve the execution, delivery and
performance of this Agreement, and this Agreement constitutes a legal, valid and
binding obligation upon itself in accordance with its terms.
3.03 Common Clauses in Service Agreements. Contractor alone represents,
------------------------------------
warrants and agrees that it will require, in all service agreements between
itself and all other Transponder owners on the Satellite, clauses substantially
identical to, or terms the effect of which shall be as or more restrictive with
respect to such owners than, the provisions of Sections 3.06, 12.01 and 13.08
hereof, and Contractor will require, in all service agreements between itself
and other Transponder owners on the Satellite, a clause consistent with the
provisions of Sections 4.02 and 4.03 hereof.
3.04 Consents. The execution and delivery of this Agreement, the
--------
performance of its obligations hereunder, and the consummation of the
transactions contemplated hereby, will not result in a material violation of, or
material default under, or the occurrence of an event which with notice or lapse
of time or both would constitute a material default under, or material
noncompliance with, any applicable Law, any indenture, mortgage, deed of trust,
loan agreement, purchase agreement, option agreement or other agreement or
instrument to which it is a party or by which it or any material portion of its
property is bound, its articles of incorporation or by-laws, partnership
agreement, or other charter documents, as the case may be. All necessary or
material appropriate public or private consents, permissions, agreements,
licenses, or authorizations to which it is subject in connection with the
transactions contemplated hereby, or which it must obtain by virtue of its
ownership or use of or operation of any Transponder or the Satellite have been
or shall be obtained in a timely manner.
3.05 Litigation. To the best of its knowledge, there is no outstanding or
----------
threatened judgment, threatened or pending litigation or proceeding, involving
or affecting the transactions provided for in, or contemplated by, this
Agreement, except as is concurrently being disclosed in writing by either party
to the other.
3.06 Non-Interference. Owner alone represents, warrants and agrees that
----------------
its radio transmissions (and those of its uplinking agents) to the Satellite
shall comply, in all material respects, with all Federal Communications
Commission or any
3
<PAGE>
successor agency thereto (collectively, the "FCC") and all other governmental
(whether international, federal, state, municipal or otherwise) statutes, laws,
rules, regulations, ordinances, codes, directives and orders, of any such
governmental agency, body, or court (collectively, "Laws") applicable to it
regarding the operation of the Satellite and Owner's Transponder and shall not
interfere with the use of any other Transponder. Owner shall not utilize (or
permit or allow any of its uplinking agents to utilize) any of Owner's
Transponder in a manner which will or may interfere with the use of any other
Transponder or cause physical harm to any of Owner's Transponder, any other
Transponders, or to the Satellite. Further, Owner will coordinate (and will
require its uplinking agents to coordinate) with HCG, in accordance with
procedures reasonably established by HCG and uniformly applied to all owners and
users of Transponders on the Satellite, its transmissions to the Satellite, so
as to minimize adjacent channel and adjacent satellite interference. For
purposes of this Section 3.06, interference shall also mean acts or omissions
which cause a Transponder to fail to meet its transponder performance
specifications. Without limiting the generality of the foregoing, Owner (and its
uplinking agents) shall comply with all FCC rules and regulations regarding the
use of automatic transmitter identification systems (ATIS).
ARTICLE 4. OBLIGATIONS OF CONTRACTOR
-------------------------
4.01 Satellite. Contractor will maintain the Satellite in the orbital
---------
position which the FCC has designated or shall hereafter designate for it.
4.02 Use of the Transponder Spares. Throughout the Service Term,
-----------------------------
Contractor may employ, in conjunction with HCG, and pursuant to the specific
terms and conditions in Section 9 of the Transponder Lease Agreement, a
Transponder Spare or Spares.
4.03 Reserve Transponders. Throughout the Service Term, Contractor may
--------------------
substitute, in conjunction with HCG, and pursuant to the specific terms and
conditions in Section 9 of the Transponder Lease Agreement, a C-Band Reserve
Transponder or C-Band Reserve Transponders. Upon such substitution, such a C-
Band Reserve Transponder shall be deemed to be a Owner's Transponder for the
purposes of this Agreement.
4.04 Government Regulations. Contractor has or shall use its best efforts
----------------------
throughout the Service Term to obtain and maintain, in all material respects,
all federal, state and municipal authorizations or permissions to operate the
Satellite applicable to Contractor with respect to the Satellite, and to comply,
in all material respects, with all such governmental regulations regarding the
operation of Owner's Transponder applicable to Contractor with respect to the
Satellite.
4.05 Tracking, Telemetry and Control. Contractor shall employ at least two
-------------------------------
earth stations which between them shall provide in conjunction with HCG's
Operations Control Center in E1 Segundo, California, for all of the functions of
4
<PAGE>
tracking, telemetry and control ("TT&C") of the Satellite. Contractor shall
notify Owner as to the operator (if other than Contractor) and the location of
the two earth stations, and any changes thereto.
ARTICLE 5. FORCE MAJEURE
-------------
Any failure or delay of Contractor to provide Services shall not be a
breach of this Agreement if such failure or delay results from any acts of God,
governmental action or Law (whether in its sovereign or contractual capacity),
or any other circumstances reasonably beyond the control of Contractor,
including, but not limited to, earth station sun outage, weather, or acts or
omissions of Owner or any third parties (excluding the Hughes Aircraft Company
and all of its direct and indirect subsidiaries, and any other Affiliates of
Contractor or the Hughes Aircraft Company with whom Contractor or the Hughes
Aircraft Company contracts to provide the Services).
ARTICLE 6. LIMITATION OF LIABILITY
-----------------------
6.01 General Limitation. ANY AND ALL EXPRESS AND IMPLIED WARRANTIES ARE
------------------
EXPRESSLY EXCLUDED AND DISCLAIMED EXCEPT TO THE EXTENT SPECIFICALLY AND
EXPRESSLY PROVIDED FOR IN THIS AGREEMENT. IT IS EXPRESSLY AGREED THAT
CONTRACTOR'S SOLE OBLIGATIONS AND LIABILITIES RESULTING FROM A BREACH OF THIS
AGREEMENT, AND OWNER'S EXCLUSIVE REMEDIES FOR ANY CAUSE WHATSOEVER (INCLUDING,
WITHOUT LIMITATION, LIABILITY ARISING FROM NEGLIGENCE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT AND/OR THE TRANSACTIONS CONTEMPLATED HEREBY, ARE
LIMITED TO THOSE SET FORTH IN SECTIONS 2 AND 6.02 HEREOF, AND ALL OTHER REMEDIES
OF ANY KIND ARE EXPRESSLY EXCLUDED INCLUDING, WITHOUT LIMITATION, ALL RIGHTS AND
REMEDIES OF OWNER UNDER DIVISION 10, CHAPTER 5, ARTICLE 2 AND SECTIONS 10209,
10406 AND 10504 OF THE CALIFORNIA UNIFORM COMMERCIAL CODE. IN NO EVENT SHALL
CONTRACTOR BE LIABLE FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES, WHETHER
FORESEEABLE OR NOT, OCCASIONED BY CONTRACTOR'S FAILURE TO PERFORM HEREUNDER,
DELAY IN ITS PERFORMANCE, FAILURE OF THE OWNER'S TRANSPONDER TO PERFORM OR ANY
OTHER CAUSE WHATSOEVER. CONTRACTOR MAKES NO WARRANTY, EXPRESS OR IMPLIED, TO ANY
OTHER PERSON OR ENTITY CONCERNING THE OWNER'S TRANSPONDER OR THE SATELLITE OR
THE SERVICES, AND OWNER SHALL DEFEND AND INDEMNIFY CONTRACTOR FROM ANY CLAIMS
MADE UNDER ANY WARRANTY OR REPRESENTATION BY OWNER TO ANY THIRD PARTY. THE
LIMITATIONS OF LIABILITY SET FORTH HEREIN SHALL ALSO APPLY TO HUGHES AIRCRAFT
COMPANY (THE MANUFACTURER OF THE SATELLITE AND OWNER'S TRANSPONDER) AND ALL
AFFILIATES THEREOF. "Affiliate" means any corporation or other entity
5
<PAGE>
controlling, controlled by, or under common control with, Owner, Contractor, or
the Hughes Aircraft Company, as the case may be.
6.02 Equitable Relief. Owner and Contractor shall each have the right to
----------------
obtain injunctive relief, if necessary, in order to prevent the other party from
willfully breaching its obligations under this Agreement or to compel the other
party to perform its obligations under this Agreement.
ARTICLE 7. REPORTS
-------
7.01 Operational Reports. After commencement of the Services hereunder,
-------------------
Contractor shall provide Owner a monthly written operational report concerning
the Satellite and Owner's Transponder which shall contain the following
information:
(a) Projected solar array life based on total Satellite power
performance and communications payload requirements;
(b) Projected battery life based on total Satellite power performance
and communications payload requirements;
(c) Projected Satellite life based on fuel remaining and its predicted
utilization;
(d) Configuration of Owner's Transponder and the associated Satellite
supporting subsystems;
(e) A statement on the expected operating life of Owner's Transponder
and the basis for such a projection, taking into account the health of
Owner's Transponder and its associated support subsystems;
(f) The Satellite's orbital parameters;
(g) Information concerning whether any Transponder Spares or Reserve
C-Band Transponders have been employed on behalf of any owner or user;
(h) Information concerning predicted eclipses and sun outages; and
(i) Other information pertinent to the operation of Owner's
Transponder and the Satellite that Owner may reasonably request.
7.02 Anomalous Operation Notification. Contractor shall notify Owner as
--------------------------------
soon as possible by telephone, with prompt written confirmation thereafter, of
any significant anomalous condition which Contractor detects in Owner's
Transponder or associated Satellite supporting subsystems and which have a
material effect or
6
<PAGE>
potential material effect on the Satellite. Contractor shall also notify Owner
promptly of any circumstances that make it clearly ascertainable or predictable
that any of the incidents described in this Section 7.02 will occur. Any notice
given to Owner under this Section 7.02 shall not relieve Contractor of any
liability or obligation hereunder relating to such anomalous operation.
7.03 Maneuver Notification. To the extent operationally feasible,
---------------------
Contractor shall notify Owner of all Satellite maneuvers, except for routine
station-keeping, at least three days in advance of their scheduled initiation
and, if such maneuver will result in a change of its assigned orbital position,
promptly upon HCG's receipt of FCC authorization or direction of such maneuver.
7.04 Inspection Rights of Owner. Owner shall have the right to inspect the
--------------------------
TT&C stations upon reasonable notice to Contractor and during normal business
hours accompanied by an employee or agent of Contractor. Owner shall not have
the right to inspect any TT&C station at any time or in any manner that could
cause disruption to the operation of such TT&C station. Owner shall have the
right to examine all test results and data relating to TT&C of or for Owner's
Transponder on the Satellite.
ARTICLE 8. CONFIDENTIALITY
---------------
Contractor and Owner shall hold in confidence this Agreement, including the
financial terms and provisions hereof, and all information provided to Owner
hereby, and Contractor and Owner hereby acknowledge and agree that all
information received in connection with or otherwise related to this Agreement,
not otherwise known to the public, is confidential and proprietary and is not to
be disclosed to third persons (other than to Affiliates, or to officers,
directors, employees and agents of Contractor or Owner, each of whom is bound by
this Article 8) without the prior written consent of both Contractor and Owner,
except as follows:
(a) to the extent necessary to comply with applicable Law, provided,
that the party making such disclosure shall seek confidential treatment of
such information;
(b) as part of its normal reporting or review procedure to regulatory
agencies, its parent company, its auditors and its attorneys, provided, the
party making such disclosure to any such regulatory agency shall seek
confidential treatment of such information, and, provided, that any other
third party to whom disclosure is made agrees to the confidential treatment
of such information;
(c) in order to enforce its rights and/or perform its obligations
pursuant to this Agreement;
7
<PAGE>
(d) to the extent necessary to obtain appropriate insurance, to its
insurance agent, provided, that such agent agrees to the confidential
treatment of such information; and
(e) to the extent necessary to satisfy its obligations to other owners
or users of the Transponders or to negotiate clauses that will be common to
all transponder service agreements.
ARTICLE 9. APPLICABLE LAW
--------------
The existence, validity, construction, operation and effect of this
Agreement shall be determined in accordance with and be governed by the laws of
the State of California.
ARTICLE 10. FURTHER NOTIFICATIONS
---------------------
Each party shall promptly notify the other party of any information
delivered to or obtained by such party which would prevent the consummation of
the transactions contemplated by this Agreement or would indicate a breach of
the representations or warranties of any of the parties to this Agreement;
provided that the failure so to notify will not constitute a waiver of such
party's rights.
ARTICLE 11. MODIFICATION
------------
In the event that the Transponder Lease Agreement is modified or
reconstituted in such manner as to affect provisions in this Agreement, then
this Agreement shall be modified accordingly.
ARTICLE 12. TERMINATION
-----------
12.01 Contractor's Termination Rights. If Owner's radio transmissions or
-------------------------------
those of its uplinking agent to or from the Satellite interfere, under standard
engineering practice, with the use of any Transponder not owned by Owner located
on the Satellite, or if Owner or its uplinking agent utilizes Owner's
Transponder in a manner which interferes, under standard engineering practice,
with the use of, or causes physical harm to, any other Transponder located on
the Satellite, and such radio transmission or utilization by Owner does not
cease immediately after the receipt of notice thereof from Contractor (which
notice may, notwithstanding Section 13.03 hereof, be given to Owner by telephone
to a telephone number provided to Contractor and maintained by Owner for the
purpose of receiving such notices by Contractor, which telephone shall be
continuously staffed by Owner so as to enable Owner to receive such notices at
all times), Contractor shall have the right to take any and all steps necessary
to terminate such radio transmission or utilization by Owner or its uplinking
agent. Contractor shall have the further right to continue such steps so taken
until such time as Owner's radio transmissions or those of its uplinking agent
to or from the Satellite or Owner's utilization of its
8
<PAGE>
Transponder, as the case may be, shall not interfere, under standard engineering
practice, with the use of any Transponder not owned by Owner located on the
Satellite and shall not cause physical harm to any Transponder not owned by
Owner on the Satellite or to the Satellite.
12.02 Contractor's Right to Deny Access. If HCG is entitled to prevent
---------------------------------
Owner from accessing any part or all of the Owner's Transponder pursuant to
Section 10.06 of the Transponder Lease Agreement, Contractor shall be entitled
to take any and all steps necessary to terminate Owner's (or its uplinking
agent's) radio transmission to or utilization of such Transponder.
12.03 Automatic Termination. This Agreement shall automatically terminate
---------------------
with respect to the Owner's Transponder if the Transponder Lease Agreement is
terminated, is cancelled, or expires, with respect to such Owner's Transponder.
ARTICLE 13. MISCELLANEOUS
-------------
13.01 Entire Agreement and Amendment. This Agreement and the Transponder
------------------------------
Lease Agreement constitute the entire agreement between the parties, and
supersede all previous understandings, commitments or representations concerning
the subject matter. This Agreement may not be amended or modified in any way,
and none of its provisions may be waived, except by a writing signed by an
authorized officer of the party against whom the amendment, modification or
waiver is sought to be enforced. The parties each acknowledge that the other
party has not made any representations other than those which are contained
herein.
13.02 Non-Waiver of Breach. Either party hereto may specifically waive any
----------- ------
breach of this Agreement by the other party, provided that no such waiver shall
be binding or effective unless in writing and no such waiver shall constitute a
continuing waiver of similar or other breaches. A waiving party, at any time and
upon notice given in writing to the breaching party, may direct future
compliance with the waived term or terms of this Agreement, in which event the
breaching party shall comply as directed from such time forward.
13.03 Notices.
--------
(a) Each party shall provide the other party with a telephone number
to be used for routine and emergency operational notifications, which
telephone shall be continuously staffed so as to enable the receipt of such
notices at all times. For routine notifications, any such telephonic
notification shall be followed up with written notification as outlined in
subparagraph (b) below.
(b) All notices and other communications from either party to the
other hereunder shall be in writing and shall be deemed received when
9
<PAGE>
actually received if personally delivered, upon acknowledgement of receipt
if sent by facsimile, or upon the expiration of the third business day
after being deposited in the United States mails, postage prepaid,
certified or registered, addressed to the other party as follows:
TO CONTRACTOR:
If by mail: Hughes Communications Satellite Services, Inc.
Post Office Box 92424
Worldway Postal Center
Los Angeles, California 90009
Attention: Senior Vice President - Galaxy Services
cc: Vice President & Legal Counsel
If by FAX: Hughes Communications Satellite Services, Inc.
Attention: Senior Vice President - Galaxy Services
(310) 607-4255
cc: Vice President & Legal Counsel
(310) 607-4256
If by personal
delivery to its
principal place
of business at: Hughes Communications Satellite Services, Inc.
1990 Grand Avenue
E1 Segundo, California 90245
Attention: Senior Vice President - Galaxy Services
cc: Vice President & Legal Counsel
TO OWNER:
If by mail: TVN Entertainment Corporation
2901 W. Alameda Ave. 7th Floor
------------------------------
Burbank, Ca 91505
------------------------------
Attention:Stuart Levin
------------------
cc:Arthur Fields
-------------------------
If by FAX: TVN Entertainment Corporation
Attention:Stuart Levin
------------------
818- 846-4626
------------------
cc:-------------------------
cc:Arthur Fields
-------------------------
10
<PAGE>
If by personal
delivery to its
principal place
of business at: TVN Entertainment Corporation
_________________________________
_________________________________
Attention:Same as by Mail
_________________________
cc:________________________________
All payments to be made under this Agreement, if made by mail, shall be deemed
to have been made on the date of actual receipt thereof. The parties hereto may
change their addresses by giving notice thereof in conformity with this Section
13.03.
13.04 Severability. Nothing contained in this Agreement shall be construed
------------
so as to require the commission of any act contrary to any of the Laws, and
wherever there is any conflict between any provision of this Agreement and any
Law, such Law shall prevail; provided, however, that in such event the
provisions of this Agreement so affected shall be curtailed and limited only to
the extent necessary to permit compliance with the minimum legal requirement,
and no other provisions of this Agreement shall be affected thereby, and all
such other provisions shall continue in full force and effect. Nothing contained
herein shall affect the reconstitution provisions contained in Section 11
hereof. .
13.05 Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed to be an original, and all such
counterparts together shall constitute but one and the same instrument.
13.06 Successors. Subject to the limitations on Transfer set forth in
----------
Section 13.10, this Agreement shall be binding on and shall inure to the benefit
of any and all successors and assigns of the parties.
13.07 Headings. The description headings of the several sections and
--------
paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
13.08 No Third-Party Beneficiary. The provisions of this Agreement are for
--------------------------
the benefit only of the parties hereto and HCG, and no third party other than
HCG may seek to enforce, or benefit from these provisions, except that both
parties acknowledge and agree that the provisions of Section 3.06 hereof are
intended for the benefit of both Contractor and all other Transponder owners and
both parties agree that any other such Transponder owner shall have the right to
enforce, as a third-party beneficiary, the provisions of Section 3.06 hereof,
against Owner directly, in an action brought solely by such other Transponder
owner, or may join with Contractor or any other Transponder owner or user in
bringing an action against Owner for violation of such Sections.
11
<PAGE>
13.09 Survival of Representations and Warranties. All representations and
warranties contained herein or made by Contractor or Owner in connection
herewith shall survive any independent investigation made by Contractor or
Owner.
13.10 Transfer.
--------
(a) Except as otherwise permitted under the terms of the Transponder
Lease Agreement, Owner shall not Transfer (as defined in the Transponder Lease
Agreement) any of its rights and/or obligations under this Agreement except with
the prior written consent of Contractor, which consent may be given or withheld
in Contractor's sole and absolute discretion. In the event of any such Transfer
by Owner, Owner shall remain fully liable along with its transferee for all its
obligations under this Agreement and Transponder Lease Agreement.
(b) Contractor may Transfer any or all of its right and/or obligations
under this Agreement to any Affiliate or any third party, provided, that no such
Transfer by Contractor shall adversely affect Owner's rights or obligations
hereunder, provided, further, that Contractor shall not Transfer any of its
obligations under this Agreement to a non-Affiliate except with the prior
written consent of Owner, which consent shall not unreasonably be withheld or
delayed. In the event of any such Transfer by Contractor, Contractor shall
remain fully liable for all its obligations under this Agreement.
(c) Any purported Transfer by either party not in compliance with the
provisions of this Agreement shall be null and void and of no force and effect.
13.11 Applicability to Galaxy Backup. Pursuant to the provisions of Section
4 of the Transponder Lease Agreement, Owner has the right to lease capacity on
Galaxy Backup (as defined in the Transponder Lease Agreement) (or its
replacement) under certain circumstances. Owner is still obligated to pay the
TT&C Fee to the extent required under the Transponder Lease Agreement for each
such used transponder (the "Replacement Transponder") and the paries agree that
the provisions of this Agreement shall apply to the Replacement Transponder, the
phrase "Owner's Transponder", as used herein, shall be deemed to include
Replacement Transponder, the term "Satellite" shall be deemed to include Galaxy
Backup, and the term "Transponders" shall mean all the transponders on any such
Satellite.
12
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has duly executed and
delivered this Agreement as of the day and year first written above.
"Contractor"
HUGHES COMMUNICATIONS
SATELLITE SERVICES, INC.
By: /s/ Carl A. Brown
--------------------------
Title: Senior Vice President
-----------------------
"Owner"
TVN ENTERTAINMENT CORPORATION
By: /s/ Stuart Z. Levin
--------------------------
Title: President
-----------------------
<PAGE>
ADDENDUM I DEFINED TERMS
TERM SECTION
- -----------------------------------------------------------------
Affiliate...................................... 6.01
Agreement...................................... Intro. Clause
Base Lease Rate................................ Recitals
C-Band Transponders............................ Recitals
C-Band Transponder Performance Specifications.. Recitals
Contractor..................................... Intro. Clause
Execution Date................................. Intro. Clause
FCC............................................ 3.06
HCG............................................ Recitals
Ku-Band Transponders........................... Recitals
Laws........................................... 3.06
Monthly Lease Rate............................. Recitals
Owner.......................................... Intro. Clause
Owner's Transponder............................ Recitals
Primary Transponders........................... Recitals
Replacement Transponder........................ 13.11
Reserve Transponders........................... Recitals
Satellite...................................... Recitals
Service Term................................... 1.01
Service Fee.................................... 2
Services....................................... Recitals
Transfer....................................... 13.10
Transponders................................... Recitals
Transponder Lease Agreement.................... Recitals
Transponder Spares............................. Recitals
Transponder Spare.............................. Recitals
TT&C Fee....................................... 2
TT&C........................................... 4.05
<PAGE>
EXHIBIT 10.3
TRANSPONDER LEASE AGREEMENT
FOR GALAXY IX
BETWEEN
HUGHES COMMUNICATIONS GALAXY, INC. AND
TVN ENTERTAINMENT CORPORATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
------------
<C> <S> <C>
1. The Satellites.......................................................... 1
1.01 Satellites........................................................ 1
1.02 Orbital Position.................................................. 1
1.03 Transponders...................................................... 1
1.04 Hybrid Satellite.................................................. 2
1.05 Specifications and Components..................................... 2
2. Lease of Transponders................................................... 2
3. Lease Rate............................................................. 2
3.01 Lease Price Components Description................................ 2
3.02 Base Lease Rate................................................... 2
3.03 Place of Payment.................................................. 3
4. Delivery and Related Matters........................................... 3
4.01 Delivery.......................................................... 3
4.02 Condition to Lessee's Right to Lease.............................. 4
4.03 Acceptance........................................................ 4
5. Representations and Warranties.......................................... 4
5.01 Authority, No Breach.............................................. 4
5.02 Corporate Action.................................................. 4
5.03 Consents.......................................................... 4
5.04 Litigation........................................................ 5
5.05 No Broker......................................................... 5
6. Additional Representations, Warranties and Obligations of HCG........... 5
6.01 Authorization Description......................................... 5
6.02 Transponder Performance Specifications............................ 5
6.03 Right to Lease.................................................... 5
6.04 Government Regulations............................................ 6
6.05 Not a Common Carrier.............................................. 6
6.06 TT&C.............................................................. 6
7. Additional Representations, Warranties and Obligations of Lessee........ 6
7.01 Transponder Usage................................................. 6
7.02 Non-Interference.................................................. 6
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
7.03 Laws................................................................. 7
7.04 Additional Usage Representations and Obligations..................... 7
8. Preemptive Rights and Inspection of Facilities.............................. 8
9. Transponder Spares, Reserve Transponders and Retained Primary
Transponders............................................................... 8
9.01 Use of Transponder Spares............................................ 8
9.02 Use of Reserve Transponders.......................................... 9
9.03 Simultaneous Failure-- Priority with Respect to the Use of
Transponder Spares................................................... 9
9.04 Simultaneous Failure -- Priority with Respect to the Use of Reserve
Transponders......................................................... 9
9.05 HCG's Ownership of Primary Transponders.............................. 9
9.06 Notice of Intent to Substitute a Reserve Transponder................. 10
10. Termination Rights............................................................ 10
10.01 Termination by Lessee................................................ 10
10.02 Termination by HCG................................................... 11
10.03 HCG's Right to Sell if Non-Payment................................... 11
10.04 Prompt Repayment..................................................... 11
10.05 Termination by Lessee or HCG......................................... 11
10.06 Right to Deny Access................................................. 11
10.07 Lease Termination Date............................................... 14
11. Force Majeure................................................................. 14
11.01 Failure to Deliver................................................... 14
11.02 Failure of Performance............................................... 14
12. Limitation of Liability/Breach of Warranty..................................... 15
12.01 Liability of HCG..................................................... 15
12.02 Confirmed Failure.................................................... 15
12.03 Repayment .for Failed Transponder.................................... 15
12.04 Limitation of Liability.............................................. 16
12.05 Obligations of Lessee to Cooperate................................... 17
13. Limitations on Transfer by Lessee.............................................. 18
13.01 Transfers by Lessee.................................................. 18
13.02 Transfer by HCG...................................................... 19
13.03 Affiliate............................................................ 19
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
14 [Reserved]................................................................... 19
15. Monthly Satellite Reports.................................................... 19
16. Confidentiality and Press Releases........................................... 19
16.01 Confidential Information.............................................. 19
16.02 Press Releases........................................................ 20
17. Disposition of Satellite..................................................... 20
17.01 Disposition of Satellite.............................................. 20
18. Documents.................................................................... 20
19. Conflicts.................................................................... 20
20. Miscellaneous................................................................ 21
20.01 Interest.............................................................. 21
20.02 Applicable Law and Entire Agreement................................... 21
20.03 Notices............................................................... 21
20.04 Severability.......................................................... 22
20.05 Taxes................................................................. 23
20.06 Successors............................................................ 23
20.07 Rules of Construction................................................. 23
20.08 Survival of Representations and Warranties............................ 23
20.09 No Third-Party Beneficiary............................................ 23
20.10 Non-Waiver of Breach.................................................. 23
20.11 Counterparts.......................................................... 24
21. Movement of Galaxy IX and Lease of Galaxy X Transponder(s)................... 24
22. Additional Transponder(s).................................................... 24
23. Cross-Default................................................................ 25
24. Option to Terminate.......................................................... 25
</TABLE>
EXHIBITS:
A Description of Galaxy IX and Galaxy X
B. Galaxy IX Transponder Performance Specifications
Galaxy X Transponder Performance Specifications
iii
<PAGE>
GALAXY IX TRANSPONDER LEASE AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into as of this 29th
day of November, 1995 (the "Execution Date"), by and between HUGHES
COMMUNICATIONS GALAXY, INC. ("HCG"), a corporation organized and existing under
the laws of the State of California, and TVN ENTERTAINMENT CORPORATION
("Lessee"), a corporation organized and existing under the laws of the State of
Delaware;
RECITALS
--------
WHEREAS, HCG intends to construct, launch and operate two (2) satellites to
be designated as Galaxy IX and Galaxy X, respectively and desires to lease
transponders on such satellites; and
WHEREAS, Lessee desires to lease from HCG and HCG desires to lease to
Lessee certain transponders on Galaxy IX, and, upon the successful operation of
Galaxy X, certain transponders on Galaxy X, subject to the approval of the
Federal Communications Commission.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the mutual promises set forth below,
HCG and Lessee hereby mutually agree as follows:
1. The Satellites
--------------
1.01 Satellites. Subject to the approval of the Federal Communications
-----------
Commission ("FCC"), HCG shall construct and launch two (2) satellites, referred
to hereinafter as "Galaxy IX" ("G-IX") and "Galaxy X" ("G-X"). The term
"Satellite" shall mean the satellite on which Lessee's Transponders are located
at any given time.
1.02 Orbital Position. The orbital position of Galaxy IX shall initially be
----------------
123 degree West Longitude. HCG plans to relocate Galaxy IX to another orbital
location, subject to the FCC's approvals, upon the successful launch and
operation of Galaxy X. HCG currently plans to launch Galaxy IX and Galaxy X in
the second quarter of 1996 and the fourth quarter of 1997, respectively, subject
to the approvals of the FCC.
1.03 Transponders. Galaxy IX and Galaxy X shall have twenty-four (24) C-
-------------
Band transponders (the "Transponders"). Twenty-two (22) of the Transponders on
Galaxy IX shall be designated "Primary". The remaining two (2) Transponders on
Galaxy IX shall be designated as "Reserve". "Primary Transponders" shall mean
Transponders which are not preemptible and as to which the "Owners" of the
1
<PAGE>
Transponders, if a "Confirmed Failure" (as hereafter defined) occurs, shall have
the right to preempt a Reserve Transponder in accordance with Section 9.02.
"Reserve Transponders" shall mean Transponders which shall be preemptible, in
accordance with Section 9.02, by Owners of Primary Transponders located on the
Satellite that have suffered a Confirmed Failure. Galaxy IX and Galaxy X also
shall have six (6) "Transponder Spares," as defined in Section 9.01. As used in
this Agreement, "Owner" shall include the actual owner of a Transponder,
including HCG if there remain any unsold Transponders, or any permitted assignee
of such owner's Transponder, or any lessee or licensee of HCG. The term
"purchase" shall include the execution of an agreement with HCG for a long term
lease.
1.04 Hybrid Satellite. If HCG uses a hybrid satellite (i.e. a satellite
-----------------
containing both Ku-Band and C-Band capacity), then the owners or users of the
Ku-Band capacity on any such hybrid Satellite shall have no rights whatsoever to
use the Transponder Spares, the Reserve Transponders or any other part of the C-
Band payload on such hybrid satellite. Galaxy X shall be a hybrid satellite.
1.05 Specifications and Components. Exhibit A sets forth the description of
-------------------------------
Galaxy IX and Galaxy X. Exhibit B sets forth the "Transponder Performance
Specifications", defined as certain technical specifications for the
Transponders on Galaxy IX and Galaxy X, including values for each Transponder
for polarization isolation, interference between Transponders, frequency
response, group delay, amplitude non-linearity, spurious outputs, phase shift,
cross talk, stability, transmit EIRP, uplink saturation flux density, and G/T.
HCG shall make copies of the antenna range gain contour test data available to
Lessee.
2. Lease of Transponders
---------------------
HCG shall lease to Lessee five (5) Primary Transponders on Galaxy IX and,
upon the successful launch and operation of Galaxy X, five (5) Primary
Transponders on Galaxy X (individually, "Lessee's Transponder" and collectively,
"Lessee's Transponders").
3. Lease Rate
----------
3.01 Lease Price Components Description. The lease rate for Lessee's
-----------------------------------
Transponders shall consist of "Base Lease Rate," which includes payment of
$[*] per month for tracking, telemetry and control service (the "TT&C Fee").
Pursuant to the TT&C Fee, the services described in Section 6.06 will be
provided.
3.02 Base Lease Rate. The Base Lease Rate and lease terms for Lessee's
---------------
Transponders shall be as follows:
(a) The Base Lease Rate per month for each of Lessee's Transponders
shall be as described in the following table and shall be due and payable
in advance on Delivery of Galaxy IX and the first day of each month
thereafter
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
2
<PAGE>
through the Lease Termination Date. Lessee shall pay to HCG a security
deposit of the total Base Lease Rate of $[*] for the last month's service
on a monthly basis at a rate of $[*] ($[*] per Transponder) beginning at
Galaxy IX Delivery and continuing until the total deposit due has been
paid. If, however, at any time Lessee becomes delinquent with respect to
its Galaxy IIIR lease payments due under that certain Galaxy IIIR
Transponder Lease Agreement dated October 21, 1994 as amended by and
between Lessee and HCG, then HCG reserves the right to accelerate all
outstanding amounts due for the Galaxy IX security deposit upon written
notice to Lessee. Lessee agrees that If one of Lessee's Transponders
becomes a Failed Transponder, Lessee's rights and obligations to continue
making Base Lease Rate payments, with respect to such Failed Transponder,
shall be governed by Sections 12.01 and 12.03. Payments for a partial month
shall be pro-rated.
Year Lessee's Primary Transponder
---- ----------------------------
1 $[*]
2 $[*]
3 $[*]
4 $[*]
5 $[*]
6 $[*]
7 $[*]
8 $[*]
9 $[*]
10 $[*]
3.03 Place of Payment. All payments by Lessee shall be made to HCG at its
----------------
principal place of business, as designated in Section 20.03, and shall be deemed
to be made only upon actual receipt by HCG. All refunds by HCG shall be made to
Lessee at its principal place of business as designated in Section 20.03, and
shall be deemed to be made only upon actual receipt by Lessee.
4. Delivery and Related Matters
----------------------------
4.01 Delivery. Galaxy IX Delivery shall occur upon, and "Delivery",
----------
"Delivered" and "Deliver", as to Galaxy IX shall mean (i) the placing of Galaxy
IX, containing Lessee's Transponders, in its assigned orbital position with a
total of twenty-two (22) Primary Transponders on such Satellite meeting the
relevant performance specifications required to complete Delivery pursuant to
the transponder lease agreements of the Owners of such Transponders (such 22
Transponders meeting their respective performance specifications being referred
to hereinafter as the "22 Performing Transponders") (all of which requirements
may be met through the use of Reserve Transponders or Transponder Spares), (ii)
Lessee's acceptance of its Transponders as provided for in Section 4.03 and
(iii) full payment by Lessee as provided in Section 4.02.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
3
<PAGE>
4.02 Condition to Lessee's Right to Lease. A condition to HCG's obligation
------------------------------------
to lease Lessee's Transponders to Lessee, and of Lessee's right to so lease
Lessee's Transponder, shall be the timely payment, both before and after
Delivery, by Lessee of all amounts due to HCG pursuant to the provisions of
Section 3 or other Sections of this Agreement.
4.03 Acceptance. HCG shall test each of Lessee's Transponders in accordance
-----------
with an acceptance test plan to be prepared by HCG in advance of the launch of
the Satellite. Acceptance of Lessee's Transponders by Lessee shall be deemed to
have occurred if Lessee's Transponders meet the Transponder Performance
Specifications and are available for service.
5. Representations and Warranties
------------------------------
HCG and Lessee each represent and warrant to the other that:
5.01 Authority, No Breach. It has the right, power and authority to enter
--------------------
into, and perform its obligations under, this Agreement. The execution, delivery
and performance of this Agreement shall not result in the breach or
nonperformance of any agreements it has with third parties.
5.02 Corporate Action. It has taken all requisite corporate action to
----------------
approve execution, delivery and performance of this Agreement, and this
Agreement constitutes a legal, valid and binding obligation upon itself in
accordance with its terms.
5.03 Consents. The fulfillment of its obligations hereunder will not
--------
constitute a material violation of any existing applicable law, rule, regulation
or order of any governmental authority. All material necessary or appropriate
public or private consents, permissions, agreements, licenses, or authorizations
to which it or any Transponder or the Satellite may be subject have been or
shall be obtained in a timely manner; provided, however, that it shall be HCG's
sole responsibility to obtain any regulatory approvals needed to enable it to
lease Transponders as provided for in this Agreement. Notwithstanding the above,
HCG and Lessee acknowledge that the transactions set forth in this Agreement may
be challenged before the FCC or a court of competent jurisdiction by other
persons or entities not parties hereto. In such event, HCG and Lessee agree that
HCG shall use its best efforts, and Lessee shall use reasonable efforts, before
the FCC, and the courts if an appeal from an FCC order is taken, to support
HCG's right to lease and Lessee's right to lease Lessee's Transponders and shall
fully cooperate with each other in these endeavors. Lessee alone shall have the
right to determine how much and to whom it will incur legal expenses in
connection with any proceeding arising out of its obligations under this Section
5.03. If, however, by written order, the FCC or a court of competent
jurisdiction shall determine that HCG may not lease and Lessee may not lease
Lessee's Transponders under the terms and conditions set forth herein,
4
<PAGE>
then HCG and Lessee. shall seek immediate review of such order before the FCC or
an appellate court or shall, if possible, reconstitute the transaction to comply
with such order and to provide Lessee with use of "equivalent capacity" on
another HCG-operated satellite and to .provide HCG with the "price provided for
herein." As used herein, "equivalent capacity" shall mean the same number of
Transponders leased by Lessee pursuant to this Agreement and there is no
material adverse change in the provisions of this Agreement regarding lease
price taking into account payment terms using a present value analysis, tax
benefits from the form of the transactions, use of Transponder Spares and
Reserve Transponders, and Transponder Performance Specifications. As used
herein, "price provided for herein" shall mean the total price payable to HCG,
taking into account payment terms, using a present value analysis with a 12%
annual discount rate, and tax benefits from the form of the transactions. If an
appellate court issues a written order, which is no longer subject to further
judicial rehearing or review, upholding the determination of the FCC or a court
or competent jurisdiction that HCG may not lease and Lessee may not lease
Lessee's Transponders, then HCG and Lessee shall, if possible, reconstitute the
transaction as set out herein.
5.04 Litigation. To the best of its knowledge, there is no outstanding or
----------
threatened judgment, pending litigation or proceeding, involving or affecting
the transactions provided for in this Agreement, except as has been previously
or concurrently disclosed in writing by either party to the other.
5.05 No Broker. It does not know of any broker, finder or intermediary
---------
involved in connection with the negotiations and discussions incident to the
execution of this Agreement, or of any broker, finder or intermediary who might
be entitled to a fee or commission upon the consummation of the transactions
contemplated by this Agreement.
6. Additional Representations, Warranties and Obligations of HCG
-------------------------------------------------------------
6.01 Authorization Description. HCG has currently filed with the FCC an
-------------------------
application to construct, launch and operate Galaxy IX and Galaxy X at 123
degree West Longitude. If the FCC approves and authorizes neither the Galaxy IX
application nor the Galaxy X application on or before December 31, 1996, then
this Agreement shall automatically terminate and HCG shall have no liability to
Lessee, except for prepaid charges made by Lessee.
6.02 Transponder Performance Specifications. Lessee's Transponders, upon
--------------------------------------
Delivery of Galaxy IX, shall at least meet the Transponder Performance
Specifications.
6.03 Right to Lease. Upon Delivery and subject to Section 4.02, Lessee
----------------
shall be entitled to lease each of Lessee's Transponders free from all liens,
charges, claims or encumbrances (collectively, "Encumbrances"), except: (i)
Encumbrances resulting from (a) Lessee's lease of Lessee's Transponder; (b) any
actions taken by Lessee; and
5
<PAGE>
(c) the right and interest of any financing entity purchasing the Transponders
on Galaxy IX and leasing them back to HCG pursuant to a sale and leaseback
transaction; and (ii) Encumbrances which do not have an adverse effect on
Lessee's rights hereunder.
6.04 Government Regulations. HCG has or shall use its best efforts until
----------------------
disposition of Galaxy IX pursuant to Section 17, to obtain and maintain, in all
material respects, all applicable federal, state and municipal authorizations or
permissions to construct, launch and operate Galaxy IX, applicable to it; and to
comply, in all material respects, with all such government regulations regarding
the construction, launch and operation of the Satellite and Transponders
applicable to it.
6.05 Not a Common Carrier. Unless required to do so by the FCC, HCG shall
----------------------
not hold itself out, publicly or privately, as a provider of common carrier
communications services on Galaxy IX and is not purporting herein to provide to
Lessee or to any other party any such services with respect to Galaxy IX.
6.06 TT&C. Tracking, telemetry and control ("TT&C") shall be provided by
----
Hughes Communications Satellite Services, Inc. ("HCSS"), an affiliate of HCG,
for the life of the Satellite, pursuant to a separate "TT&C Service Agreement"
which has been executed by HCSS and Lessee concurrently herewith. The TT&C Fee
is intended to pay HCSS for these services.
7. Additional Representations, Warranties and Obligations of Lessee
----------------------------------------------------------------
7.01 Transponder Usage. Lessee agrees to use Lessee's Transponders to
-----------------
provide "Cable Entertainment Services" (as defined below) for term of this
Agreement. "Cable Entertainment Services" shall mean consumer entertainment and
information services which shall be delivered to cable television systems or any
authorized form of distribution to consumers. HCG agrees to seek agreements for
at least ten (10) Transponders on Galaxy X (including Lessee's Transponders)
(collectively, the "Cable Transponders") with providers of Cable Entertainment
Services. Lessee acknowledges that HCG may lease the Cable Transponders to
audio/data users and, for terms of two (2) years or less, video users. The
restriction on use for Cable Entertainment Services shall bind any successor-in-
interest, or any assignee or transferee, of Lessee or Lessee's rights hereunder
and shall bind any transferee or successor-in-interest to Lessee's Transponders
(i.e., the usage restrictions shall follow Lessee's Transponder).
7.02 Non-Interference. Lessee's radio transmissions (and those of its
------------------
uplinking agents) to the Satellite shall comply, in all material respects, with
all FCC and all other governmental (whether international, federal, state,
municipal, or otherwise) statutes, laws, rules, regulations, ordinances, codes,
directives and orders, of any such governmental agency, body, or court
(collectively, "Laws") applicable to it regarding the operation of the Satellite
and Lessee's Transponder. Lessee shall not utilize (or permit or allow any of
its uplinking agents to utilize) any of Lessee's
6
<PAGE>
Transponders in a manner which will or may interfere with the use of any other
Transponder or cause physical harm to any of Lessee's Transponders, any other
Transponders, or to the Satellite. Further, Lessee will coordinate (and will
require its uplinking agents to coordinate) with HCG, in accordance with
procedures reasonably established by HCG and uniformly applied to all users of
Transponders on the Satellite, its transmissions to the Satellite, so as to
minimize adjacent channel and adjacent satellite interference. For purposes of
this Section 7.02, interference shall also mean acts or omissions which cause a
Transponder to fail to meet its Transponder Performance Specifications. Without
limiting the generality of the foregoing, Lessee (and its uplinking agents)
shall comply with all FCC rules and regulations regarding use of automatic
transmitter identification systems (ATIS).
7.03 Laws. Lessee shall comply (and shall require its uplinking agents to
-----
comply), in all material respects, with all Laws applicable to it regarding the
operation or use of the Satellite and Lessee's Transponder.
7.04 Additional Usage Representations and Obligations.
-------------------------------------------------
(a) Lessee has not been convicted for the criminal violation of, and
has not been found by the FCC or other federal, state or local governmental
authority with appropriate jurisdiction (collectively, the "Governmental
Authority") to have violated, any federal, state or local law or regulation
as applicable concerning illegal or obscene program material or the
transmission thereof (the "Obscenity Laws"), and Lessee is not aware of any
pending investigation (including, without limitation, a grand jury
investigation) involving Lessee's programming or any pending proceeding
against Lessee for the violation of any Obscenity Laws.
(b) Lessee will notify HCG as soon as it receives notification of, or
becomes aware of, any pending investigation by any Governmental Authority,
or any pending criminal proceeding against Lessee, which investigation or
proceeding concerns transmissions by Lessee potentially in violation of any
law, including without limitation, Obscenity Laws.
(c) Any use of Lessee's Transponders shall comply, in all material
respects, with all applicable laws regarding the operation or use of the
Satellite and Lessee's Transponders (including, but not limited to, any
Obscenity Laws).
(d) Lessee will not use, or allow the use of, Lessee's Transponders
for direct distribution of programming to television viewers unless the
programming is scrambled such that television viewers can receive the
programming only through the use of a decoder authorized by Lessee or
Lessee's authorized agent.
7
<PAGE>
8. Preemptive Rights and Inspection of Facilities
----------------------------------------------
Lessee recognizes that it may be necessary in unusual or abnormal
situations or conditions for HCG deliberately to preempt or interrupt Lessee's
use of its Transponder, in order to protect the overall performance of the
Satellite. Such decisions shall be made by HCG in its sole discretion; provided,
however, that, to the extent it is technically feasible, (a) HCG shall preempt
or interrupt the use of Transponders in the inverse order in which the Owners
(or such Owner's predecessors in interest) on such Satellite executed
transponder lease agreements for its Transponders on such Satellite, and (b) HCG
shall preempt or interrupt the use of either or both Reserve Transponders before
preempting or interrupting the use of any Primary Transponder. To the extent
technically feasible, HCG shall give Lessee at least forty-eight (48) hours'
notice of such preemption or interruption and HCG shall use its reasonable best
efforts to schedule and conduct its activities during periods of such preemption
or interruption so as to minimize the disruption to the use of Transponders on
such Satellite. To the extent that such preemption results in a loss to Lessee
of the use of Lessee's Transponders sufficient to constitute a breach of HCG's
obligations as set forth in Section 12, then Lessee shall have all of the rights
and remedies set forth in Sections 9 and 12.
9. Transponder Spares, Reserve Transponders and Retained Primary Transponders
--------------------------------------------------------------------------
9.01 Use of Transponder Spares. HCG shall cause Galaxy IX to contain
-------------------------
certain redundant equipment units (individually, a "Transponder Spare"), which
are designed as substitutes for equipment units the failure of which could cause
a Transponder to fail to meet the Transponder Performance Specifications. HCG,
as soon as possible and to the extent technically feasible, shall employ a
Transponder Spare in such Satellite as a substitute for Lessee's Transponder
equipment unit which has caused Lessee's Transponders to suffer a Confirmed
Failure (as defined in Section 12.02) in order to enable Lessee's Transponder to
meet the Transponder Performance Specifications. To the extent technically
feasible, a Transponder Spare will be substituted for the faulty equipment unit
on a first-needed, first-served basis to satisfy HCG's obligations to Lessee and
to other Owners of users of Transponders on the same Satellite which have
suffered Confirmed Failures; provided, however, that HCG's obligations to
provide Transponder Spares shall continue until such time as all of the
Transponder Spares are committed to use as substitutes for Transponders which
have suffered Confirmed Failures. If HCG furnishes a Transponder Spare to Lessee
as a substitute for an equipment unit which has caused Lessee's Transponder to
suffer a Confirmed Failure, then Such Transponder Spare shall become part of the
Transponder which is leased to Lessee hereunder, and Lessee, concurrently, shall
no longer have any right to lease or otherwise use the failed equipment unit.
Lessee's Transponders equipment unit which has been returned shall be made
available by HCG, to the extent technically feasible, to satisfy its obligations
to Owners or users on the same Satellite. HCG also shall have the
8
<PAGE>
right, until the Transponder Spares are needed, to utilize such Transponder
Spares in any manner HCG determines.
9.02 Use of Reserve Transponders. If no Transponder Spare is available at
-----------------------------
the time that Lessee's Transponder suffers a Confirmed Failure or if the use of
such Transponder Spare would not correct the failure, then HCG shall employ, as
soon as possible and to the extent technically feasible, and unless any delay is
requested by Lessee, a Reserve Transponder on Galaxy IX as a substitute for such
Transponder which has suffered a Confirmed Failure; provided, however, that
HCG's obligation to provide Reserve Transponders to Lessee shall continue only
until such time as all of the Reserve Transponders are committed to use as
substitutes for Primary Transponders which have suffered a Confirmed Failure.
HCG shall include in the transponder lease agreement of any Owner who has leased
a Reserve Transponder (or in any other agreement providing for the Transfer of a
Reserve Transponder) a requirement that HCG may preempt such Reserve
Transponder(s) after two (2) hours' notice from HCG. Reserve Transponders
utilized as substitutes shall meet the Transponder Performance Specifications.
Reserve Transponders, or any one of them, will be substituted and utilized on a
first-needed, first-served basis to satisfy HCG's obligations to Lessee and to
other Owners with respect to the performance of their Primary Transponders. HCG
shall have the right, in its sole discretion, to utilize first a Transponder
Spare prior to furnishing a Reserve Transponder to Lessee. If HCG furnishes a
Reserve Transponder to Lessee, then HCG shall lease such Reserve Transponder to
Lessee as a substitute, and Lessee, concurrently, shall no longer have any right
to use the failed Lessee's Transponder. Lessee's Transponder which has been
returned to HCG shall thereafter be made available by HCG, to the extent
technically feasible, to satisfy its obligations to other Owners. HCG also shall
have the right, until the Reserve Transponders are needed, to utilize them in
any manner HCG determines.
9.03 Simultaneous Failure -- Priority with Respect to the Use of
-----------------------------------------------------------
Transponder Spares. In the event that Primary Transponders of more than one
- -------------------
Owner simultaneously suffer a Confirmed Failure, then the Owner (or such Owner's
predecessor in interest) who first executed a transponder lease agreement with
HCG shall have priority as to use of Transponder Spares with respect to said
Owner's Primary Transponder or Transponders which have suffered a Confirmed
Failure, to the extent technical feasible. As used in this Section 9, the term
"simultaneously" shall be deemed to mean occurring within a 24-hour period.
9.04 Simultaneous Failure -- Priority with Respect to the use of Reserve
-------------------------------------------------------------------
Transponders. In the event that Primary Transponders of more than one Owner
- ------------
simultaneously suffer a Confirmed Failure, and no Transponder Spare is available
or if the use of such Transponder Spare would not correct the failure, then the
Owner (or such Owner's predecessor in interest) who first executed a Transponder
Lease Agreement with HCG for the lease of a Primary Transponder on such
Satellite shall have priority as to use of a Reserve Transponder with respect to
said Owner's Primary Transponder or Transponders which have suffered a Confirmed
Failure.
9
<PAGE>
9.05 HCG's Ownership of Primary Transponders. If HCG is unable to lease all
---------------------------------------
of the Primary Transponders, then HCG may retain ownership of such unsold
Primary Transponders ("HCG's Transponders"). (The same provision shall apply
with respect to Reserve Transponders.) In such event, HCG shall have the same
rights to use HCG's Transponders as any other Owner would have, including,
without limitation, the right to utilize Transponder Spares and Reserve
Transponders in the event HCG's Transponders do not meet the Transponder
Performance Specifications. HCG also shall have the right, but not the
obligation, to utilize HCG's Transponders to satisfy HCG's obligations to Lessee
and to other Owners. HCG shall be deemed to have been the last entity to execute
a Transponder Lease Agreement for purposes of determining its priority under the
provisions of this Section 9 and other Sections of this Agreement; provided,
however, that if HCG long term leases any unsold Primary Transponders to a third
party, such third party shall, for purposes of determining its priority under
the provisions of this Section 9, or elsewhere in this Agreement, be deemed to
have "leased" such Transponders and to have executed a transponder purchase or
lease agreement on the date it executed such long term lease.
9.06 Notice of Intent to Substitute a Reserve Transponder. Prior to the
----------------------------------------------------
substitution of a Reserve Transponder for Lessee in accordance with this Section
9, HCG shall notify Lessee in advance of its intention to so substitute the
Reserve Transponder and the substitution shall be made at such time as the
parties mutually agree.
9.07 Applicability of Section 1.04 with respect to Galaxy X. The terms of
-------------------------------------------------------
Section 9 as applied to the Transponders on Galaxy X shall be subject to the
terms of Section 1.04.
10. Termination Rights
------------------
10.01 Termination by Lessee.
----------------------
(a) If HCG does not Deliver Lessee's Transponders on Galaxy IX on or
before December 31, 1997, Lessee shall have the right to cancel its
obligations to lease all of its undelivered Transponder, by giving written
notice to HCG on or before January 31, 1998.
(b) If Lessee terminates its obligations as to Lessee's Transponders
due to the failure to make Delivery as set forth in this Section 10 (the
"Terminated Transponders"), then Lessee shall be entitled to a full refund,
without interest, of all payments made for each such Terminated
Transponder, less any payments made by HCG to it on account of such
Terminated Transponders pursuant to other provisions of this Agreement, and
Lessee and HCG shall have no further obligations to each other as to each
such Terminated Transponder.
10
<PAGE>
(c) Lessee shall notify HCG of its intent to terminate its obligations
pursuant to this Section 10.01 on or before January 31, 1998.
10.02 Termination by HCG. Notwithstanding anything else set forth in this
------------------
Agreement, HCG may terminate this Agreement if Lessee shall have failed to pay
any amount due and payable pursuant to the provisions of Section 3, and Lessee
has been given written notice by HCG of said failure and Lessee shall have
failed to pay the amount due and payable within ten (10) business days after HCG
has given such notice to Lessee. Any late payments by Lessee to HCG shall be
with interest calculated at the rate set forth in Section 20.01, payable with
the amount due and calculated from the date payment was due until the date it is
received by HCG.
10.03 HCG's Right to Sell if Non-Payment. If, for any reason whatsoever,
----------------------------------
Lessee does not make the payments in the amounts and on the dates set forth in
Section 3 and Lessee fails to cure such default as set forth in Section 10.02,
then, in addition to all of its other remedies at law or in equity, HCG shall be
entitled to Transfer (as defined in Section 13.01) Lessee's Transponders
immediately to whomever HCG sees fit, Lessee shall not be entitled to any
equitable relief as a result thereof, and Lessee's exclusive remedy shall be
limited to recovery of any payments made to it by HCG, without interest, less
any claim HCG has against Lessee by reason of such Lessee's default.
10.04 Prompt Repayment. All refunds provided for in this Section 10 to be
----------------
made by HCG shall be made within fifteen (15) business days of receipt by HCG of
notice of termination by Lessee, and any late payment by HCG to Lessee shall be
with interest calculated at the rate set forth in Section 20.01, payable with
the amount due and calculated from the date payment was due until the date it is
received by Lessee.
10.05 Termination by Lessee or HCG. Notwithstanding anything else set forth
----------------------------
in this Agreement, either Lessee or HCG may terminate its obligations under this
Agreement as to Transponders on Galaxy IX if, prior to Delivery, the FCC shall
have ordered the placement of Galaxy IX into an orbital position further east
than 89 degree or further west than 137 degree and such order shall have become
a Final Order, and the parties are unable to reconstitute this Agreement
pursuant to Section 5.03. As used herein, an order of the FCC becomes a "Final
Order" when the FCC's action is no longer subject to administrative or judicial
reconsideration, rehearing, review, stay, appeal or other similar actions which
could be filed with the FCC or with any court having jurisdiction to review said
action. Further, the parties agree that this Agreement shall terminate in
accordance with Section 6.01.
10.06 Right to Deny Access.
---------------------
(a) If, in connection with using Lessee's Transponders,
11
<PAGE>
(i). "User" (as defined below) is indicted or is otherwise charged as
a defendant in a criminal proceeding based upon, or is convicted under, any
Obscenity Law or has been found by any Governmental Authority to have
violated any such law;
(ii) based on any User's use of Lessee's Transponders, HCG is indicted
or otherwise charged as a criminal defendant, becomes the subject of a
criminal proceeding or a governmental action seeking a fine, license
revocation or other sanctions, or any Governmental Authority seeks a cease
and desist or other similar order or filing;
(iii) the FCC has issued an order initiating a proceeding to revoke
HCG's authorization to operate the Satellite;
(iv) HCG obtains a court order pursuant to Section 10.06(c), below, or
a court or Governmental Authority of competent jurisdiction orders HCG to
deny access to User or orders User to cease transmission; or
(v) HCG receives notice (the "Illegal Programming Notice"), written or
oral, from a Governmental Authority that such authority considers Lessee
and/or any other User's programming to be in violation of Obscenity Laws
(the "Illegal Programming"), and that if HCG does not cease transmitting
such Illegal Programming, then HCG and/or its Affiliates and/or any of
their executives will be indicted or otherwise charged as a criminal
defendant, will become the subject of a criminal proceeding or a
governmental action seeking a fine, license revocation or other sanctions,
or that such Governmental Authority will seek a cease and desist or other
similar order or filing (with HCG being obligated, to the extent permitted
by law, to provide Lessee with a copy of such Illegal Programming Notice,
if written, or with other verification, including the details thereof, if
oral);
then, upon notice from HCG to Lessee (the "Denial of Access Notice"), User shall
cease using Lessee's Transponders immediately, in the case of a denial of access
pursuant to subparagraphs (i), (ii), (iii) or (iv) above, or within 24 hours
following receipt of such notice, in the case of a denial of access pursuant to
subparagraph (v), above; and if User does not voluntarily cease using such
capacity at the appropriate time, then HCG shall have the right to take such
steps as HCG deems necessary to prevent User from accessing Lessee's
Transponders. Provided, however, that if User has more than one programming
service, then the denial of access by HCG shall apply only to the Transponders
used to provide the Illegal Programming service; and provided further, however,
that if, upon receipt of the Denial of Access Notice from HCG, User does not
immediately cease transmission of such Illegal Programming service, then HCG
shall have the right to take such steps as
12
<PAGE>
HCG deems necessary to prevent User from accessing the Transponders used to
transmit such Illegal Programming service (and if, thereafter, Lessee transmits
such Illegal Programming service using any of Lessee's Transponder, then HCG
shall have the immediate right, without further notification, to take such steps
as HCG deems necessary to prevent Lessee from accessing any of Lessee's
Transponder). As used herein, "User" shall mean Lessee and any person to whom
Lessee Transfers all or part of its right to use Lessee's Transponder, including
without limitation, a Lessee, licensee or assignee. Lessee agrees to maintain a
properly operating facsimile machine at all times to receive the Denial of
Access Notice from HCG.
(b) If HCG denies, or has given Lessee notice of its intent to deny,
access to Lessee's Transponders pursuant to the provisions of this Section
10.06, and if Lessee does not believe the conditions set forth in this Agreement
to HCG's denial of access have been met, then Lessee shall have the immediate
right to seek injunctive relief, including a temporary restraining order on
notice of four (4) hours or more to HCG, to prevent the denial or continuing
denial of such access by HCG.
(c) HCG shall also have the right to seek: (i) injunctive relief,
including a temporary restraining order on notice of four (4) hours or more to
Lessee, to prevent, suspend or otherwise limit User's continued access to
Lessee's Transponders where HCG believes such use has resulted or will result in
a violation of any Obscenity Law; or (ii) declaratory relief to establish its
right to deny User's access to Lessee's Transponders under this Agreement.
(d) Either party shall be entitled to oppose the other's attempt to obtain
equitable relief. However, in order to enable either party to obtain a
resolution of any such dispute as expeditiously as possible, both parties hereby
agree that: (i) neither party will contest the jurisdiction of, or the venue of,
any action for equitable relief brought by the other party in the following
courts:________________________ and the U.S. District Court for the Central
District of California; (ii) the party opposing equitable relief (the "Opposing
Party") will make itself available to accept service by telecopy or personal
delivery on a 24 hour-a-day basis for five (5) consecutive days following
receipt by the Opposing Party of the other party's notice of its intent to seek
such equitable relief; and (iii) if either party seeks a temporary restraining
order and provides notice to the Opposing Party at least four (4) hours before
the scheduled court hearing, then the Opposing Party will not challenge the
timeliness of such notice.
(e) If it is determined by final judicial order that HCG prevented Lessee
from accessing any or all of Lessee's Transponders at a time when it did not
have the right to do so, pursuant to this Section 10.06, then Lessee's sole and
exclusive remedy shall be HCG's payment to Lessee of liquidated damages equal to
two (2) times a pro-rated amount of Lessee's monthly Base
13
<PAGE>
Lease Rate or the Monthly Lease Rate, as applicable, for the terminated
capacity, such pro-ration to be based on the period of time of loss of use
of such capacity.
(f) All remedies of HCG set forth in this Section 10.06 shall be
cumulative and in addition to, and not in lieu of any other remedies
available to HCG at law, in equity or otherwise, and may be enforced by HCG
concurrently or from time to time.
(g) In addition to any other indemnification obligations found
elsewhere in this Agreement, Lessee shall indemnify and save HCG, its
directors, officers, employees, and its Affiliates from any liability or
expense arising out of or related to User's use of Lessee's Transponders
under this Section 10.06. Lessee shall pay all expenses (including
reasonable attorneys' fees) incurred by HCG in connection with all legal or
other formal or informal proceedings, instituted by any private third party
or any Governmental Authority, and arising out of or related to User's use
of Lessee's Transponders under this Section 10.06, and Lessee shall satisfy
all judgments, fines, penalties, costs, or other awards which may be
incurred by or rendered against HCG as a result thereof, as and to the
extent permitted by law.
10.07 Lease Termination Date. Unless otherwise terminated earlier in
----------------------
accordance with any other subsection of Section 10, Section 6.01 or Section 17,
this Agreement shall terminate upon the tenth anniversary of Delivery of Galaxy
IX.
11. Force Majeure
-------------
11.01 Failure to Deliver. Any failure or delay in the performance by HCG
--------------------
of its obligations to Deliver any Transponders shall not be a breach of this
Agreement if such failure or delay results from any acts of God, governmental
action (whether in its sovereign or contractual capacity) or any other
circumstances reasonably beyond the control of HCG, including, but not limited
to, weather or acts or omissions of Lessee or any third parties (excluding the
Hughes Aircraft Company and all of its direct and indirect subsidiaries and any
other affiliates of HCG or the Hughes Aircraft Company with whom HCG or the
Hughes Aircraft Company contracts for any components of the Satellite or any
services with respect thereto). Nothing in this Section, however, shall be
deemed to alter Lessee's absolute rights to terminate this Agreement as set
forth in Section 10.01.
11.02 Failure of Performance. Any failure in the performance of the
----------------------
Transponders, once Delivered, shall not be a breach of this Agreement if such
failure results from acts of God, governmental action (whether in its sovereign
or contractual capacity) or any other circumstances reasonably beyond the
control of HCG, including, but not limited to, receive earth station sun outage,
weather, or acts or omissions of Lessee or any third parties (excluding the
Hughes Aircraft Company and all of its direct and indirect subsidiaries, and all
parties with whom HCG or
14
<PAGE>
Hughes Aircraft Company and all of its direct and indirect subsidiaries contract
for the manufacture, construction, launch and operation of the Satellite or any
components thereof), provided, however, that this provision shall not excuse
HCG's obligations to provide Transponder Spares or Reserve Transponders, to the
extent available and technically feasible, to satisfy its obligations as set
forth in Section 9.
12. Limitation of Liability/Breach of Warranty
------------------------------------------
12.01 Liability of HCG. If (i) Lessee's Transponders fail to meet the C-
----------------
Band Transponder Performance Specifications prior to the lease termination date,
(ii) such failure is deemed to be a Confirmed Failure, and (iii) HCG is unable
to furnish the necessary Transponder Spare or Reserve Transponder as a
substitute for the Lessee's Transponders pursuant to Section 9, then such
Transponder shall be deemed to be a "Failed Transponder," and, unless such
failure of Lessee's Transponders are excused by an event set forth in Section
11.02, Lessee shall be entitled to cease making the Base Lease Rate payments, as
to such Failed Transponder, as set forth in Section 3.02(a). If such failure of
Lessee's Transponders are excused by an event set forth in Section 11.02, the
Lessee shall be entitled to cease making the Base Lease Rate payments as to such
Failed Transponder for so long as the event set forth in Section 11.02 or the
failure which resulted from such event continues.
12.02 Confirmed Failure. A Lessee's Transponders shall be deemed to have
-----------------
suffered a "Confirmed Failure" if (a) it fails to meet the C-Band Transponder
Performance Specifications for a cumulative period of more than ten (10) hours
during any consecutive thirty (30) day period, (b) twenty (20) or more "outage
units" (as defined below) occur within a consecutive thirty (30) day period, or
(c) it fails to meet the C-Band Transponder Performance Specifications for any
period of time under circumstances that make it clearly ascertainable or
predictable technically that the failure set forth in either (a) or (b) of this
Section 12.02 will occur. An "outage unit" shall mean the failure of Lessee's
Transponders to meet the C-Band Transponder Performance Specifications for a
fifteen (15) minute period in one day (with each such fifteen (15) minute period
in the same day constituting a separate outage unit). Lessee shall give HCG
immediate notification of any such failure, as soon after commencement of any
such failure as is reasonably possible, and of the relevant facts concerning
such failure. Upon HCG's verification that Lessee's Transponders have suffered a
Confirmed Failure, such failure shall be deemed to have commenced upon receipt
by HCG of notification from Lessee, or HCG's actual knowledge, whichever first
occurs, of the Confirmed Failure. As used herein, the term "day" shall mean a
24-hour period of time commencing on 12:00 Midnight Eastern Time.
12.03 Repayment for Failed Transponder. For each of Lessee's Transponders
--------------------------------
which have become a Failed Transponder, for which Lessee is entitled to cease
making Base Lease Rate payments, and for which Lessee has ceased making Base
Lease Rate payments, Lessee shall be entitled to a refund equal to the product
of a fraction, the numerator of which is the number of days from the date of
such failure
15
<PAGE>
until the end of the calendar month in which such failure occurred and the
denominator of which is the total number of days in the calendar month in which
such failure occurred, multiplied by the Base Lease Rate actually paid by Lessee
----------
for such Transponders for the calendar month in which such failure occurred. HCG
may offset against any refund due to Lessee pursuant to this Section 12.03 any
amounts due from Lessee to HCG under this Agreement. In addition, if the
performance of a Lessee's Transponders are such that, while it fails to meet the
C-Band Transponder Performance Specifications, its performance is nonetheless of
some value to Lessee, then prior to accepting repayment calculated as aforesaid,
Lessee shall have the right to negotiate with HCG to determine if there is a
mutually agreeable reduced lease rate upon which Lessee is willing to continue
leasing such Transponder.
12.04 Limitation of Liability.
------------------------
(a) ANY AND ALL EXPRESS AND IMPLIED WARRANTIES, INCLUDING, BUT NOT
LIMITED TO, WARRANTIES OF MERCHANTABILITY OR FITNESS FOR ANY PURPOSE OR
USE, ARE EXPRESSLY EXCLUDED AND DISCLAIMED EXCEPT TO THE EXTENT
SPECIFICALLY AND EXPRESSLY PROVIDED FOR IN SECTION 6.02, ABOVE. IT
EXPRESSLY IS AGREED THAT HCG'S SOLE OBLIGATIONS AND LIABILITIES RESULTING
FROM A BREACH OF THIS AGREEMENT, AND LESSEE'S EXCLUSIVE REMEDIES FOR ANY
CAUSE WHATSOEVER (INCLUDING, WITHOUT LIMITATION, LIABILITY ARISING FROM
NEGLIGENCE) ARISING OUT OF OR RELATING TO THIS AGREEMENT AND/OR THE
TRANSACTIONS CONTEMPLATED HEREBY, ARE LIMITED TO THOSE SET FORTH IN
SECTIONS 9, 10 AND 12, HEREOF, AND ALL OTHER REMEDIES OF ANY KIND ARE
EXPRESSLY EXCLUDED, INCLUDING, WITHOUT LIMITATION, ALL RIGHTS AND REMEDIES
OF LESSEE UNDER DIVISION 10, CHAPTER 5, ARTICLE 2 AND SECTIONS 10209, 10406
AND 10504 OF THE CALIFORNIA UNIFORM COMMERCIAL CODE.
(b) IN NO EVENT SHALL HCG BE LIABLE FOR ANY INCIDENTAL OR ON
SEQUENTIAL DAMAGES, WHETHER FORESEEABLE OR NOT, OCCASIONED BY ANY DEFECT IN
THE TRANSPONDERS, DELAY IN DELIVERY OR PROVISION OF THE TRANSPONDERS,
FAILURE OF THE TRANSPONDERS TO PERFORM OR ANY OTHER CAUSE WHATSOEVER. HCG
MAKES NO WARRANTY, EXPRESS OR IMPLIED, TO ANY OTHER PERSON OR ENTITY
CONCERNING THE TRANSPONDERS OR THE SATELLITES AND LESSEE SHALL DEFEND AND
INDEMNIFY HCG FROM ANY CLAIMS MADE UNDER ANY WARRANTY OR REPRESENTATION BY
LESSEE TO ANY THIRD PARTY. THE LIMITATIONS OF LIABILITY SET FORTH HEREIN
SHALL ALSO APPLY TO THE HUGHES AIRCRAFT COMPANY (THE
16
<PAGE>
MANUFACTURER OF THE SATELLITES AND THE TRANSPONDERS) AND ALL AFFILIATES
THEREOF.
(c) Notwithstanding the limitations of the first sentence of Section
12.04(a) above, Lessee and HCG each shall have the right to obtain
injunctive relief, if necessary, in order to prevent the other party from
willfully breaching its obligations under this Agreement or to compel the
other party to perform its obligations under this Agreement.
12.05 Obligations of Lessee to Cooperate. If Lessee's Transponders fail
----------------------------------
to meet the Transponder Performance Specifications, then Lessee shall use
reasonable efforts to cooperate and aid HCG in curing such failure, provided
that such efforts can be done at minimal or no cost to Lessee.
(a) These obligations of Lessee shall include, but not be limited to,
the following:
(i) If there is a problem which can be compensated for by
increasing the power of its transmission to the Lessee's Transponders,
then Lessee shall do so, at HCG's cost and expense, to the extent it
can with existing equipment, provided, however, that HCG shall not be
able to require Lessee to increase the power of its transmission if,
by doing so, it would cause interference with other Transponders on
such Satellite which is prohibited by Section 7.02 of this Agreement,
or interference with any other satellite; and
(ii) Permitting HCG, at HCG's cost and expense, to upgrade
Lessee's equipment, provided that Lessee shall be entitled to select
and install such equipment and determine its configuration in
accordance with its own existing operating procedures and technical
requirements, and in accordance with applicable laws and regulations.
(b) HCG shall give notice to Lessee if and when it requires the
increase of power of the transmission of any other Owner pursuant to such
Owner's obligation equivalent to this Section 12.05. HCG shall also give
notice to Lessee when it acquires knowledge of any other Transponder user
uplinking at power levels which might cause interference with Lessee's
Transponders. If, after such increase in power, Lessee's Transponders no
longer meet its Transponder Performance Specifications, HCG shall promptly
take steps to reduce interference, if any, prohibited by Section 7.02.
(c) Lessee's priority for the use of Transponder Spares or Reserve
Transponders under Section 9 shall be determined at the time that its
Transponders would otherwise have become a Failed Transponder without
Lessee's cooperation under this Section 12.05.
17
<PAGE>
13. Limitations on Transfer by Lessee
---------------------------------
13.01 Transfers by Lessee.
--------------------
(a) Except as specifically set forth in this Section 13.01,
Lessee shall not Transfer (defined in Section 13.02) any of its rights
or obligations under this Agreement except with the prior written
consent of HCG, which consent may be given or withheld in HCG's sole
and absolute discretion.
(b) Lessee may Transfer, in whole, its rights and obligations
hereunder to any Lessee's Affiliate, provided that such Lessee's
Affiliate executes any Transfer documents as reasonably requested by
HCG. In the event of any such Transfer by Lessee, (i) Lessee shall
remain fully liable along with its Transferee for all its obligations
under this Agreement and under the Transponder Service Agreement; and
(ii) such Transferee shall not be permitted to Transfer Lessee's
Transponders.
(c) Subject to Section 13.01(d), Lessee shall have the right to
sublease its rights to use Lessee's Transponders hereunder to a third
party (the "Third-Party Sublessee"); provided, however, that the
Third-Party Sublessee will be able to meet HCG's legal, technical and
operational requirements as set forth in this Agreement. HCG shall
have the right to withhold its approval of the sublease to the Third-
Party Sublessee based on such Third-Party Sublessee's proposed program
content which HCG deems objectionable, consistent with HCG's practice
and policy concerning the use of the Transponder to transmit
programming that violates or potentially violates the Obscenity Laws.
A condition precedent to the effectiveness of any such sublease shall
be the prior execution by the Third-Party Sublessee of a document, in
form and substance as reasonably required by HCG, by which the Third-
Party Sublessee agrees to abide by all of the provisions regarding the
operation of the Satellite and the use of the Transponder, including
without limitation, Sections 7, 8, 10.06 and 13 of the Agreement, as
though the Third-Party Sublessee were the Lessee (the "Sublease"). In
the event of the Sublease, Lessee shall remain fully liable for, and
shall not be relieved of, its obligations to HCG hereunder. In the
event the Third-Party Sublessee breaches any of its obligations
described in the Sublease, then HCG may, at its option and in addition
to the exercise of its other rights against Lessee, require the Third-
Party Sublessee to cease transmissions to the Satellite and, after
providing a written notice to Lessee of the Third-Party Sublessee's
breach, take actions necessary to enforce HCG's rights against the
Third-Party Sublessee. Lessee will pay to HCG all expenses (including
attorney's
18
<PAGE>
fees) incurred in connection with HCG's enforcement against the Third-
Party Sublessee and/or Lessee arising out of the Third-Party
Sublessee's use of the Transponder under the Sublease. Lessee's
Transponders shall not be used for occasional video services to third
parties.
(d) If Lessee desires to sublease as set forth in Section
13.01(c) within the first two (2) years after the date of Delivery of
Galaxy IX of Lessee's Transponders, then Lessee shall first offer by a
written notification to lease such Transponders to HCG at the Base
Lese Rate. HCG shall have thirty (30) days to respond to such written
offer.
13.02 Transfers by HCG. HCG may Transfer its rights and/or obligations
----------------
hereunder, in whole or in part, to any corporation or other entity wholly-owned,
directly or indirectly, by HCG or to the Hughes Aircraft Company or any
corporation or other entity wholly-owned, directly or indirectly by Hughes
Aircraft Company, including, without limitation, Hughes Communications, Inc.,
HCG's immediate parent corporation, or any corporation or other entity wholly-
owned, directly or indirectly, by Hughes Communications, Inc. Any Transfer by
HCG set forth herein shall not interfere with or impact the use of Lessee's
Transponders hereunder.
13.03 Affiliate. As used in this Agreement, "affiliate" shall mean any
---------
corporation or other entity controlling or controlled by or under common control
with Lessee or HCG, as the case may be.
14. [Reserved]
15. Monthly Satellite Reports
-------------------------
After Delivery, Lessee shall receive monthly reports on the overall
performance of Galaxy IX in the form of the Galaxy satellite status reports
similar to the Galaxy VII satellite services monthly report, plus information
furnished to insurers. Anomalous operations shall be reported to Lessee as soon
as possible.
16. Confidentiality and Press Releases
----------------------------------
16.01 Confidential Information. HCG and Lessee shall hold in confidence the
-------------------------
Agreement and all Exhibits, including the financial terms and provisions hereof
and all information received pursuant to Section 15, and HCG and Lessee hereby
acknowledge and agree that all information related to this Agreement, not
otherwise known to the public, is confidential and proprietary and is not to be
disclosed to third persons without the prior written consent of both HCG and
Lessee. Neither HCG, nor Lessee, shall disclose such information to any third
party (other than to officers, directors, employees and agents of HCG and
Lessee, each of whom is bound by this Section 16.01) except:
19
<PAGE>
(a) to the extent necessary to comply with law or the valid order of a
governmental agency or court of competent jurisdiction, or to satisfy its
obligations to other Owners of Transponders; provided, however, that the
party making such disclosure shall seek confidential treatment of said
information;
(b) as part of its normal reporting or review procedure to regulatory
agencies, its parent company, its auditors and its attorneys;
(c) in order to enforce its rights and perform its obligations
pursuant to this Agreement;
(d) to the extent necessary to obtain appropriate insurance, to its
insurance agent, provided that such agent agrees to the confidential
treatment of such information; and
(e) to the extent necessary to negotiate clauses that will be common
to all transponder lease agreements.
16.02 Press Releases. The parties agree that no press release relating to
----------------
this Agreement shall be issued without the approval of both parties.
17. Disposition of Satellite
17.01 Disposition of Satellite. At the earliest of the time as (i) the
remaining fuel on board Galaxy IX is less than four (4) pounds, (ii) there are
fewer than eighteen (18) Transponders capable of meeting its Transponder
Performance Specifications, or (iii) the [tenth] anniversary of Delivery of
Galaxy IX, this Agreement shall terminate, HCG shall have no further obligations
to Lessee under this Agreement, and Lessee's Transponders shall be deemed,
without any further action by any party, to be redelivered to HCG and HCG shall
be entitled to immediate possession thereof. HCG shall thereafter have the right
to utilize such redelivered Transponders in any manner it determines. HCG will,
to the extent possible, provide Lessee with ninety (90) days notice prior to the
disposition of Galaxy IX.
18. Documents
---------
Each party hereto agrees to execute and, if necessary, to file with the
appropriate governmental entities, such documents as the other party hereto
shall reasonably request in order to carry out the purpose of this Agreement.
19. Conflicts
---------
In the case of a conflict between the provisions of this Agreement and any
Exhibit, the provisions of this Agreement will prevail.
20
<PAGE>
20. Miscellaneous
-------------
20.01 Interest. The rate of interest referred to herein shall be 12% per
----------
annum, or the highest legally permissible rate of interest, whichever is lower,
and all interest or discounting shall be compounded on a yearly basis. "Pro-
rata" shall mean an allocation on a straight line basis based on number of days.
All present value analyses shall use a 12% annual discount rate.
20.02 Applicable Law and Entire Agreement. The existence, validity,
------------------------------------
construction, operation and effect of this Agreement and the Exhibits and
Schedules hereto, shall be determined in accordance with and be governed by the
laws of the State of California. This Agreement and the Exhibits hereto, along
with the TT&C Service Agreement, dated as of even date herewith, constitutes the
entire agreement between the parties, and supersedes all previous
understandings, commitments or representations concerning the subject matter.
The parties each acknowledge that the other party has not made any
representations other than those which are contained herein. This Agreement may
not be amended or modified in any way, and none of its provisions may be waived,
except by a writing signed by an authorized officer or the party against whom
the amendment, modification or waiver is sought to been enforced.
20.03 Notices. All notices and other communications from either party to
-------
the other hereunder shall be in writing and shall be deemed received upon actual
receipt when personally delivered, upon actual receipt if sent by facsimile or
upon the expiration of the third business day after being deposited in the
United States mails, postage prepaid, certified or registered mail, addressed to
the other party as follows:
TO HCG:
If by mail: Hughes Communications Galaxy, Inc.
Post Office Box 92424
Worldway Postal Center
Los Angeles, California 90009
Attention: Senior Vice President-
Galaxy Satellite Services
cc: Associate General Counsel
If by FAX: Hughes Communications Galaxy, Inc.
Attention: Senior Vice President -
Galaxy Satellite Services
(310) 607-4255
cc: Associate General Counsel
(310) 607-4258
21
<PAGE>
If by personal
delivery to its
principal place
of business at: Hughes Communications Galaxy, Inc.
1990 East Grand Avenue
E1 Segundo, California 90245
Attention: Senior Vice President-
Galaxy Satellite Services
cc: Associate General Counsel
TO LESSEE:
If by mail: _________________________________________
_________________________________________
_________________________________________
Attention:_______________________________
If by FAX: _________________________________________
_________________________________________
_________________________________________
Attention:_______________________________
If by personal
delivery to its
principal place
of business at:
_________________________________________
_________________________________________
_________________________________________
Attention:_______________________________
All payments to be made under this Agreement, if made by mail, shall be deemed
to All payments to be made under this Agreement, if made by mail, shall be
deemed to have been made on the date of receipt thereof. The parties hereto may
change their addresses by giving notice thereof in conformity with this Section
20.03.
20.04 Severability. Nothing contained in this Agreement shall be construed
--------------
so as to require the commission of any act contrary to law, and wherever there
is any conflict between any provision of this Agreement and any statute, law,
ordinance, order or regulation, such statute, law, ordinance, order or
regulation shall prevail; provided, however, that in such event the provisions
of this Agreement so affected shall be curtailed and limited only to the extent
necessary to permit compliance with the minimum legal requirement, and no other
provisions of this Agreement shall be affected thereby and all such other
provisions shall continue in full force and effect.
22
<PAGE>
20.05 Taxes. If any property or sales taxes are asserted against HCG after,
-----
or as a result of, Delivery, by any local, state, national or international,
public or quasi-public governmental entity, in respect of Lessee's Transponders
or the sale thereof to Lessee, Lessee shall be solely responsible for such
taxes. If any taxes, charges or other levies are asserted by reason of the use
of the point in space or the frequency spectrum at that point in space in which
the Satellite containing Lessee's Transponders are located, or the use or
ownership of such Satellite (excluding any FCC license fee imposed on the
Satellite itself, as compared to the Transponders, which license fee shall be
paid by HCG), and such taxes are not specifically allocated among the various
components of such Satellite, then HCG, Lessee and the other Owners of such
Transponders shall each pay a proportionate amount of such taxes based on the
number of Transponders each of them owns.
20.06 Successors. Subject to Section 13, this Agreement shall be binding on
----------
and shall inure to the benefit of any successors and assigns of the parties,
provided that no assignment of this Agreement shall relieve either party hereto
of its obligations to the other party. Any purported assignment by either party
not in compliance with the provisions of this Agreement shall be null and void
and of no force and effect.
20.07 Rules of Construction. Any ambiguities shall be resolved without
---------------------
reference to which party may have drafted this Agreement. The descriptive
headings of the several sections and paragraphs of this Agreement are inserted
for convenience only and do not constitute a part of this Agreement.
20.08 Survival of Representations and Warranties. All representations and
------------------------------------------
warranties contained herein or made by HCG or Lessee in connection herewith
shall survive any independent investigation made by HCG or Lessee.
20.09 No Third-Party Beneficiary. The provisions of this Agreement are for
the benefit only of the parties hereto, and no third party may seek to enforce,
or benefit from, these provisions, except that both parties acknowledge and
agree that the provisions of Sections 7.02, 8, 9.01, 9.02, 9.03 and 9.04, are
intended for the benefit of both HCG and all other Owners. Both parties agree
that any other such Owner shall have the right to enforce, as a third-party
beneficiary, the provisions of Sections 7.02, 8, 9.01, 9.02, 9.03 and 9.04,
against Lessee directly, in an action brought solely by such other Owner, or may
join with HCG or any other Owner, in bringing an action against Lessee for
violation of such Sections.
20.10 Non-Waiver of Breach. Either party hereto may specifically waive any
--------------------
breach of this Agreement by the other party, provided that no such waiver shall
be binding or effective unless in writing and no such waiver shall constitute a
continuing waiver of similar or other breaches. A waiving party, at any time,
and upon notice given in writing to the breaching party, may direct future
compliance with the waived term or terms of this Agreement, in which event the
breaching party shall comply as directed from such time forward.
23
<PAGE>
20.11 Counterparts. This Agreement may be executed in several counterparts,
------------
each of which shall be deemed an original, and all such counterparts together
shall constitute but one and the same instrument.
21. Movement of Galaxy IX and Lease of Galaxy X Transponder(s)
----------------------------------------------------------
Lessee agrees and acknowledges that, during the term of the Agreement,
Galaxy IX shall be moved to another orbital location upon the successful launch
and operation of Galaxy X into the 123 degree West Longitude orbital location,
subject to the FCC's approvals (the "Galaxy X Delivery"). Upon the Galaxy X
Delivery, Lessee's right to lease Lessee's Transponders on Galaxy IX shall cease
and Lessee shall lease Lessee's Transponders on Galaxy X at the same monthly
Base Lease Rate as specified in Section 3.02. In addition to HCG's rights to
preempt as set forth in Section 8, HCG may preempt or interrupt Lessee's use of
Lessee's Transponders in order to complete the relocation of Galaxy IX (the
"Galaxy IX Movement"). Lessee shall commence the use of Lessee's Transponders on
Galaxy X as of the date on which service on Galaxy X commences at the 123 degree
West Longitude orbital location, to be determined by HCG in its sole discretion
(the "Galaxy X Service Date"), and Lessee's lease of such Transponders shall
continue through the tenth anniversary of the Galaxy X Service Date. Conditions
to HCG's obligation to lease Lessee's Transponders on Galaxy X to Lessee, and of
Lessee's right to so lease such Lessee's Transponders, shall be the timely
payment, both before and after the Galaxy X Service Date, by Lessee of all
amounts due to HCG pursuant to the provisions of Section 3 or other Sections of
this Agreement and Lessee's Transponders meet the requisite Galaxy X Transponder
Performance Specifications. HCG shall have no obligation or liability to Lessee
based upon or arising out of the Galaxy IX Movement. HCG shall provide Lessee
with advance notice of any Galaxy IX Movement as soon as is reasonably
practicable under the circumstances (the "Movement Notice").
22. Additional Transponder(s)
-------------------------
Provided that Lessee is in compliance with all material terms of this
Agreement (including but not limited to being current on all payments owed to
HCG hereunder), Lessee may lease additional Transponders on Galaxy IX if such C-
Band Transponders on Galaxy IX are available to be determined by HCG in HCG's
sole discretion. If HCG determines in its sole discretion that such requested
additional Transponders on Galaxy IX are available, then Lessee may lease
additional Transponders at the same monthly Base Lease Rate as other Lessee's
Transponders through the end of the lease term of this Agreement and pay the
additional deposit of $140,000 per each additional Transponder in accordance
with Section 3.02 (a). After lease of such additional Transponders pursuant to
this Section 22 commences, such additional Transponders shall be treated as an
additional Lessee's Transponders.
24
<PAGE>
23. Cross-Default
-------------
HCG may, at its option, terminate this Agreement if Lessee is in material
breach (after giving effect to any applicable notice requirements and the
specified cure periods, if any) of its obligations, including without
limitation, the obligation to make payments due and payable by Lessee to HCG,
under any other transponder lease agreement Lessee has with HCG. Upon such
termination of this Agreement, HCG shall have no further obligations to Lessee
under this Agreement.
24. Option to Terminate
-------------------
Notwithstanding anything to the contrary stated herein in the Agreement,
Lessee may, at Lessee's option, terminate the lease of Lessee's Transponders by
delivering a written notice to do so to HCG on or before January 3, 1996 of
Lessee's election to terminated the Agreement. The condition precedent to the
effectiveness of such termination shall be the payment of $[*] by Lessee
to HCG at the time of written notice from Lessee to HCG.
TVN ENTERTAINMENT HUGHES COMMUNICATIONS
CORPORATION GALAXY, INC.
By: /s/ Arthur Fields By: /s/ Carl A. Brown
------------------------------------ ---------------------------------
Its: Senior Executive Vice President Its: Senior Vice President
----------------------------------- -----------------------------
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
25
<PAGE>
Exhibit A Galaxy Fleet Satellites
- --------- -----------------------
EXHIBIT A
GALAXY SATELLITE DESCRIPTION
1. Spacecraft Design Summary
-------------------------
Galaxy IX*
Item (C-Band)
----- ----------
a) Type of Spacecraft (S/C) HS-376
b) No. of Transponders 24
c) No. of Amplifiers 30 (TWTAs)
d) Amplifier Redundancy Plan 1 bank X
(30 for 24
ring) * *
e) Amplifier Power (Beginning of Life) 20 watts
f) No. of Communications Receivers 4
g) Comm. Receiver Redundancy Plan 4 for 2
h) Command Receivers 2
i) Type of Attitude Control Gyrostat
Dual Spin
j) Design Life k12 years
k) Launch Vehicle Compatibility Compatible
with all
commercial
launch
vehicles
*The construction, launch and operation of Galaxy IX is subject to FCC approval.
** Ring redundancy allows every transponder the potential to access multiple
spares.
-1-
<PAGE>
Exhibit A Galaxy Fleet Satellites
- --------- ---------------------------------
EXHIBIT A
GALAXY SATELLITE DESCRIPTION
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1. Spacecraft
Design
Summary
-------------
Galaxy X* Galaxy X* Galaxy X* Galaxy X*
Item (C-Band) (Ku-Band) (C-Band)= (Ku-band)
- --------------------------- ------------- ---------- ----------- ----------
a) Type of Spacecraft== HS-601 HS-601 HS-702 HS-702
(s/c)
b) No. of Transponders 24 24 24 24
greater than greater than
or equal to or equal to
c) No. of Amplifiers 30 (SSPAs) 30 (TWTAs) 30 (TWTAs 30 TWTAs)
or SSPAs )
d) Amplifier Redundancy 2 banks X 2 banks X 1 bank X 1 bank X
Plan (15 for 12 (15 for 12 (30 for 24 (30 for 24
ring) ** ring) ** ring) ** ring) **
greater than greater than
or equal to or equal to
e) Amplifier Power 20 watts 63 watts 20 watts 63 watts
(Beg. of Life)
greater than greater than
f) No. of Communications or equal to or equal to
Receivers 4 4 4 4
g) Comm. Receiver
Redundancy Plan 4 for 2 4 for 2 4 for 2 4 for 2
h) Command Receivers 2 2 2 2
i) Type of Attitude
Control 3 Axis 3 Axis 3 Axis 3 Axis
greater than greater than greater than greater than
or equal to or equal to or equal to or equal to
j) Design Life 12 years 12 years 15 years 15 years
k) Launch Vehicle Compatible Compatible Compatible Compatible Compatibility with with with with
all all all all
commercial commercial commercial commercial
launch 1aunch 1aunch 1aunch
vehic1es vehicles vehic1es vehicles
</TABLE>
* The construction, launch and operation of Galaxy X is subject to FCC
approval.
+ HCG has the option to put additional payload on an HS 702 which may or may
not be related to US Domestic C-or Ku-band service.
++ Type of spacecraft to be HS 601 or HS 702 at HCG discretion.
** Ring redundancy allows every transponder the potential to access multiple
spares.
<PAGE>
EXHIBIT B
C-BAND TRANSPONDER PERFORMANCE SPECIFICATIONS:
GALAXY IX
The saturation flux density range, satellite G/T, transponder EIRP, cross
polarization isolation, frequency response, group delay, stability and
stationkeeping values specified in this Exhibit shall be valid for all
conditions of satellite operation while at the specified orbital location. The
conditions include but are not limited to- solar eclipse, normal attitude and
stationkeeping maneuvers, any time of day, etc. Specified performance values are
listed in Table I.
-1-
<PAGE>
EXHIBIT 10.4
GALAXY IX TRANSPONDER SERVICE AGREEMENT
BETWEEN
HUGHES COMMUNICATIONS SATELLITE SERVICES, INC.
AND
TVN ENTERTAINMENT CORPORATION
<PAGE>
TABLE OF CONTENTS
-----------------
Article Page
- ------- ----
1 SERVICES AND TERM........................ 2
1.01 Terms of Agreement.................. 2
1.02 Services............................ 2
2 SERVICE FEE AND PAYMENTS................. 2
3 REPRESENTATIONS AND WARRANTIES........... 2
3.01 Authority, No Breach................ 2
3.02 Corporate Action.................... 3
3.03 Common Clauses in Service Agreements 3
3.04 Consents............................ 3
3.05 Litigation.......................... 3
3.06 Non-Interference.................... 3
4 OBLIGATIONS OF CONTRACTOR................ 4
4.01 Satellite........................... 4
4.02 Use of the Transponder Spares....... 4
4.03 Reserve Transponders................ 4
4.04 Government Regulations.............. 4
4.05 Tracking, Telemetry and Control..... 4
5 FORCE MAJEURE............................ 4
6 LIMITATION OF LIABILITY.................. 5
6.01 General Limitation.................. 5
6.02 Equitable Relief.................... 5
6 REPORTS.................................. 6
7.01 Operational Reports................. 6
7.02 Anomalous Operation Notification.... 6
7.03 Maneuver Notification............... 6
7.04 Inspection Rights of Lessee......... 7
8 CONFIDENTIALITY.......................... 7
9 APPLICABLE LAW........................... 8
10 FURTHER NOTIFICATIONS.................... 8
11 MODIFICATION............................. 8
i
<PAGE>
12 TERMINATION..................................... 8
12.01 Contractor's Termination Rights........... 8
12.02 Contractor's Right to Deny Access......... 8
12.03 Automatic Termination..................... 9
13 MISCELLANEOUS................................... 9
13.01 Entire Agreement and Amendment............ 9
13.02 Non-Waiver of Breach...................... 9
13.03 Notices................................... 9
13.04 Severability.............................. 11
13.05 Counterparts.............................. 11
13.06 Successors................................ 11
13.07 Headings.................................. 11
13.08 No Third-Party Beneficiary................ 11
13.09 Survival of Representations and Warranties 11
13.10 Transfer.................................. 12
ADDENDUM
I Defined Terms
ii
<PAGE>
GALAXY IX TRANSPONDER SERVICE AGREEMENT
---------------------------------------
This Transponder Service Agreement (the "Agreement") (all such defined
terms herein are so capitalized and referenced in Addendum I) is made and
entered into as of November 29, 1995 (the "Execution Date") by and between
Hughes Communications Satellite Services, Inc. ("Contractor"), a California
corporation, and TVN Entertainment Corporation ("Lessee"), a Delaware
corporation.
RECITALS
--------
WHEREAS, subject to the approval of the Federal Communications Commission,
Hughes Communications Galaxy, Inc. ("HCG"), an Affiliate of Contractor, shall
cause a domestic communications satellite, Galaxy IX and Galaxy X (individually,
the "Satellite" and collectively, the "Satellites"), to be built containing C-
Band capacity (the "Transponders");
WHEREAS, Lessee has agreed, pursuant to a lease agreement between Lessee
and HCG of even date herewith (the "Transponder Lease Agreement") to lease five
(5) Primary Transponders on Galaxy IX and, upon the successful launch and
operation of Galaxy X, five (5) C-Band Primary Transponders on Galaxy X
(individually, the "Lessee Transponder" and collectively, the "Lessee's
Transponders"). Unless otherwise defined herein, all capitalized terms are as
set forth in the Transponder Lease Agreement;
WHEREAS, HCG has caused certain redundant equipment units (collectively,
the "Transponder Spares" and individually, a "Transponder Spare") to be placed
on the Satellite to be used to replace Transponder equipment units that fail to
meet the Transponder Performance Specifications as defined in the Transponder
Lease Agreement (the "Transponder Performance Specifications"), and HCG has
agreed to make said equipment units available for use as set forth in the
Transponder Lease Agreement;
WHEREAS, HCG and Lessee have agreed that Contractor shall perform the
satellite operational services (the "Services") for Lessee on the terms and
conditions specified in this Agreement and Contractor is willing to perform such
Services;
WHEREAS, Lessee has, concurrently herewith, agreed to pay for such Services
pursuant to the Transponder Lease Agreement, and HCG has assigned its right to
payment for such Services under the Transponder Lease Agreement to Contractor,
and Lessee is agreeable to such assignment; and
WHEREAS, Lessee and Contractor desire this Agreement to become effective
only upon Delivery of Galaxy IX (as defined in the Transponder Lease Agreement)
of Lessee's Transponders by HCG to Lessee as set forth in the Transponder Lease
Agreement.
1
<PAGE>
AGREEMENT
---------
NOW, THEREFORE, in consideration of the mutual promises set forth below,
and for other good and valuable consideration the receipt and adequacy of which
are hereby acknowledged, HCG and Lessee hereby mutually agree as follows:
ARTICLE 1. SERVICES AND TERM
-----------------
1.01 Terms of Agreement. Contractor shall provide the Services set forth
------------------
in Section 1.02 hereof for a continuous period from Delivery of Lessee's
Transponders until the Transponder Lease Agreement is either terminated or
cancelled, or expires, in its entirety (the "Service Term").
1.02 Services. The Services to be rendered by Contractor hereunder are as
--------
follows:
(a) Monitoring and managing the use of electric power on the Satellite
to operate Lessee's Transponder;
(b) Monitoring and managing the use of the Satellite's propellant so
that the attitude and orbital position are maintained;
(c) Monitoring and managing all other functions of the Satellite which
support Lessee's Transponder so as to enable Lessee's Transponder to meet
the Transponder Performance Specifications;
(d) Monitoring and analyzing the Satellite's telemetry data; and
(e) Other services provided for in this Agreement.
ARTICLE 2. SERVICE FEE AND PAYMENTS
------------------------
The fee for the Services provided by Contractor hereunder (the "TT&C Fee"
or "Service Fee") shall be as set forth in the Transponder Lease Agreement, and,
pursuant thereto, payment of the TT&C Fee to Contractor shall be the
responsibility of HCG.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES
------------------------------
Contractor and Lessee each, except as expressly indicated herein, represent
and warrant to, and agree with, the other that:
3.01 Authority, No Breach. It has the right, power and authority to enter
--------------------
into, and perform its obligations under, this Agreement. The execution, delivery
and performance of this Agreement shall not result in the breach or
nonperformance of any agreements it has with third parties.
2
<PAGE>
3.02 Corporate Action. It has taken all requisite corporate (or
----------------
partnership, as appropriate) action to approve the execution, delivery and
performance of this Agreement, and this Agreement constitutes a legal, valid and
binding obligation upon itself in accordance with its terms.
3.03 Common Clauses in Service Agreements. Contractor alone represents,
------------------------------------
warrants and agrees that it will require, in all service agreements between
itself and all other Transponder Lessees on the Satellite, clauses substantially
identical to, or terms the effect of which shall be as or more restrictive with
respect to such Lessees than, the provisions of Sections 3.06, 12.01 and 13.08
hereof, and Contractor will require, in all service agreements between itself
and other Transponder Lessees on the Satellite, a clause consistent with the
provisions of Sections 4.02 and 4.03 hereof.
3.04 Consents. The execution and delivery of this Agreement, the
--------
performance of its obligations hereunder, and the consummation of the
transactions contemplated hereby, will not result in a material violation of, or
material default under, or the occurrence of an event which with notice or lapse
of time or both would constitute a material default under, or material
noncompliance with, any applicable Law, any indenture, mortgage, deed of trust,
loan agreement, purchase agreement, option agreement or other agreement or
instrument to which it is a party or by which it or any material portion of its
property is bound, its articles of incorporation or by-laws, partnership
agreement, or other charter documents, as the case may be. All necessary or
material appropriate public or private consents, permissions, agreements,
licenses, or authorizations to which it is subject in connection with the
transactions contemplated hereby, or which it must obtain by virtue of its
ownership or use of or operation of any Transponder or the Satellite have been
or shall be obtained in a timely manner.
3.05 Litigation. To the best of its knowledge, there is no outstanding or
----------
threatened judgment, threatened or pending litigation or proceeding, involving
or affecting the transactions provided for in, or contemplated by, this
Agreement, except as is concurrently being disclosed in writing by either party
to the other.
3.06 Non-Interference. Lessee alone represents, warrants and agrees that
----------------
its radio transmissions (and those of its uplinking agents) to the Satellite
shall comply, in all material respects, with all Federal Communications
Commission or any successor agency thereto (collectively, the "FCC") and all
other governmental (whether international, federal, state, municipal or
otherwise) statutes, laws, rules, regulations, ordinances, codes, directives and
orders, of any such governmental agency, body, or court (collectively, "Laws")
applicable to it regarding the operation of the Satellite and Lessee's
Transponder and shall not interfere with the use of any other Transponder.
Lessee shall not utilize (or permit or allow any of its uplinking agents to
utilize) any of Lessee's Transponder in a manner which will or may interfere
with the use of any other Transponder or cause physical harm to any of Lessee's
Transponder, any other Transponders, or to the Satellite. Further, Lessee
3
<PAGE>
will coordinate (and will require its uplinking agents to coordinate) with HCG,
in accordance with procedures reasonably established by HCG and uniformly
applied to all Lessees and users of Transponders on the Satellite, its
transmissions to the Satellite, so as to minimize adjacent channel and adjacent
satellite interference. For purposes of this Section 3.06, interference shall
also mean acts or omissions which cause a Transponder to fail to meet its
transponder performance specifications. Without limiting the generality of the
foregoing, Lessee (and its uplinking agents) shall comply with all FCC rules and
regulations regarding the use of automatic transmitter identification systems
(ATIS).
ARTICLE 4. OBLIGATIONS OF CONTRACTOR
-------------------------
4.01 Satellite. Contractor will maintain the Satellite in the orbital
---------
position which the FCC has designated or shall hereafter designate for it.
4.02 Use of the Transponder Spares. Throughout the Service Term,
-----------------------------
Contractor may employ, in conjunction with HCG, and pursuant to the specific
terms and conditions in Section 9 of the Transponder Lease Agreement, a
Transponder Spare or Spares.
4.03 Reserve Transponders. Throughout the Service Term, Contractor may
--------------------
substitute, in conjunction with HCG, and pursuant to the specific terms and
conditions in Section 9 of the Transponder Lease Agreement, a Reserve
Transponder or Reserve Transponders. Upon such substitution, such a Reserve
Transponder shall be deemed to be a Lessee's Transponder for the purposes of
this Agreement.
4.04 Government Regulations. Contractor has or shall use its best efforts
----------------------
throughout the Service Term to obtain and maintain, in all material respects,
all federal, state and municipal authorizations or permissions to operate the
Satellite applicable to Contractor with respect to the Satellite, and to comply,
in all material respects, with all such governmental regulations regarding the
operation of Lessee's Transponder applicable to Contractor with respect to the
Satellite.
4.05 Tracking, Telemetry and Control. Contractor shall employ at least two
-------------------------------
earth stations which between them shall provide in conjunction with HCG's
Operations Control Center in E1 Segundo, California, for all of the functions of
tracking, telemetry and control ("TT&C") of the Satellite. Contractor shall
notify Lessee as to the operator (if other than Contractor) and the location of
the two earth stations, and any changes thereto.
ARTICLE 5. FORCE MAIEURE
-------------
Any failure or delay of Contractor to provide Services shall not be a
breach of this Agreement if such failure or delay results from any acts of God,
governmental action or Law (whether in its sovereign or contractual capacity),
or any other
4
<PAGE>
circumstances reasonably beyond the control of Contractor, including, but not
limited to, earth station sun outage, weather, or acts or omissions of Lessee or
any third parties (excluding the Hughes Aircraft Company and all of its direct
and indirect subsidiaries, and any other Affiliates of Contractor or the Hughes
Aircraft Company with whom Contractor or the Hughes Aircraft Company contracts
to provide the Services).
ARTICLE 6. LIMITATION OF LIABILITY
-----------------------
6.01 General Limitation. ANY AND ALL EXPRESS AND IMPLIED WARRANTIES ARE
------------------
EXPRESSLY EXCLUDED AND DISCLAIMED EXCEPT TO THE EXTENT SPECIFICALLY AND
EXPRESSLY PROVIDED FOR IN THIS AGREEMENT. IT IS EXPRESSLY AGREED THAT
CONTRACTOR'S SOLE OBLIGATIONS AND LIABILITIES RESULTING FROM A BREACH OF THIS
AGREEMENT, AND LESSEE'S EXCLUSIVE REMEDIES FOR ANY CAUSE WHATSOEVER (INCLUDING,
WITHOUT LIMITATION, LIABILITY ARISING FROM NEGLIGENCE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT AND/OR THE TRANSACTIONS CONTEMPLATED HEREBY, ARE
LIMITED TO THOSE SET FORTH IN SECTIONS 2 AND 6.02 HEREOF, AND ALL OTHER REMEDIES
OF ANY KIND ARE EXPRESSLY EXCLUDED INCLUDING, WITHOUT LIMITATION, ALL RIGHTS AND
REMEDIES OF LESSEE UNDER DIVISION 10, CHAPTER 5, ARTICLE 2 AND SECTIONS 10209,
10406 AND 10304 OF THE CALIFORNIA UNIFORM COMMERCIAL CODE. IN NO EVENT SHALL
CONTRACTOR BE LIABLE FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES, WHETHER
FORESEEABLE OR NOT, OCCASIONED BY CONTRACTOR'S FAILURE TO PERFORM HEREUNDER,
DELAY IN ITS PERFORMANCE, FAILURE OF THE LESSEE'S TRANSPONDER TO PERFORM OR ANY
OTHER CAUSE WHATSOEVER. CONTRACTOR MAKES NO WARRANTY, EXPRESS OR IMPLIED, TO ANY
OTHER PERSON OR ENTITY CONCERNING THE LESSEE'S TRANSPONDER OR THE SATELLITE OR
THE SERVICES, AND LESSEE SHALL DEFEND AND INDEMNIFY CONTRACTOR FROM ANY CLAIMS
MADE UNDER ANY WARRANTY OR REPRESENTATION BY LESSEE TO ANY THIRD PARTY. THE
LIMITATIONS OF LIABILITY SET FORTH HEREIN SHALL ALSO APPLY TO HUGHES AIRCRAFT
COMPANY (THE MANUFACTURER OF THE SATELLITE AND LESSEE'S TRANSPONDER) AND ALL
AFFILIATES THEREOF. "Affiliate" means any corporation or other entity
controlling, controlled by, or under common control with, Lessee, Contractor, or
the Hughes Aircraft Company, as the case may be.
6.02 Equitable Relief. Lessee and Contractor shall each have the right to
----------------
obtain injunctive relief, if necessary, in order to prevent the other party from
willfully breaching its obligations under this Agreement or to compel the other
party to perform its obligations under this Agreement.
5
<PAGE>
ARTICLE 7. REPORTS
-------
7.01 Operational Reports. After commencement of the Services hereunder,
-------------------
Contractor shall provide Lessee a monthly written operational report concerning
the Satellite and Lessee's Transponder which shall contain the following
information:
(a) Projected solar array life based on total Satellite power
performance and communications payload requirements;
(b) Projected battery life based on total Satellite power performance
and communications payload requirements;
(c) Projected Satellite life based on fuel remaining and its predicted
utilization;
(d) Configuration of Lessee's Transponder and the associated Satellite
supporting subsystems;
(e) A statement on the expected operating life of Lessee's Transponder
and the basis for such a projection, taking into account the health of
Lessee's Transponder and its associated support subsystems;
(f) The Satellite's orbital parameters;
(g) Information concerning whether any Transponder Spares or Reserve
Transponders have been employed on behalf of any Lessee or user;
(h) Information concerning predicted eclipses and sun outages; and
(i) Other information pertinent to the operation of Lessee's
Transponder and the Satellite that Lessee may reasonably request.
7.02 Anomalous Operation Notification. Contractor shall notify Lessee as
--------------------------------
soon as possible by telephone, with prompt written confirmation thereafter, of
any significant anomalous condition which Contractor detects in Lessee's
Transponder or associated Satellite supporting subsystems and which have a
material effect or potential material effect on the Satellite. Contractor shall
also notify Lessee promptly of any circumstances that make it clearly
ascertainable or predictable that any of the incidents described in this Section
7.02 will occur. Any notice given to Lessee under this Section 7.02 shall not
relieve Contractor of any liability or obligation hereunder relating to such
anomalous operation.
7.03 Maneuver Notification. To the extent operationally feasible,
---------------------
Contractor shall notify Lessee of all Satellite maneuvers, except for routine
station-keeping, at least three days in advance of their scheduled initiation
and, if such
6
<PAGE>
maneuver will result in a change of its assigned orbital position, promptly upon
HCG's receipt of FCC authorization or direction of such maneuver.
7.04 Inspection Rights of Lessee. Lessee shall have the right to inspect
---------------------------
the TT&C stations upon reasonable notice to Contractor and during normal
business hours accompanied by an employee or agent of Contractor. Lessee shall
not have the right to inspect any TT&C station at any time or in any manner that
could cause disruption to the operation of such TT&C station. Lessee shall have
the right to examine all test results and data relating to TT&C of or for
Lessee's Transponder on the Satellite.
ARTICLE 8. CONFIDENTIALITY
---------------
Contractor and Lessee shall hold in confidence this Agreement, including
the financial terms and provisions hereof, and all information provided to
Lessee hereby, and Contractor and Lessee hereby acknowledge and agree that all
information received in connection with or otherwise related to this Agreement,
not otherwise known to the public, is confidential and proprietary and is not to
be disclosed to third persons (other than to Affiliates, or to officers,
directors, employees and agents of Contractor or Lessee, each of whom is bound
by this Article 8) without the prior written consent of both Contractor and
Lessee, except as follows'
(a) to the extent necessary to comply with applicable Law, provided,
that the party making such disclosure shall seek confidential treatment of
such information;
(b) as part of its normal reporting or review procedure to regulatory
agencies, its parent company, its auditors and its attorneys, provided, the
party making such disclosure to any such regulatory agency shall seek
confidential treatment of such information, and, provided, that any other
third party to whom disclosure is made agrees to the confidential treatment
of such information;
(c) in order to enforce its rights and/or perform its obligations
pursuant to this Agreement;
(d) to the extent necessary to obtain appropriate insurance, to its
insurance agent, provided, that such agent agrees to the confidential
treatment of such information; and
(e) to the extent necessary to satisfy its obligations to other
Lessees or users of the Transponders or to negotiate clauses that will be
common to all transponder service agreements.
7
<PAGE>
ARTICLE 9. APPLICABLE LAW
--------------
The existence, validity, construction, operation and effect of this
Agreement shall be determined in accordance with and be governed by the laws of
the State of California.
ARTICLE 10. FURTHER NOTIFICATIONS
---------------------
Each party shall promptly notify the other party of any information
delivered to or obtained by such party which would prevent the consummation of
the transactions contemplated by this Agreement or would indicate a breach of
the representations or warranties of any of the parties to this Agreement;
provided that the failure so to notify will not constitute a waiver of such
party's rights.
ARTICLE 11. MODIFICATION
------------
In the event that the Transponder Lease Agreement is modified or
reconstituted in such manner as to affect provisions in this Agreement, then
this Agreement shall be modified accordingly.
ARTICLE 12. TERMINATION
-----------
12.01 Contractor's Termination Rights. If Lessee's radio transmissions or
-------------------------------
those of its uplinking agent to or from the Satellite interfere, under standard
engineering practice, with the use of any Transponder not owned by Lessee
located on the Satellite, or if Lessee or its uplinking agent utilizes Lessee's
Transponder in a manner which interferes, under standard engineering practice,
with the use of, or causes physical harm to, any other Transponder located on
the Satellite, and such radio transmission or utilization by Lessee does not
cease immediately after the receipt of notice thereof from Contractor (which
notice may, notwithstanding Section 13.03 hereof, be given to Lessee by
telephone to a telephone number provided to Contractor and maintained by Lessee
for the purpose of receiving such notices by Contractor, which telephone shall
be continuously staffed by Lessee so as to enable Lessee to receive such notices
at all times), Contractor shall have the right to take any and all steps
necessary to terminate such radio transmission or utilization by Lessee or its
uplinking agent. Contractor shall have the further right to continue such steps
so taken until such time as Lessee's radio transmissions or those of its
uplinking agent to or from the Satellite or Lessee's utilization of its
Transponder, as the case may be, shall not interfere, under standard engineering
practice, with the use of any Transponder not owned by Lessee located on the'
Satellite and shall not cause physical harm to any Transponder not owned by
Lessee on the Satellite or to the Satellite.
12.02 Contractor's Right to Deny Access. If HCG is entitled to prevent
---------------------------------
Lessee from accessing any part or all of the Lessee's Transponder pursuant to
Section 10.06 of the Transponder Lease Agreement, Contractor shall be entitled
to take any and all
8
<PAGE>
steps necessary to terminate Lessee's (or its uplinking agent's) radio
transmission to or utilization of such Transponder.
12.03 Automatic Termination. This Agreement shall automatically terminate
---------------------
with respect to the Lessee's Transponder if the Transponder Lease Agreement is
terminated, is cancelled, or expires, with respect to such Lessee's Transponder.
ARTICLE 13. MISCELLANEOUS
-------------
13.01 Entire Agreement and Amendment. This Agreement and the Transponder
------------------------------
Lease Agreement constitute the entire agreement between the parties, and
supersede all previous understandings, commitments or representations concerning
the subject matter. This Agreement may not be amended or modified in any way,
and none of its provisions may be waived, except by a writing signed by an
authorized officer of the party against whom the amendment, modification or
waiver is sought to be enforced. The parties each acknowledge that the other
party has not made any representations other than those which are contained
herein.
13.02 Non-Waiver of Breach. Either party hereto may specifically waive any
--------------------
breach of this Agreement by the other party, provided that no such waiver shall
be binding or effective unless in writing and no such waiver shall constitute a
continuing waiver of similar or other breaches. A waiving party, at any time and
upon notice given in writing to the breaching party, may direct future
compliance with the waived term or terms of this Agreement, in which event the
breaching party shall comply as directed from such time forward.
13.03 Notices.
--------
(a) Each party shall provide the other party with a telephone number
to be used for routine and emergency operational notifications, which
telephone shall be continuously staffed so as to enable the receipt of such
notices at all times. For routine notifications, any such telephonic
notification shall be followed up with written notification as outlined in
subparagraph (b) below.
(b) All notices and other communications from either party to the
other hereunder shall be in writing and shall be deemed received when
actually received if personally delivered, upon acknowledgement of receipt
if sent by facsimile, or upon the expiration of the third business day
after being deposited in the United States mails, postage prepaid,
certified or registered, addressed to the other party as follows:
9
<PAGE>
TO CONTRACTOR:
If by mail: Hughes Communications Satellite Services, Inc.
Post Office Box 92424
Worldway Postal Center
Los Angeles, California 90009
Attention: Senior Vice President - Galaxy Services
cc: Associate General Counsel
If by FAX: Hughes Communications Satellite Services, Inc.
Attention: Senior Vice President- Galaxy Services
(310) 607-4255
cc: Associate General Counsel
(310) 607-4258
If by personal
delivery to its
principal place
of business at: Hughes Communications Satellite Services, Inc.
1990 East Grand Avenue
E1 Segundo, California 90245
Attention: Senior Vice President- Galaxy Services
cc: Associate General Counsel
TO LESSEE:
If by mail: TVN Entertainment Corporation
_____________________________________
_____________________________________
Attention: _________________________
cc: _________________________
If by FAX: TVN Entertainment Corporation
Attention: _________________________
cc: _________________________
If by personal
delivery to its
principal place
of business at: TVN Entertainment Corporation
_____________________________________
_____________________________________
Attention: _________________________
cc: _________________________
10
<PAGE>
All payments to be made under this Agreement, if made by mail, shall be deemed
to have been made on the date of actual receipt thereof. The parties hereto may
change their addresses by giving notice thereof in conformity with this Section
13.03.
13.04 Severability. Nothing contained in this Agreement shall
------------
be construed so as to require the commission of any act contrary to any of the
Laws, and wherever there is any conflict between any provision of this Agreement
and any Law, such Law shall prevail; provided, however, that in such event the
provisions of this Agreement so affected shall be curtailed and limited only to
the extent necessary to permit compliance with the minimum legal requirement,
and no other provisions of this Agreement shall be affected thereby, and all
such other provisions shall continue in full force and effect. Nothing contained
herein shall affect the reconstitution provisions contained in Section 11
hereof.
13.05 Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed to be an original, and all such
counterparts together shall constitute but one and the same instrument.
13.06 Successors. Subject to the limitations on Transfer set forth in
----------
Section 13.10, this Agreement shall be binding on and shall inure to the benefit
of any and all successors and assigns of the parties.
13.07 Rules of Construction and Headings. Any ambiguities shall be
----------------------------------
resolved without reference to which party may have drafted this Agreement. The
description headings of the several sections and paragraphs of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
13.08 No Third-Party Beneficiary. The provisions of this Agreement are
--------------------------
for the benefit only of the parties hereto and HCG, and no third party other
than HCG may seek to enforce, or benefit from these provisions, except that both
parties acknowledge and agree that the provisions of Section 3.06 hereof are
intended for the benefit of both Contractor and all other Transponder Lessees
and both parties agree that any other such Transponder Lessee shall have the
right to enforce, as a third-party beneficiary, the provisions of Section 3.06
hereof, against Lessee directly, in an action brought solely by such other
Transponder Lessee, or may join with Contractor or any other Transponder Lessee
or user in bringing an action against Lessee for violation of such Sections.
13.09 Survival of Representations and Warranties. All representations
------------------------------------------
and warranties contained herein or made by Contractor or Lessee in connection
herewith shall survive any independent investigation made by Contractor or
Lessee.
11
<PAGE>
13.10 Transfer.
--------
(a) Except as otherwise permitted under the terms of the Transponder
Lease Agreement, Lessee shall not Transfer (as defined in the Transponder
Lease Agreement) any of its rights and/or obligations under this Agreement
except with the prior written consent of Contractor, which consent may be
given or withheld in Contractor's sole and absolute discretion. In the
event of any such Transfer by Lessee, Lessee shall remain fully liable
along with its transferee for all its obligations under this Agreement and
the Transponder Lease Agreement.
(b) Contractor may Transfer any or all of its rights and/or
obligations under this Agreement to any Affiliate or any third party,
provided, that no such Transfer by Contractor shall adversely affect
Lessee's rights or obligations hereunder, provided, further, that
Contractor shall not Transfer any of its obligations under this Agreement
to a non-Affiliate except with the prior written consent of Lessee, which
consent shall not unreasonably be withheld or delayed. In the event of any
such Transfer by Contractor, Contractor shall remain fully liable for all
its obligations under this Agreement.
(c) Any purported Transfer by either party not in compliance with the
provisions of this Agreement shall be null and void and of no force and
effect.
IN WITNESS WHEREOF, each of the parties hereto has duly executed and
delivered this Agreement as of the day and year first written above.
"Contractor"
HUGHES COMMUNICATIONS
SATELLITE SERVICES, INC.
By: /s/ Carl A. Brown
---------------------------------
Title: Senior Vice President
------------------------------
"Lessee"
TVN ENTERTAINMENT CORPORATION
By: /s/ Arthur Fields
---------------------------------
Title: Sr. Exec. V.P.
------------------------------
12
<PAGE>
ADDENDUM I
DEFINED TERMS
TERM SECTION
- -------------------------------------------------------
Affiliate............................... 6.01
Agreement............................... Intro. Clause
Contractor.............................. Intro. Clause
Execution Date.......................... Intro. Clause
FCC..................................... 3.06
HCG..................................... Recitals
Laws.................................... 3.06
Lessee.................................. Intro. Clause
Lessee's Transponder.................... 13.11
Replacement Transponder................. 13.11
Satellite............................... Recitals
Service Term............................ 1.01
Service Fee............................. 2
Services................................ Recitals
Transfer................................ 13.10
Transponders............................ Recitals
Transponder Performance Specifications.. 1.02(c)
Transponder Lease Agreement............. Recitals
Transponder Spares...................... Recitals
Transponder Spare....................... Recitals
TT&C Fee................................ 2
TT&C.................................... 4.05
13
<PAGE>
EXHIBIT 10.5
TVN ENTERTAINMENT CORPORATION
1996 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Stock Option Plan are to
--------------------
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be incentive stock options (as
defined under Section 422 of the Code) or nonstatutory stock options, as
determined by the Administrator at the time of grant of an option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees appointed
-------------
pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
-----
(c) "Code" means the Internal Revenue Code of 1986, as amended.
----
(d) "Committee" means a Committee appointed by the Board of Directors
---------
in accordance with Section 4 of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
------------
(f) "Company" means TVN Entertainment Corporation, a Delaware
-------
corporation.
(g) "Consultant" means any person who is engaged by the Company or any
----------
Parent or Subsidiary to render consulting or advisory services and is
compensated for such services, and any director of the Company whether
compensated for such services or not. If and in the event the Company registers
any class of any equity security pursuant to the Exchange Act, the term
Consultant shall thereafter not include directors who are not compensated for
their services or are paid only a director's fee by the Company.
(h) "Continuous Status as an Employee or Consultant" means that the
----------------------------------------------
employment or consulting relationship with the Company, any Parent, or
Subsidiary, is not interrupted or terminated. Continuous Status as an Employee
or Consultant shall not be considered interrupted in the case of (i) any leave
of absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor. A
leave of absence approved by the Company shall include sick leave, military
leave, or any other personal leave approved by an authorized representative of
the Company. For purposes of Incentive Stock Options, no such leave may exceed
90 days, unless reemployment upon expiration of such leave is guaranteed by
statute or contract, including Company policies. If reemployment upon expiration
of a leave of absence approved by the Company
<PAGE>
is not so guaranteed, on the 181st day of such leave any Incentive Stock Option
held by the Optionee shall cease to be treated as an Incentive Stock Option and
shall be treated for tax purposes as a Nonstatutory Stock Option.
(i) "Employee" means any person, including Officers and directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(k) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, its Fair Market Value shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such exchange or system for the last market trading day
prior to the time of determination, as reported in The Wall Street Journal or
such other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but not
on the Nasdaq National Market thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
on the last market trading day prior to the day of determination, or;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(1) "Incentive Stock Option" means an Option intended to qualify as an
----------------------
incentive stock option within the meaning of Section 422 of the Code.
(m) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(n) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(o) "Option" means a stock option granted pursuant to the Plan.
------
(p) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(q) "Optionee" means an Employee or Consultant who receives an Option.
--------
-2-
<PAGE>
(r) "Parent" means a "parent corporation", whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(s) "Plan" means this 1996 Stock Option Plan.
----
(t) "Section 16(b)" means Section 16(b) of the Securities Exchange Act
-------------
of 1934, as amended.
(u) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 11 below.
(v) "Subsidiary" means a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 11 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 2,400,000 Shares. The Shares may be authorized, but unissued,
or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option Exchange Program, the
unpurchased Shares which were subject thereto shall become available for future
grant or sale under the Plan (unless the Plan has terminated); provided,
--------
however, that Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan, except that if unvested Shares are repurchased by the Company at
their original purchase price, and the original purchaser of such Shares did not
receive any benefits of ownership of such Shares, such Shares shall become
available for future grant under the Plan. For purposes of the preceding
sentence, voting rights shall not be considered a benefit of Share ownership.
4. Administration of the Plan.
--------------------------
(a) Initial Plan Procedure. Prior to the date, if any, upon which the
----------------------
Company becomes subject to the Exchange Act, the Plan shall be administered by
the Board or a committee appointed by the Board.
(b) Plan Procedure after the Date, if any, upon Which the Company
-------------------------------------------------------------
becomes Subject to the Exchange Act.
- -----------------------------------
(i) Administration with Respect to Directors and Officers. With
-----------------------------------------------------
respect to grants of Options to Employees who are also Officers or directors of
the Company, the Plan shall be administered by (A) the Board if the Board may
administer the Plan in compliance with the rules under Rule 16b-3 promulgated
under the Exchange Act or any successor thereto ("Rule 16b-3") relating to the
disinterested administration of employee benefit plans under which Section 16(b)
exempt discretionary
-3-
<PAGE>
grants and awards of equity securities are to be made, or (B) a Committee
designated by the Board to administer the Plan, which Committee shall be
constituted to comply with the rules under Rule 16b-3 relating to the
disinterested administration of employee benefit plans under which Section 16(b)
exempt discretionary grants and awards of equity securities are to be made. Once
appointed, such Committee shall continue to serve in its designated capacity
until otherwise directed by the Board. From time to time the Board may increase
the size of the Committee and appoint additional members thereof, remove members
(with or without cause) and appoint new members in substitution therefor, fill
vacancies, however caused, and remove all members of the Committee and
thereafter directly administer the Plan, all to the extent permitted by the
rules under Rule 16b-3 relating to the disinterested administration of employee
benefit plans under which Section 16(b) exempt discretionary grants and awards
of equity securities are to be made.
(ii) Multiple Administrative Bodies. If permitted by Rule 16b-3, the
------------------------------
Plan may be administered by different bodies with respect to directors, non-
director Officers and Employees who are neither directors nor Officers.
(iii) Administration With Respect to Consultants and Other Employees.
--------------------------------------------------------------
With respect to grants of Options to Employees or Consultants who are neither
directors nor Officers of the Company, the Plan shall be administered by (A) the
Board or (B) a committee designated by the Board, which committee shall be
constituted in such a manner as to satisfy the legal requirements relating to
the administration of incentive stock option plans, if any, of California
corporate and securities laws, of the Code, and of any applicable stock exchange
(the "Applicable Laws"). Once appointed, such Committee shall continue to serve
in its designated capacity until otherwise directed by the Board. From time to
time the Board may increase the size of the Committee and appoint additional
members thereof, remove members (with or without cause) and appoint new members
in substitution therefor, fill vacancies, however caused, and remove all members
of the Committee and thereafter directly administer the Plan, all to the extent
permitted by the Applicable Laws.
(c) Powers of the Administrator. Subject to the provisions of the Plan
---------------------------
and, in the case of a Committee, the specific duties delegated by the Board to
such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any stock exchange upon which the Common
Stock is listed, the Administrator shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(k) of the Plan;
(ii) to select the Consultants and Employees to whom Options may
from time to time be granted hereunder;
(iii) to determine whether and to what extent Options are
granted hereunder;
-4-
<PAGE>
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions of any award granted
hereunder;
(vii) to determine whether and under what circumstances an Option
may be settled in cash under subsection 9(f) instead of Common Stock;
(viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option has declined since the date the Option was granted; and
(ix) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan.
(d) Effect of Administrator's Decision. All decisions, determinations
----------------------------------
and interpretations of the Administrator shall be final and binding on all
Optionees and any other holders of any Options.
5. Eligibility.
-----------
(a) Nonstatutory Stock Options may be granted to Employees and
Consultants. Incentive Stock Options may be granted only to Employees. An
Employee or Consultant who has been granted an Option may, if otherwise
eligible, be granted additional Options.
(b) Each Option shall be designated in the written option agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 5(b), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(c) The Plan shall not confer upon any Optionee any right with respect
to continuation of employment or consulting relationship with the Company, nor
shall it interfere in any way with his or her right or the Company's right to
terminate his or her employment or consulting relationship at any time, with or
without cause.
-5-
<PAGE>
(d) Upon the Company or a successor corporation issuing any class of
common equity securities required to be registered under Section 12 of the
Exchange Act or upon the Plan being assumed by a corporation having a class of
common equity securities required to be registered under Section 12 of the
Exchange Act, the following limitations shall apply to grants of Options to
Employees:
(i) No Employee shall be granted, in any fiscal year of the
Company, Options to purchase more than 600,000 Shares.
(ii) In connection with his or her initial employment, an
Employee may be granted Options to purchase up to an additional 250,000 Shares
which shall not count against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 11.
(iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 11), the cancelled Option will be counted against the limit
set forth in subsection (i) above. For this purpose, if the exercise price of an
Option is reduced, the transaction will be treated as a cancellation of the
Option and the grant of a new Option.
6. Term of Plan. The Plan shall become effective upon the earlier to occur
------------
of its adoption by the Board of Directors or its approval by the shareholders of
the Company, as described in Section 17 of the Plan. It shall continue in effect
for a term of ten (10) years unless sooner terminated under Section 13 of the
Plan.
7. Term of Option. The term of each Option shall be the term stated in the
--------------
Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. However, in the case of an Incentive
Stock Option granted to an Optionee who, at the time the Option is granted, owns
stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the term of the
Option shall be five (5) years from the date of grant thereof or such shorter
term as may be provided in the Option Agreement.
8. Option Exercise Price and Consideration.
---------------------------------------
(a) The per share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Board, but
shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option, owns stock representing more than ten percent (10%)
of the voting power of all classes
-6-
<PAGE>
of stock of the Company or any Parent or Subsidiary, the per Share exercise
price shall be no less than 110% of the Fair Market Value per Share on the date
of grant.
(B) granted to any Employee other than an Employee described
in the preceding paragraph, the per Share exercise price shall be no less than
100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of the grant of such
Option, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the per
Share exercise price shall be no less than 110% of the Fair Market Value per
Share on the date of the grant.
(B) granted to any person, the per Share exercise price shall
be no less than 85% of the Fair Market Value per Share on the date of grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option have been owned by the Optionee for more
than six months on the date of surrender and (y) have a Fair Market Value on the
date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised, (5) delivery of a properly executed
exercise notice together with such other documentation as the Administrator and
the broker, if applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay the
exercise price, or (6) any combination of the foregoing methods of payment. In
making its determination as to the type of consideration to accept, the Board
shall consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
9. Exercise of Option.
----------- ------
(a) Procedure for Exercise: Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Board, including performance criteria with respect to the
Company and/or the Optionee, and as shall be permissible under the terms of the
Plan, but in no case at a rate of less than 20% per year over five (5) years
from the date the Option is granted.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to
-7-
<PAGE>
exercise the Option and full payment for the Shares with respect to which the
Option is exercised has been received by the Company. Full payment may, as
authorized by the Board, consist of any consideration and method of payment
allowable under Section 8(b) of the Plan. Until the issuance (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such Shares,
no right to vote or receive dividends or any other rights as a shareholder shall
exist with respect to the Optioned Stock, notwithstanding the exercise of the
Option. The Company shall issue (or cause to be issued) such stock certificate
promptly upon exercise of the Option. No adjustment will be made for a dividend
or other right for which the record date is prior to the date the stock
certificate is issued, except as provided in Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Employment or Consulting Relationship. In the event
----------------------------------------------------
of termination of an Optionee's Continuous Status as an Employee or Consultant
with the Company (but not in the event of an Optionee's change of status from
Employee to Consultant (in which case an Employee's Incentive Stock Option shall
automatically convert to a Nonstatutory Stock Option on the date three (3)
months and one day from the date of such change of status) or from Consultant to
Employee), such Optionee may, but only within such period of time as is
determined by the Administrator, of at least thirty (30) days, with such
determination in the case of an Incentive Stock Option not exceeding three (3)
months after the date of such termination (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise his or her Option to the extent that Optionee was entitled
to exercise it at the date of such termination. To the extent that Optionee was
not entitled to exercise the Option at the date of such termination, or if
Optionee does not exercise such Option to the extent so entitled within the time
specified herein, the Option shall terminate.
(c) Disability of Optionee. In the event of termination of an
----------------------
Optionee's consulting relationship or Continuous Status as an Employee as a
result of his or her disability, Optionee may, but only within twelve (12)
months from the date of such termination (and in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise the Option to the extent otherwise entitled to exercise it
at the date of such termination; provided, however, that if such disability is
not a "disability" as such term is defined in Section 22(e)(3) of the Code, in
the case of an Incentive Stock Option such Incentive Stock Option shall
automatically convert to a Nonstatutory Stock Option on the day three months and
one day following such termination. To the extent that Optionee is not entitled
to exercise the Option at the date of termination, or if Optionee does not
exercise such Option to the extent so entitled within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.
(d) Death of Optionee. In the event of the death of an Optionee, the
-----------------
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the expiration of the term of such Option
as set forth in the Notice of Grant), by the Optionee's estate
-8-
<PAGE>
or by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent that the Optionee was entitled to exercise
the Option at the date of death. If, at the time of death, the Optionee was not
entitled to exercise his or her entire Option, the Shares covered by the
unexercisable portion of the Option shall immediately revert to the Plan. If,
after death, the Optionee's estate or a person who acquired the right to
exercise the Option by bequest or inheritance does not exercise the Option
within the time specified herein, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.
(e) Rule 16b-3. Options granted to persons subject to Section 16(b)
-----------
of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
(f) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
10. Non-Transferability of Options. Options may not be sold, pledged,
------------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
11. Adjustments Upon Changes in Capitalization or Merger.
----------------------------------------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least fifteen (15) days prior to such proposed
-9-
<PAGE>
action. To the extent it has not been previously exercised, the Option will
terminate immediately prior to the consummation of such proposed action.
(c) Merger. In the event of a merger of the Company with or into
------
another corporation, the Option may be assumed or an equivalent option may be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation. If, in such event, the Option is not assumed or
substituted, the Option shall terminate as of the date of the closing of the
merger. For the purposes of this paragraph, the Option shall be considered
assumed if, following the merger, the option confers the right to purchase, for
each Share of Optioned Stock subject to the Option immediately prior to the
merger, the consideration (whether stock, cash, or other securities or property)
received in the merger by holders of Common Stock for each Share held on the
effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares); provided, however, that if such consideration received
in the merger was not solely common stock of the successor corporation or its
Parent, the Administrator may, with the consent of the successor corporation,
provide for the consideration to be received upon the exercise of the Option for
each Share of Optioned Stock subject to the Option to be solely common stock of
the successor corporation or its Parent equal in fair market value to the per
share consideration received by holders of Common Stock in the merger.
12. Time of Granting Options. The date of grant of an Option shall, for
------------------------
all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Board. Notice
of the determination shall be given to each Employee or Consultant to whom an
Option is so granted within a reasonable time after the date of such grant.
13. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend, alter,
-------------------------
suspend or discontinue the Plan, but no amendment, alteration, suspension or
discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 1 6b-3 under the Exchange
Act or with Section 422 of the Code (or any other applicable law or regulation,
including the requirements of the NASD or an established stock exchange), the
Company shall obtain shareholder approval of any Plan amendment in such a manner
and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options already granted, and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
14. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act
-10-
<PAGE>
of 1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
15. Reservation of Shares. The Company, during the term of this Plan, will
---------------------
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
16. Agreements. Options shall be evidenced by written agreements in such
----------
form as the Board shall approve from time to time.
17. Shareholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under applicable state and federal law and the
rules of any stock exchange upon which the Common Stock is listed.
18. Information to Optionees and Purchasers. The Company shall provide to
---------------------------------------
each Optionee, not less frequently than annually, copies of annual financial
statements. The Company shall also provide such statements to each individual
who acquires Shares pursuant to the Plan while such individual owns such Shares.
The Company shall not be required to provide such statements to key employees
whose duties in connection with the Company assure their access to equivalent
information.
-11-
<PAGE>
TVN ENTERTAINMENT CORPORATION
1996 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
----------------------------
[Optionee's Name and Address]
---------------------------
- -------------------------------
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Grant Number _________________________________
Date of Grant _________________________________
Vesting Commencement Date _________________________________
Exercise Price per Share $________________________________
Total Number of Shares Granted _________________________________
Total Exercise Price $________________________________
Type of Option: ______ Incentive Stock Option
______ Nonstatutory Stock Option
Term/Expiration Date: _________________________________
Vesting Schedule:
----------------
This Option may be exercised, in whole or in part, in accordance with the
following schedule:
20% of the Shares subject to the Option shall vest twelve months after the
Vesting Commencement Date, and 1/60th of the Shares subject to the Option shall
vest each month thereafter.
<PAGE>
Termination Period:
------------------
This Option may be exercised for 30 days after termination of your
employment or consulting relationship, or such longer period as may be
applicable upon death or disability of Optionee as provided in the Plan. In the
event of the Optionee's change in status from Employee to Consultant or
Consultant to Employee, this Option Agreement shall remain in effect. In no
event shall this Option be exercised later than the Term/Expiration Date as
provided above.
II. AGREEMENT
---------
1. Grant of Option. TVN Entertainment Corporation, a Delaware
---------------
corporation (the "Company"), hereby grants to the Optionee named in the Notice
of Grant (the "Optionee"), an option (the "Option") to purchase the total number
of shares of Common Stock (the "Shares") set forth in the Notice of Grant, at
the exercise price per share set forth in the Notice of Grant (the "Exercise
Price") subject to the terms, definitions and provisions of the 1996 Stock Plan
(the "Plan") adopted by the Company, which is incorporated herein by reference.
Unless otherwise defined herein, the terms defined in the Plan shall have the
same defined meanings in this Option Agreement.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option as
defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds
the $100,000 rule of Code Section 422(d), this Option shall be treated as a
Nonstatutory Stock Option ("NSO").
2. Exercise of Option.
------------------
(a) Right to Exercise. This Option shall be exercisable during its
-----------------
term in accordance with the Vesting Schedule set out in the Notice of Grant and
with the applicable provisions of the Plan and this Option Agreement. In the
event of Optionee's death, disability or other termination of the employment or
consulting relationship, this Option shall be exercisable in accordance with the
applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option shall be exercisable by written
------------------
notice (in the form attached as Exhibit A) which shall state the election to
exercise the Option, the number of Shares in respect of which the Option is
being exercised, and such other representations and agreements as to the
holder's investment intent with respect to such shares of Common Stock as may be
required by the Company pursuant to the provisions of the Plan. Such written
notice shall be signed by the Optionee and shall be delivered in person or by
certified mail to the Secretary of the Company. The written notice shall be
accompanied by payment of the Exercise Price. This Option shall be deemed to be
exercised upon receipt by the Company of such written notice accompanied by the
Exercise Price.
No Shares will be issued pursuant to the exercise of an Option unless
such issuance and such exercise shall comply with all relevant provisions of law
and the requirements of any stock
-2-
<PAGE>
exchange upon which the Shares may then be listed. Assuming such compliance, for
income tax purposes the Shares shall be considered transferred to the Optionee
on the date on which the Option is exercised with respect to such Shares.
3. Optionee's Representations. In the event the Shares purchasable
--------------------------
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended, at the time this Option is exercised,
Optionee shall, if required by the Company, concurrently with the exercise of
all or any portion of this Option, deliver to the Company his or her Investment
Representation Statement in the form attached hereto as Exhibit B, and shall
read the applicable rules of the Commissioner of Corporations attached to such
Investment Representation Statement.
4. Method of Payment. Payment of the Exercise Price shall be by any of
-----------------
the following, or a combination thereof, at the election of the Optionee:
(a) cash;
(b) check;
(c) surrender of other shares of Common Stock of the Company which
(A) in the case of Shares acquired pursuant to the exercise of a Company option,
have been owned by the Optionee for more than six (6) months on the date of
surrender, and (B) have a Fair Market Value on the date of surrender equal to
the Exercise Price of the Shares as to which the Option is being exercised; or
(d) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the Exercise Price.
5. Restrictions on Exercise. This Option may not be exercised until such
------------------------
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as
promulgated by the Federal Reserve Board.
6. Market Standoff. Optionee hereby agrees that if so requested by the
---------------
Company or any representative of the underwriters in connection with any
registration of the offering of the securities of the Company under the
Securities Act of 1933, as amended (the "Act"), Optionee shall not sell or
otherwise transfer the Shares for a period of 180 days following the effective
date of a Registration filed under the Act; provided, that such restriction
shall apply only to the first registration statement of the Company to become
effective under the Act which include securities to be sold on behalf of the
Company in an underwritten offering under the Act. The Company may impose stop-
transfer
-3-
<PAGE>
instructions with respect to the Shares subject to the foregoing restrictions
until the end of each such 180-day period.
7. Termination of Relationship. In the event an Optionee's Continuous
---------------------------
Status as an Employee or Consultant terminates, Optionee may, to the extent
otherwise so entitled at the date of such termination (the "Termination Date"),
exercise this Option during the Termination Period set out in the Notice of
Grant. To the extent that Optionee was not entitled to exercise this Option at
the date of such termination, or if Optionee does not exercise this Option
within the time specified herein, the Option shall terminate.
8. Disability of Optionee. Notwithstanding the provisions of Section 6
----------------------
above, in the event of termination of an Optionee's consulting relationship or
Continuous Status as an Employee as a result of his or her disability, Optionee
may, but only within twelve (12) months from the date of such termination (and
in no event later than the expiration date of the term of such Option as set
forth in the Option Agreement), exercise the Option to the extent otherwise
entitled to exercise it at the date of such termination; provided, however, that
if such disability is not a "disability" as such term is defined in Section
22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive
Stock Option shall cease to be treated as an Incentive Stock Option and shall be
treated for tax purposes as a Nonstatutory Stock Option on the day three months
and one day following such termination. To the extent that Optionee was not
entitled to exercise the Option at the date of termination, or if Optionee does
not exercise such Option to the extent so entitled within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
9. Death of Optionee. In the event of termination of Optionee's Continuous
-----------------
Status as an Employee or Consultant as a result of the death of Optionee, the
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the date of expiration of the term of this
Option as set forth in Section 10 below), by Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent the Optionee could exercise the Option at the date of death.
10. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by Optionee. The terms of
this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
11. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option. The limitations set out
in Section 7 of the Plan regarding Options designated as Incentive Stock Options
and Options granted to more than ten percent (10%) shareholders shall apply to
this Option.
-4-
<PAGE>
12. Tax Consequences. Set forth below is a brief summary as of the date of
----------------
this Option of some of the federal and California tax consequences of exercise
of this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE
SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE
SHARES.
(a) Exercise of ISO. If this Option qualifies as an ISO, there will be
---------------
no regular federal income tax liability or California income tax liability upon
the exercise of the Option, although the excess, if any, of the Fair Market
Value of the Shares on the date of exercise over the Exercise Price will be
treated as an adjustment to the alternative minimum tax for federal tax purposes
and may subject the Optionee to the alternative minimum tax in the year of
exercise.
(b) Exercise of ISO Following Disability. If the Optionee's Continuous
------------------------------------
Status as an Employee or Consultant terminates as a result of disability that is
not total and permanent disability as defined in Section 22(e)(3) of the Code,
to the extent permitted on the date of termination, the Optionee must exercise
an ISO within three months of such termination for the ISO to be qualified as an
ISO.
(c) Exercise of Nonstatutory Stock Option. There may be a regular
-------------------------------------
federal income tax liability and California income tax liability upon the
exercise of a Nonstatutory Stock Option. The Optionee will be treated as having
received compensation income (taxable at ordinary income tax rates) equal to the
excess, if any, of the Fair Market Value of the Shares on the date of exercise
over the Exercise Price. If Optionee is an Employee or a former Employee, the
Company will be required to withhold from Optionee's compensation or collect
from Optionee and pay to the applicable taxing authorities an amount in cash
equal to a percentage of this compensation income at the time of exercise, and
may refuse to honor the exercise and refuse to deliver Shares if such
withholding amounts are not delivered at the time of exercise.
(d) Disposition of Shares. In the case of an NSO, if Shares are held
---------------------
for at least one year, any gain realized on disposition of the Shares will be
treated as long-term capital gain for federal and California income tax
purposes. In the case of an ISO, if Shares transferred pursuant to the Option
are held for at least one year after exercise and are disposed of at least two
years after the Date of Grant, any gain realized on disposition of the Shares
will also be treated as long-term capital gain for federal and [state] income
tax purposes. If Shares purchased under an ISO are disposed of within such one-
year period or within two years after the Date of Grant, any gain realized on
such disposition will be treated as compensation income (taxable at ordinary
income rates) to the extent of the difference between the Exercise Price and the
lesser of (1) the Fair Market Value of the Shares on the date of exercise, or
(2) the sale price of the Shares.
(e) Notice of Disqualifying Disposition of ISO Shares. If the Option
-------------------------------------------------
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1) the date two years after the Date of Grant, or (2) the date one
year after the date of exercise, the Optionee shall immediately notify the
Company in writing of such
-5-
<PAGE>
disposition. Optionee agrees that Optionee may be subject to income tax
withholding by the Company on the compensation income recognized by the
Optionee.
13. Entire Agreement; Governing Law. The Plan is incorporated herein by
-------------------------------
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and
-6-
<PAGE>
Optionee with respect to the subject matter hereof, and may not be modified
adversely to the Optionee's interest except by means of a writing signed by the
Company and Optionee. This agreement is governed by California law except for
that body of law pertaining to conflict of laws.
TVN Entertainment Corporation
a Delaware corporation
By: ___________________________________
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE
OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL
OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT
NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION PLAN WHICH IS
INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH
RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL
IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT
CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he
is familiar with the terms and provisions thereof, and hereby accepts this
Option subject to all of the terms and provisions thereof. Optionee has reviewed
the Plan and this Option in their entirety, has had an opportunity to obtain the
advice of counsel prior to executing this Option and fully understands all
provisions of the Option. Optionee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Administrator upon
any questions arising under the Plan or this Option. Optionee further agrees to
notify the Company upon any change in the residence address indicated below.
Dated: _________________ ____________________________
Optionee
Residence Address:
_______________________________
_______________________________
_______________________________
-7-
<PAGE>
EXHIBIT A
---------
1996 STOCK PLAN
EXERCISE NOTICE
TVN Entertainment Corporation
2901 West Alameda Avenue, 7th Floor
Burbank, CA 91505
Attention: Secretary
1. Exercise of Option. Effective as of today, , 19 , the
------------------ ------------ --
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
shares of the Common Stock (the "Shares") of TVN Entertainment
- ----------
Corporation (the "Company") under and pursuant to the 1996 Stock Plan, as
amended (the "Plan") and the [ ] Incentive [ ] Nonstatutory Stock Option
Agreement dated , 19 (the "Option Agreement").
--------- --
2. Representations of Optionee. Optionee acknowledges that Optionee has
---------------------------
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
3. Rights as Shareholder. Until the stock certificate evidencing such
---------------------
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a shareholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such stock certificate promptly
after the Option is exercised. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock certificate
is issued, except as provided in Section 11 of the Plan.
Optionee shall enjoy rights as a shareholder until such time as
Optionee disposes of the Shares or the Company and/or its assignee(s) exercises
the Right of First Refusal hereunder. Upon such exercise, Optionee shall have no
further rights as a holder of the Shares so purchased except the right to
receive payment for the Shares so purchased in accordance with the provisions of
this Agreement, and Optionee shall forthwith cause the certificate(s) evidencing
the Shares so purchased to be surrendered to the Company for transfer or
cancellation.
4. Company's Right of First Refusal. Before any Shares held by Optionee or
--------------------------------
any transferee (either being sometimes referred to herein as the "Holder") may
be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section (the
"Right of First Refusal").
<PAGE>
(a) Notice of Proposed Transfer. The Holder of the Shares shall deliver
---------------------------
to the Company a written notice (the "Notice") stating: (i) the Holder's bona
fide intention to sell or otherwise transfer such Shares; (ii) the name of each
proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number
of Shares to be transferred to each Proposed Transferee; and (iv) the bona fide
cash price or other consideration for which the Holder proposes to transfer the
Shares (the "Offered Price"), and the Holder shall offer the Shares at the
Offered Price to the Company or its assignee(s).
(b) Exercise of Right of First Refusal. At any time within thirty (30)
----------------------------------
days after receipt of the Notice, the Company and/or its assignee(s) may, by
giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(c) Purchase Price. The purchase price ("Purchase Price") for the
--------------
Shares purchased by the Company or its assignee(s) under this Section shall be
the Offered Price. If the Offered Price includes consideration other than cash,
the cash equivalent value of the non-cash consideration shall be determined by
the Board of Directors of the Company in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the option
-------
of the Company or its assignee(s), in cash (by check), by cancellation of all or
a portion of any outstanding indebtedness of the Holder to the Company (or, in
the case of repurchase by an assignee, to the assignee), or by any combination
thereof within 30 days after receipt of the Notice or in the manner and at the
times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in the
--------------------------
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s) as provided in this Section, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 120 days after the date of the Notice and provided further
that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are not
transferred to the Proposed Transferee within such period, a new Notice shall be
given to the Company, and the Company and/or its assignees shall again be
offered the Right of First Refusal before any Shares held by the Holder may be
sold or otherwise transferred.
(f) Exception for Certain Family Transfers. Anything to the contrary
--------------------------------------
contained in this Section notwithstanding, the transfer of any or all of the
Shares during the Optionee's lifetime or on the Optionee's death by will or
intestacy to the Optionee's immediate family or a trust for the benefit of the
Optionee's immediate family shall be exempt from the provisions of this Section.
"Immediate Family" as used herein shall mean spouse, lineal descendant or
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
-2-
<PAGE>
(g) Termination of Right of First Refusal. The Right of First Refusal
-------------------------------------
shall terminate as to any Shares 90 days after the first sale of Common Stock of
the Company to the general public pursuant to a registration statement filed
with and declared effective by the Securities and Exchange Commission under the
Securities Act of 1933, as amended.
5. Tax Consultation. Optionee understands that Optionee may suffer
----------------
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
6. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. Optionee understands and agrees that the Company shall
-------
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by the Company or by state or
federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT")
AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF
COUNSEL SATISFACTORY TO THE ISSUER OF THESE
SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR
HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND A
RIGHT OF FIRST REFUSAL HELD BY THE ISSUER OR ITS
ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE
BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE
SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE
PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER
RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING
ON TRANSFEREES OF THESE SHARES.
THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO
RESTRICTIONS ON TRANSFER FOR A PERIOD OF 180 DAYS
FOLLOWING THE EFFECTIVE DATE OF THE COMPANY'S INITIAL
UNDERWRITTEN PUBLIC OFFERING AND MAY NOT BE SOLD OR
OTHERWISE DISPOSED OF BY THE HOLDER WITHOUT THE
-3-
<PAGE>
CONSENT OF THE COMPANY OR THE MANAGING UNDERWRITER.
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF
THIS SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE
ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS
OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE
COMMISSIONER'S RULES.
Optionee understands that transfer of the Shares may be restricted by
Section 260.141.11 of the Rules of the California Corporations Commissioner, a
copy of which is attached to Exhibit B, the Investment Representation Statement.
(b) Stop-Transfer Notices. Optionee agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
7. Market Standoff. Optionee hereby agrees that if so requested by the
---------------
Company or any representative of the underwriters in connection with any
registration of the offering of the securities of the Company under the
Securities Act of 1933, as amended (the "Act"), Optionee shall not sell or
otherwise transfer the Shares for a period of 180 days following the effective
date of a Registration filed under the Act; provided, that such restriction
shall apply only to the first registration statement of the Company to become
effective under the Act which include securities to be sold on behalf of the
Company in an underwritten offering under the Act. The Company may impose stop-
transfer instructions with respect to the Shares subject to the foregoing
restrictions until the end of each such 180-day period.
8. Successors and Assigns. The Company may assign any of its rights under
----------------------
this Agreement to single or multiple assignees, and this Agreement shall inure
to the benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer herein set forth, this Agreement shall be binding upon
Optionee and his or her heirs, executors, administrators, successors and
assigns.
9. Interpretation. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Optionee or by the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the Plan,
which shall review such dispute at its next regular meeting. The resolution of
such a dispute by the Board or committee shall be final and binding on the
Company and on Optionee.
-4-
<PAGE>
10. Governing Law; Severability. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of the State of California excluding that
body of law pertaining to conflicts of law. Should any provision of this
Agreement be determined by a court of law to be illegal or unenforceable, the
other provisions shall nevertheless remain effective and shall remain
enforceable.
11. Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
12. Further Instruments. The parties agree to execute such further
-------------------
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
13. Delivery of Payment. Optionee herewith delivers to the Company the
-------------------
full Exercise Price for the Shares.
14. Entire Agreement. The Plan and Notice of Grant/Option Agreement are
----------------
incorporated herein by reference. This Agreement, the Plan, the Option
Agreement and the Investment Representation Statement constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede
in their entirety all prior undertakings and agreements of the Company and
Purchaser with respect to the subject matter hereof, and may not be modified
adversely to the Purchaser's interest except by means of a writing signed by the
Company and Purchaser
Submitted by: Accepted by:
OPTIONEE: TVN ENTERTAINMENT CORPORATION
By:
-----------------------------------
Its:
----------------------------------
- ------------------------------------
(Signature)
Address: Address:
- ------- -------
- --------------------------- 2901 West Alameda Avenue
7th Floor
-5-
<PAGE>
- --------------------------- Burbank, California 91505
-6-
<PAGE>
EXHIBIT B
---------
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE :
COMPANY : TVN ENTERTAINMENT CORPORATION
SECURITY : COMMON STOCK
AMOUNT :
DATE :
In connection with the purchase of the above-listed Securities, the undersigned
Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. Optionee is
acquiring these Securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Optionee's investment intent as expressed herein. In this connection,
Optionee understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Optionee's representation was predicated solely upon a present intention to hold
these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to register
the Securities. Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company, a legend prohibiting their
transfer without the consent of the Commissioner of Corporations of the State of
[state] and any other legend required under applicable state securities laws.
(c) Optionee is familiar with the provisions of Rule 701 and Rule 144,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly from
the issuer thereof, in a non-public offering subject to the satisfaction of
certain conditions. Rule 701 provides that if the issuer qualifies under Rule
701 at the
<PAGE>
time of the grant of the Option to the Optionee, the exercise will be exempt
from registration under the Securities Act. In the event the Company becomes
subject to the reporting requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, ninety (90) days thereafter (or such longer period as any
market stand-off agreement may require) the Securities exempt under Rule 701 may
be resold, subject to the satisfaction of certain of the conditions specified by
Rule 144, including: (1) the resale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a market
maker (as said term is defined under the Securities Exchange Act of 1934); and,
in the case of an affiliate, (2) the availability of certain public information
about the Company, (3) the amount of Securities being sold during any three
month period not exceeding the limitations specified in Rule 144(e), and (4) the
timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the time
of grant of the Option, then the Securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires the resale
to occur not less than two years after the later of the date the Securities were
sold by the Company or the date the Securities were sold by an affiliate of the
Company, within the meaning of Rule 144; and, in the case of acquisition of the
Securities by an affiliate, or by a non-affiliate who subsequently holds the
Securities less than three years, the satisfaction of the conditions set forth
in sections (1), (2), (3) and (4) of the paragraph immediately above.
(d) Optionee hereby agrees that if so requested by the Company or any
representative of the underwriters in connection with any registration of the
offering of any securities of the Company under the Securities Act, Optionee
shall not sell or otherwise transfer any Shares or other securities of the
Company during the 180-day period following the effective date of a registration
statement of the Company filed under the Securities Act; provided, however, that
such restriction shall only apply to the first registration statement of the
Company to become effective under the Securities Act which include securities to
be sold on behalf of the Company to the public in an underwritten public
offering under the Securities Act. The Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such 180-day period.
(e) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Optionee understands that no assurances can be given that any
such other registration exemption will be available in such event.
-2-
<PAGE>
(f) Optionee understands that the certificate evidencing the Securities
will be imprinted with a legend which prohibits the transfer of the Securities
without the consent of the Commissioner of Corporations of California. Optionee
has read the applicable Commissioner's Rules with respect to such restriction, a
copy of which is attached.
Signature of Optionee:
-------------------------------------------
Date: , 19
------------ --
-3-
<PAGE>
ATTACHMENT 1
STATE OF CALIFORNIA - CALIFORNIA ADMINISTRATIVE CODE
----------------------------------------------------
Title 10. Investment - Chapter 3. Commissioner of Corporations
260.141.11: Restriction on Transfer. (a) The issuer of any security
----------- -----------------------
upon which a restriction on transfer has been imposed pursuant to Sections
260.102.6, 260.141.10 or 260.534 shall cause a copy of this section to be
delivered to each issuee or transferee of such security at the time the
certificate evidencing the security is delivered to the issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate a sale
or transfer of such security, or any interest therein, without the prior written
consent of the Commissioner (until this condition is removed pursuant to Section
260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section 25102 of the
Code or Section 260.105.14 of these rules;
(4) to the transferor's ancestors, descendants or spouse, or any
custodian or trustee for the account of the transferor or the transferor's
ancestors, descendants, or spouse; or to a transferee by a trustee or
custodian for the account of the transferee or the transferee's ancestors,
descendants or spouse;
(5) to holders of securities of the same class of the same issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either acting
as such or as a finder) to a resident of a foreign state, territory or
country who is neither domiciled in this state to the knowledge of the
broker-dealer, nor actually present in this state if the sale of such
securities is not in violation of any securities law of the foreign state,
territory or country concerned;
(8) to a broker-dealer licensed under the Code in a principal
transaction, or as an underwriter or member of an underwriting syndicate or
selling group;
(9) if the interest sold or transferred is a pledge or other lien given
by the purchaser to the seller upon a sale of the security for which the
Commissioner's written consent is obtained or under this rule not required;
(10) by way of a sale qualified under Sections 25111, 25112, 25113
or 25121 of the Code, of the securities to be transferred, provided that no
order under Section 25140 or subdivision (a) of Section 25143 is in effect
with respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such
corporation, or by a wholly owned subsidiary of a corporation to such
corporation;
(12) by way of an exchange qualified under Section 25111, 25112 or
25113 of the Code, provided that no order under Section 25140 or subdivision
(a) of Section 25143 is in effect with respect to such qualification;
(13) between residents of foreign states, territories or countries
who are neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property Law
or to the administrator of the unclaimed property law of another state; or
(15) by the State Controller pursuant to the Unclaimed Property Law
or by the administrator of the unclaimed property law of another state if, in
either such case, such person (i) discloses to potential purchasers at the
sale that transfer of the securities is restricted under this rule, (ii)
delivers to each purchaser a copy of this rule, and (iii) advises the
Commissioner of the name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does not
involve a change in the beneficial ownership of the securities;
(17) by way of an offer and sale of outstanding securities in an
issuer transaction that is subject to the qualification requirement of
Section 25110 of the Code but exempt from that qualification requirement by
subdivision (f) of Section 25102; provided that any such transfer is on the
condition that any certificate evidencing the security issued to such
transferee shall contain the legend required by this section.
(c) The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend, prominently stamped or printed
thereon in capital letters of not less than 10-point size, reading as follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
<PAGE>
Exhibit 10.6
SERVICE AND LICENSE AGREEMENT
-----------------------------
This Service and License Agreement (this "Agreement") is made and entered
into as of June 9, 1997 (the "Effective Date"), by and between National Digital
Television, Inc., a Delaware corporation doing business as Headend in the Sky(R)
("HITS") and TVN Entertainment Corporation, a Delaware corporation ("TVN"). HITS
and TVN sometimes are referred to collectively in this Agreement as the
"Parties" and each individually as a "Party."
Recitals
--------
A. HITS is the owner of certain computer programs, documentation and
related information, including the intellectual property rights pertaining
thereto, described on Exhibit A to this Agreement (the "Software"). The primary
---------
function of the Software is to enable remote authorization and deauthorization
of General Instruments MPEG2 digital addressable television set-top devices, and
set-top devices of other manufacturers that are fully interchangeable with
General Instruments MPEG2 digital addressable set-top devices (collectively,
"Set-Tops") for the receipt of multichannel video programming.
B. HITS is in the business of providing addressable set-top services to
operators of cable television systems, including the remote authorization and
deauthorization of Set-Tops, and utilizes the Software and other proprietary
software and technology developed by HITS, or licensed by third parties to HITS,
for such purposes.
C. TVN wishes to obtain authorization and deauthorization services from
HITS for TVN's cable television operator affiliates ("TVN Affiliates") for a
period of one year, and thereafter obtain a license to use the Software for the
purpose of providing authorization and deauthorization services to subscribers
of TVN Affiliates.
D. HITS is willing to provide such authorization and deauthorization
services and grant such license to TVN on the terms and conditions stated in
this Agreement.
Agreements
----------
In consideration of the mutual covenants and promises stated in this
Agreement, HITS and TVN agree as follows:
1. Definitions. As used in this Agreement, the following capitalized terms
-----------
have the following meanings:
(a) "Authorization Instructions" means instructions for any Set-Top to
mm on or off the reception of one or more video and (if and to the extent the
Software is capable of doing so) associated audio programming services that it
is capable of receiving.
<PAGE>
(b) "Designated Headends" means cable television system headends that:
(A) are (i) located in the United States, (ii) operated by a TVN
Affiliate, and (iii) not a satellite master antennae television system,
multipoint distribution system, multichannel multipoint distribution system,
direct broadcast satellite system or direct-to-home satellite C-band or Ku-band
receiver, but only to the extent such headends serve subscribers of cable
television systems that meet the foregoing criteria; and
(B) are specified on Exhibit B as amended from time to time, to
---------
receive through Set-Tops the television programming services to which they have
subscribed, including the activation or deactivation of Set-Tops; provided,
---------
however, that TVN may add or delete Designated Headends by giving thirty days'
- --------
prior written notice to HITS of additional headends of TVN Affiliates that
comply with the requirements of Section 2.3, or of the Designated Headends to
be-deleted and the effective date of deletion, upon which Exhibit B
---------
automatically shall be amended accordingly. With each such notice, TVN shall
deliver such information with respect to such Designated Headends as is required
by HITS in order to activate or deactivate them.
(c) "Documentation" means user manuals and other written materials
that relate to particular Object Code, including Maintenance Modifications and
Enhancements thereto if, when and to the extent such Maintenance Modifications
or Enhancements are delivered to TVN by HITS under this Agreement.
(d) "Enhancements" means modifications, additions or substitutions,
other than Maintenance Modifications, made by HITS to any Object Code or
Documentation that accomplish incidental, performance, structural, or functional
improvements; and "Basic Enhancements" means Enhancements that result from
warranty or maintenance services or that otherwise accomplish incidental,
structural, functional, and performance improvements for which HITS does not
generally impose a separate charge on its customers.
(e) "HITS Facilities" means HITS renders such services at the TCI
National Digital Television Center, 4100 East Dry Creek Road, Littleton, CO
80122 and HITS' primary satellite transmission facility, 7235 East Titan Road,
Littleton, CO 80122.
(f) "Licensed Materials" means the Object Code and Documentation of
the
Software.
(g) "Maintenance Modifications" means modifications, updates, or
revisions made by HITS to any Object Code or Documentation of the Licensed
Materials that correct errors, support new releases of operating systems, or
support new models of input-output (I/O) devices with which any such Object Code
is designed to operate.
(h) "Object Code" means computer programming code for computer
programs in machine-readable form, contained in a medium that permits it to be
loaded into and operated
2
<PAGE>
on computers. Object Code of the Licensed Materials shall include Maintenance
Modifications and Enhancements thereto if, when and to the extent delivered by
HITS to TVN under this Agreement.
2. Interim Provision of Set-Top Authorization Services.
----------------------------------------------------
2.1 Provision of Services. During the period commencing upon that first
---------------------
date on which HITS makes Set-Top Authorization Services available to TVN, and
ending upon the last day before the first anniversary of such date (the "Interim
Services Period"), HITS shall provide to TVN at the HITS Facilities, and TVN
shall purchase from HITS, the Set-Top Authorization Services. HITS shall
exercise commercially reasonable efforts to make Set-Top Authorization Services
available to TVN within 90 days after the Effective Date, subject to TVN
providing HITS with an appropriate billing interface and complying with HITS'
other technical requirements for HITS' provision of the Set-Top Authorization
Services. Following expiration of the Interim Services Period, HITS shall have
no responsibility whatsoever to provide any Set-Top Authorization Services, on a
transition basis or otherwise.
2.2 Nature of Services. "Set-Top Authorization Services" provided by HITS
------------------
pursuant to this Agreement shall mean and consist only of (i) the receipt by
HITS from TVN at the HITS Facilities, through a compatible billing system
interface provided by TVN, of Authorization Instructions for TVN's Affiliates'
Set-Tops, and (ii) the retransmission by HITS via satellite of such
Authorization Instructions to Designated Headends in the form of a data stream.
It shall be the responsibility of TVN to take the data stream received from HITS
at Designated Headends and convert and deliver the Authorization Instructions
received in such data stream to Set-Tops of TVN Affiliates subscribers. HITS may
change the satellite or transponders on the existing satellite by which the
Interim Services are provided upon at least 60 days' prior written notice to
TVN, and TVN shall be responsible for notifying all TVN Affiliates of any such
change. Notwithstanding the foregoing, HITS shall not be required to give any
prior notice if such a change is required due to a Service Interruption (as
defined in Section 11.2) or due to an event of Force Majeure (as defined in
Section 12.11).
2.3 Equipment Responsibilities. TVN and TVN Affiliates shall be
--------------------------
responsible for acquiring, installing and maintaining all equipment, software
and materials necessary for TVN Affiliates to receive the Authorization
Instructions, including all information necessary to transmit Authorization
Instructions from Designated Headends and to convert and deliver the
Authorization Instructions received in such data stream to their respective
subscribers' Set-Tops (including but not limited to all data lines, computers
and software required to accomplish the foregoing). Without limiting the
foregoing, TVN shall be responsible for providing a billing system interface
that is compatible with specifications provided by HITS upon execution of this
Agreement, including an appropriate dataline connection to the HITS Facilities.
HITS may modify such specifications from time to time to provide for new
functionality or correct problems, or in the event of a security breach. TVN
shall be responsible for ensuring that TVN Affiliates' equipment (including but
not limited to Set-Tops) is capable of receiving and processing Authorization
Instructions.
3
<PAGE>
2.4 Programming Issues. TVN acknowledges that HITS does not purport to
------------------
grant to TVN, to any TVN Affiliates or to any of their subscribers, any right to
receive or distribute any programming services, and that HITS is acting solely
pursuant to instructions received from TVN and TVN Affiliates as to which
subscribers of TVN Affiliates are authorized to receive one or more of such
programming services. TVN shall be responsible for obtaining, or ensuring that
TVN Affiliates shall have obtained, authorizations from programming providers to
receive programming services through the Designated Headends and to maintain
such authorizations in effect during the Interim Services Period. TVN shall be
responsible for requiring that all TVN Affiliates pay when due all subscriber
and license fees payable to programming providers with respect to their carriage
of programming services delivered by TVN, and the provision of such programming
services to their subscribers. HITS shall have no responsibility for reporting
of subscriber counts or authorization activity to any programming providers.
3. License of Software.
--------------------
3.1 Grant of License. Subject to the terms, conditions and restrictions
----------------
stated in this Agreement, commencing upon the first day after expiration of the
Interim Services Period and ending upon the date of expiration or earlier
termination of this Agreement (the "License Term"), HITS grants to TVN the
nonexclusive, nontransferable right and license (the "License") to use the
Licensed Materials for the sole and exclusive basis of issuing Authorization
instructions to subscribers (other than Ineligible Subscribers) of TVN
Affiliates that are served by Designated Headends.
3.2 Other Required Software and Authorizations. The License does not
------------------------------------------
include any sublicense or other right with respect to any software not described
in Exhibit A to this Agreement, nor (absent the consent of the relevant third
---------
parties) programming code of third parties incorporated or imbedded in the
Object Code of the Licensed Materials ("Imbedded Third Party Software"). TVN
acknowledges that (i) software other than the Licensed Materials will be
required in order for TVN to be able to issue Authorization Instructions by
means of the Licensed Materials, and (ii) the authorization of certain third
parties may be necessary for TVN's use of Imbedded Third Party Software. HITS
shall advise TVN of any Third Party Software of which it is aware, prior to the
commencement of the Licensed Term; TVN shall be responsible for obtaining
licenses for its use thereof. It shall be a condition to the effectiveness of
the License, and to the obligations of HITS to deliver to TVN a copy of the
Software, that those parties owning the Imbedded Third Party Software have
granted to HITS all necessary consents and authorizations for the grant of the
License and the delivery of the Software to TVN.
3.3 Delivery of Licensed Materials. On or before the commencement of the
------------------------------
License Period, HITS shall deliver to TVN a single copy of the Object Code and
Documentation for the Licensed Materials in their then-current form.
3.4 Location of Licensed Materials; Restricted Use. TVN shall install the
----------------------------------------------
Object Code of the Licensed Materials only on a single file server located at
2901 West Alameda,
4
<PAGE>
Burbank, CA 91505, and shall not duplicate or make any copies of the Object Code
of the Licensed Materials except copies for backup purposes only. TVN shall not
permit any other person or entity to make any use of the Licensed Materials
whatsoever.
3.5 Use of Software. TVN acknowledges that it is solely responsible for
---------------
obtaining all hardware, software, equipment and services necessary for it to
issue Authorization Instructions by means of the Licensed Materials, and that
HITS shall have no obligation to provide any of the foregoing.
4. Delivery of Maintenance Modifications and Enhancements. During the License
------------------------------------------------------
Term, HITS shall deliver to TVN Basic Enhancements and Maintenance Modifications
created from time to time with respect to the Object Code and/or Documentation
of the Licensed Materials, if, as and when such Basic Enhancements and
Maintenance Modifications are developed by HITS. HITS shall have no obligation
to deliver any other Enhancements to or versions or releases of, the Software.
5. Fees and Payments.
------------------
5.1 Calculation of Service and License Fees. TVN shall pay to HITS (i) for
---------------------------------------
Set-Top Authorization Services, during the Interim Services Period, and (ii) for
the License, for each twelve month period during the License Term ending on an
anniversary of the Effective Date (each such period a "License Term Year"), an
mount calculated with respect to the number of Set-Tops of TVN Affiliates for
each month falling during the Interim Services Period or such License Term Year,
as applicable, as follows ("Fees"):
[*] active Set-Tops $[*] per month per active Set-Top
[*] active Set-Tops $[*] per month per active Set-Top
[*] active Set-Tops $[*] per month per active Set-Top
All Additional active Set-Tops $[*] per month per active Set-Top
Notwithstanding the foregoing, however, Fees for the Interim Services Period
shall not be less than [*] (the "Minimum Interim Services Fee") and for each
License Term Year shall not be less than [*] (for each License Term Year, the
"Minimum License Fee"). For each calendar month during the term of this
Agreement, the number of active Set-Tops of TVN Affiliates shall be equal to the
average number of Set-Tops served by Designated Headends during such month.
5.2 Payment of Service and License Fees.
------------------------------------
(a) On the Effective Date, TVN shall pay [*] of the Minimum Interim
Services Fee, and shall pay the balance thereof on the first day of the Interim
Services Period. TVN shall pay the Minimum License Fee for each License Term
Year in advance, on or before the first day of such License Term Year.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
5
<PAGE>
(b) TVN shall pay to HITS the amount, if any, by which the actual
amount of Fees for each month during the Interim Services Period exceeds $[*],
within ten days after the date of invoice therefor given by HITS following the
end of such month. Absent manifest error, HITS' calculation of the number of
active Set-Tops on the basis of which such Fees are calculated shall be
conclusive.
(c) Within thirty days after the end of each month during the License
Term, TVN shall pay to HITS the amount, if any, by which the actual amount of
Fees for such month exceed $[*]. Each such payment shall be accompanied by a
written statement, certified by an officer of TVN, stating the total number of
active Set-Tops for the month to which such payment relates and the calculation
of Fees for that month.
(d) All amounts not paid when due shall bear interest until paid at
the rate of 1.5% per month, or the highest lawful rate, whichever is lower, and
all interest or discounting shall be compounded on a monthly basis.
5.3 Books and Records.
------------------
(a) TVN shall keep and maintain in accordance with generally accepted
accounting principles accurate books and records with respect to the number of
active Set-Tops of TVN Affiliates. During the term of this Agreement and for a
period of two years thereafter, TVN shall make such books and records available
to HITS upon reasonable notice for inspection and audit during normal business
hours at TVN's offices, any such audit to be performed at HITS' expense unless
it reveals that Fees owed by TVN to HITS with respect to the period covered by
the audit exceed 105% of the Fees actually paid by TVN, in which ease TVN shall
reimburse HITS for its costs and expenses in conducting such audit.
(b) TVN shall require each TVN Affiliate to provide to TVN, on a
monthly basis, the information necessary for TVN to determine the amount of
Fees, and to afford TVN the right to audit the books and records relating to
such information. From time to time, upon the request of HITS (but not more
frequently than once in any six-month period), TVN shall exercise such audit
rights and report the results thereof to HITS.
6. Term and Termination.
---------------------
6.1 Term. This Agreement shall be effective on the Effective Date and,
----
unless earlier terminated in accordance with paragraph 6.2, shall continue in
effect until the seventh anniversary of the Effective Date (the "Expiration
Date"), upon which it shall expire. Notwithstanding the foregoing, however, the
Expiration Date may be extended upon the mutual written agreement of HITS and
TVN, each in their discretion.
6.2 Termination. Either party may terminate this Agreement effective upon
-----------
written notice to the other party: (i) in the event of the insolvency of the
other party or the institution of voluntary or involuntary proceedings in
bankruptcy or under any other insolvency law, or an
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
6
<PAGE>
arrangement with creditors, or corporate reorganization, receivership or
dissolution, of the other party; (ii) in the event the other party fails to pay
any amount when due hereunder, and such failure is not cured within ten days
after written notice thereof by the non-breaching party to the breaching party;
or (iii) other party has breached any other material obligation under this
Agreement, or any of its representations or warranties under this Agreement are
inaccurate in any material respect, and such breach or inaccuracy is not cured
within ten days after written notice thereof by the non-breaching party to the
breaching party.
6.3 Effect of Termination. Termination or expiration of this Agreement
---------------------
shall not release either party from any liability arising out of or with respect
to periods prior to the effective date of termination. The obligations stated in
Articles 6, 7, 8, 9, 10 and 11 of this Agreement shall survive termination or
expiration of this Agreement.
6.4 Termination of the License. The License shall terminate upon
--------------------------
expiration or termination of this Agreement. Immediately upon expiration or
termination of this Agreement, TVN shall cease all use of the Licensed Materials
and delete all Licensed Materials from its computers, and immediately shall
return to HITS all copies of the Licensed Materials in TVN's possession or
control.
7. Protection of Proprietary Information.
--------------------------------------
7.1 No Title to Licensed Materials in TVN. TVN's rights in the Licensed
-------------------------------------
Materials are limited as described in Article 1, and TVN acquires no ownership
of or other title to any of the Licensed Materials by virtue of this Agreement.
7.2 Reservation of Rights and Acknowledgment. TVN acknowledges that the
----------------------------------------
Licensed Materials constitute commercially valuable, proprietary products of
HITS, the design and development of which reflect the effort of skilled
development experts and the investment of considerable time and money. TVN
acknowledges that the Licensed Materials embody substantial trade secrets of
HITS, which pursuant to this Agreement are enraged to TVN in confidence, to use
only as authorized by this Agreement. HITS reserves and claims all rights and
benefits afforded under applicable laws, including federal copyright law, in the
Licensed Materials. Any distribution, copying or modification of Licensed
Materials not expressly authorized by this Agreement is strictly forbidden.
7.3 Protection of HITS Trade Secrets; Anti-Piracy Measures.
-------------------------------------------------------
(a) TVN shall not at any time disclose or disseminate any of the trade
secrets embodied in the Licensed Materials to any other person, firm or
organization or to any employee or agent of TVN who does not need to obtain
access thereto in connection with TVN's exercise of its rights under this
Agreement. TVN shall at all time exercise its best efforts to ensure that all
persons afforded access to the Licensed Materials protect HITS' trade secrets
against unauthorized use, dissemination or disclosure. TVN shall not reverse
engineer, descramble,
7
<PAGE>
decode, disassemble or decompile the Object Code of the Licensed Materials, or
attempt to do
so.
(b) TVN acknowledges the necessity of preventing unauthorized persons
from obtaining access to the Licensed Materials, Authorization Instructions or
any trade secrets or other confidential or proprietary information relating
thereto, in order to protect against the piracy and other unauthorized use
thereof, and of video programming by means thereof, and shall exercise
strenuous, diligent, good faith efforts to do so. Without limiting the
generality of the foregoing, TVN shall comply with such anti-piracy and other
security programs and procedures, if any, as HITS promulgates from time to time.
7.4 Restricted Rights. The Licensed Materials are provided to TVN with
-----------------
Restricted Rights. Use, duplication or disclosure by or on behalf of the United
States of America, its agencies and/or instrumentalities (the "Government") is
subject to the restrictions stated in subparagraph (c)(1)(ii) or the Rights in
Technical Data and Computer Software clause at DFARS 252.227-7013, or
subparagraphs (c)(1) and (2) of the Commercial Computer Software -- Restricted
Rights at CFR 52.227-19, and/or the particular department or agency regulations
or roles which provide HITS with protection equivalent to or greater than such
cited clauses and subparagraphs. TVN shall comply with all requirements of the
Government to obtain such Restricted Rights protection. The manufacturer of the
Licensed Materials is National Digital Television, Inc., 4100 East Dry Creek
Road, Littleton, Colorado 80122.
8. Representations and Warranties.
-------------------------------
8.1 Mutual Representations and Warranties. Each of HITS and TVN represents
-------------------------------------
and warrants to the other that (i) it has full power and legal right to execute
and deliver this Agreement and to perform its obligations under this Agreement;
(ii) the execution, delivery and performance of this Agreement have been
authorized by all required action, corporate or otherwise, and do not violate or
conflict with any provisions of its charter or bylaws or any of its contractual
obligations or requirements of law binding on it; (iii) this Agreement
constitutes its legal, valid and binding obligation, enforceable against it in
accordance with its terms; and (iv) it has and shall maintain in full force and
effect throughout the term of this Agreement, all governmental permits, licenses
and authorizations required on its part to perform its obligations under this
Agreement.
8.2 Additional Representations and Warranties of TVN. TVN represents and
------------------------------------------------
warrants to HITS that (i) more than fifty percent of its issued and outstanding
voting stock is owned, beneficially and of record, by Messrs. Smart Levin and
Mr. Arthur Fields and Dr. S. Robert Levine, collectively (the "Controlling
Shareholders") (ii) such voting common stock is not subject to any voting trust
or other arrangement by which any person or entity other than the record holders
thereof has any right to vote such stock, or to any other restrictions on the
voting thereof, (iii) no person or entity other than the Controlling
Shareholders has (and no one of the Controlling Shareholders has) any rights,
contractual or otherwise, to appoint a majority of the board of directors of TVN
or otherwise to control the conduct of the affairs of TVN, and (iv) no
8
<PAGE>
person or entity other than the Controlling Shareholders holds any rights
(conditional or otherwise) to acquire, and TVN is under any obligation
(conditional or otherwise) to issue, any voting common stock of TVN, or rights
or securities convertible into voting common stock of TVN, the issuance,
exercise or conversion of which would cause any representation or warranty
stated in clause (i) above to be inaccurate.
9. Indemnification.
----------------
9.1 Indemnification by TVN. TVN shall indemnify and hold harmless HITS and
----------------------
its affiliates, and their respective officers, directors, employees and
representatives from and against any and all liability, cost, loss or expense of
any kind (including attorneys' fees and costs), based upon, arising out of or
relating to: (i) any use by TVN or TVN Affiliates of Set-Top Authorization
Services or the Licensed Materials, or any services offered by TVN involving the
Set-Top Authorization Services or the use of the Licensed Materials; (ii) any
breach or nonperformance by TVN of any of its covenants, obligations,
representations or warranties stated in this Agreement; (iii) any claim by any
third party relating to failure or interruption of, or defect in, the
transmission or reception of Set-Top Authorization Services, unless caused by
the gross negligence or willful misconduct of HITS; (iv) all claims of any TVN
Affiliates and any subscribers of TVN Affiliates; (v) MPEG-II Royalties
attributable to TVN's or any TVN Affiliates' reception, distribution and set-top
equipment or programming purchases; and (vi) any claim, demand, or action
alleging that the Licensed Materials or the use thereof by TVN within the scope
of the License and in accordance with this Agreement, infringes any rights of
any third party in any United States copyrights or trademarks, or constitutes a
misuse or misappropriation of United States trade secrets of any third party, if
the claimed infringement, misuse or misappropriation described in this clause
(vi) arises out of or is based upon (A) the combination, operation or use of the
Licensed Materials with other equipment, code, programs or data not approved by
HITS, if such infringement, misuse or misappropriation would not have occurred
but for such combination, operation or use with such other equipment, code,
programs or data; (B) any modification of the Licensed Materials, other than a
modification by HITS; or (C) any use of the Licensed Materials outside the scope
of the License or otherwise not in accordance with this Agreement.
9.2 Indemnification by HITS. Subject to the limitation stated in Section
-----------------------
10.2(a), HITS shall indemnify and hold harmless TVN and its affiliates, and
other respective officers, directors, employees and representatives from and
against any liability, cost, loss or expense of any kind (including attorneys'
fees and costs) arising out of or based on (i) any breach or nonperformance by
HITS of any of its covenants, obligations, representations or warranties stated
in this Agreement, or (ii) any claim, demand, or action alleging that the
Licensed Materials, or the use thereof by TVN within the scope of the License
and in accordance with this Agreement, infringes any rights of any third party
(other than TVN or any affiliate of TVN) in any United States copyrights or
trademarks, or constitutes a misuse or misappropriation of United States trade
secrets of any third party (other than TVN or any affiliate of TVN), and, in the
case of this clause (ii), defend and pay any costs, damages, or awards of
settlement, including court costs, arising out of any such claim, demand, or
action. If the Licensed Materials become
9
<PAGE>
subject to any such claim, demand or action (or, at HITS' option, are likely to
become subject to any such claim, demand or action), HITS shall, at its sole
option and expense: (i) procure for TVN the right to continue using the Licensed
Materials, or the infringing portion thereof, within the scope of the License
and in accordance with this Agreement; (ii) modify the Licensed Materials, or
the infringing portion thereof, to be noninfringing; or (iii) terminate the
License.
9.3 Exclusions from HITS Indemnity. Notwithstanding Section 9.2, HITS
-------------------------------
shall have no obligation under clause (ii) of that Section to the extent that
any claim of infringement, misuse or misappropriation is based upon (i) the
combination, operation or use of the Licensed Materials with other equipment,
code, programs or data not approved by HITS, if such infringement, misuse or
misappropriation would not have occurred but for such combination, operation or
use with such other equipment, code, programs or data; (ii) any modification of
the Licensed Materials, other than a modification by HITS; (iii) any use of the
Licensed Materials outside the scope of the License; or (iv) any Third Party
Imbedded Software.
9.4 Sole Remedy. HITS' obligations under Section 9.2 shall be TVN's sole
-----------
and exclusive remedy in the event of any infringement, misuse or
misappropriation or copyrights, trademarks, trade secrets, patents, or any other
intellectual or proprietary property rights of third parties.
9.5 Notification and Defense of Claims. The obligations of HITS under
----------------------------------
clause (ii) Section 9.2 are conditioned and contingent upon:
(a) TVN providing the HITS with prompt written notice of any claim,
demand or action for which indemnity is sought, and affording the HITS the
opportunity and authorization to defend or settle such claim, demand or action
on its own, at its expense, with counsel selected by HITS; and
(b) TVN cooperating fully with the HITS in the defense or settlement
of the indemnified claim, demand or action, at the TVN's expense, such
cooperation including (without limitation) making available to HITS all
pertinent information in TVN's control.
10. Remedies and Limitation of Liability.
-------------------------------------
10.1 Injunctive Relief. TVN acknowledges that if TVN breaches its
-----------------
obligations (other than payment obligations) under this Agreement HITS will be
irreparably harmed, and that damages will be inadequate to compensate HITS for
such breach. Accordingly, without limiting any other right or remedy of HITS for
or in respect of such a breach, HITS shall be entitled to mandatory and/or
injunctive relief with respect thereto.
10.2 Limited Remedies.
-----------------
(a) HITS SHALL NOT BE LIABLE TO TVN OR ANY OTHER PARTY FOR ANY
SPECIAL, CONSEQUENTIAL, PUNITIVE, EXEMPLARY OR INCIDENTAL
10
<PAGE>
DAMAGES ARISING OUT OF THIS AGREEMENT, SET-TOP AUTHORIZATION SERVICES, THE
LICENSED MATERIALS, OR ANY USE OR APPLICATION THEREOF, INCLUDING BUT NOT LIMITED
TO LOST PROFITS. IN NO EVENT SHALL THE LIABILITY OF HITS UNDER THIS AGREEMENT,
OR IN ANY WAY RELATING TO THE SET-TOP AUTHORIZATION SERVICES, THE LICENSED
MATERIALS, OR ANY USE OR APPLICATION THEREOF, EXCEED THE AMOUNT OF FEES ACTUALLY
PAID BY TVN PURSUANT TO SECTION 5.1 OF THIS AGREEMENT.
(b) Notwithstanding any contrary provision of this Agreement, HITS
shall not be responsible for and shall not be in default of this Agreement as a
result of, nor shall it be held liable for any damages, claims, losses, or costs
and expenses on account of, any interruption of Set-Top Authorization Services,
if such interruption results in whole or in part from any cause beyond HITS's
reasonable control, including, without limitation, the following ("Service
Interruptions"):
(i) errors, omissions, delays, or performance problems caused by
TVN's, any TVN Affiliate's or another third party's billing system, or by any
other equipment of TVN, any TVN Affiliate or any third party, including but not
limited to the inability of TVN Affiliates' headends to receive or process Set-
Top Authorization Services or to send such services to the set-tops, or the
failure of Set-Tops or scrambling/encryption systems deployed by TVN or any TVN
Affiliate.
(ii) the failure of TVN or any TVN Customer to provide HITS with
written instructions as to various headend configurations needed for HITS to
provide Set-Top Authorization Services, including changes as they occur from
time to time;
(iii) damage to any equipment or interruptions in Set-Top
Authorization Services caused by events of Force Majeure;
(iv) interference from other communications systems, whether
licensed or not, that use the same frequency bands as the Set-Top Authorization
Services;
(v) any interruption or out-of-specification performance of any
satellite transponders associated with Set-Top Authorization Services;
(vi) conditions that threaten the safety of operations and
maintenance personnel which are beyond the control of HITS;
(vii) occasional interruptions due to passing of the sun within
the beam width of any receiving antenna systems associated with Set-Top
Authorization Services during the spring and fall equinox periods;
11
<PAGE>
(viii) degradation or interruptions of protection systems and
degradation or interruption of signals due to protection switching or to
scrambler or video protection switching;
(ix) outage, interruptions or degradations due to rain
attenuation of signals;
(x) interruptions for testing or maintenance and downtime for
scheduled backups;
(xi) any failure of TVN to fulfill its obligations hereunder or
to any TVN Affiliates;
(xii) any compliance by HITS with any action by any court,
agency, legislature or other governmental authority that makes it unlawful for
HITS to provide the Set-Top Services Authorization or any part thereof in
accordance with this Agreement; or
(xiii) any failure of Licensed Materials to perform, including
any bugs or errors in any Licensed Materials.
10.3 No Warranties. EXCEPT ONLY AS SPECIFICALLY STATED IN THIS AGREEMENT,
-------------
HITS MAKES NO WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO SET-TOP
AUTHORIZATION SERVICES OR THE LICENSED MATERIALS, INCLUDING BUT NOT LIMITED TO
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, AND ALL SUCH
WARRANTIES ARE HEREBY DISCLAIMED AND EXCLUDED.
11. Miscellaneous.
--------------
11.1 Taxes. TVN shall pay any and all sales, use, excise or other taxes
-----
(other than taxes measured on the gross income of HITS) assessed or payable by
reason of or with respect to this Agreement and the transactions contemplated
hereby.
11.2 Media Releases. Except for any announcement intended solely for the
--------------
internal distribution of HITS and TVN, or any disclosure required by legal,
accounting, or regulatory requirements (as to which the limitations of Section
11.3 shall apply), all media releases (including but not limited to promotional
or marketing material) by HITS and TVN or the respective employees or agents of
any of them, which specifically identify HITS or TVN in the context of this
Agreement shall be coordinated with and approved in writing by HITS and TVN
prior to the release thereof. Such approvals shall not be unreasonably withheld
or delayed. Customer and HITS may state, without prior approval, in their
promotional and advertising material that the Set-Tops Authorization Services
are provided to TVN by HITS.
12
<PAGE>
11.3 Confidentiality. Each Party to this Agreement agrees that all terms
---------------
and conditions of this Agreement and all Proprietary Information (as defined
herein) furnished to such Party by the other Party shall be: (i) held in trust
and confidence for the disclosing Party; (ii) used only in performance of this
Agreement; (iii) not copied (unless required for performance of this Agreement)
without permission of the disclosing Party; and (iv) not disclosed to anyone
other than employees or agents of a Party to this Agreement who have agreed to
hold the Proprietary Information in trust and confidence and who have need to
use such Proprietary Information for the purposes of this Agreement.
"Proprietary Information" means any ideas, plans or information, including,
without limitation, information of a technological or business nature (including
but not limited to all trade secrets, technology, intellectual property, data,
summaries, reports, or mailing lists, whether written or oral and, if written,
however produced or reproduced) which is received by the receiving Party or
otherwise disclosed to the receiving Party from or by the disclosing Party, that
is marked as confidential or proprietary or bears a marking of like import, or
that the disclosing Party states is to be considered proprietary or
confidential, or that would logically be considered proprietary or confidential
under the circumstances of its disclosure. Information will not be deemed to be
Proprietary Information and the receiving Party shall have no obligation with
respect thereto, or to any party thereof, to the extent such information (i) is
approved by prior written authorization of the disclosing Party for release by
the receiving Party; (ii) is disclosed in order to comply with a judicial order
issued by a court of competent jurisdiction or with government laws or
regulations, in which event the receiving Party shall give prior written notice
to the disclosing Party of such disclosure as soon as practicable and shall
cooperate with the disclosing Party in using all reasonable efforts to obtain an
appropriate protective order or equivalent, provided, that the information shall
continue to be Proprietary Information to the extent it is covered by such
protective order or equivalent; (iii) become generally available to the public
through any means other than a breach by the receiving Party of its obligations
under this Agreement; (iv) was in the possession of the receiving Party without
obligation of confidentiality prior to receipt or disclosure under this
Agreement as evidenced by written records made prior to such receipt or
disclosure; or (v) is developed independently by the receiving Party without use
of or benefit from any Proprietary Information.
11.4 Relationship of the Parties. It is expressly understood that the
---------------------------
Parties intend by this Agreement to establish the relationship of independent
contractors, and do not intend to undertake the relationship of principal and
agent or to create a joint venture or partnership between themselves or their
respective successors in interest. Neither Party shall have any authority to
create or assume, in the name of or on behalf of the other Party any obligation,
expressed or implied, nor to act or purport to act as an agent or legally
empowered representative of the other Party hereto for any purpose whatsoever.
11.5 Notices. All notices, requests, demands, applications, services of
-------
process, and other communications which are required to be or may be given under
this Agreement shall be in writing and shall be deemed to have been duly given
if sent by telecopy or facsimile transmission, answer back requested, or
delivered by courier or mailed, certified first class mail, postage prepaid,
return receipt requested, to the parties to this Agreement at the following
addresses:
13
<PAGE>
To HITS:
National Digital Television
4100 East Dry Creek Road
Littleton, CO 80122
Attention: Mr. Rich Fickle
Telephone: (303) 486-3800
Telecopy: (303) 486-3951
with a copy to:
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, CO 80111
Attention: Legal Department
Telephone: (303) 267-5500
Telecopy: (303) 488-3207
To TVN:
2901 West Alameda Avenue
7th Floor
Burbank, CA 91505
Attention: Mr. Stuart Levin, President
Telephone: (818) 846-4886
Telecopy: (818) 846-4626
with a copy to:
2901 West Alameda Avenue
7th Floor
Burbank, CA 91505
Attention: Mr. Arthur Fields, Sr. Executive Vice President
Telephone: (818) 846-4886
Telecopy: (818) 8464626
or to such other address as either party shall have furnished to the other by
notice given in accordance with this Section. Such notice shall be effective,
(i) if delivered in person or by courier, upon actual receipt by the intended
recipient, or (ii) if sent by telecopy or facsimile transmission, on the date of
transmission unless transmitted after normal business hours, in which case on
the following day, (iii) if mailed, upon the date of first attempted delivery.
14
<PAGE>
11.6 Waiver. No obligation or condition of this Agreement shall be waived
------
by either party except by written consent. No act or failure to act shall serve
as a waiver. Any right or remedy available to either party shall not be
exclusive, unless otherwise provided within this Agreement, and all rights and
remedies may be cumulatively enforced.
11.7 Amendments. No modification of this Agreement shall be binding upon
----------
either party unless in writing and signed by both parties.
11.8 Governing Law. This Agreement shall be construed in accordance with
-------------
the laws of the State of Colorado and of the United States. The parties
stipulate that the preferred foam, venue and court for any legal action taken
with regard to this Agreement shall be in the District Court for Arapahoe
County, or the United States District Court for the Sate of Colorado, consent to
the jurisdiction of such courts, and waive any right to assert that any such
court constitutes an inconvenient or improper foam.
11.9 Assignment. TVN shall not assign any of its rights or delegate any of
----------
its duties under this Agreement without the prior written consent of HITS,
except (following written notice by TVN to HITS) to an entity controlled by TVN
or another entity with respect to which the representations and warranties
stated in Section 8.2 are accurate (substituting such other entity for TVN in
such representation, in the case of an assignment to such other entity). With
the exception of a public offering of the capital stock of TVN following which
Mr. Stuart Levin maintains operating control of TVN, any event that would cause
the representations and warranties in Section 8.2 not to be tree and accurate on
a continuing basis shall constitute an assignment of this Agreement for purposes
of this paragraph. Any attempted assignment or delegation without such consent
shall be null and void.
11.10 Attorneys' Fees and Costs. If any suit is brought, or an attorney
-------------------------
retained to collect any money due under this Agreement, or to collect a judgment
for breach of this Agreement, the prevailing party shall be entitled to recover,
in addition to any other remedy, reimbursement for attorney's fees, court costs,
investigation costs and other related expenses incurred in connection therewith.
11.11 Force Majeure. Neither Party will be in default or otherwise liable
-------------
for any delay in or failure of its performance under this Agreement where such
delay or failure arises by reason of any act of God, acts of the common enemy,
the elements, electrical storms, earthquake, floods, fires or other natural
disasters, epidemics, quarantine restrictions, national emergency or war,
sabotage, riots, acts of governmental authority, willful or criminal misconduct
of third parties, strikes, failure or delay in transportation, freight embargoes
or other causes beyond its control ("Force Majeure"); provided that financial
inability does not constitute an event of Force Majeure.
15
<PAGE>
HITS and TVN have caused this Agreement to be executed by their duly
authorized representatives or officers as of the day and year first written
above.
National Digital Television, Inc.
dba Headend in the Sky(R)
By: /s/ David P. Beddow
-------------------------------------
Name: David P. Beddow
------------------------------
Title: Sr. Vice President
-----------------------------
TVN Entertainment Group
By: /s/ Stuart Z. Levin
-------------------------------------
Name: Stuart Z. Levin
------------------------------
Title: President & CEO
-----------------------------
16
<PAGE>
SCHEDULE A
1. Access Control Database Set-up & Maintenance for cable system headends.
2. General Instrument MPEG II set-top (and those fully compatible)
initializations, authorizations, de-authorizations.
3. IRT Provisioning needed for set-top authorizations (i.e., association of
services, headend configurations and encryption parameters).
4. Schedule Management for PPV.
5. Code Download of set-top firmware, operating systems.
6. The protocol specifications based on DCE for a single TVN billing system
interface including ANI functions within limits of current ANI usage by
HITS.
7. Ability to establish set-top parameters by headend defaults and control a
limited number of parameters controllable through the billing system
interface.
8. UNDP functions used to create out-of-band control streams and related
encoder interfaces.
9. Impulse pay-per-view capability using store and forward (TVN will be
responsible for purchasing, installing, maintaining of Data Collectors at
headends which contains software excluded under this agreement).
10. National Provisioning of Prevue Interactive Guide (excludes licenses and
data related to the Prevue guide).
NOTE: Excluded features are (but not limited to); Analog addressability
(including PPV), non-General Instrument MPEG II digital set-top control,
UCS/Encoder control interface, headend monitoring, remote configuration
abilities, any DTH specific functions. Also excludes any third party license
which includes those associated with General Instrument Corporation, Oracle,
Hewlett Packard and others.
<PAGE>
EXHIBIT 10.7
CSG MASTER SUBSCRIBER MANAGEMENT SYSTEM AGREEMENT
This CSG MASTER SUBSCRIBER MANAGEMENT SYSTEM AGREEMENT (the "Master Agreement")
is entered into as of this ,30th day of June, 1997, between CSG Systems, Inc., a
Delaware corporation with offices at 2525 North 117th Avenue, Omaha, Nebraska 68
! 64 CCSG"), and TVN Entertainment Corporation, a Delaware corporation with
offices at 2901 West Alameda Avenue, 7th Floor, Burbank, California 91505, (the
"Customer"). CSG and Customer agree as follows:
Subject to the terms and conditions of this Master Agreement, Customer hereby
agrees to purchase and/or license from CSG its subscriber management system
solution utilizing the CSG services and products which are identified, provided
and/or licensed as set forth in the attached Schedules which are hereby
incorporated into and made a part of this Master Agreement by this reference,
including, but not necessarily limited to:
. Schedule A - CSG's CCS system for subscriber video billing management
----------
(the "CCS Services").
. Schedule B - CSG technical and consulting services (the "Technical
----------
Services").
. Schedule C - CSG's, CSG Vantage/TM, /ACSR/TM, /Computer Based
----------
Training and ACSR AOI add-on products (the "CCS Products").
. Schedule G - CSG's Print and Mail services (the "Print and Mail
----------
Services").
The CCS Services, the Technical Services, the Print and Mail Services, and any
other CSG service subsequently provided in an executed Schedule attached to this
Master Agreement are collectively referred to in this Master Agreement as the
"Services". CSG's CSG Vantage/TM, /ACSR/TM, /Computer Based Training and ACSR
AOI add-on products, and any other CSG product subsequently licensed to Customer
in an executed Schedule attached to this Master Agreement are collectively
referred to in this Master Agreement as the "Products".
GENERAL TERMS AND CONDITIONS
1. FEES AND EXPENSES. The Products and Services will be provided by CSG for the
fees set forth on Schedule F. Customer shall also reimburse CSG for reasonable
----------
out-of-pocket expenses, including Customer approved travel and travel-related
expenses that are consistent with CSG's standard travel reimbursement policies,
incurred by CSG in connection with CSG's performance of its obligations under
this Master Agreement.
2. INVOICES. Unless otherwise provided herein, Customer shall pay amounts due
hereunder within thirty (30) days after receipt of invoice therefor. Any amount
not paid when due shall thereafter bear interest until paid at a rate equal to
the lesser of one and one-half percent (1 1/2%) per month or the maximum rate
allowed by applicable law.
3. TAXES. All amounts payable by Customer to CSG under this Master Agreement are
exclusive of any applicable value added, use, sales, service, property or other
taxes, tariffs or contributions that may be assessable in connection with this
Agreement. Customer will pay any applicable value added, use, sales, service,
property or other taxes, tariffs or contributions, in addition to the amount due
and payable. Customer will promptly furnish CSG with the official receipt of
payment of these taxes to the appropriate taxing authority.
4. ADJUSTMENT TO FEES. For all products and services purchased initially under
this Agreement, CSG shall not adjust any of the fees specified in Schedule F or
-----------
otherwise specified in Schedules hereto prior to the first anniversary date of
the Effective Date (as defined below in Section 16). Thereafter, CSG may from
time to time by giving Customer at least thirty (30) days prior written notice
thereof, adjust any or all such fees; provided, however, that the amount of all
such increases during any 12-month period shall not on the average exceed six
percent (6%) or 100 percent of the percentage increase in the Consumer Price
Index, Urban Consumers, All Cities Averaged 1982-84 Equals 100, during the prior
calendar year as published by the U.S. Department of Labor or any successor
index, whichever is greater.
5. SHIPMENT. CSG will ship the Products, any Incorporated Third Party Sol, rare,
and any other third party software from its distribution center, subject to
delays beyond CSG's control. CSG will select the method of shipment via tape or
by electronic file transfer for Customer's account. The license granted for the
Products as set forth in the Schedule(s) commences upon CSG's delivery of the
Products to the carrier for shipment to Customer. Upon timely notice by Customer
to CSG, CSG will promptly replace, at CSG's expense, any Products that are lost
or damaged while in route to Customer.
6. EQUIPMENT PURCHASE. Customer is fully responsible for obtaining and
installing all computer hardware, software, peripherals and necessary
communications facilities, including, but not limited to printers, servers,
power supply, workstations, printers, concentrators, communications equipment,
and routers (the "Required Equipment") that are necessary at Customer's place of
business in order for Customer to utilize the Services and the Products as
defined in this Master Agreement. Customer shall bear responsibility for the
Required Equipment, including, but not limited to, the costs of procuring,
installing, operating and maintaining such Required
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES.
<PAGE>
Equipment. At Customer's request and subject to the terms and conditions of
Schedule B, CSG will consult with, assist and advise Customer regarding
- ----------
Customer's discharge of its responsibilities with respect to the Required
Equipment, and CSG will obtain for Customer any Required Equipment at CSG's
then-current prices and on terms and conditions set forth in a separately
executed purchase agreement.
7. PRODUCTS WARRANTIES AND REMEDIES.
(a) Limited Warranty. Except as provided in Section 9 and 10, CSG warrants that
----------------
(i) the Products will conform to CSG's published specifications in effect on the
date of delivery and (ii) the Products will perform in a certified "Designated
Environment" (as defined in the applicable Schedules, attached hereto)
---------
substantially as described in the accompanying Documentation for a period of
ninety (90) days after the date of delivery (the "Warranty Period").
Notwithstanding the foregoing, if Customer modifies VantagePoint by altering any
of the source code provided by CSG, this limited warranty will be void as it
relates to VantagePoint. Except as set forth in Schedule H, CSG provides all
----------
third party software, including the "Incorporated Third Party Software" (as
defined below in Section 8), AS IS. Customer acknowledges that (i) the Products
and the Incorporated Third Party Software may not satisfy all of Customer's
requirements and (ii) the use of the Products and the Incorporated Third Party
Software may not be uninterrupted or error-free. Customer further acknowledges
that (i) the fees set forth in Schedule F and other charges contemplated under
----------
this Master Agreement are based on the limited warranty, disclaimers and
limitation of liability specified in this Section and Sections 9, 10, 13, 14,
and 15 and (ii) such charges would be substantially higher if any of these
provisions were unenforceable.
(b) Remedies. In case of breach of warranty or any other duty related to the
--------
quality of the Products, CSG or its representative will correct or replace any
defective Product or, if not practicable, CSG will accept the return of the
defective Product and refund to Customer (i) the amount actually paid to CSG
allocable to the defective Product, and (ii) a pro rata share of the maintenance
fees that Customer actually paid to CSG for the period that such Product was not
usable. Customer acknowledges that this Subsection 7(b) sets forth Customer's
exclusive remedy, and CSG's exclusive liability, for any breach of warranty or
other duty related to the quality of the Products. THE REMEDIES SET FORTH IN
THIS PARAGRAPH ARE SUBJECT TO THE "LIMITATION OF REMEDIES" SET FORTH BELOW IN
SECTION 14.
8. INCORPORATED THIRD PARTY SOFTWARE OR THIRD PARTY RIGHTS. Customer
acknowledges that the Products incorporate certain third party computer programs
and documentation (the "Incorporated Third Party Software") and/or the Products
are licensed and the Services are offered under certain third party patent,
copyright or other rights (the "Third Party Rights"), which are subject to the
additional or alternative terms and conditions set forth in Schedule H, as
----------
applicable (the "Incorporated Licenses"). In case of any conflict between this
Master Agreement and the Incorporated Licenses, the terms of the Incorporated
Licenses will prevail with respect to the Incorporated Third Party Software or
the Third Party Right. Customer will be responsible for paying any fees for the
Incorporated Third Party Software that may be due in connection with this Master
Agreement. CSG will be responsible for paying any fees for the Third Party
Rights that may be due in connection with this Master Agreement. Customer will
execute the additional documents that such vendors may require to enable CSG to
deliver the Incorporated Third Party Software to Customer. Except as otherwise
provided in Schedule H, CSG makes no warranty and provides no indemnity with
----------
respect to the Incorporated Third Party Soitware or the Third Party Rights.
9. OTHER THIRD PARTY SOFTWARE. Customer acknowledges that CSG will deliver the
System together with certain third party software other than Incorporated Third
Party Software, and that Customer's rights and obligations with respect to such
other third party software are subject to the license terms accompanying the
specific item of third party software. CSG is not a party to any license between
Customer and any licensor of such third party software, and CSG makes no
warranty and provides no indemnity with respect thereto.
10. TECHNICAL SERVICES WARRANTY. CSG represents and warrants that (i) CSG will
perform the Technical Services in a good workmanlike manner and (ii) the
Deliverables as defined in Schedule B will substantially conform to the
----------
applicable specifications set forth in any executed Statement of Work attached
to Schedule B for a period of ninety days aider the date of completion of the
----------
Deliverables as set forth on the applicable Statement of Work. In case of breach
of this Technical Services' warranty or any other legal duty to Customer for the
Technical Services, CSG's exclusive liability, and Customer's exclusive remedy,
will be to obtain (i) the reperformance of the Technical Service or the
correction or replacement of the Deliverable or (ii) if CSG determines that such
remedies are not practicable, a refund of the Project Fees (as defined in
Schedule B) allocable to such Technical Service or Deliverable. ALL OTHER
- ----------
WARRANTIES OR CONDITIONS, WHETHER EXPRESS OR IMPLIED (INCLUDING, BUT NOT LIMITED
TO, ANY IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR PARTICULAR PURPOSE,
TITLE OR NON-INFRINGEMENT), ARE HEREBY DISCLAIMED.
11. REPORTING. On a quarterly basis, within thirty (30) days of the end of every
calendar quarter, Customer shall provide CSG with a quarterly report setting
forth the then current number of subscribers processed by Customer and the
number of concurrent users of the Products and any Incorporated Third Party
Software by setting forth the number of workstations/seats utilizing each of the
Products and any Incorporated Third Party Software.
12. INDEMNITY.
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES.
<PAGE>
(a) Indemnity. Except as provided in Exhibit C-1 or in the case of any claim
---------
arising from or in connection with the Third Party Rights specified in Schedule
--------
H, if an action is brought against Customer claiming that the Products infringe
- -
a patent, copyright or other intellectual property right within the jurisdiction
where the "Designated Environment" (as defined in the applicable Schedules,
---------
attached hereto) is situated (the "Territory"), CSG will defend Customer at
CSG's expense and, subject to this Section and Section 15, pay the damages and
costs finally awarded against Customer in the infringement action, but only if
(i) Customer notifies CSG promptly upon learning that the claim might be
asserted, (ii) CSG has sole control over the defense of the claim and any
negotiation for its settlement or compromise and (iii) Customer takes no action
that, in CSG's reasonable judgment, is contrary to CSG's interest.
(b) Alternative Remedy. If a claim described in Section 12(a.) may be or has
------------------
been asserted, Customer will permit CSG, at CSG's option and expense, to (i)
procure the right to continue using the Product, (ii) replace or modify the
Product to eliminate the infringement while providing functionally equivalent
performance or (iii) accept the return of the Product and refund to Customer the
amount of the fees actually paid to CSG and allocable for such Product, less
amortization based on a 5-year straight-line amortization schedule and a pro
rata share of any maintenance fees that Customer actually paid to CSG for the
period that such Product was not usable.
(c) Limitation. CSG shall have no indemnity obligation to Customer under this
----------
Section if the patent or copyright infringement claim results from (i) a
correction or modification of the Product provided by Customer or Customer's
agent, (ii) the failure to promptly install an Update or Enhancement provided by
CSG and made known to Customer by CSG (as defined in the applicable Schedules,
---------
attached hereto) or (iii) the combination of the Product with other items not
provided by CSG.
13. PAY-PER-VIEW LIABILITY. Notwithstanding anything to the contrary herein,
CSG's total liability with respect to each pay-per-view event for any and all
claims, damages, losses or expenses incurred by Customer arising directly or
indirectly out of CSG's processing of pay-per-view information shall be limited
to the amount of fees actually received by CSG from Customer applicable to such
pay-per-view processing services related to the specific event giving rise to
such liability.
14. LIMITATION OF REMEDIES. EXCEPT AS EXPRESSLY PROVIDED IN THIS MASTER
AGREEMENT, ALL WARRANTIES, CONDITIONS, REPRESENTATIONS, INDEMNITIES AND
GUARANTEES WITH RESPECT TO THE PRODUCTS, THE INCORPORATED THIRD PARTY SOFTWARE,
OTHER THIRD PARTY SOFTWARE, AND THE SERVICES, WHETHER EXPRESS OR IMPLIED,
ARISING BY LAW, CUSTOM, PRIOR ORAL OR WRITTEN STATEMENTS BY CSG, ITS AGENTS OR
OTHERWISE (INCLUDING, BUT NOT LIMITED TO ANY WARRANTY OF MERCHANTABILITY,
SATISFACTION, FITNESS FOR PARTICULAR PURPOSE, TITLE OR NON-INFRINGEMENT) ARE
HEREBY OVERRIDDEN, EXCLUDED AND DISCLAIMED. CUSTOMER ACKNOWLEDGES THAT THE
PRODUCTS AND SERVICES BEING PROVIDED AS AGREED TO HEREIN ENTAIL THE LIKELIHOOD
OF SOME HUMAN AND MACHINE ERRORS, OMISSIONS, DELAYS AND LOSSES, INCLUDING, BUT
NOT LIMITED TO, INADVERTENT MUTILATION OF DOCUMENTS AND LOSS OF DATA, WHICH MAY
GIVE RISE TO LOSS OR DAMAGE. CUSTOMER AGREES THAT CSG SHALL NOT BE LIABLE DUE TO
SUCH ERRORS, OMISSIONS, DELAYS AND LOSSES UNLESS CAUSED BY CSG'S GROSS
NEGLIGENCE OR WILLFUL AND INTENTIONAL MISCONDUCT.
15. NO CONSEQUENTIAL DAMAGES. UNDER NO CIRCUMSTANCES WILL CSG OR ITS RELATED
PERSONS BE LIABLE TO CUSTOMER OR CSG'S LICENSORS AND VENDORS BE LIABLE TO
CUSTOMER FOR ANY CONSEQUENTIAL, INDIRECT, SPECIAL, PUNITIVE OR INCIDENTAL
DAMAGES OR LOST PROFITS, WHETHER FORESEEABLE OR UNFORESEEABLE, BASED ON
CUSTOMER'S CLAIMS OR THOSE OF ITS CUSTOMERS (INCLUDING, BUT NOT LIMITED TO,
CLAIMS FOR LOSS OF DATA, GOODWILL, USE OF MONEY OR USE OF THE PRODUCTS, THE
INCORPORATED THIRD PARTY SOFTWARE, OR OTHER THIRD PARTY SOFTWARE, RESULTING
REPORTS, THEIR ACCURACY OR THEIR INTERPRETATION, INTERRUPTION IN USE OR
AVAILABILITY OF DATA, STOPPAGE OF OTHER WORK OR IMPAIRMENT OF OTHER ASSETS),
ARISING OUT OF BREACH OR FAILURE OF EXPRESS OR IMPLIED WARRANTY, BREACH OF
CONTRACT, MISREPRESENTATION, NEGLIGENCE, STRICT LIABILITY IN TORT OR OTHERWISE.
IN NO EVENT WILL THE AGGREGATE LIABILITY WHICH CSG, ITS LICENSORS OR ITS VENDORS
MAY INCUR IN ANY ACTION OR PROCEEDING EXCEED THE AMOUNT ACTUALLY PAID BY
CUSTOMER ALLOCABLE TO THE SPECIFIC ITEM OR SERVICE THAT DIRECTLY CAUSED THE
DAMAGE. DESPITE THE FOREGOING EXCLUSION AND LIMITATION, THIS SECTION WILL NOT
APPLY TO THE EXTENT THAT APPLICABLE LAW SPECIFICALLY REQUIRES LIABILITY.
16. TERM. This Master Agreement shall be effective on the date of execution and
acceptance by CSG (the "Effective Date"). Unless terminated pursuant to Section
17, this Master Agreement shall continue for a period of five (5) years from the
Effective Date (the "Initial Term") and shall automatically be extended for
additional one-year terms (the "Additional Terms") unless either party gives the
other party at least six (6) months prior written notice of such party's intent
not to extend, but in any case the term of this Master Agreement shall extend
for the term of any license granted under an executed Schedule hereto. The term
of any specific license for the Products and the term for any specific Services
to be provided shall be set forth in the Schedules attached hereto and shall be
effective from the date set forth therein and continue as provided for therein,
unless terminated pursuant to Sections 17 of this Master Agreement.
17. TERMINATION. This Master Agreement or any one or more of the Schedules
attached hereto may be terminated for cause as follows:
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES.
<PAGE>
(a) If either party materially or repeatedly defaults in the performance of
their respective obligations hereunder, except for Customer's obligation
to pay fees, and fails either to substantially cure such default within
thirty (30) days alter receiving written notice specifying the default or,
for those defaults which cannot reasonably be cured within thirty (30)
days, promptly commence curing such default and thereafter proceed with
all due diligence to substantially cure such default, then the party not
in default may, by giving written notice to the defaulting party,
terminate this Master Agreement or any one or more of its Schedules as of
a date specified in such notice of termination.
(b) If Customer fails to pay when due any amounts owed hereunder, then CSG
may, by giving written notice thereof to Customer and providing Customer
an opportunity to cure such default within five (5) business days,
terminate this Master Agreement or at CSG's option, CSG may terminate any
one or more of the Schedules attached hereto, as of a date specified in
such notice of termination.
(c) In the event that either party hereto becomes or is declared insolvent or
bankrupt, is the subject of any proceedings related to its liquidation,
insolvency or for the appointment of a receiver or similar officer for it,
makes an assignment for the benefit of all or substantially all of its
creditors, or enters into an agreement for the composition, extension or
readjustment of all or substantially all of its obligations, then the
other party hereto may, by giving written notice thereof to such party,
terminate this Master Agreement as of the date specified in such notice of
termination.
(d) If Customer or any of Customer's employees or consultants breach any term
or condition of any Schedule attached hereto for the license of software
or products distributed by or through CSG, including the Incorporated
Third Party Software, CSG may, at CSG's option, terminate the Master
Agreement or terminate any one or more of the Schedules attached hereto
upon 30 days advance written notice and without judicial or administrative
resolution. Customer shall, however, be provided five (5) business days to
cure such default.
Upon the termination of the Master Agreement or any one or more of the Schedules
attached hereto, for any reason, all rights granted to Customer under this
Master Agreement or the terminated Schedule(s) will cease, and Customer will
promptly (i) purge all the Products from the Designated Environment and all of
Customer's other computer systems, storage media and other files; (ii) destroy
the Products and all copies thereof; (iii) deliver to CSG an affidavit which
certifies that Customer has complied with these termination obligations; and
(iv) pay to CSG all fees that are due pursuant to this Master Agreement.
Notwithstanding the foregoing, if only one or more of the Schedules are
terminated, Customer must comply with the requirements of this paragraph only
with respect to the specific Products set forth in the terminated Schedule(s).
18. TERMINATION ASSISTANCE. Upon expiration or earlier termination of this
Master Agreement or termination of Schedule A by either party for any reason,
-----------
CSG will provide Customer, reasonable termination assistance for up to ninety
(90) days relating to the transition to another vendor. This termination
assistance will be provided to Customer at CSG's then standard rates unless CSG
has materially defaulted under the terms of this Master Agreement. If this
Master Agreement expires or is terminated earlier by CSG, then Customer will pay
CSG, in advance, on the first day of each calendar month and as a condition to
CSG's obligation to provide termination assistance to Customer during that
month, an amount equal to CSG's reasonable estimate of the total amount payable
to CSG for such termination assistance for that month.
19. CONFIDENTIALITY.
(a) Definition. Customer and CSG will provide to each other or will come into
----------
possession information relating to each other's business, CSG's Products and
Services and the Incorporated Third Party Sof~vare which is considered
confidential (the "Confidential Information"). Customer acknowledges that
confidentiality restrictions are imposed by CSG's licensors or vendors.
Confidential Information shall include, without limitation, all of Customer's
and CSG's trade secrets, and all know-how, design, invention, plan or process
and Customer's data and information relating to Customer's and CSG's respective
business operations, services, products, research and development, CSG's
vendors' or licensors' information and products, and all other information that
is marked "confidential" or "proprietary" prior to or upon disclosure, or which,
if disclosed orally, is identified by the disclosing party at the time as being
confidential or proprietary and is confirmed by the disclosing party as being
Confidential Information in writing within thirty (30) days after its initial
disclosure.
(b) Restrictions. Each party shall use its reasonable best efforts to maintain
------------
the confidentiality of such Confidential Information and not show or otherwise
disclose such Confidential Information to any third parties, including, but not
limited to, independent contractors and consultants, without the prior written
consent of the disclosing party. Each party shall use the Confidential
Information solely for purposes of performing its obligations under this Master
Agreement. Each party shall indemnify the other for any loss or damage the other
party may sustain as a result of the wrongful use or disclosure by such party
(or any employee, agent, licensee, contractor, assignee or delegate of the other
party) of its Confidential Information. Customer will not allow the removal or
defacement of any confidentiality or proprietary notice placed on any CSG
documentation or products. The placement of copyright notices on these items
will not constitute publication or otherwise impair their confidential nature.
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES.
<PAGE>
(c) Disclosure. Neither party shall have any obligation to maintain the
----------
confidentiality of any Confidential Information which: (i) is or becomes
publicly available by other than unauthorized disclosure by the receiving party;
(ii) is independently developed by the receiving party; or (iii) is received
from a third party who has lawfully obtained such Confidential Information
without a confidentiality restriction. If required by any court of competent
jurisdiction or other governmental authority, the receiving party may disclose
to such authority, data, information or materials involving or pertaining to
Confidential Information to the extent required by such order or authority,
provided that (a) the receiving party gives prompt, written notice to the
disclosing party of the attempt to mandate disclosure; and (b) the receiving
party shall first have used its best efforts to obtain a protective order or
other protection reasonably satisfactory to the disclosing party sufficient to
maintain the confidentiality of such data, information or materials. If an
unauthorized use or disclosure of Confidential Information occurs, the parties
will take all steps which may be available to recover the documentation and/or
products and to prevent their subsequent unauthorized use or dissemination.
(d) Limited Access. Each party shall limit the use and access of Confidential
--------------
Information to such party's bona fide employees or agents, including independent
auditors and required governmental agencies, who have a need to know such
information for purposes of conducting the receiving party's business and who
agree to comply with the use and non-disclosure restrictions applicable to the
products and documentation under this Master Agreement. If requested, receiving
party shall cause such individuals to execute appropriate confidentiality
agreements in favor of the disclosing party. Each party shall notify all
employees and agents who have access to Confidential Information or to whom
disclosure is made that the Confidential Information is the confidential,
proprietary property of the disclosing party and shall instruct such employees
and agents to maintain the Confidential Information in confidence.
20. SURVIVAL. Termination of this Master Agreement shall not impair either
party's then accrued rights, obligations, liabilities or remedies.
Notwithstanding any other provisions of this Master Agreement to the contrary,
the terms and conditions of Sections 7, 8, 9, 10, 13, 14, 15, 17, 18, 19, 20,
23, and 30 shall survive the termination of this Master Agreement.
21. EXCLUSIVITY. This section intentionally omitted.
22. NATURE OF RELATIONSHIP. CSG, in furnishing Services and licensing Products
to Customer hereunder, is acting only as an independent contractor. CSG does not
undertake by this Master Agreement or otherwise to perform any obligation of
Customer, whether regulatory or contractual, or to assume any responsibility for
Customer's business or operations. Customer understands and agrees that CSG may
perform similar services for third parties and license same or similar products
to third parties. Nothing in this Master Agreement shall be deemed to constitute
a partnership or joint venture between CSG and Customer. Neither party shall
hold itself out as having any authority to enter into any contract or create any
obligation or liability on behalf of or binding upon the other party.
23. OWNERSHIP. All trademarks, service marks, patents, copyrights, trade secrets
and other proprietary rights in or related to the Products, the "Deliverables"
as defined under Schedule B, the Incorporated Third Party Software and other
----------
third party software (collectively the "Software Products") are and will remain
the exclusive property of CSG or its licensors, whether or not specifically
recognized or perfected under applicable law. Customer will not take any action
that jeopardizes CSG's or its licensor's proprietary rights or acquire any right
in the Soft-ware Products, except the limited use rights specified in the
Schedules to this Master Agreement. CSG or its licensor will own all rights in
any copy, translation, modification, adaptation or derivation of the Software
Products, including any improvement or development thereof. Customer will
obtain, at CSG's request, the execution of any instrument that may be
appropriate to assign these rights to CSG or its designee or perfect these
rights in CSG's or its licensor's name. Customer shall remain the sole and
exclusive owner of all right, title and interest in and to all trademarks owned
by Customer.
24. RESTRICTED RIGHTS. Use, duplication or disclosure by the U.S. Government or
any of its agencies is subject to restrictions set forth in the Commercial
Computer Software and Commercial Computer Sol, rare Documentation clause at
DFARS 227.7202 and/or the Commercial Computer Software Restricted Rights clause
at FAR 52.227.19(c) CSG Systems, Inc., 2525 North l17th Street, Omaha, Nebraska
68164.
25. INSPECTION. During the term of this Master Agreement and for twelve (12)
months after its termination or expiration for any reason, CSG or its
representative may, upon reasonable, advance prior notice to Customer, inspect
the files, computer processors, equipment and facilities of Customer during
normal working hours to verify Customer's compliance with this Master Agreement.
While conducting such inspection, CSG or its representative will be entitled to
copy any item that Customer may possess in violation of this Master Agreement.
26. FORCE MAJEURE. Neither party will be liable for any failure or delay in
performing an obligation under this Master Agreement that is due to causes
beyond its reasonable control, including, but not limited to, fire, explosion,
epidemics, earthquake, lightening, failures or fluctuations in electrical power
or telecommunications equipment, accidents, floods, acts of God, the elements,
war, civil disturbances, acts of civil or military authorities or the public
enemy, fuel or energy shortages, acts or omissions of any common carrier,
strikes, labor disputes, regulatory restrictions, restraining orders or decrees
ofany court, changes in law or regulation or other acts of governmental,
transportation stoppages or slowdowns or the inability to procure parts or
materials. These causes will not excuse Customer from paying accrued amounts due
to CSG through any available lawful means acceptable to CSG.
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES.
<PAGE>
27. ASSIGNMENT. Neither party may assign, delegate or otherwise transfer this
Master Agreement or any of its rights or obligations hereunder without the other
party's prior approval. Any attempt to do so without such approval will be void.
Notwithstanding the foregoing, either party may assign this Master Agreement,
upon notice to the other, to a related or unrelated person in connection with a
sale, acquisition, consolidation or other reorganization of its business, in
whole or in part, and the other hereby consents to such assignment in advance
but only so long as such assignee agrees in writing to be bound to the terms and
conditions of this Agreement.
28. NOTICES. Any notice or approval required or permitted under this Master
Agreement will be given in writing and will be sent by telefax, courier or mail,
postage prepaid, to the address specified below or to any other address that may
be designated by prior written notice. Any notice or approval delivered by
telefax (with answer back) will be deemed to have been received the day it is
sent. Any notice or approval sent by courier will be deemed received one day
after its date of posting. Any notice or approval sent by mail will be deemed to
have been received on the 5th business day after its date of posting.
If to Customer: If to CSG:
TVN Entertainment Corporation CSG Systems, Inc.
2901 West Alameda Ave., 7th Floor 2525 N. 117th Ave.
Burbank, CA 91505 Omaha, NE 68164
Tel: (818) 846-4886 Tel: (402) 431-7000
Fax: (818) 846-4626 Fax: (402) 431-7278
Attn: John McWilliams Attn: President and copy to
Vice President, Finance and a copy to Corporate Counsel
Arthur Fields, Sr., Executive V.P.
29. ARBITRATION.
(a) General. Any controversy or claim arising out of or relating to this Master
-------
Agreement or the existence, validity, breach or termination thereof, whether
during or after its term, will be finally settled by compulsory arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association CAAA"), as modified or supplemented under this Section.
(b) Proceeding. To initiate arbitration, either party will file the appropriate
----------
notice at the Regional Office of the AAA in Omaha, Nebraska or Los Angeles,
California. The arbitration proceeding will take place in Omaha, Nebraska or Los
Angeles, California. The parties will in good faith seek to agree on a sole
arbitrator. If the parties are unable to agree on an arbitrator, the arbitration
panel will consist of three (3) arbitrators, one arbitrator appointed by each
party and a third neutral arbitrator appointed by the two arbitrators designated
by the parties. Any communication between a party and any arbitrator will be
directed to the AAA for transmittal to the arbitrator. The parties expressly
agree that the arbitrators will be empowered to, at either party's request,
grant injunctive relief.
(c) Award. The arbitral award will be the exclusive remedy of the parties for
-----
all claims, counterclaims, issues or accountings presented or plead to the
arbitrators. The award will (i) be granted and paid in U.S. dollars exclusive of
any tax, deduction or offset and (ii) include interest from the date of that the
award is rendered until it is fully paid, computed at the maximum rate allowed
by applicable law. Judgment upon the arbitral award may be entered in any court
that has jurisdiction thereof. Any additional costs, fees or expenses incurred
in enforcing the arbitral award will be charged against the party that resists
its enforcement.
(d) Legal Actions. Nothing in this Section will prevent either party from
-------------
seeking interim injunctive relief against the other party in the courts having
jurisdiction over the other party. Nothing in this Section will prevent CSG from
filing any debt collection action against Customer in the local courts.
30. MISCELLANEOUS. All notices or approvals required or permitted under this
Master Agreement must be given in writing. Any waiver or modification of this
Master Agreement will not be effective unless executed in writing and signed by
CSG and Customer. This Master Agreement will bind Customer's successors-in-
interest. This Master Agreement will be governed by and interpreted in
accordance with the laws of Nebraska, U.S.A., to the exclusion of its conflict
of laws provisions. If any provision of this Master Agreement is held to be
unenforceable, in whole or in part, such holding will not affect the validity of
the other provisions of this Master Agreement, unless CSG in good faith deems
the unenforceable provision to be essential, in which case CSG may terminate
this Master Agreement effective immediately upon notice to Customer. This Master
Agreement, together with the Schedules, Exhibits and attachments hereto which
are hereby incorporated into this Master Agreement, constitutes the complete and
entire statement of all conditions and representations of the agreement between
CSG and Customer with respect to its subject matter and supersedes all prior
writings or understandings. The parties agree that each of them may be bound to
the terms and conditions of this Agreement by signing it in counterparts and
faxing such signature pages to the other party. Such facsimiles shall have the
same effect as though this Agreement were signed with two, original signatures
on a single document.
THIS AGREEMENT IS NOT EFFECTIVE UNTIL SIGNED ON BEHALF OF BOTH PARTIES.
IN WITNESS WHEREOF, the parties have executed this Master Agreement the day and
year first above written.
CSG Systems, Inc. ("CSG") TVN Entertainment Corporation ("Customer")
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES.
<PAGE>
By: /s/ George F. Haddix By: /s/ Arthur Fields
----------------------------------- -----------------------------------
Name: GEORGE F. HADDIX Name: ARTHUR FIELDS
--------------------------------- ---------------------------------
Title: PRESIDENT Title: SR. EXEC. VICE PRESIDENT
-------------------------------- --------------------------------
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES.
<PAGE>
SCHEDULE A
CCS SUBSCRIBER BILLING SERVICES
1. CCS Services. Subject to the terms and conditions of the Master Agreement and
for the fees described in Schedule F, CSG will provide to Customer, and Customer
----------
will purchase from CSG, all of Customer's requirements for the data processing
services, applications and other video services (the "CCS Services") for all of
Customer's subscriber accounts using CSG's CCS system. The CCS Services will
provide Customer with an on-line terminal facility (not the terminals
themselves), service bureau access to CCS processing software, adequate computer
time and other mechanical data processing services as more specifically
described in the user documents: the User Guide, User Data File Manual, User
Training Manual, Conversion Manual, Operations Guide, and Customer Bulletins
issued by CSG (the "Documentation"). Customer's personnel, agents and/or vendors
shall enter all payments and non-monetary changes on terminal(s) located at
Customer's offices, or provide CSG payment information on magnetic tape or
electronic record in CSG's format. CSG and Customer acknowledge and agree that
the Documentation describing the CCS Services is subject to ongoing review and
modification from time to time.
2. Communications Services and Fees. CSG shall provide, at Customer's expense, a
data communications line from the CSG data processing center to each of
Customer's system site locations identified in Exhibit A-I attached hereto (the
"System Sites"). Customer shall pay all fees and charges in connection with the
installation and use of and peripheral equipment related to the data
communications line in accordance with the fees described in Schedule F attached
----------
hereto.
3. Conversion Services and Fees. CSG shall provide services as described on
Exhibit A-2 attached hereto in connection with Customer's conversion of each
System Site and for those added by mutual agreement of the parties to CSG's data
processing system subsequent to the execution of this Master Agreement (the
"Conversion Services"). For System Sites added to Exhibit A-1 subsequent to the
Effective Date of the Master Agreement, Customer shall pay CSG the fees set
forth in Schedule F for the performance of the Conversion Services.
----------
4. Deconversion Services and Fees. If Customer sells, transfers, assigns or
disposes of any of the assets of or any ownership or management interest in any
System Site (the "Disposed Site(s)"), Customer agrees to pay CSG the per set
deconversion tape fee of $7500 and CSG's then current rates for processing and
deconverting subscribers, including on-line access fees, which amounts shall be
due and payable thirty (30) days prior to the intended deconversion of any such
Disposed Site(s) from the CCS Services. CSG shall be under no obligation or
liability to provide any deconversion tapes or records until all amounts due
hereunder, and as otherwise provided in the Master Agreement, shall have been
paid in full.
5. Optional and Ancillary Services. At Customer's request, CSG shall provide
optional and ancillary services, including but not limited to any described on
Schedule F at CSG's then-current prices, or as may otherwise be set forth in
- ----------
Schedule F, and where applicable on the terms and conditions set forth in
- ----------
separately executed Schedules to the Master Agreement.
6. Customer Information. Any original documents, data and files provided to CSG
hereunder by Customer ("Customer Data") are and shall remain Customer's
property, and upon termination of this Master Agreement for any reason or
deconversion of any System Site, such Customer Data shall be returned to
Customer by CSG, subject to the payment of CSG's then-current rates for
processing and delivering the Customer Data, any applicable deconversion fees
required under Section 4 hereof and all unpaid charges for services and
equipment, if any, including late charges incurred by Customer. Customer Data
will not be utilized by CSG for any purpose other than those purposes related to
rendering the services to Customer under the Master Agreement. Data to be
returned to Customer includes: Subscriber Master File (including Work Orders,
Converters and General Ledger), Computer-Produced Reports (reflecting activity
during period of 90 days immediately prior to Schedule A termination), House
----------
Master File, Any other related data or files held by CSG on behalf of Customer.
7. Processing Minimum. If, during any one month, Customer falls below the
Minimum Subscriber Fees as defined in Schedule F, Customer will nevertheless owe
----------
and agrees to pay the fees and charges computed as if such Minimum Subscriber
Fees had been met.
8. Term. The first day of the calendar month in which the CCS Services commence
shall be referred to as the "Commencement Date." The CCS Services shall continue
from the Commencement Date for a period of five (5) years.
Agreed and accepted this 30th day of June 1997, by:
CSG SYSTEMS, INC. ("CSG") TVN ENTERTAINMENT("Customer")
By: /s/ George F. Haddix By: /s/ Arthur Fields
------------------------ -------------------------------
Exhibit A-1 SYSTEM SITES; Exhibit A-2 CONVERSION SERVICES
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES.
<PAGE>
EXHIBIT A-1
SYSTEM SITES ESTIMATED IMPLEMENTATION/
CONVERSION DATE
TVN main location and other sites to be added by Customer.
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES.
<PAGE>
EXHIBIT A-2
CCS Conversion
THE FOLLOWING VIDEO CONVERSION SERVICES ARE AVAILABLE FOR THE FEES SET FORTH ON
SCHEDULE F:
- -----------
I) FOR SITE CONVERSIONS WITH SUBSCRIBER COUNTS OF LESS THAN 20,000_____________
Manual conversions are recommended on all sites with less than 20K subscribers.
Clients are responsible for data entry.
Includes:
. 1 Set of CCS Documentation
. File Set-Up
. 3 Months Access to CBT
. 1 Week's Management Training in Omaha
. Manual Data Base Instructions/Procedures
. CSG Support - Fees plus Travel Expenses
On Data Bases Over 10K Subs, CSG will offer the following:
. Programmatic Load of House Data
. Programmatic Load of Converter Data
II) 20,000- 29,999 SUBSCRIBERS and 30,000- 59,999 SUBSCRIBERS CATEGORIES________
CONVERSION INCLUDES:
- --------------------
A) Training Aids and Documentation - 1 Set
- ------------------------------------------
Manuals and job aids for your video system staff. These manuals and job aids
are used to complement your CBT courses. Each employee would be provided the
necessary job aids and manuals.
Job Aids: Logon/Sign On, Logoff/Sign Off, CBT Training System, House File,
Sales Support, Adjustment Transactions, Adjustment Practice Sheet, Converter
Inventory/Addressability Transactions, Converter Sample Invoices, Select
System
Additional copies: $50 for the Job Aids and $5 for the Manual.
One four volume set of the "Video Source" Communication Control System User
Guides. This system documentation explains all reports and transactions of the
Communication Control System.
Additional copies: $200 per set or $50 per volume.
One CCS Conversion Manual. This manual describes the major components
necessary for set-up and conversion/implementation to the CCS system.
Additional copies: CSG's then-current prices
One "CableSource User Data File" Manual. This manual describes the 300 plus
parameters provided to allow you flexibility in establishing your processing
requirements. This manual will be primarily reviewed by the Conversion
Specialist during your first visit.
Additional copies: CSG's then-current prices
A test system that provides for the opportunity to practice "hands on"
training without impacting your actual database. (Deaccessed after conversion)
RMS Manual. This manual describes all functionality and commands of the CSG
print package.
Additional copies: CSG's then-current prices
B) Recommended Site Visits
--------------------------
Initial Visit
. Overview of the conversion/implementation process. This incorporates
reviewing conversion tasks, timeline and responsible parties.
. Establish and/or review of corporate standards, as they relate to User Data
File, Code Tables, Service Codes and Report settings.
. Define Conversion Specifications. This process defines fields, values and
variables used on current billing processor and how that will be converted
to CCS.
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES.
<PAGE>
Ex. A-2 (page 2 of 3)
--------------------
Pre-Conversion Review
. Review set up of User Data File, Code Tables and reports.
. Review pricing and taxing structure of video site.
. Review and approve Conversion/Implementation Specifications.
. Train office personnel on use of the CCS system as it pertains to their job
function using CBT and a pre-established test system.
. Review statement file settings.
. Assist the site with defining new procedures for policies that pertain to the
billing system.
Post Conversion
. Audit converted data the morning after merge.
. Coordinate input of accumulated backlog (work orders, payments, adjustments
and PPV)
. Review exceptions created through conversion/implementation process and take
necessary action.
. Review pricing and taxing structure.
. Balance cash.
. Review reports and assist with determining needs for daily distribution.
. Review and release first cycle of generated statements.
Third Week
. Review reports.
. Assist with month-end financial balancing.
. Provide potential solutions for day to day procedural issues. (i.e. work
order printing, routing, dispatch, converter inventory).
C) Database Clean-up
-----------------
Homes Passed. All addresses that currently reside on your database will be
compared against the Group One Zip + 4 files. The following items will occur:
. Street names, suffixes (street, avenue) will be standardized in accordance
with U.S.P.S. records.
. Nine digit zip code established - normally from 90-98% of address will be
assigned the 4 digit add-on list of addresses that did not meet U.S.P.S.
standards will be provided. Rural areas may have lower percentages. Bar-
coding of Zip + 4 statement will be performed by CSG.
. Re-zip of your data base occur every quarter - this allows CSG to continue to
qualify for the highest postal discounts.
. List of duplicate address records will be provided for cleanup purposes.
Converter Data Base. All converters will be passed through CCS edit programs,
the following items will occur:
. Listing of duplicate serial numbers including the location of the box will be
provided.
. If you are addressable, a listing of duplicate terminal address (prom number)
will be provided.
. Invalid model numbers, invalid serial number formats will be identified.
Subscriber Data Base. Standard CCS edits requirements will be performed along
with any specific site requested information. The following items are provided
as examples:
. Site requested service codes, discount codes.
. Site requested campaign codes.
. Subscribers receiving free services.
. Invalid phone numbers.
. Any specific site requested data.
D} Management Training in Omaha
- -------------------------------
. In depth lecture seminar designed for managers and supervisors.
. Covers all aspects of the Communication Control system.
. Includes a detailed training manual and all additional training materials.
. Opportunity to tour the CSG Mail Facility.
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES.
<PAGE>
Ex. A-2 (page 3 of 3)
----------------------
III) 60,000- 89,999 SUBSCRIBERS CATEGORY_______________________________________
Includes everything as listed above in Section II, except regarding:
Recommended Site Visits
- -----------------------
Training
. CSG training will be on-site to conduct "Train the Trainer" courses for
site's training staff.
. CSG trainers will train site staff on CCS facets and functionality, based
upon agenda and needs created by Video site management.
IV) 90,000 -149,999 SUBSCRIBERS AND 150,000 + SUBSCRIBERS CATEGORIES____________
Includes everything as listed above in Section IIl, except:
Recommended Site Visits
- -----------------------
Specialty Trips
. Addressability Specialist- 1 trip
. Financial Analyst- I trip
. Conversion Specialist - I trip to review output with site
. Conversion Specialist - I trip to define new procedures for policies that
pertain to the billing system.
Management Training (This training is usually on-site because of the volume of
managers to be trained.)
. In depth lecture seminar designed for managers and supervisors.
. Covers all aspects of the Communication Control system.
. Includes a detailed training manual and all additional training materials.
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES.
<PAGE>
SCHEDULE B
CSG TECHNICAL SERVICES
----------------------
1. General. Subject to the terms and conditions of the Master Agreement and for
the fees and expenses described below, Customer hereby hires CSG, and CSG hereby
agrees, to provide the design, development and/or other consulting services
described in the Statement of Works contemplated under Section 2, which may
include services by CSG's Advanced Business Solutions division (collectively,
the "Technical Services") to Customer as its independent contractor.
2. Technical Services.
(a) Reasonable Efforts. CSG will use its reasonable commercial efforts to
------------------
perform all Technical Services in a timely and professional manner satisfactory
to Customer and in accordance with the applicable Statement of Work.
(b) Projects Schedules. CSG and Customer will execute a schedule substantially
------------------
similar to Exhibit B-I (the "Statement of Work") for each design, development
and/or other consulting project that Customer wants CSG to undertake. CSG and
Customer acknowledge that all Statement of Works will form an integral part of
this Schedule B.
----------
(c) Location and Access. CSG may perform the Technical Services at Customer's
-------------------
premises, CSG's premises or such other premises that Customer and CSG may deem
appropriate. Customer will permit CSG to have reasonable access to Customer's
premises, personnel and computer equipment for the purposes of performing the
Technical Services at Customer's premises.
(d) Insurance. CSG will be solely responsible for obtaining and maintaining
---------
appropriate insurance coverage for its activities under this Schedule B,
----------
including, but not limited to, comprehensive general liability (bodily injury
and property damage) insurance and professional liability insurance.
3. Consideration.
(a) Project Fees. In consideration for performing the Technical Services,
------------
Customer will pay CSG the fees that may be contemplated under the Statement of
Works (the "Project Fees").
(b) Reimbursable Expenses. Unless otherwise contemplated under the Statement of
---------------------
Work, Customer will reimburse CSG for the necessary and reasonable travel,
lodging and related out-of-pocket expenses that CSG may incur in performing the
Technical Services ("Reimbursable Expenses").
(c) Payment. Customer will pay the Project Fees to CSG according to the
-------
applicable terms set forth in the Statement of Work. Unless otherwise
contemplated in the Statement of Work, Customer will pay CSG the Reimbursable
Expenses within thirty (30) days after the receipt of CSG's invoice and
supporting receipts. All payments will be made in U.S. dollars by check or wire
transfer to CSG's designated bank account. Any late payment will accrue interest
at the rate of 1.5% until paid in full.
(d) Taxes. CSG will specify on all invoices issued to Customer any sales, use or
-----
other tax that may be assessable in connection with this Schedule B. Customer
----------
will pay such taxes or provide CSG with any applicable certificate of exemption
acceptable to the appropriate taxing authorities.
4. CSG Rights. Customer acknowledges that all patents, copyrights, trade secrets
or other proprietary rights in or to the work product that CSG may create for
Customer under this Schedule B (the "Deliverables"), including, but not limited
----------
to, any ideas, concepts, inventions or techniques that CSG may use, conceive or
first reduce to practice in connection with the Technical Services, are and will
be the exclusive property of CSG, except as and to the extent otherwise
specified in the applicable Statement of Work. During and after the term of this
Schedule B, CSG and Customer will execute the instruments that may be
- ----------
appropriate or necessary to give full legal effect to this Section 4.
5. Delivery of Items. Upon the expiration or termination of this Schedule B for
----------
any mason, Customer will promptly pay CSG the Project Fees and Reimbursable
Expenses that may be due and outstanding for the Technical Services and
Deliverables that CSG has performed, and CSG will deliver to Customer all
notebooks, documentation and other items that contain, in whole or in part, any
Confidential Information that Customer disclosed to CSG in performance of the
Technical Services under this Schedule B.
----------
6. Term. The term of this Schedule B shall be for a period of five (5) years,
----------
but in any case will extend for the term of any executed Statement of Work.
Agreed and accepted this 30th day of June, 1997, by:
CSG SYSTEMS, INC. ("CSG") TVN ENTERTAINMENT CORPORATION ("CUSTOMER")
By: /s/ George F. Haddix By: /s/ Arthur Fields
------------------------ -------------------------------
EXHIBIT B-1 SAMPLE STATEMENT OF WORK
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES.
<PAGE>
EXHIBIT B-1
STATEMENT OF WORK (sample form)
THIS STATEMENT OF WORK is made as of ____________1997, between CSG Systems, Inc.
("CSG"), and TVN Entertainment Corporation ("Customer"), pursuant to Schedule B
----------
of the Master Agreement that CSG and Customer executed as of
________________,1997, and of which this Statement of Work forms an integral
part.
OBJECTIVE:
- ---------
PROCEDURES:
- ----------
TIMETABLE:
- ---------
Estimated Commencement Date:
------------------------------------
Estimated Completion Date:
--------------------------------------
DELIVERABLES:
- ------------
PROJECT FEES AND PAYMENT TERMS:
- ------------------------------
IN WITNESS WHEREOF, CSG and Customer cause this Statement of Work to be duly
executed below.
CSG SYSTEMS, INC. ("CSG") TVN ENTERTAINMENT CORPORATION ("Customer")
By:________________________________ By:_____________________________________
Name:______________________________ Name:___________________________________
Title:_____________________________ Title:__________________________________
Date:______________________________ Date:___________________________________
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES.
<PAGE>
SCHEDULE C
CCS PRODUCTS SOFTWARE LICENSE
-----------------------------
CSG Vantage(TM), ACSR(TM), Computer Based Training and ACSR AOI
1. License. CSG hereby grants Customer, and Customer hereby accepts from CSG, a
non-exclusive and non-transferable (subject to those rights expressly granted
pursuant to section 4 of Schedule C below) right to use the software products
known as CSG Vantage, ACSR, Computer Based Training and ACSR AOI for use with
the CCS Services described in Section 2 below (the "CCS Products") at the System
Sites in the United States in the designated environment described in Section 3
below (the "Designated Environment"), for the fees set forth in Schedule F and
----------
subject to the terms and conditions specified below and in the Master Agreement.
2. CCS Products. "CCS Products" as described in the Product Schedule attached
hereto as Exhibit C-I includes (i) the machine-readable object code version of
ACSR, Computer Based Training and ACSR AOI software (collectively, the
"Software"), whether embedded on disc, tape or other media; (ii) the published
user manuals and documentation that CSG may make generally available for the
Soft-ware (the "Documentation"), (iii) the fixes, updates, upgrades or new
versions of the Software or Documentation that CSG may provide to Customer under
this Schedule C (the "Enhancements") and (iv) any copy of the Soft'ware,
----------
Documentation or Enhancements. Nothing in this Schedule C will entitle Customer
----------
to receive the source code of the Software or Enhancements, in whole or in part.
3. Designated Environment. "Designated Environment" means the combination of the
other computer programs and hardware equipment CSG specified for use with the
CCS Products as set forth in Exhibit C-2, or otherwise approved by CSG in
writing for Customer's use with the CCS Products at the system sites set forth
on Exhibit C-I (the "System Sites"). Customer may use the CCS Products only in
the Designated Environment and will be solely responsible for upgrading the
Designated Environment to the specifications that CSG may provide from time to
time. If Customer fails to do so, CSG will have no obligation to continue
maintaining and supporting the CCS Products. CSG shall certify the Designated
Environment prior to the commencement of CSG's obligations under this Schedule
--------
C, including its obligations to maintain and support the CCS Products. Any other
- --
use or transfer of the CCS Products will require CSG's prior approval, which may
be subject to additional charges.
4. Use. Customer may use the CCS Products only in object code form on the
workstations set forth on Exhibit C-1 and in the Designated Environment and at
the System Sites in the United States, and only for the term set forth below,
and only for Customer's own internal purposes and business operations with the
CCS Services for providing accounting and billing services to its subscribers.
In addition to the Incorporated Third Party Software, if third party products
are provided to Customer as part of the CCS Products, by opening the package
containing the third party product or downloading it, Customer agrees to be
bound by the terms of the third party's standard license. Customer will not use
the CCS Products to provide any such service to or on behalf of any third
parties in a service bureau capacity and will not permit any other person to use
the CCS Products, whether on a time-sharing, remote job entry or other multiple
user arrangement. Customer will not install the Software, Enhancements or
Customization on a network or other multi-user computer system unless otherwise
specified in the Exhibits to this Schedule, in which case the Designated
Environment may be used to provide database or file services to other of
Customer's computers across the network, up to the number of workstations
specified in Exhibit C-1. Backup and recovery plans or backup and recovery
software is not included with the CCS Products. Any Customer documents, data and
files are and shall remain Customer's property; and therefore, Customer is
solely responsible for its own backup and recovery plan(s) for its data stored
within the Designated Environment or utilized within the CCS Products licensed
hereunder. Customer may make only three back-up archival copies of the So,ware,
Enhancements or Customization. Customer will reproduce all confidentiality and
proprietary notices on each of these copies and maintain an accurate record of
the location of each of these copies. Customer will not otherwise copy,
translate, modify, adapt, decompile, disassemble or reverse engineer the CCS
Products, except as and to the extent expressly authorized by applicable law.
Notwithstanding anything to the contrary contain in this Section 4, CSG agrees
that Customer may install the CCS Product at third party cable system headends
and/or call centers which are Digital Cable Television service customers of
Customer. Such use of the CCS Products shall not be considered a violation of
this Agreement, so long as Customer remains liable for the acts and/or omissions
of such third party customers with respect to the obligations arising under this
Agreement.
5. Maintenance and Support.
(a) Standard Support Services. Following expiration of the Warranty Period, CSG
-------------------------
will provide Customer the support and maintenance of the then-current version of
each licensed CCS Product as described on Exhibit C-3 (the "Support Services").
Included in the Support Services is support of the then-current version of the
licensed CCS Products via CSG's Product Support Center, Account Management,
publication updates, and the fixes and updates that CSG may make generally
available as part of its maintenance and support packages (the "Updates"). The
Support Services do not include maintenance and support of the Incorporated
Third Party Software, if any, or any other third party software. The maintenance
and support for third party products is provided by the licensor of those
products. Although CSG may assist in this maintenance and support with front-
line support, CSG will have no liability with respect thereto and Customer must
look solely to the licensor.
(b) Additional Support. At Customer's request, CSG may agree to provide at its
------------------
then current rates additional Support Services or other support, including but
not limited to, the optional support services listed on Exhibit C-3. If Customer
is not utilizing the CCS Products in a certified Designated Environment or
Customer has added third party applications through ACSR AOI or otherwise, the
Updates
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES.
<PAGE>
may not operate with the third party applications connected or introduced by
Customer, including those for use with ACSR AOI, and therefore, additional
Technical Services as may be necessary to modify ACSR AOI or the Customer's
third party applications. At Customer's request, CSG may provide Customer with
such Technical Services at CSG's then-current rates and subject to terms and
conditions set forth in a seperately executed Statement Of Work incorporated
into Schedule B.
----------
(c) Limitation. Updates or Enhancements in this Schedule C will not include any
---------- ----------
upgrade or new version of the CCS Products that CSG decides, in its sole
discretion, to make generally available as a separately priced item. This
Schedule C will not require CSG to (i) develop and release Updates or
- ----------
Enhancements (ii) customize the Updates or Enhancements to satisfy Customer's
particular requests or (iii) obtain Updates or Enhancements to any third party
product. If an Update or Enhancement replaces the prior version of the CCS
Product, Customer will destroy such prior version and all archival copies upon
installing the Update or Enhancement.
6. Term. This Schedule C shall be effective from the Effective Date as defined
----------
in the Master Agreement and will remain in effect for a period of five (5)
years, unless terminated pursuant to Sections 17 of the Master Agreement.
Agreed and accepted this 30th day of June, 1997, by:
CSG SYSTEMS, INC. ("CSG") TVN ENTERTAINMENT CORPORATION ("CUSTOMER")
By: /s/ George F. Haddix By: /s/ Arthur Fields
------------------------ -------------------------------
EXHIBIT C-1 PRODUCT SCHEDULE
EXHIBIT C-2 DESIGNATED ENVIRONMENT
EXHIBIT C-3 INSTALLATION, MAINTENANCE AND SUPPORT
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES.
<PAGE>
EXHIBIT C-1
VANTAGE/ACSR/COMPUTER BASED TRAINING
------------------------------------
PRODUCT SCHEDULE
Licensed Software:
- ------------------
CSG Vantage-
Vantage is a database which enables Customer to evaluate product and service
performance, conduct customer analysis and lifetime values, and transform raw
data into real-time reports and graphs.
Advanced Customer Service Representative (ACSR)
ACSR is a graphical user interface for CSG's CCS service bureau subscriber
management system. ACSR significantly reduces training time and eliminates the
need for CSR's to memorize transactions and codes. CSRs instead are allowed
easily to access reference tools, help screens and customer data. As companies
consolidate and cluster disparate systems with different codes and procedures,
ACSR ensures the accounts can be serviced by the same CSR. ACSR also enables
CSR's to communicate with one another through a self contained messaging system.
ACSR is designed so that module based functionality such as CIT can be added as
needed.
Computer Based Training (CBT) -
Computer Based Training ("CBT") is Software which may be downloaded onto
Customer's workstation to provide training and instruction on use of various CCS
Products. Notwithstanding Section 12 of the Master Agreement, due to the nature
of CBT, CSG is unable to provide any intellectual property infringement
indemnification for CBT.
ACSR AOI -
An application object interface that allows third party applications to be used
in conjunction with ACSR.
________________________________________________________________________________
System Site(s):
- ---------------
TVN main location and other sites to be added by Customer
Number of Workstations:
- -----------------------
ACSR 60 Workstations
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES.
<PAGE>
EXHIBIT C-2 (page 1 of 3)
DESIGNATED ENVIRONMENT FOR THE CCS PRODUCTS
-------------------------------------------
Note: the following applies only in regards to the CCS Products actually
licensed by Customer under Schedule C and may be subject to change as the
-----------
specific hardware configuration cannot be completely identified and certified
until after the business requirements of Customer are determined during the pre-
install visit.
ACSR/CIT/Telephony/CBT/AQI:
- ---------------------------
Product Compatibility (Yes indicates product is available on indicated
- ----------------------------------------------------------------------
workstation platform; date indicates estimated date available)
- -------------------------------------------------------------
<TABLE>
<CAPTION>
Win 3.11 Win NT Apple MAC SUN Solaris Win 95
-------- ------ --------- ----------- ------
<S> <C> <C> <C> <C> <C>
ACSR (1) Yes (4) Yes Yes
CIT (1) Yes (2) (4) Feb 97 (3) Yes
Telephony No Yes No No No
ACSR CBT (1) Yes No Yes Yes
CIT CBT (1) Yes No Yes Yes
Telephony CBT N/A No N/A N/A N/A
AOI w/DDE (1) May 97(3) N/A N/A May 97 (3)
AOI w/TCPIP No Yes May 97 (3)(4) Yes Yes
</TABLE>
(1) - Supported at existing sites only until Nov 15, 1997; cannot be used
after that date..
(2) - Currently not available with Telephony.
(3) - Estimated availability, contact PM for beta test availability.
(4) - Available under existing contracts only.
Workstations
- ------------
Compaq Prolinea 5166 (minimum)
IBM PC350 133 Mhz Pentium (minimum)
SparcStation 4, Solaris V2.4
SparcStation 5/70Mhz, Solaris V2.3
Apple 7600 Power MAC
Ultra Sparc 1, model 170, Solaris 2.5.1
Workstation Minimum Memory (RAM)
- --------------------------------
32MB for Solaris, Windows NT, and Apple MAC
Workstation Minimum Hard Drive Space
- ------------------------------------
1.2GB
Workstation Minimum Video Requirements
- --------------------------------------
Minimum video resolution supported 1024 x 768 x 256 colors, small font
Minimum 15" SVGA monitor (17" for Apple MAC)
Workstation Software
- --------------------
Microsoft Windows NT V4.0 for ACSR/CIT
Microsoft Windows NT V3.51 with service pack 3 applied for ACSR/Telephony
Solaris V2.3, V2.4 or V2.5.1 (see above)
Netmanage Chameleon Hostlink V6.0 (with Windows NT or 95)
Open windows or Motif (with SUN Solaris)
Brixton 3270 client for Solaris V2.3.0.10 (with SUN Solaris)
Samba V 1.9.15 p8 (with NT or 95)
Additional Workstation Software to Support Telephony
- -----------------------------------------------------
Oracle SQL*NET V2.1.4.1.4 for NT runtime (with Windows NT)
Oracle SQL Forms V4.5.6.5.5 for NT runtine (with Windows NT)
Forest & Trees 3.1 b (with Windows NT or 95) (For PCs running reports)
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES.
<PAGE>
Ex. C-2 (page 2 of 3)
Additional Workstation Software to Support CIT
- ----------------------------------------------
Oracle SQL*NET V2.1.4.1.4 runtime (with NT or 95) (For PCs with Forest & Trees)
Forest & Trees 3. I b (with Windows NT or 95) (For PCs running reports)
Servers
- -------
Ultra Sparc 1 - model 170 only
Ultra Sparc 2
Ultra Sparc 3000
(Server model, number of CPUs, memory, and disk storage are based on individual
customer requirements.)
Server Software
- ---------------
Solaris V2.5.1
Samba V 1.9.15 p8 (with NT or 95)
Brixton Server PU2.1 for Solaris (Version 3.0.5-1) running in 2.3.2 mode
Brixton 3270 Client for Solaris (Version 2.3.0.10) (1 copy for trouble shooting)
Hewlett Packard Unix Jet Direct interface software
Additional Server Software to Support CIT
- -----------------------------------------
Oracle V7.1.6 runtime
Platinum EPM Agent V3.1.0
Tuxedo V 6.1.(With NT or 95)
Additional Server Software to Support Telephony
- -----------------------------------------------
Oracle V7.3.2.1 runtime
Tuxedo V 6. l.(With NT or 95)
Platinum EPM agent V3.1.0
Platinum Autosys agent V3.3 release 5
Hylafax freeware v4.0
Postalsoft V 5.00b
Concentrators
- -------------
BayNetworks (Synoptics) 2813-04 (managed 16-port ethernet hub)
BayNetworks (Synoptics) 2803 (passive 16-port ethemet hub)
BayNetworks (Synoptics) 800 (passive 8-port ethemet hub)
BayNetworks (Synoptics) 2712B-04 (managed 16-port token ring hub)
BayNetworks (Synoptics) 2702B-C (passive 16-port token ring hub)
Network Cards/Devices
- ---------------------
3Com Etherlink III 3C509
SUN Quad Ethernet card
Hewlett Packard Jet Direct EX
Aurora Technologies Multiport 400S A/Sync Series
Printers
- --------
Lexmark IBM 4226 (533 cps)
Lexmark 4227 (533 cps)
IBM 6408 (800 LPM)
Hewlett Packard LaserJet5
Routers
- -------
Cisco 2501, 2509, 2511, 2514, 4500
Rockwell NetHopper
Cisco software supported:
All versions
NetHopper software supported:
Version 4.03
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES.
<PAGE>
Ex. C-2 (page 3 of 3)
Vantage:
- --------
PC Hardware/Software Requirements
- ---------------------------------
Minimum PC requirements:
IBM or Compaq 486DX 33MHz, 8meg. RAM, 340 megabyte hard drive
Recommended PC requirements:
IBM or Compaq Pentium 90Mhz or better, 16 meg. RAM or better, 870 megabyte
hard drive or larger.
PC OS; MS DOS 6.2x with Windows 3.1x, or *Windows 95, or *Windows NT
EDA/Link for Windows 2.2 or higher
EDA ODBC Extender - 2.0 or higher (packaged with EDA/Link)
Forest & Trees 3.x
Attachmate's Extra! Mainframe for Windows 3.5 or higher, or
Irma Workstation for Windows - 2.0 or higher (current version recommended)
Connectivity Requirements
- -------------------------
. IBM 3174 Controller or
. Novell OS version 3.1 or greater on a Token Ring or Ethernet LAN.
. The 3270 Gateway must be an Attachmate SAA Gateway or an IPX/SPX Novell SAA
Gateway. If Novell version is 1.2 and you will use Attachmate's Extra!
Mainframe for Windows, you must use a version prior to Extra! for Windows
4.1. Novell SAA Gateway version 2.0 or higher will require Attachmate's
Extra! Mainframe for Windows 4.1 or higher.
. If Customer currently has a network that is not Novell, or a gateway that is
not Novell or Attachmate, the LAN and gateway can be tested for possible
certification.
Using Vantage in the ACSR Product environment
- ------------------------------------------------
The ACSR product runs on an IP LAN with a SUN Server. A Brixton gateway on the
SUN Server is used to provide the Vantage Host link. When running Vantage in
that environment, Brixton TN3270 applications mn on the SUN Server and Extra!
Mainframe for Windows is configured for a TN3270 network connection versus an
SAA or SNA gateway. ACSR currently runs 16 bit PC OS only. ACSR required OS is
Microsoft Windows v3.11. If the Vantage PC will be used in the ACSR environment,
the ACSR PC Workstation Requirements should be used for both Vantage and ACSR.
Vantage will only mn on a PC workstation.
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES.
<PAGE>
EXHIBIT C-3 (page 1 of 4)
CCS PRODUCTS INSTALLATION AND SUPPORT SERVICES ( excluding Vantage)
-------------------------------------------------------------------
(Note; for Vantage support detail - see page 4 of Exhibit C-3
-------------------------------------------------------------
ACSR Only Installation & Startup
- --------------------------------
Included
Project Implementation Support (3-4 month duration)
Assigned project manager and product consultant (shared resources)
Requirements definition and project planning meeting on site Project
plan and customer specifications document
Ongoing project coordination, status reporting and post project review
Engineering
1 day visit/survey (single location)
Server and network configuration and sizing (single server)
Site network requirements documentation and diagram
Field services
Single IBM 4030 installation
Single server/disk array assembly, software installation, and
configuration at CSG site - 4 days
Single server testing at CSG site - I day
Customer site prep, server installation, and pre-production system
check/support- 5 days on site
Training (an instructor day is I instructor, for 1 full day, for up to 8
students)
Software download and systems administration training at customer site
- 2 instructor days
ACSR User Training- 2 instructor days
1 copy of User Guide and Systems Administration Guide
Not Included (Customer responsibilities and/or services available for
additional fees included under Optional Services)
Customer completes agreed to project requirements as defined and
scheduled
LAN cabling
Workstation installation
LAN hub installation
Router installation
Modem installation
Replacement or additional circuit(s) installation by Advantis
IBM 4030 installation by CSG
Additional server(s) field services
Remote site engineering services
--------------------------------------------------------------------------
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES.
<PAGE>
EXHIBIT C-3 (page 2 of 4)
SUPPORT SERVICES FQR THE CCS PRODUCTS (excluding Vantage)
---------------------------------------------------------
(Note: for Vantage support detail - see page 4 of Exhibit C-3)
--------------------------------------------------------------
Product Support Center
The customer Product Support Center provides Customer with advice, consultation
and assistance to use CCS Products and diagnose and correct problems that
Customer may encounter with the then-current version of CCS Products. CSG will
offer the Product Support Center remotely by telephone, fax or other electronic
communication twenty-four hours a day, seven days a week. Customer will bear all
telephone and other expenses that it may incur in connection with the Product
Support Center. Every customer problem is assigned a tracking number and a
priority. Problems are resolved according to their assigned priority. See
attached list detailing "Priority Levels".
Account Management
CSG will provide an account manager which is shared resource which will serve as
Customer's liaison to all other CSG support services and will be responsible for
ensuring customer satisfaction. Through periodic status reports and occasional
on-site visits when necessary, the account manager will assist Customer with
their use of CCS Products and keep them abreast of new developments in CSG's
products and services.
Updates
Subject to the terms set forth in this Schedule C, product Updates include
----------
software corrections, the fixes and updates that CSG may make generally
available. These Updates are delivered to Customer accompanied by bulletins
describing the updates and installation instructions. CSG will not provide
Updates due to changes or new releases in Customer's vendor products. Custom
software modifications are NOT included under the Basic Support Package as
Updates but rather are covered as Technical Services under Schedule B.
----------
Publications
The customer will receive updates to all published documentation for CCS
Products.
Third Party Software
The maintenance and support for third party software is provided by the licensor
of those products. Although CSG may assist in this maintenance and support with
front-line support, CSG will have no liability with respect thereto and Customer
must look solely to the licensor.
- --------------------------------------------------------------------------
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES.
<PAGE>
EXHIBIT C-3 (page 3 of 4)
PRODUCT SUPPORT CENTER FOR THE CCS PRODUCTS- PRIORITY LEVELS- (excluding
------------------------------------------------------------------------
Vantage)
--------
(Note: for Vantage support detail - see page 4 of Exhibit C-31
--------------------------------------------------------------
When contacting the PRODUCT SUPPORT CENTER, the caller should be prepared to
provide detailed information regarding the problem and the impact on the
operation and the end user. Each problem or question is assigned a tracking
number and a priority. The priority is set to correspond with the urgency of the
problem. It is very important that the customer describe the urgency of the
problem when it is reported. The priority levels are described below:
. CRITICAL (PRIORITY 1): Complete loss of functionality, system outage or down
production system. Customers cannot access the system, cannot perform any
function due to the hardware being down, are experiencing network control or
communication problems, or are unable to process. The customer will receive
immediate response and prioritized at the highest level. Once control has
been regained, efforts are then made to determine the "root cause" of the
problem. Considering the nature of the cause, the problem is adjusted to one
of the other priorities and processed accordingly. While a Critical (Priority
1) problem exists, the Product Support Center commitment is to provide
around-the-clock support until customers system/network/application is
restored to operational status.
. SERIOUS (PRIORITY 2): Partial loss of functionality, or loss of critical
functionality. The Customer's production/processing system is not down but
there is an impact within the system/network. The Customer will receive
immediate response. If the problem persists, the control of the network may
be lost and/or end-user impacts may become serious. The Customer will receive
immediate response. The Product Support Center's goal is to ensure that
control of the system is not jeopardized and to work with Customer to gather
information in order to resolve the issue. The Product Support Center
allocates resources during normal business hours until a permanent solution
is found.
. OPERATIONAL (PRIORITY 3): Partial loss of functionality loss of non-critical
functionality, or loss of critical functionality for which a work around
exists. The problem is within the customers' operations environment. The user
is attempting to utilize a CSG product and is having difficulty completing
the process. A user may be a CSR, subscriber, or the Customer's operation
staff running the system. CSG's Product Support Center goal is to respond the
next business days.
. INCONVENIENCE OR ENHANCEMENT (PRIORITY 4): Inconvenience or loss of
functionality for which a work-around solution exists, or enhancement request
is required. The problem is an operator inconvenience, an enhancement, or the
Customer have requested information. There is no serious impact to the end
user of the system. The problem can be avoided by proper operator action,
internal training by the customer, or a work-around solution. There is no
apparent danger of losing control of the system, network, application or data
because of this type of problem. A suggestion or request for enhancement is
based upon the problem, concern or business need. The Product Support
Center's goal is to provide a correction through internal software control
procedures. CSG's Product Support Center goal is to respond within (3)
business days.
. INFORMATIONAL (PRIORITY 5):
This category also includes questions. The Product Support Center is
committed to responding with the requested information within (5) business
days. Software correction notification may be sent to the customer shortly
after the correction has been made by our development engineers. At times, a
work-around may be suggested if:
. Its delivery is more timely
. Its implementation is less complex
. Its reliability is more certain
However, a work around must be mutually acceptable to our Customers, and it
must have the effect of reducing the concern until a permanent resolution
can be determined. Should the Customer wish to check the status of a
problem they may contact the Product Support Center desk representatives or
their Account Manager. In either case, the customer should reference the
tracking number.
Customer may request to have the priority of Customer's call upgraded. Customer
may check on the status of such request at any time by calling the Product
Support Center or contacting Customer's account manager. The account manager is
responsible for problem escalation to the appropriate level of management if
Customer is not satisfied with a response
- --------------------------------------------------------------------------------
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES.
<PAGE>
EXHIBIT C-3 (page 4 of 4)
CSG VANTAGE Support Services
Vantage Installation Services'
- ------------------------------
The following services will be provided by CSG with respect to start-up of the
Vantage product.
1. Initial load of the Vantage data base.
2. Unlimited phone support for installation of hardware and software that is
certified by CSG Systems, Inc.
3. For non-certified environments, CSG Systems, Inc. will provide the necessary
phone support to determine if the non-certified environment can or should be
certified
4. If the environment is deemed certifiable, the costs associated with
certifying the environment will be communicated to the customer.
5. On-site assistance by CSG can be provided upon customer request.
Vantage Training Services:
- --------------------------
1. Basic Vantage training at a regularly scheduled Omaha training class, as
space permits.
2. Basic Vantage training at a scheduled regional training class, as space
permits.
3. Basic Vantage training at a customer requested time and/or location is
available on request.
Vantage Support Services:
- -------------------------
Customer support of Vantage is provided as part of the Support Services during
CSG's customer service hours for support of questions, functionality, workflow,
training, and non-catastrophic software defects. System support of Vantage is
provided as part of the Support Services for problems resulting from defects in
Vantage.
The following services for the then-current version will be provided by CSG for
all Vantage users:
1. Telephone consultation for trained users for questions and problems
regarding Vantage.
2. Up to one (1) hour of telephone consultation for troubleshooting a
previously certified hardware/sol, rare environment.
3. Attendance at regularly scheduled basic and advanced Vantage training
classes offered in Omaha or at a scheduled regional training location, as
space permits.
4. Daily updates to the Vantage database.
5. Storage of thirteen (13) months of financial data.
Optional Services for Vantage:
- ------------------------------
The following additional services are also available to Vantage customers:
1. Static Database - 10 CSG month-end loaded tables; one time set-up, monthly
load, monthly disk storage.
2. Monetary Transactions - All system and manually generated monetary
transactions; one time set-up, monthly load, monthly disk storage.
3. Additional Work Order History - Storage of statement of work history beyond
the standard two years; one time set-up, monthly load, monthly disk storage.
4. Scheduling Calendar - A summary of the scheduling calendar updated three
times per day; one time set-up, monthly load, monthly disk storage.
5. Cluster Coding - Annual subscription
6. Query Building - Consulting services for developing new queries.
7. Additional Training- Training beyond training provided in Schedule F.
-----------
8. Systems Integration and Support
- Certifying non-certified hardware/software environment
- Troubleshooting existing hardware/software environment (first hour is
free for certified environments)
- On-site support as requested by customer
9. Output Charges
Note: The maintenance and support for third party software is provided by the
- ----
licensor of those products. Although CSG may assist in this maintenance and
support with front-line support, CSG will have no liability with respect thereto
and Customer must look solely to the licensor.
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
SCHEDULE G
PRINT AND MAIL SERVICES
1. Services. Subject to the terms and conditions of the Master Agreement and for
the fees set forth in Schedule F, CSG will provide to Customer, and Customer
------------
will purchase from CSG, all of Customer's requirements for the Print and Mail
Services set forth in this Schedule G for all of Customer's subscriber accounts.
-----------
2. Postage. CSG agrees to purchase the postage required to mail statements to
Customer's subscribers ("Subscriber Statements"), notification letters generated
by CSG, past due notices and other materials mailed by CSG on behalf of
Customer. Customer shall reimburse CSG for all postage expenses incurred in the
performance of the Print and Mail Services based on the then current actual,
discounted, pre-sorted first class postal rate, as determined by the monthly
rate of Customer's mailings (including combined/co-mingled pre-sorted mail as
done by CSG and/or its vendors) that qualify for the discounted, pre-sorted
rate, for each item of first class mail processed by CSG on behalf of Customer.
3. Communications Services. CSG shall provide, at Customer's expense, a data
communications line from the CSG data processing center to each of Customer's
system site locations identified in Exhibit G-1 attached hereto (the "System
Sites"). Customer shall pay all fees and charges incurred by CSG in connection
with the installation and use of and peripheral equipment related to the data
communications line in accordance with the fees described in Schedule F attached
-----------
hereto. Customer shall electronically transmit all data to CSG in a format
approved by CSG. Customer shall, at its expense, obtain all software and
equipment necessary for the transmission of data to CSG, and Customer shall be
responsible for retransmission of data if any errors occur during transmission.
4. Ancillary Services. At Customer's request, CSG shall provide the ancillary
services described in Schedule F attached hereto (the "Ancillary Services") at
-----------
the rates described in Schedule F.
-----------
5. Enhanced Statement Presentation Services. For the fees set forth in Schedule
--------
F, CSG shall develop a customized billing statement (the "ESP Statement" ) for
- ---
Customer's subscribers utilizing CSG's enhanced statement presentation services.
Customer agrees that CSG's enhanced statement presentation services shall be
Customer's sole and exclusive method of mailing Subscriber Statements to those
subscribers to whom Customer sends bills. At Customer's instruction, CSG will
provide, generic, non-ESP-formatted billing data output to third party billing
agents for Customer's DTC cable affiliates. The ESP Statements may include CSG's
or Customer's intellectual property. "Customer's Intellectual Property" means
the trademarks, service marks, other indicia of origin, copyrighted material and
art work owned or licensed by Customer that CSG may use in connection with
designing, producing and mailing ESP Statements and performing its other
obligations pursuant to this Agreement. "CSG Intellectual Property" means
trademarks, service marks, other indicia of origin, copyrighted material and art
work owned or licensed by CSG and maintained in CSG's public library that may be
used in connection with designing, producing and mailing ESP Statements.
(a) Development and Production of ESP Statements. CSG will perform the design,
---------------------------------------------
development and programming services related to design and use of the ESP
Statements (the "Work") and create the work product deliverables (the "Work
Product") set forth in a separately executed and mutually agreed upon ESP Work
Order (the "Work Order") after the effective date set forth on the Work Order.
The ESP Statement will contain the CSG Intellectual Property set forth on the
Work Order. Customer shall pay CSG the Development Fee for the Work and the Work
Product set forth on the Work Order upon acceptance of the ESP Statements in
accordance with the Work Order. Except with respect to Customer's Intellectual
Property, Customer agrees that the Work and Work Product shall be the sole and
exclusive property of CSG. Customer shall have no proprietary interest in the
Work Product or in CSG's billing and management information software and
technology and agrees that the Work Product is not a work specially ordered and
commissioned for use as a contribution to a collective work and is not a work
made for hire pursuant to United States copyright law. After CSG has completed
the Work and the Work Product, CSG will produce ESP Statements for Customer.
(b) Supplies. CSG will suggest and Customer will select the type and quality of
----------
the paper stock, carrier envelopes and remittance envelopes for the ESP
Statements (the "Supplies"). CSG shall purchase Customer's requirements of
Supplies necessary for production and mailing of the ESP Statements. CSG shall
charge Customer the rates set forth in Schedule F for purchase of Supplies
-----------
except where such Supplies are included per the Schedule.
(c) License of. Customer's Intellectual Property. Customer licenses to CSG to
---------------------------------------------
use all of Customer's Intellectual Property necessary to design, produce and
mail the ESP Statements and perform CSG's other rights and obligations pursuant
to Section 5(a) of this Schedule G, including, but not limited to, the
------------
Intellectual Property listed in the Work Order. CSG shall have the right by
notice to Customer to cease use of any of Customer's Intellectual Property on
ESP Statements at any time, if it is determined in CSG's reasonable judgment
that continued use of such Intellectual Property would subject it to liability
for damages to a third party. Customer represents and warrants that it owns or
has licensed all Customer's Intellectual Property and has full power and
authority to grant CSG the license set forth herein and that CSG's use of
Customer's Intellectual Property on the ESP Statements will not constitute a
misuse or infringement of the Customer's Intellectual Property or an
infringement of the rights of any third party. Customer will use best efforts to
maintain its rights to use and license Customer's Intellectual Property and will
immediately advise CSG of the loss of Customer's right to use any Customer's
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
Intellectual Property and will advise CSG of all copyright and other notices
that must be used in connection with Customer's Intellectual Property and of any
restrictions on use of Customer's Intellectual Property relevant to CSG.
(d) Indemnification Relating to ESP Statements. Customer shall indemnify, defend
------------------------------------------
and hold CSG harmless from any claims, demands, liabilities, losses, damages,
judgments or settlements, including all reasonable costs and expenses related
thereto (including attorneys' fees), directly or indirectly resulting from
Customer's breach of any representation or warranty under this Section 5 (c)
above, Customer's Intellectual Property, the Work Product, and the printing and
mailing of ESP Statements, except for those arising out of CSG Intellectual
Property.
6. Per Cycle Minimum. As of the Commencement Date as defined in Section 9 below,
for each month that this Agreement is in effect, Customer will maintain per each
billing cycle a minimum of three thousand (3000) subscribers on the CSG System.
Per System Site, Customer will have a minimum of four (4) cycles per month but
no more than twenty-eight (28) cycles per month.
7. Processing Minimum. If at any time, the fees and charges incurred as computed
pursuant to Schedule F for the Print and Mail Services are less than those fees
that would have been derived from processing 100,000 subscribers in the first
year of this Agreement, or 125,000 subscribers per year in each subsequent year,
then customer agrees to pay to CSG those fees equal to what they would have
been, had such minimum subscriber levels been met. The parties explicitly
acknowledge and agree that there will be significant resources expended by CSG
in preparing to perform and in the performance of this Agreement, and that CSG
would not have entered into this Agreement unless such minimum subscriber levels
had been guaranteed in advance. The parties therefore agree that any minimum
subscriber fees that Customer would have to pay under this section for
subscribers that were not processed shall be considered liquidated damages and
not a penalty.
8. Advance Payment. At least seven (7) days prior to the Commencement Date of
the Print and Mail Services set forth in Section 9 below, Customer shall pay CSG
an Advance Payment Advance Payment(the "Advance Payment") for the payment of the
expenses described in Sections 2 and 3 of this Schedule G (the "Disbursements').
----------
The Advance Payment will equal the estimated amount of Disbursements for one (1)
month as determined by CSG based upon the project volume of applicable services
to be performed monthly by CSG. If Customer incurs Disbursements greater than
the Advance Payment for any month, Customer shall, within thirty (30) days of
receipt of a request from CSG to increase the Advance Payment, pay CSG the
additional amount to be added to the Advance Payment. If Customer fails to pay
the additional amount requested within such 30-day period, CSG may terminate
this Master Agreement as provided for in Section 17. Upon written request from
Customer, CSG will return to Customer a portion of the Advance Payment if the
Disbursements incurred by Customer on a monthly basis are less than the Advance
Payment for three (3) consecutive months. In addition to the foregoing, CSG
shall apply the Advance Payment to the payment of the current invoice from CSG
which remains unpaid during the term of this Agreement. Any portion of the
Advance Payment that remains after the payment of all amounts due to CSG
following the termination or expiration of this Master Agreement will be
returned to Customer. Customer shall not be entitled to receive interest on the
Advance Payment while it is maintained by CSG.
9. Term. The first day of the calendar month in which the Print and Mail
Services commence shall be referred to as the Commencement Date." The Print and
Mail Services shall continue for a period of five (5) years from the
Commencement Date.
Agreed and accepted this 30th day of June 1997, by:
CSG SYSTEMS, INC., ("CSG") TVN ENTERTAINMENT CORPORATION ("Customer")
By: /s/ George F. Haddix By: /s/ Arthur Fields
------------------------------ ---------------------------------------
Exhibit G-1 SYSTEM SITES
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
Exhibit G-1
-----------
System Sites
TVN main location and other sites to be added by Customer.
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
SCHEDULE H
INCORPORATED THIRD PARTY SOFTWARE AND LICENSES
and
THIRD PARTY RIGHTS
ADDITIONAL TERMS AND CONDITIONS
A. INCORPORATED THIRD PARTY SOFTWARE
---------------------------------
The following terms and conditions supplement, and where in conflict, supersede
the terms and conditions contained in the Master Agreement, but solely with
respect to the identified item of Incorporated Third Party Software.
There is no Incorporated Third Party Software for the CCS Products.
B. THIRD PARTY RIGHTS
------------------
The following terms and conditions supplement, and where in conflict, supersede
the terms and conditions contained in the Master Agreement and any Schedule, but
solely with respect to the Third Party Rights described below.
CSG may provide Customer with Products, Incorporated Third Party Software and
Services subject to patent or copyright licenses that third parties, including
Ronald A. Katz Technology Licensing, L.P., have granted to CSG (the "Third Party
Licenses"). Customer acknowledges that Customer receives no express or implied
license under the Third Party Licenses other than the right to use the Products,
Incorporated Third Party Software and Services, as provided by CSG, in the cable
system operator industry. Any modification of or addition to the Products,
Incorporated Third Party Software or Services or combination with other
software, hardware or services not made or provided by CSG is not licensed under
the Third Party Rights, expressly or impliedly, and may subject Customer and any
third party supplier or service provider to an infringement claim. Neither
Customer nor any third party will have any express or implied rights under the
Third Party Licenses with respect to (i) any software, hardware or services not
provided by CSG or (ii) any product or service provided by Customer other than
through the authorized use of the Products, Incorporated Third Party Software or
Services as provided by CSG.
Agreed and accepted this 30th day of June, 1997, by:
CSG SYSTEMS, INC. ("CSG") TVN ENTERTAINMENT CORPORATION ("Customer").
By: /s/ George F. Haddix By: /s/ Arthur Fields
------------------------------ ---------------------------------------
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
EXHIBIT 10.8
TVN ENTERTAINMENT CORPORATION
EMPLOYMENT AGREEMENT
This Agreement is made by and between TVN Entertainment Corporation (the
"Company"), and Stuart Z. Levin ("Executive").
1. Duties and Scope of Employment.
------------------------------
(a) Position; Employment Commencement Date. The Company shall employ
--------------------------------------
Executive as Chairman of the Board and the Chief Executive Officer ("CEO") of
the Company reporting to the Board of Directors of the Company (the "Board").
Executive's employment by the Company pursuant to this Agreement shall commence
on September 1, 1997.
(b) Obligations. In his capacity as CEO, Executive's duties shall
-----------
consist of those usually attendant to that office, including oversight, planning
and management of the Company, all under the direction and control of the Board.
Executive shall devote his full business efforts and time to the Company's
business during the term of employment described in Section 3 below. Executive
agrees not to actively engage in any other employment, occupation or consulting
activity for any direct or indirect remuneration, without the prior approval of
the CEO and the Board; provided, however, that Executive may serve any civic,
educational or charitable organization without the approval of the Board, so
long as such activities do not interfere with the full-time performance of his
duties and obligations under this Agreement.
2. Employee Benefits. During his employment hereunder, Executive shall
-----------------
be eligible to participate in the employee benefit plans maintained by the
Company to the full extent provided for under those plans for employees of
similar status except as otherwise specifically provided for herein.
3. Term of Employment. Executive's term of employment hereunder shall be
------------------
for the period commencing on September 1, 1997 and, subject to the terms hereof,
terminating on the third anniversary of such date (the "Initial Term"); and the
Company shall have the option (but not the obligation) to renew and extend
Executive's term of employment under this Agreement for one (1) two-year period
on the terms and subject to the conditions hereof (the "Option Period"), such
Option Period to be exercised by the Company upon written notice to Executive no
later than 90 days prior to the expiration of the Initial Term.
4. Compensation, Fringe Benefits and Stock Option.
----------------------------------------------
(a) Base Salary. While employed by the Company pursuant to this
-----------
Agreement, the Company shall pay the Executive as compensation for his services
a base salary ("Base Salary") at the annualized rate of $450,000 for the period
September 1, 1997 through August 31, 1998, $475,000 for the period September 1,
1998 through August 31, 1999, $500,000 for the period September 1, 1999 through
August 31, 2000, and such amount as the Board shall approve for the Option
Period (if the option shall be exercised by the Company); provided, however,
that Executive's Base Salary for each
<PAGE>
year during the Option Period shall be not less than 110% of Executive's Base
Salary for the immediately preceding year of his employment. Such salary shall
be paid periodically in accordance with normal Company payroll practices and
subject to the usual, required withholding. Executive's salary shall be reviewed
yearly for possible raises and/or bonuses in light of Executive's performance of
his duties, as determined by the Board. Executive understands and agrees that
neither his job performance nor promotions, commendations, bonuses or the like
from the Company shall give rise to or in any way serve as the basis for
modification, amendment, or extension, by implication or otherwise, of this
Agreement.
(b) Option Grant. Executive shall be granted a stock option, which
------------
shall be, to the extent possible under the $100,000 rule of Section 422(d) of
the Internal Revenue Code of 1986, as amended (the "Code"), an "incentive stock
option" (as defined in Section 422 of the Code) to purchase a total of 291,707
shares of Company Common Stock with a per share exercise price equal to 100% of
the fair market value of such stock on the date of grant ($0.75 per share).
This option shall be for a term of ten (10) years (or shorter upon termination
of employment with the Company) and shall vest at the rate of 20% of the shares
originally subject to the option one year from the commencement date of the
Initial Term and one-sixtieth (1/60th) of the shares originally subject to the
option each month thereafter, conditioned upon Executive's continued employment
with the Company as of each vesting date. This option grant is in all respects
subject to the terms, definitions and provisions of the Company's Stock Option
Plan (the "Option Plan") and the stock option agreement by and between Executive
and the Company (the "Option Agreement"), both of which documents are
incorporated herein by reference.
(c) Incentive Bonus. Executive shall be eligible, with respect to the
---------------
1998-2000 fiscal years of the Company, for an annual incentive bonus of
$250,000. This bonus will be payable if revenue received from the Company's
Digital Cable Television business meets the plan approved by the Board of
Directors for DCTV revenues for that fiscal year. If such revenue does not meet
plan, Executive shall instead receive a minimum annual bonus of $125,000. If
such revenue exceeds the plan for the fiscal year, the bonus may be increased
above $250,000 as is determined by the Board of Directors. Notwithstanding the
foregoing, however, the bonus amount will be $250,000 for the fiscal year ending
March 31, 1998, regardless of whether revenue meets the plan. To be eligible to
receive the bonus, Executive must be employed by the Company through the last
day of each such fiscal year. This bonus, to the extent payable, shall be paid
to Executive within ninety days of the end of each such fiscal year. With
respect to the bonus for fiscal year 1998, such payment shall be made by June
29, 1998. The bonus and the related performance criteria for each year of the
Option Period will be mutually determined by the Company and Executive but in no
event shall the minimum annual bonus be less than $250,000.
Subsequent bonus milestones for Executive shall be established by the Board
following good faith consultation with the Executive.
-2-
<PAGE>
(d) Life Insurance. In addition to being covered under the Company's
--------------
group health and dental plans, the Company will obtain and pay premiums for,
during the term of Executive's employment hereunder, term life insurance for
Executive in the amount of $3,000,000 payable to the beneficiary designated by
Executive. Executive shall be fully "grossed-up"by the Company for this benefit
so that the economic effect to Executive is the same as if this benefit was
provided to Executive on a non-taxable basis. Executive also understands and
agrees that the Company may obtain additional term life insurance on Executive
payable to the Company and agrees to cooperate with the Company with respect to
the medical examinations required to obtain such policies.
(e) Vacation and Auto Allowance. Executive shall be entitled to paid
---------------------------
vacation of four weeks per year in accordance with the Company's vacation
policy, and to an automobile allowance of $1,000 per month, provided that the
cost of maintaining and insuring such auto and all other costs relating thereto
shall be borne by Executive.
(f) Fringe Benefits. Executive shall be entitled to such employee
---------------
perquisites and other fringe benefits as are typically made available to senior
management employees of enterprises in the entertainment business, including but
not limited to first class travel on Company business.
5. Severance Benefits. If the Company terminates Executive's employment
------------------
involuntarily without "Cause" (as defined herein), then (i) Executive shall be
entitled to receive continuing payments of severance pay (less applicable
withholding taxes) at a rate equal to his base salary rate, as then in effect
(but not less than $450,000 per year) for the remainder of the Initial Term, but
in no event to exceed a maximum of two years from the date of such termination
and (ii) Executive shall receive the minimum annual bonus of $125,000 for the
fiscal year in which such termination occurs notwithstanding the fact that
Executive was not employed through the last day of such year. For this purpose,
"Cause" is defined as (i) an act of dishonesty made by Executive in connection
with Executive's responsibilities as an employee and intended to result in
Executive's substantial personal enrichment, (ii) Executive's conviction of a
felony, (iii) a willful act by Executive which constitutes gross misconduct and
which results in material injury to the Company, or (iv) Executive's continued
substantial violations of his employment duties which are demonstrably willful
and deliberate on Executive's part after Executive has received one or more
written demands for performance from the Company which specifically sets forth
the factual basis for the Company's claim that Executive has not substantially
performed his duties, and Executive has had a reasonable time period in which to
cure such defaults to the reasonable satisfaction of the Board of Directors.
Termination of Executive for Cause under this Section shall be effective only
upon delivery to Executive of a copy of a resolution duly adopted by the Board
at a Board meeting duly called and held finding that Executive was guilty of the
conduct set forth in any of clauses (i) through(iv) above and specifying the
particulars thereof, and that in the case of (iv) above Executive has not timely
cured such defaults.
-3-
<PAGE>
6. Total Disability of Executive. Upon Executive's becoming totally
-----------------------------
disabled during the term of this Agreement, employment hereunder shall
automatically terminate and Executive shall receive post-termination disability
payments equal to six (6) months of continuation of Base Salary. Executive
shall be deemed to have suffered a "Total Disability" ninety (90) days following
written notice by the Company to Executive of a determination by an independent
physician acceptable to the Board and Executive (which acceptance will not be
unreasonably withheld) that Executive's disability is such that he cannot render
services as provided for hereunder; provided, however, that if Executive resumes
work on a regular basis prior to the end of such 90 day period, Executive shall
not be deemed to have suffered a "Total Disability."
7. Partial Disability of Executive. If, during the term of this
-------------------------------
Agreement, Executive becomes disabled by reason of illness or other incapacity
extending for a period of more than three (3) consecutive months during which
Executive is unable to perform his duties hereunder on a full-time basis (as
determined by an independent physician acceptable to both Executive and the
Board), but is able to perform his duties hereunder on a part-time basis
("Partial Disability"), all salary amounts otherwise payable and option shares
otherwise vesting to Executive hereunder shall be proportionately reduced with
respect to amounts paid or shares vested subsequent to the end of said three (3)
month period in relation to Executive's reduced level of performance.
8. Death of Executive. If Executive dies during the term of this
------------------
Agreement, this Agreement shall terminate immediately; provided, however, that
in such event, Executive's spouse, if living, shall receive six (6) months of
continued Base Salary payments hereunder.
9. Enforcement. Any dispute between the parties under this Agreement
-----------
shall be resolved by binding arbitration under the rules of commercial
arbitration of the American Arbitration Association in Los Angeles, California.
In the event of any arbitration to enforce the terms of this Agreement, the
prevailing party in such arbitration shall be entitled to such party's
reasonable costs and expenses of enforcement including, without limitation,
reasonable attorneys' fees. Payments for Total Disability or upon Death shall
be in addition to any unpaid Base Salary or Incentive Compensation which is
unpaid or has been earned at the time of such event.
10. Assignment. This Agreement shall be binding upon and inure to the
----------
benefit of (a) the heirs, executors and legal representatives of Executive upon
Executive's death and (b) any successor of the Company. Any such successor of
the Company shall be deemed substituted for the Company under the terms of this
Agreement for all purposes. As used herein, "successor" shall include any
person, firm, corporation or other business entity which at any time, whether by
purchase, merger or otherwise, directly or indirectly acquires all or
substantially all of the assets or business of the Company. Executive shall
personally perform and may not delegate to third parties his duties hereunder,
except as approved in writing by the Board.
11. Notices. All notices, requests, demands and other communications
-------
called for hereunder shall be in writing and shall be deemed given if delivered
personally or three (3) days after being mailed by registered or certified mail,
return receipt requested, prepaid and addressed to the
-4-
<PAGE>
parties or their successors in interest at the following addresses, or at such
other addresses as the parties may designate by written notice in the manner
aforesaid:
If to the Company: TVN Entertainment Corporation
2901 W. Alameda Avenue, 7th Floor
Burbank, CA 91505
Attention: President
with copies to: Arthur Fields
TVN Entertainment Corporation
2901 W. Alameda Avenue, 7th Floor
Burbank, CA 91505
If to Executive: Stuart Z. Levin
at his last residential address given by him to
the Company.
12. Severability. In the event that any provision hereof becomes or is
------------
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision.
13. Entire Agreement. This Agreement and the Non-Disclosure Agreement
----------------
dated January 17, 1996 represent the entire agreement and understanding between
the Company and Executive concerning Executive's employment relationship with
the Company, and they supersede and replace any and all prior negotiations, or
agreements and understandings oral or written concerning Executive's employment
relationship with the Company.
14. No Oral Modification, Cancellation or Discharge. This Agreement may
-----------------------------------------------
be amended, canceled or discharged only in writing signed by Executive and the
Company.
15. Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of California applicable to contracts which are to
be wholly performed in such State.
16. Effective Date. This Agreement is effective immediately after it has
--------------
been signed, although the term of Employment and Executive's services and
Company's compensation obligations hereunder shall commence as of the date shown
above in Section 3 hereof.
17. Acknowledgment. Executive acknowledges that he has had the
--------------
opportunity to discuss this matter with and obtain advice from his private
attorney, has had sufficient time to, and has carefully read and fully
understands all the provisions of this Agreement, and is knowingly and
voluntarily entering into this Agreement.
-5-
<PAGE>
18. Nondisclosure of Confidential Information; Non-Competition.
----------------------------------------------------------
(a) Executive acknowledges that, as a consequence of his
employment and position with the Company, he will have access to and become
acquainted with confidential information of the Company, its affiliates,
vendors, bankers and customers. During the term of this Agreement and at all
times thereafter, and in addition to his obligations pursuant to the
Confidentiality and Non-Disclosure Agreement entered into by Executive
concurrent herewith, Executive shall not, without the prior written consent of
the Company, use, divulge, disclose or make accessible to any other person,
firm, partnership, corporation or other entity any of such Confidential
Information (as hereinafter defined) pertaining to the business of the Company
or any of its affiliates, except (i) while employed by the Company, in the
business of and solely for the benefit of the Company, or (ii) when required to
do so by a court of competent jurisdiction, by any governmental agency having
supervisory authority over the business of the Company or by any administrative
body or legislative body (including a committee thereof) with jurisdiction to
order Executive to divulge, disclose or make accessible such information. For
purposes of this Section 18(a), "Confidential Information" shall mean nonpublic
information concerning the Company's financial data, designs, strategic business
plans, product development (or other propriety product data), customer lists,
information relating to suppliers and methods of production, business know-how,
sales and marketing information and plans, and other nonpublic, proprietary and
confidential information of the Company, its affiliates, vendors, bankers or its
customers.
(b) During the Initial Term and the Option Period, if
applicable, Executive agrees that, without the prior written consent of the
Company: (i) he shall not, directly or indirectly, either as principal, manager,
agent, consultant, officers, stockholder, partner, investor, lender or employee
or in any other capacity, carry on, be engaged in or have any financial interest
in, any entity which is now or at the time in competition with the Business
Activities (as defined below) of the Company and/or its affiliates (a "Competing
Entity"); and (ii) he shall not, on his own behalf or on behalf of any person,
firm or company, directly or indirectly, (A) interfere with any contractual
relationship between any vendors or suppliers of the Company and the Company or
its affiliates which could reasonably be expected to have an adverse effect on
the Company or its affiliates, or (B) solicit or offer employment to any person
who has been employed by the Company at any time during the six (6) months
immediately preceding such solicitation. The term "Business Activities" in
clause (i) of the preceding sentence shall mean the business of the Company as
such business exists on the date hereof or at any time during Executive's
employment.
Notwithstanding the foregoing, Executive may own, directly
or indirectly, less than five percent (5%) in the aggregate of the outstanding
voting stock of a corporation coming within the restrictions of the previous
paragraph, the securities of which are listed on a U.S.
-6-
<PAGE>
or foreign national securities exchange or are traded on NASDAQ, if Executive
does not participate in the management of, perform services for or have any
other beneficial interest in such corporation.
(c) Executive and the Company agree that this covenant not to
compete is a reasonable covenant under the circumstances, and further agree that
if in the opinion of any court of competent jurisdiction such restraint is not
reasonable in any respect, such court shall have the right, power and authorize
to excise or modify such provision or provisions of this covenant which as to
the court shall appear not reasonable and to enforce the remainder of the
covenant as so amended. Executive agrees that any breach of the covenants
contained in this Section 18 would irreparably injure the Company. Accordingly,
Executive agrees that the Company may, in addition to pursuing any other
remedies it may have in law or in equity, obtain an injunction against Executive
from any court having jurisdiction over the matter, restraining any further
violation of this Agreement by Executive.
19. Principal Office. Without Executive's consent, the Company
----------------
shall not require Executive to maintain his principal office or to conduct his
principal business activities hereunder for the Company in any location other
than the greater metropolitan area of Los Angeles or Burbank/Glendale,
California.
20. Beneficiaries; References. Executive shall be entitled to select
-------------------------
(and change, to the extent permitted under any applicable law) a beneficiary or
beneficiaries to receive compensation or benefits payable hereunder, if any,
following his death or total disability, and may change such election, in either
case by giving the Company written notice thereof. In the event of Executive's
death or a judicial determination of his incompetence, reference in this
Agreement to Executive shall be deemed, where appropriate, to refer to his
beneficiary, estate or other legal representative, for purposes of receipt of
benefits to which Executive is entitled hereunder.
21. Survivorship. The respective rights and obligations of the
------------
parties hereunder shall survive any termination of this Agreement to the extent
necessary to preserve the parties' intentions with respect to such rights and
obligations. The provisions of this Section 21 are in addition to the
survivorship provisions of any other section of this Agreement.
22. Withholding. The Company shall be entitled to withhold from
-----------
payment to Executive any amount of withholding or other deduction required to be
withheld and/or deducted by applicable law.
23. Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original, and all of which taken
together shall constitute one Agreement. Mutually executed facsimile copies may
be used for purposes as originals.
-7-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
respective dates set forth below
TVN ENTERTAINMENT CORPORATION
By: Arthur Fields
/s/ Arthur Fields
-----------------------------
Signature
Title: Senior Executive Vice President
Date: 8/29/97
-------------------------------
Print Name: Stuart Z. Levin /s/ Stuart Z. Levin
-----------------------------
Signature
Date: 8/29/97
-----------------------------
-8-
<PAGE>
EXHIBIT 10.9
TVN ENTERTAINMENT CORPORATION
EMPLOYMENT AGREEMENT
This Agreement is made by and between TVN Entertainment Corporation (the
"Company"), and Jim Ramo ("Executive").
1. Duties and Scope of Employment.
------------------------------
(a) Position; Employment Commencement Date. The Company shall employ
--------------------------------------
Executive as the Chief Operating Officer ("COO") and President of the Company
reporting to the Chief Executive Officer of the Company ("CEO"); provided,
however, that the Board of Directors of the Company (the "Board") shall have the
right to revise employee's duties, consistent with such positions, from time to
time as the Board may deem necessary or appropriate; provided further, however,
that in no event shall Executive report to anyone other than the CEO of the
Company. Executive's employment by the Company pursuant to this Agreement shall
commence on September 15, 1997. Executive will be elected as a member of the
Board of Directors at its first meeting after such commencement date.
(b) Obligations. In his capacity as COO, Executive's duties shall
-----------
consist of those usually attendant to that office, including oversight, planning
and management of day-to-day operations of the Company, all under the direction
and control of the CEO and the Board. Executive shall devote his full business
efforts and time to the Company's business during the term of employment
described in Section 3 below. Executive agrees not to actively engage in any
other employment, occupation or consulting activity for any direct or indirect
remuneration, without the prior approval of the CEO and the Board; provided,
however, that Executive may serve any civic, educational or charitable
organization without the approval of the Board, so long as such activities do
not interfere with the full-time performance of his duties and obligations under
this Agreement.
2. Employee Benefits. During his employment hereunder, Executive shall
-----------------
be eligible to participate in the employee benefit plans maintained by the
Company to the full extent provided for under those plans for employees of
similar status except as otherwise specifically provided for herein.
3. Term of Employment. Executive's term of employment hereunder shall be
------------------
for the period commencing on September 15, 1997 and, subject to the terms
hereof, terminating on the third anniversary of such date (the "Initial Term"),
and the Company shall have the option (but not the obligation) to renew and
extend Executive's term of employment under this Agreement for one (1) two-year
period on the terms and subject to the conditions hereof (the "Option Period"),
such Option Period to be exercised by the Company upon written notice to
Executive no later than 90 days prior to the expiration of the Initial Term.
Notwithstanding the foregoing, however, the Company may not exercise the Option
Period unless Princes Gate Investors II, L.P. exercises its option to increase
its aggregate investment to at least $30 million, and the Company completes its
initial public offering of Common Stock prior to the expiration of the Initial
Term.
<PAGE>
4. Compensation, Fringe Benefits and Stock Options.
-----------------------------------------------
(a) Base Salary. While employed by the Company pursuant to this
-----------
Agreement, the Company shall pay the Executive as compensation for his services
a base salary ("Base Salary") at the annualized rate of $450,000 for the period
September 15, 1997 through September 14, 1998, $475,000 for the period September
15, 1998 through September 14, 1999, $500,000 for the period September 15, 1999
through September 14, 2000, and such amount as the CEO shall recommend and the
Board shall approve for the Option Period (if the option shall be exercised by
the Company); provided, however, that Executive's Base Salary for each year
during the Option Period shall be not less than 110% of Executive's Base Salary
for the immediately preceding year of his employment. Such salary shall be
paid periodically in accordance with normal Company payroll practices and
subject to the usual, required withholding. Executive's salary shall be reviewed
yearly for possible raises and/or bonuses in light of Executive's performance of
his duties, as recommended by the CEO and determined by the Board. Executive
understands and agrees that neither his job performance nor promotions,
commendations, bonuses or the like from the Company shall give rise to or in any
way serve as the basis for modification, amendment, or extension, by implication
or otherwise, of this Agreement.
(b) Stock Options.
-------------
(i) Initial Grant. Executive shall be granted a stock
-------------
option, which shall be, to the extent possible under the $100,000 rule of
Section 422(d) of the Internal Revenue Code of 1986, as amended (the "Code"), an
"incentive stock option" (as defined in Section 422 of the Code) to purchase a
total of 263,316 shares of Company Common Stock with a per share exercise price
equal to 100% of the fair market value of such stock on the date of grant ($0.75
per share). This option shall be for a term of ten (10) years (or shorter upon
termination of employment with the Company) and shall vest at the rate of 20% of
the shares originally subject to the option one year from the date of employment
and one-sixtieth (1/60th) of the shares originally subject to the option each
month thereafter, conditioned upon Executive's continued employment with the
Company as of each vesting date. This option grant is in all respects subject to
the terms, definitions and provisions of the Company's Stock Option Plan (the
"Option Plan") and the stock option agreement by and between Executive and the
Company (the "Option Agreement"), both of which documents are incorporated
herein by reference.
(ii) Award Grant. Executive shall also be granted a second
-----------
stock option, which shall be, to the extent possible under the $100,000 rule of
Section 422(d) of the Code and after taking into account the Option Agreement in
Section 4(b)(i) above, an "incentive stock option" (as defined in Section 422 of
the Code) to purchase a total of 336,459 shares of Company Common Stock with a
per share exercise price equal to 100% of the fair market value of such stock on
the date of grant ($0.75 per share). This option shall be for a term of ten (10)
years (or shorter upon termination of employment with the Company) and shall
vest in full on the expiration of the Initial Term, conditional upon the
Executive's continued employment with the Company as of such vesting date. This
option grant is in
<PAGE>
all respects subject to the terms, definitions and provisions of the Company's
Option Plan and the stock option agreement by and between Executive and the
Company (the "Award Agreement"), both of which documents are incorporated herein
by reference.
(c) Incentive Bonus. Executive shall be eligible, with respect to the
---------------
1998-2000 fiscal years of the Company, for an annual incentive bonus of
$250,000. This bonus will be payable if revenue received from the Company's
Digital Cable Television business meets the plan approved by the Board of
Directors for DCTV revenues for that fiscal year. If such revenue does not meet
plan, Executive shall instead receive a minimum annual bonus of $125,000. If
such revenue exceeds the plan for the fiscal year, the bonus may be increased
above $250,000 as is determined by the Board of Directors. Notwithstanding the
foregoing, however, the bonus amount will be $250,000 for the fiscal year ending
March 31, 1998, regardless of whether revenue meets the plan and despite the
fact that Executive was not employed by the Company for the full fiscal year.
To be eligible to receive the bonus, Executive must be employed by the Company
through the last day of each such fiscal year. This bonus, to the extent
payable, shall be paid to Executive within ninety days of the end of each such
fiscal year. With respect to the bonus for fiscal year 1998, such payment shall
be made by June 29, 1998. The bonus and the related performance criteria for
each year of the Option Period will be mutually determined by the Company and
Executive but in no event shall the minimum annual bonus be less than $250,000.
Subsequent bonus milestones for Executive shall be established by the Board
following good faith consultation with the Executive.
(d) Signing Bonus. Upon commencement of Executive's employment with
-------------
the Company he shall receive a one-time bonus payment of $500,000.
(e) Life Insurance. In addition to being covered under the Company's
--------------
group health and dental plans, the Company will obtain and pay premiums for,
during the term of Executive's employment hereunder, term life insurance for
Executive in the amount of $3,000,000 payable to the beneficiary designated by
Executive. Executive shall be fully "grossed-up"by the Company for this benefit
so that the economic effect to Executive is the same as if this benefit was
provided to Executive on a non-taxable basis. Executive also understands and
agrees that the Company may obtain additional term life insurance on Executive
payable to the Company and agrees to cooperate with the Company with respect to
the medical examinations required to obtain such policies.
(f) Vacation and Auto Allowance. Executive shall be entitled to paid
---------------------------
vacation of four weeks per year in accordance with the Company's vacation
policy, and to an automobile allowance of $1,000 per month, provided that the
cost of maintaining and insuring such auto and all other costs relating thereto
shall be borne by Executive.
(g) Fringe Benefits. Executive shall be entitled to such employee
---------------
perquisites and other fringe benefits as are typically made available to senior
management employees of enterprises in the entertainment business, including but
not limited to first class travel on Company business.
-3-
<PAGE>
5. Severance Benefits. If the Company terminates Executive's employment
------------------
involuntarily without "Cause" (as defined herein), then (i) Executive shall be
entitled to receive continuing payments of severance pay (less applicable
withholding taxes) at a rate equal to his base salary rate, as then in effect
(but not less than $450,000 per year) for the remainder of the Initial Term, but
in no event to exceed a maximum of two years from the date of such termination,
(ii) Executive shall receive the minimum annual bonus of $125,000 for the fiscal
year in which such termination occurs notwithstanding the fact that Executive
was not employed through the last day of such year, and (iii) Executive's Award
Agreement set forth in Section 4(b)(ii) hereof shall become 100% vested. For
this purpose, "Cause" is defined as (i) an act of dishonesty made by Executive
in connection with Executive's responsibilities as an employee and intended to
result in Executive's substantial personal enrichment, (ii) Executive's
conviction of a felony, (iii) a willful act by Executive which constitutes gross
misconduct and which results in material injury to the Company, or (iv)
Executive's continued substantial violations of his employment duties which are
demonstrably willful and deliberate on Executive's part after Executive has
received one or more written demands for performance from the Company which
specifically sets forth the factual basis for the Company's claim that Executive
has not substantially performed his duties, and Executive has had a reasonable
time period in which to cure such defaults to the reasonable satisfaction of the
Board of Directors. Termination of Executive for Cause under this Section shall
be effective only upon delivery to Executive of a copy of a resolution duly
adopted by the Board at a Board meeting duly called and held finding that
Executive was guilty of the conduct set forth in any of clauses (i) through(iv)
above and specifying the particulars thereof, and that in the case of (iv) above
Executive has not timely cured such defaults.
6. Total Disability of Executive. Upon Executive's becoming totally
-----------------------------
disabled during the term of this Agreement, employment hereunder shall
automatically terminate and Executive shall receive post-termination disability
payments equal to six (6) months of continuation of Base Salary, and Executive's
Award Agreement set forth in Section 4(b)(ii) hereof shall become 100% vested.
Executive shall be deemed to have suffered a "Total Disability" ninety (90) days
following written notice by the Company to Executive of a determination by an
independent physician acceptable to the Board and Executive (which acceptance
will not be unreasonably withheld) that Executive's disability is such that he
cannot render services as provided for hereunder; provided, however, that if
Executive resumes work on a regular basis prior to the end of such 90 day
period, Executive shall not be deemed to have suffered a "Total Disability."
7. Partial Disability of Executive. If, during the term of this
-------------------------------
Agreement, Executive becomes disabled by reason of illness or other incapacity
extending for a period of more than three (3) consecutive months during which
Executive is unable to perform his duties hereunder on a full-time basis (as
determined by an independent physician acceptable to both Executive and the
Board), but is able to perform his duties hereunder on a part-time basis
("Partial Disability"), all salary amounts otherwise payable and option shares
otherwise vesting to Executive hereunder shall be proportionately reduced with
respect to amounts paid or shares vested subsequent to the end of said three (3)
month period in relation to Executive's reduced level of performance.
-4-
<PAGE>
8. Death of Executive. If Executive dies during the term of this
------------------
Agreement, this Agreement shall terminate immediately; provided, however, that
in such event, Executive's Award Agreement set forth in Section 4(b)(ii) hereof
shall become 100% vested; and provided further, that in such event, Executive's
spouse, if living, shall receive six (6) months of continued Base Salary
payments hereunder.
9. Change of Control. In the event of a change of control of the
-----------------
Company, followed within twelve (12) months thereafter by the involuntary
termination of Executive's employment with the Company or its successor entity
without Cause, Executive's Award Agreement set forth in Section 4(b)(ii) hereof
shall become 100% vested. For this purpose, "change of control of the Company"
is defined as:
(a) A person other than the current CEO becomes or is appointed
as the Chief Executive Officer of the Company, or any "person" (as such term is
used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
said Act), directly or indirectly, of securities of the Company representing 40%
or more of the total voting power represented by the Company's then outstanding
voting securities; or
(b) A change in the composition of the Board of Directors of the
Company occurring within a two-year period, as a result of which fewer than a
majority of the directors are Incumbent Directors. "Incumbent Directors" shall
mean directors who either (A) are directors of the Company as of the date
hereof, or (B) are elected, or nominated for election, to the Board of Directors
of the Company with the affirmative votes of at least a majority of the
Incumbent Directors at the time of such election or nomination (but shall not
include an individual whose election or nomination is in connection with an
actual or threatened proxy contest relating to the election of directors to the
Company); or
(c) The date of the consummation of a merger or consolidation of
the Company with any other corporation that has been approved by the
stockholders of the Company, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least fifty percent
(50%) of the total voting power represented by the voting securities of the
Company or such surviving entity outstanding immediately after such merger or
consolidation, or the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all the Company's assets.
10. Put Right.
---------
(a) It is the intention of the Company and Executive that
Executive realize at least $2,300,000 in gain from the Award Agreement by the
expiration of the Initial Term under this
-5-
<PAGE>
Agreement. To that end, under the conditions set forth below, the Company grants
the Executive the right upon the expiration of the Initial Term to put the Award
Agreement back to the Company for cancellation the right to purchase up to all
of the 336,459 shares of the Company's Common Stock thereunder (the "Put
Right"), in return for the cash payment by the Company to the Executive of up to
$2,300,000.
(b) This Put Right may only be exercised by Executive if by the
last day of the Initial Term he has not voluntarily terminated his employment
with the Company or been terminated involuntarily by the Company for Cause. The
Put Right may be exercised by Executive even though he is no longer employed
full time by the Company on the last day of the Initial Term, termination of his
employment was due to death or Total Disability, where the level of his
performance has been reduced due to Partial Disability or where his employment
was involuntarily terminated by the Company without Cause.
(c) The Put Right must be exercised by Executive within thirty
(30) days following the end of the Initial Term upon written notice to the
Company, and may be exercised in whole or in part. Notwithstanding the
foregoing, however, if the Company exercises the Option Period, the Put Right
must be exercised within thirty (30) days following the end of the Option
Period. In the event of a partial exercise for less than the full $2,300,000,
the right to purchase a proportionate number of shares under the Award Agreement
shall be canceled, taking first for such purpose all vested shares before
canceling the right with respect to any unvested shares.
(d) Notwithstanding the foregoing, the Put Right may not be
exercised by Executive if by the last day of the Initial Term one of the
following events has occurred (a "Liquidity Event"):
(i) an acquisition of all of the outstanding shares of the
Company at a per share valuation of at least $7.59, payable in cash or
marketable securities;
(ii) an initial public offering by the Company with an
initial public offering price of at least $7.59 per share, or
(iii) a private resale transaction arranged by the Company,
in which the Executive is offered the opportunity to sell at least 336,459
shares of Common Stock of the Company for at least $7.59 per share in cash,
whether or not Executive elects to participate in such transaction.
(e) As security for the Company's obligations under this Section
10, the Company will place the amount of $1,800,000 in an interest bearing
escrow account with Wells Fargo Bank. The parties' joint escrow instructions
will provide that such funds together with all interest accrued thereon may only
be released to Executive upon an exercise of the Put Right, or released to the
Company upon the voluntary termination of employment by Executive, involuntary
termination
-6-
<PAGE>
of Executive's employment for Cause, a Liquidity Event or expiration of the Put
Right without exercise by Executive. Notwithstanding the foregoing, however, in
the event Executive is exposed to an other than de minimis amount of alternative
minimum tax during the escrow period due to the exercise of either the Initial
Grant or the Award Grant, Executive and the Company will mutually agree on the
terms of a loan to Executive out of the escrowed funds to offset the cash flow
impact to Executive of the alternative minimum tax.
11. Registration Rights. If at any time prior to the expiration of the
-------------------
Initial Term, (i) the Company effects an initial public offering of shares of
its Common Stock pursuant to a registration statement declared effective with
the Securities and Exchange Commission, and Stuart Z. Levin is permitted to
include shares of Common Stock of the Company that he owns in such offering for
sale to the public, or (ii) Stuart Z. Levin is afforded the opportunity to sell
shares of Common Stock of the Company in a private resale transaction, Executive
shall be permitted to include a proportional number of his vested shares for
sale therein, pro rata based on the aggregate number of shares either owned or
subject to option by each individual whether or not vested.
12. Enforcement. Any disputes between the parties under this Agreement
-----------
shall be resolved by binding arbitration under the rules of commercial
arbitration of the American Arbitration Association in Los Angeles, California.
In the event of any arbitration to enforce the terms of this Agreement, the
prevailing party in such arbitration shall be entitled to such party's
reasonable costs and expenses of enforcement including, without limitation,
reasonable attorneys' fees. Payments for Total Disability or upon Death shall
be in addition to any unpaid Base Salary, Incentive or Bonus Compensation which
is unpaid or has been earned at the time of such event.
13. Assignment. This Agreement shall be binding upon and inure to the
----------
benefit of (a) the heirs, executors and legal representatives of Executive upon
Executive's death and (b) any successor of the Company. Any such successor of
the Company shall be deemed substituted for the Company under the terms of this
Agreement for all purposes. As used herein, "successor" shall include any
person, firm, corporation or other business entity which at any time, whether by
purchase, merger or otherwise, directly or indirectly acquires all or
substantially all of the assets or business of the Company. Executive shall
personally perform and may not delegate to third parties his duties hereunder,
except as approved in writing by the CEO.
14. Notices. All notices, requests, demands and other communications
-------
called for hereunder shall be in writing and shall be deemed given if delivered
personally or three (3) days after being mailed by registered or certified mail,
return receipt requested, prepaid and addressed to the parties or their
successors in interest at the following addresses, or at such other addresses as
the parties may designate by written notice in the manner aforesaid:
If to the Company: TVN Entertainment Corporation
2901 W. Alameda Avenue, 7th Floor
Burbank, CA 91505
Attention: Stuart Z. Levin
-7-
<PAGE>
with copies to: Arthur Fields
TVN Entertainment Corporation
2901 W. Alameda Avenue, 7th Floor
Burbank, CA 91505
If to Executive: Jim Ramo
at his last residential address given by him to
the Company.
with copies to: Craig Jacobson
Hansen, Jacobson, Tiller & Hoberman
450 N. Roxbury Drive, 8th Floor
Beverly Hills, CA 90210-4222
Harvey Gettleson
Ernst & Young
1999 Avenue of the Stars
Suite 2100
Los Angeles, CA 90067
15. Severability. In the event that any provision hereof becomes or is
------------
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision.
16. Entire Agreement. This Agreement, the Stock Option Plan, the Option
----------------
Agreement, the Award Agreement and the Non-Disclosure Agreement of even date
herewith represent the entire agreement and understanding between the Company
and Executive concerning Executive's employment relationship with the Company,
and they supersede and replace any and all prior negotiations, or agreements and
understandings oral or written concerning Executive's employment relationship
with the Company.
17. No Oral Modification, Cancellation or Discharge. This Agreement may
-----------------------------------------------
be amended, canceled or discharged only in writing signed by Executive and the
Company.
18. Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of California applicable to contracts which are to
be wholly performed in such State.
-8-
<PAGE>
19. Effective Date. This Agreement is effective immediately after it has
--------------
been signed, although the term of Employment and Executive's services and
Company's compensation obligations hereunder shall commence as of the date shown
above in Section 3 hereof.
20. Acknowledgment. Executive acknowledges that he has had the
--------------
opportunity to discuss this matter with and obtain advice from his private
attorney, has had sufficient time to, and has carefully read and fully
understands all the provisions of this Agreement, and is knowingly and
voluntarily entering into this Agreement.
21. Nondisclosure of Confidential Information; Non-Competition.
----------------------------------------------------------
(a) Executive acknowledges that, as a consequence of his
employment and position with the Company, he will have access to and become
acquainted with confidential information of the Company, its affiliates,
vendors, bankers and customers. During the term of this Agreement and at all
times thereafter, and in addition to his obligations pursuant to the
Confidentiality and Non-Disclosure Agreement entered into by Executive
concurrent herewith, Executive shall not, without the prior written consent of
the Company, use, divulge, disclose or make accessible to any other person,
firm, partnership, corporation or other entity any of such Confidential
Information (as hereinafter defined) pertaining to the business of the Company
or any of its affiliates, except (i) while employed by the Company, in the
business of and solely for the benefit of the Company, or (ii) when required to
do so by a court of competent jurisdiction, by any governmental agency having
supervisory authority over the business of the Company or by any administrative
body or legislative body (including a committee thereof) with jurisdiction to
order Executive to divulge, disclose or make accessible such information. For
purposes of this Section 21(a), "Confidential Information" shall mean nonpublic
information concerning the Company's financial data, designs, strategic business
plans, product development (or other propriety product data), customer lists,
information relating to suppliers and methods of production, business know-how,
sales and marketing information and plans, and other nonpublic, proprietary and
confidential information of the Company, its affiliates, vendors, bankers or its
customers.
(b) During the Initial Term and the Option Period, if
applicable, Executive agrees that, without the prior written consent of the
Company: (i) he shall not, directly or indirectly, either as principal, manager,
agent, consultant, officers, stockholder, partner, investor, lender or employee
or in any other capacity, carry on, be engaged in or have any financial interest
in, any entity which is now or at the time in competition with the Business
Activities (as defined below) of the Company and/or its affiliates (a "Competing
Entity"); and (ii) he shall not, on his own behalf or on behalf of any person,
firm or company, directly or indirectly, (A) interfere with any contractual
relationship between any vendors or suppliers of the Company and the Company or
its affiliates which could reasonably be expected to have an adverse effect on
the Company or its affiliates, or (B) solicit or offer employment to any person
who has been employed by the Company at any time during the six (6) months
immediately preceding such solicitation. The term "Business Activities" in
clause (i)
-9-
<PAGE>
of the preceding sentence shall mean the business of the Company as such
business exists on the date hereof or at any time during Executive's employment.
Notwithstanding the foregoing, Executive may own, directly
or indirectly, less than five percent (5%) in the aggregate of the outstanding
voting stock of a corporation coming within the restrictions of the previous
paragraph, the securities of which are listed on a U.S. or foreign national
securities exchange or are traded on NASDAQ, if Executive does not participate
in the management of, perform services for or have any other beneficial interest
in such corporation.
(c) Executive and the Company agree that this covenant not to
compete is a reasonable covenant under the circumstances, and further agree that
if in the opinion of any court of competent jurisdiction such restraint is not
reasonable in any respect, such court shall have the right, power and authorize
to excise or modify such provision or provisions of this covenant which as to
the court shall appear not reasonable and to enforce the remainder of the
covenant as so amended. Executive agrees that any breach of the covenants
contained in this Section 21 would irreparably injure the Company. Accordingly,
Executive agrees that the Company may, in addition to pursuing any other
remedies it may have in law or in equity, obtain an injunction against Executive
from any court having jurisdiction over the matter, restraining any further
violation of this Agreement by Executive.
22. Principal Office. Without Executive's consent, the Company shall
----------------
not require Executive to maintain his principal office or to conduct his
principal business activities hereunder for the Company in any location other
than the greater metropolitan area of Los Angeles or Burbank/Glendale,
California.
23. Beneficiaries; References. Executive shall be entitled to select
-------------------------
(and change, to the extent permitted under any applicable law) a beneficiary or
beneficiaries to receive compensation or benefits payable hereunder, if any,
following his death or total disability, and may change such election, in either
case by giving the Company written notice thereof. In the event of Executive's
death or a judicial determination of his incompetence, reference in this
Agreement to Executive shall be deemed, where appropriate, to refer to his
beneficiary, estate or other legal representative, for purposes of receipt of
benefits to which Executive is entitled hereunder.
24. Survivorship. The respective rights and obligations of the parties
------------
hereunder shall survive any termination of this Agreement to the extent
necessary to preserve the parties' intentions with respect to such rights and
obligations. The provisions of this Section 24 are in addition to the
survivorship provisions of any other section of this Agreement.
25. Withholding. The Company shall be entitled to withhold from
-----------
payment to Executive any amount of withholding or other deduction required to be
withheld and/or deducted by applicable law.
-10-
<PAGE>
26. Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original, and all of which taken
together shall constitute one Agreement. Mutually executed facsimile copies may
be used for purposes as originals.
-11-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
respective dates set forth below
TVN ENTERTAINMENT CORPORATION
/s/ Stuart Z. Levin
By: Stuart Z. Levin -----------------------------
Signature
Title: President and CEO
Date: 8/28/97
------------------------
/s/ Jim Ramo
Print Name: Jim Ramo -----------------------------
Signature
Date: 8/28/97
-------------------------
-12-
<PAGE>
EXHIBIT 10.10
TVN ENTERTAINMENT CORPORATION
EMPLOYMENT AGREEMENT
This Agreement is made by and between TVN Entertainment Corporation (the
"Company"), and Arthur Fields ("Executive").
1. Duties and Scope of Employment.
------------------------------
(a) Position; Employment Commencement Date. The Company shall employ
--------------------------------------
Executive as the Senior Executive Vice President ("SR.EVP") of the Company
reporting to the Chief Executive Officer of the Company ("CEO"); provided,
however, that the Board of Directors of the Company (the "Board") shall have the
right to revise employee's duties, consistent with such positions, from time to
time as the Board may deem necessary or appropriate. Executive's employment by
the Company pursuant to this Agreement shall commence on September 1, 1997.
(b) Obligations. In his capacity as SR.EVP, Executive's duties shall
-----------
consist of those usually attendant to that office, including planning, business
affairs, general legal and administrative matters of the Company, all under the
direction and control of the CEO and the Board. Executive shall devote his full
business efforts and time to the Company's business during the term of
employment described in Section 3 below. Executive agrees not to actively
engage in any other employment, occupation or consulting activity for any direct
or indirect remuneration, without the prior approval of the CEO and the Board;
provided, however, that Executive may serve any civic, educational or charitable
organization without the approval of the Board, so long as such activities do
not interfere with the full-time performance of his duties and obligations under
this Agreement.
2. Employee Benefits. During his employment hereunder, Executive shall
-----------------
be eligible to participate in the employee benefit plans maintained by the
Company to the full extent provided for under those plans for employees of
similar status except as otherwise specifically provided for herein.
3. Term of Employment. Executive's term of employment hereunder shall be
------------------
for the period commencing on September 1, 1997 and, subject to the terms hereof,
terminating on the third anniversary of such date (the "Initial Term"); and the
Company shall have the option (but not the obligation) to renew and extend
Executive's term of employment under this Agreement for one (1) two-year period
on the terms and subject to the conditions hereof (the "Option Period"), such
Option Period to be exercised by the Company upon written notice to Executive no
later than 90 days prior to the expiration of the Initial Term.
4. Compensation, Fringe Benefits and Stock Option.
-----------------------------------------------
(a) Base Salary. While employed by the Company pursuant to this
-----------
Agreement, the Company shall pay the Executive as compensation for his services
a base salary ("Base Salary") at the annualized rate of $350,000 for the period
September 1, 1997 through August 31, 1998, $375,000 for the period September 1,
1998 through August 31, 1999, $400,000 for the period September 1, 1999 through
August 31, 2000, and such amount as the CEO shall recommend and the Board shall
approve
<PAGE>
for the Option Period (if the option shall be exercised by the Company);
provided, however, that Executive's Base Salary for each year during the Option
Period shall be not less than 110% of Executive's Base Salary for the
immediately preceding year of his employment. Such salary shall be paid
periodically in accordance with normal Company payroll practices and subject to
the usual, required withholding. Executive's salary shall be reviewed yearly for
possible raises and/or bonuses in light of Executive's performance of his
duties, as recommended by the CEO and determined by the Board. Executive
understands and agrees that neither his job performance nor promotions,
commendations, bonuses or the like from the Company shall give rise to or in any
way serve as the basis for modification, amendment, or extension, by implication
or otherwise, of this Agreement.
(b) Incentive Bonus. Executive shall be eligible, with respect to the
---------------
1998-2000 fiscal years of the Company, for an annual incentive bonus of
$125,000. This bonus will be payable if revenue received from the Company's
Digital Cable Television business meets the plan approved by the Board of
Directors for DCTV revenues for that fiscal year. If such revenue does not meet
plan, Executive shall instead receive a minimum annual bonus of $62,500. If
such revenue exceeds the plan for the fiscal year, the bonus may be increased
above $125,000 as is determined by the Board of Directors. Notwithstanding the
foregoing, however, the bonus amount will be $125,000 for the fiscal year ending
March 31, 1998 regardless of whether revenue meets the plan. To be eligible to
receive the bonus, Executive must be employed by the Company through the last
day of each such fiscal year. This bonus, to the extent payable, shall be paid
to Executive within ninety days of the end of each such fiscal year. With
respect to the bonus for fiscal year 1998, such payment shall be made by June
29, 1998. The bonus and the related performance criteria for each year of the
Option Period will be mutually determined by the Company and Executive but in no
event shall the minimum annual bonus be less than $125,000.
Subsequent bonus milestones for Executive shall be established by the Board
following good faith consultation with the Executive.
(c) Life Insurance. In addition to being covered under the Company's
--------------
group health and dental plans, the Company will obtain and pay premiums for,
during the term of Executive's employment hereunder, term life insurance for
Executive in the amount of $2,000,000 payable to the beneficiary designated by
Executive. Executive shall be fully "grossed-up"by the Company for this benefit
so that the economic effect to Executive is the same as if this benefit was
provided to Executive on a non-taxable basis. Executive also understands and
agrees that the Company may obtain additional term life insurance on Executive
payable to the Company and agrees to cooperate with the Company with respect to
the medical examinations required to obtain such policies.
(d) Vacation and Auto Allowance. Executive shall be entitled to paid
---------------------------
vacation of four weeks per year in accordance with the Company's vacation
policy, and to an automobile allowance of $1,000 per month, provided that the
cost of maintaining and insuring such auto and all other costs relating thereto
shall be borne by Executive.
-2-
<PAGE>
(e) Fringe Benefits. Executive shall be entitled to such employee
---------------
perquisites and other fringe benefits as are typically made available to senior
management employees of enterprises in the entertainment business, including but
not limited to first class travel on Company business.
5. Severance Benefits. If the Company terminates Executive's employment
------------------
involuntarily without "Cause" (as defined herein), then (i) Executive shall be
entitled to receive continuing payments of severance pay (less applicable
withholding taxes) at a rate equal to his base salary rate, as then in effect
(but not less than $350,000 per year) for the remainder of the Initial Term, but
in no event to exceed a maximum of two years from the date of such termination
and (ii) Executive shall receive the minimum annual bonus of $62,500 for the
fiscal year in which such termination occurs notwithstanding the fact that
Executive was not employed through the last day of such year. For this purpose,
"Cause" is defined as (i) an act of dishonesty made by Executive in connection
with Executive's responsibilities as an employee and intended to result in
Executive's substantial personal enrichment, (ii) Executive's conviction of a
felony, (iii) a willful act by Executive which constitutes gross misconduct and
which results in material injury to the Company, or (iv) Executive's continued
substantial violations of his employment duties which are demonstrably willful
and deliberate on Executive's part after Executive has received one or more
written demands for performance from the Company which specifically sets forth
the factual basis for the Company's claim that Executive has not substantially
performed his duties, and Executive has had a reasonable time period in which to
cure such defaults to the reasonable satisfaction of the Board of Directors.
Termination of Executive for Cause under this Section shall be effective only
upon delivery to Executive of a copy of a resolution duly adopted by the Board
at a Board meeting duly called and held finding that Executive was guilty of the
conduct set forth in any of clauses (i) through(iv) above and specifying the
particulars thereof, and that in the case of (iv) above Executive has not timely
cured such defaults.
6. Total Disability of Executive. Upon Executive's becoming totally
-----------------------------
disabled during the term of this Agreement, employment hereunder shall
automatically terminate and Executive shall receive post-termination disability
payments equal to six (6) months of continuation of Base Salary. Executive
shall be deemed to have suffered a "Total Disability" ninety (90) days following
written notice by the Company to Executive of a determination by an independent
physician acceptable to the Board and Executive (which acceptance will not be
unreasonably withheld) that Executive's disability is such that he cannot render
services as provided for hereunder; provided, however, that if Executive resumes
work on a regular basis prior to the end of such 90 day period, Executive shall
not be deemed to have suffered a "Total Disability."
7. Partial Disability of Executive. If, during the term of this
-------------------------------
Agreement, Executive becomes disabled by reason of illness or other incapacity
extending for a period of more than three (3) consecutive months during which
Executive is unable to perform his duties hereunder on a full-time basis (as
determined by an independent physician acceptable to both Executive and the
Board), but is able to perform his duties hereunder on a part-time basis
("Partial Disability"), all salary amounts otherwise payable and option shares
otherwise vesting to Executive hereunder shall be
-3-
<PAGE>
proportionately reduced with respect to amounts paid or shares vested subsequent
to the end of said three (3) month period in relation to Executive's reduced
level of performance.
8. Death of Executive. If Executive dies during the term of this
------------------
Agreement, this Agreement shall terminate immediately; provided, however, that
in such event, Executive's spouse, if living, shall receive six (6) months of
continued Base Salary payments hereunder.
9. Enforcement. Any disputes between the parties under this Agreement
-----------
shall be resolved by binding arbitration under the rules of commercial
arbitration of the American Arbitration Association in Los Angeles, California.
In the event of any arbitration to enforce the terms of this Agreement, the
prevailing party in such arbitration shall be entitled to such party's
reasonable costs and expenses of enforcement including, without limitation,
reasonable attorneys' fees. Payments for Total Disability or upon Death shall
be in addition to any unpaid Base Salary or Incentive Compensation which is
unpaid or has been earned at the time of such event.
10. Assignment. This Agreement shall be binding upon and inure to the
----------
benefit of (a) the heirs, executors and legal representatives of Executive upon
Executive's death and (b) any successor of the Company. Any such successor of
the Company shall be deemed substituted for the Company under the terms of this
Agreement for all purposes. As used herein, "successor" shall include any
person, firm, corporation or other business entity which at any time, whether by
purchase, merger or otherwise, directly or indirectly acquires all or
substantially all of the assets or business of the Company. Executive shall
personally perform and may not delegate to third parties his duties hereunder,
except as approved in writing by the CEO.
11. Notices. All notices, requests, demands and other communications
-------
called for hereunder shall be in writing and shall be deemed given if delivered
personally or three (3) days after being mailed by registered or certified mail,
return receipt requested, prepaid and addressed to the parties or their
successors in interest at the following addresses, or at such other addresses as
the parties may designate by written notice in the manner aforesaid:
If to the Company: TVN Entertainment Corporation
2901 W. Alameda Avenue, 7th Floor
Burbank, CA 91505
Attention: Stuart Z. Levin
If to Executive: Arthur Fields
at his last residential address given by him to
the Company.
12. Severability. In the event that any provision hereof becomes or is
------------
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision.
-4-
<PAGE>
13. Entire Agreement. This Agreement and the Non-Disclosure Agreement
----------------
dated January 17, 1996 represent the entire agreement and understanding between
the Company and Executive concerning Executive's employment relationship with
the Company, and they supersede and replace any and all prior negotiations, or
agreements and understandings oral or written concerning Executive's employment
relationship with the Company.
14. No Oral Modification, Cancellation or Discharge. This Agreement may
-----------------------------------------------
be amended, canceled or discharged only in writing signed by Executive and the
Company.
15. Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of California applicable to contracts which are to
be wholly performed in such State.
16. Effective Date. This Agreement is effective immediately after it has
--------------
been signed, although the term of Employment and Executive's services and
Company's compensation obligations hereunder shall commence as of the date shown
above in Section 3 hereof.
17. Acknowledgment. Executive acknowledges that he has had the
--------------
opportunity to discuss this matter with and obtain advice from his private
attorney, has had sufficient time to, and has carefully read and fully
understands all the provisions of this Agreement, and is knowingly and
voluntarily entering into this Agreement.
18. Nondisclosure of Confidential Information; Non-Competition.
----------------------------------------------------------
(a) Executive acknowledges that, as a consequence of his
employment and position with the Company, he will have access to and become
acquainted with confidential information of the Company, its affiliates,
vendors, bankers and customers. During the term of this Agreement and at all
times thereafter, and in addition to his obligations pursuant to the
Confidentiality and Non-Disclosure Agreement entered into by Executive
concurrent herewith, Executive shall not, without the prior written consent of
the Company, use, divulge, disclose or make accessible to any other person,
firm, partnership, corporation or other entity any of such Confidential
Information (as hereinafter defined) pertaining to the business of the Company
or any of its affiliates, except (i) while employed by the Company, in the
business of and solely for the benefit of the Company, or (ii) when required to
do so by a court of competent jurisdiction, by any governmental agency having
supervisory authority over the business of the Company or by any administrative
body or legislative body (including a committee thereof) with jurisdiction to
order Executive to divulge, disclose or make accessible such information. For
purposes of this Section 18(a), "Confidential Information" shall mean nonpublic
information concerning the Company's financial data, designs, strategic business
plans, product development (or other propriety product data), customer lists,
information relating to suppliers and methods of production, business know-how,
sales and marketing information and plans, and other nonpublic, proprietary and
confidential information of the Company, its affiliates, vendors, bankers or its
customers.
-5-
<PAGE>
(b) During the Initial Term and the Option Period, if
applicable, Executive agrees that, without the prior written consent of the
Company: (i) he shall not, directly or indirectly, either as principal, manager,
agent, consultant, officers, stockholder, partner, investor, lender or employee
or in any other capacity, carry on, be engaged in or have any financial interest
in, any entity which is now or at the time in competition with the Business
Activities (as defined below) of the Company and/or its affiliates (a "Competing
Entity"); and (ii) he shall not, on his own behalf or on behalf of any person,
firm or company, directly or indirectly, (A) interfere with any contractual
relationship between any vendors or suppliers of the Company and the Company or
its affiliates which could reasonably be expected to have an adverse effect on
the Company or its affiliates, or (B) solicit or offer employment to any person
who has been employed by the Company at any time during the six (6) months
immediately preceding such solicitation. The term "Business Activities" in
clause (i) of the preceding sentence shall mean the business of the Company as
such business exists on the date hereof or at any time during Executive's
employment.
Notwithstanding the foregoing, Executive may own, directly or
indirectly, less than five percent (5%) in the aggregate of the outstanding
voting stock of a corporation coming within the restrictions of the previous
paragraph, the securities of which are listed on a U.S. or foreign national
securities exchange or are traded on NASDAQ, if Executive does not participate
in the management of, perform services for or have any other beneficial interest
in such corporation.
(c) Executive and the Company agree that this covenant not to
compete is a reasonable covenant under the circumstances, and further agree that
if in the opinion of any court of competent jurisdiction such restraint is not
reasonable in any respect, such court shall have the right, power and authorize
to excise or modify such provision or provisions of this covenant which as to
the court shall appear not reasonable and to enforce the remainder of the
covenant as so amended. Executive agrees that any breach of the covenants
contained in this Section 18 would irreparably injure the Company. Accordingly,
Executive agrees that the Company may, in addition to pursuing any other
remedies it may have in law or in equity, obtain an injunction against Executive
from any court having jurisdiction over the matter, restraining any further
violation of this Agreement by Executive.
19. Principal Office. Without Executive's consent, the Company
----------------
shall not require Executive to maintain his principal office or to conduct his
principal business activities hereunder for the Company in any location other
than the greater metropolitan area of Los Angeles or Burbank/Glendale,
California.
20. Beneficiaries; References. Executive shall be entitled to select
-------------------------
(and change, to the extent permitted under any applicable law) a beneficiary or
beneficiaries to receive compensation or benefits payable hereunder, if any,
following his death or total disability, and may change such election, in either
case by giving the Company written notice thereof. In the event of Executive's
death or a judicial determination of his incompetence, reference in this
Agreement to Executive shall
-6-
<PAGE>
be deemed, where appropriate, to refer to his beneficiary, estate or other legal
representative, for purposes of receipt of benefits to which Executive is
entitled hereunder.
21. Survivorship. The respective rights and obligations of the
------------
parties hereunder shall survive any termination of this Agreement to the extent
necessary to preserve the parties' intentions with respect to such rights and
obligations. The provisions of this Section 21 are in addition to the
survivorship provisions of any other section of this Agreement.
22. Withholding. The Company shall be entitled to withhold from
-----------
payment to Executive any amount of withholding or other deduction required to be
withheld and/or deducted by applicable law.
23. Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original, and all of which taken
together shall constitute one Agreement. Mutually executed facsimile copies may
be used for purposes as originals.
-7-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
respective dates set forth below
TVN ENTERTAINMENT CORPORATION
/s/ Stuart Z. Levin
By: Stuart Z. Levin -----------------------------
Signature
Title: President and CEO
Date: 8/29/97
------------------------
/s/ Arthur Fields
Print Name: Arthur Fields -----------------------------
Signature
Date: 8/29/97
------------------------
-8-
<PAGE>
EXHIBIT 10.11
[TVN ENTERTAINMENT CORPORATION LETTERHEAD]
February 24, 1999
Michael Wex Personal & Confidential
c/o Michael Wex Productions
340 S. Plymouth Via Fax: (323) 964-9446
Los Angeles, CA 90020
Dear Michael:
We are very pleased to offer you a position as head of TVN's new Shopping Group
subsidiary. This position is essential to our continued growth, so you will be
an important and valued member of our TVN team.
Set forth below are the terms agreed upon for your employment:
1. You will be employed on a full time basis as a Senior Vice President of TVN
and as President and Chief Operating Officer ("COO") of TVN's new wholly
owned shopping subsidiary ("TVN Shopping, Inc." or "TSI" herein) reporting
to me as President of TVN. You will also be a member of TSI's Board of
Directors, and no other TSI operations officer will be hired at a level
above you without your prior consent.
2. As TSI's COO, your duties will include (i) planning, preparation and
implementation of each annual business plan for TSI approved by TSI's Board
of Directors (the "TSI Business Plan"), (ii) direction and supervision of
TSI's personnel and day-to-day operations , and (iii) such other duties
consistent with your position as President and COO of TSI as may be
assigned to you from time-to-time. Your employment hereunder will begin
concurrently with your signing this agreement and the Confidentiality and
Non-disclosure Agreement referenced in paragraph 10 hereof, and will
continue thereafter for a five (5) year term, unless terminated earlier by
TSI or TVN for cause (as defined below). TSI or TVN will have the option to
renew this agreement for an additional two (2) year term, by written notice
exercising such option sent to you at least ninety (90) days prior to the
expiration of the initial term. You will have the authority to hire the
staff of TSI a) at the Director level and below, after discussion with and
input from me as President of TVN, and b) at the Vice Presidential level
with the approval of TSI's Board of Directors.
3. You will be paid an annual salary of $225,000 (Annual Salary) by TSI in
accordance with its payroll policies (currently bi-monthly) for TSI's
fiscal year ending March 31, 2000; for each fiscal year thereafter the
Annual Salary payable in that year will be increased by an amount which is
not less than five percent (5%) (i.e., in the second fiscal year $225,000 X
5%, in the third fiscal year $236,250 X 5%, and so on). You will receive
an annual bonus of up to 150 percent (150%) of your Annual Salary, payable
in cash or in TSI
<PAGE>
Michael Wex
February 24, 1999
Page -2-
stock options of equivalent value at TVN's sole discretion ("Annual
Bonus"), based upon annual milestones achieved by TSI relative to those
projected in the TSI Business Plan for that year and taking into account
the overall financial results at TVN during that year (i.e., if TSI hits
its projected milestones, but TVN overall has had a poor year financially,
you can expect not to receive the full Annual Bonus, as would have been the
case if TVN had achieved good overall financial results; conversely, if TSI
fails to hit its projected milestones, but TVN overall has had good
financial results, you can expect to receive a larger portion of your
Annual Bonus than if TVN overall had poor financial results), but your
Annual Bonus will be guaranteed at $100,000 per fiscal year and paid in
cash , i.e., your total guaranteed compensation payable in cash for the
initial fiscal year will be $325,000. The TSI Business plan milestones are
for each fiscal year, beginning in fye 2000. The Annual Bonus will be
payable within ninety (90) days after each March 31 fiscal year-end (the
first being fye 3/31/00), based upon the applicable TSI milestone figures
compiled by TVN's Finance Department.
4. You will be reimbursed for your reasonable out-of-pocket expenses incurred
on behalf of TSI, upon presentation of appropriate receipts or other
documentation, in accordance with TSI's expense reimbursement policies
applicable to executives at your level. You will also be entitled to first
class air travel for all necessary company business travel, and an auto
allowance of $750 per month. While you are employed by TSI, you agree that
without obtaining TVN's prior written consent, you will not (i) engage in
any business, or be employed by or consult with any person or entity which
competes, directly or indirectly, with any of TVN's businesses, including
without limitation its TSI subsidiary, (ii) accept any gift, gratuity,
benefit or interest of a material or substantial amount or nature, (other
than commonly accepted business practices for senior level executives in
the home shopping industry, i.e., attending social or sports events paid
for by others), directly or indirectly from any person or entity which does
business with TSI or (iii) engage in any activity which creates or may
create an actual or potential conflict of interest between such activity
and your duty to act at all times in the best interests of TSI and TVN, and
not for your separate personal gain or profit.
5.1 You will be granted a stock option effective today, which shall be, to the
extent permitted under the applicable rules of Section 422(d) of the
Internal Revenue Code of 1986 (IRC), as amended, an "incentive stock
option" (as defined in Section 422 of the IRC), to purchase a total of
100,000 shares of TVN Common Stock, upon approval of and with a per share
exercise price reasonably consistent with the per share value set in
conjunction with TVN's July 1998 high yield bond offering, as determined by
TVN's Board of Directors after receiving applicable financial information
from TVN's outside auditors, Price Waterhouse Coopers. This option shall
be exercisable for a term of ten (10) years (or shorter upon any
termination of your employment as provide for herein other than for
"cause") and shall vest at the rate of 20% of the shares originally subject
to the option at the end of one year from the commencement date of your
employment, and one-sixtieth (1/60th) of the shares originally subject to
the option each month thereafter, conditioned upon your continued
employment with TVN as of each vesting date. This option grant will be
subject to the terms, definitions and provisions of TVN's Stock Option Plan
and the standard form Stock Option Agreement which will be entered
<PAGE>
Michael Wex
February 24, 1999
Page -3-
into by you and TVN, both of which will be provided to you upon signing
this letter agreement.
5.2 You will be granted a second option effective today to purchase a total of
100,000 shares of TSI Common Stock (based on a total of 2,000,000 such
shares outstanding), upon approval of and with a per share exercise price
based on TVN's purchase price of the Panda Shopping Network Assets
(approximately $5.0 million), as determined by TSI's Board of Directors
after receiving applicable financial information from TVN's outside
auditors, (currently, Price Waterhouse Coopers). This option shall be
exercisable for a term of ten (10) years (or shorter upon any termination
of your employment as provided for herein, other than for "cause") and
shall vest at the rate of 20% of the shares originally subject to the
option (20,000 shares) at the end of one year from the commencement date of
your employment, and one-sixtieth (1/60th) of the shares originally subject
to the option at the end of each month of your employment remaining
thereafter, conditioned upon your continued employment with TSI as of each
such vesting date. This option grant will be subject to the terms,
definitions and provisions of the TSI Stock Option Plan which will be put
into effect, and the related Stock Option Agreement which will be entered
into by you and TSI, containing provisions for TSI's or TVN's right, but
not the obligation, to repurchase, in connection with one or more "events
of liquidity", all or part of such option stock, whether vested or
unvested, exercised or unexercised, at fair market value determined
pursuant hereto and to the TSI Stock Option Agreement. An "event of
liquidity" means an initial public offering, recapitalization, change of
control, merger, acquisition or sale of a majority stock interest or all or
substantially all of the assets, of TSI or TVN. "Fair market value" means
the value of the TSI stock at the time of any such repurchase determined in
connection with such liquidity event, without deduction for such stock
being a minority equity position in TSI; provided, however, if in the
course of such liquidity event TSI has not been separately valued, than
fair market value will be determined by an impartial outside valuation
company unaffiliated with either party. If a liquidity event occurs and
TVN or TSI elects to repurchase some or all of your TSI option stock as
provided for hereinabove, a) during the first year of your employment by
TSI the repurchase price will not exceed $500,000, and will be paid by
substituting for your TSI option shares purchased, an option grant under
the TVN Stock Option Plan for the purchase of that number of shares of TVN
Common Stock, at a per share exercise price reasonably consistent with that
determined in connection with TVN's high yield debt offering during July
1998, as will equal such repurchase price, and having a vesting schedule
consistent with the vesting of your TSI option, or b) after you have worked
12 consecutive months for TSI, you will receive the full fair market value
repurchase price for your TSI option stock determined as above provided,
and will be paid for by substituting for your TSI option shares purchased,
an option grant under the TVN Stock Option Plan for the purchase of that
number of shares of TVN Common Stock, at a per share exercise price
determined at that time by TVN's Board of Directors after receiving
applicable financial information from TVN's outside auditors, as will equal
such repurchase price, and having a vesting schedule consistent with the
vesting of your TSI option. Both Stock Option Plans and Agreements will be
provided to you after signing this employment agreement.
<PAGE>
Michael Wex
February 24, 1999
Page -4-
5.3 In the event of a change of control of TVN or TSI, or in anticipation of an
imminent change of control of TVN or TSI, and which is followed within
twelve (12) months thereafter by the involuntary termination of your
employment either by such entity or its successor, not for "cause" as
defined herein, the respective paragraph 5.1 or 5.2 stock option granted
herein shall become 100% vested. "Change of control" means a) the date of
the consummation of a merger or consolidation of either TVN or TSI with
another corporation approved by the stockholders of such company, other
than merger or consolidation which would result in the voting securities of
the company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least fifty percent (50%) of the
total voting power represented by the voting securities of either entity or
the surviving entity, outstanding immediately after such merger or
consolidation, or b) when the stockholders of either entity approve a plan
of complete liquidation of such entity or an agreement for the sale or
disposition by either such entity of all or substantially all of its
assets.
5.4 In the event that additional TSI stock is issued to an unrelated party in
connection with an equity investment in or capital contribution to TSI, all
TSI shareholders, including TVN and you, will be diluted pro-rata in
accordance with their respective interests; provided, however, you may
maintain your relative percentage interest in TSI by making a pro-rata
equity investment in or capital contribution to TSI. In the event that
additional TSI stock is issued to a third party for value received by TSI
(i.e., to a TSI spokesperson), all TSI shareholders, including TVN and you,
will be diluted pro-rata in accordance with their respective equity
interests, but if TVN elects to have TSI issue more stock to TVN which has
the effect of diluting your stock ownership interest in TSI, TSI will issue
additional shares to you to maintain your percentage equity ownership
relative to TVN, as above provided for.
6. Subject to meeting eligibility requirements, you will be included in the
TVN (or TSI if applicable) employee benefit plans then available to other
employees at your level. Currently, TVN offers a health care plan that has
a first complete calendar month waiting period for eligibility. It also
has certain qualification requirements, including those applicable to pre-
existing medical conditions, all as described in the plan, a copy of which
will be provided to you upon commencement of your employment. You will be
entitled to a total of 15 days per year of paid vacation, for use at your
discretion upon reasonable advance coordination with me.
7. You acknowledge and agree that TSI shall own, in perpetuity and throughout
the universe, all creative and ownership rights in and to all materials
created, written, produced or worked on by you, or under your direction,
including, without limitation, all Shopping Group plans, sales, marketing
and promotional materials created by you or under your direction, and all
property rights of any kind therein emanating from your work. You hereby
assign to TSI all such creative materials, and the copyright, publishing,
intellectual property and other enumerated and related rights pertaining
thereto, which TSI shall own and be entitled register, as it sees fit, in
its or TVN's name and for its sole benefit.
<PAGE>
Michael Wex
February 24, 1999
Page -5-
8. Upon any termination of your employment other than for "cause" as defined
below, TSI and TVN's sole obligations to you shall be to pay you (i) any
unpaid portion of the agreed Annual Salary for time worked prior to
termination, (ii) one (1) year of Annual Salary then in effect, and one (1)
year of the guaranteed portion of the Annual Bonus, both payable at regular
TSI payroll intervals, starting on the effective date of such termination,
(iii) a pro rata share of any unpaid Annual Bonus which would be due for a
full year's work and based upon the annual milestones to be attained, but
in any event not less than the guaranteed portion of the Annual Bonus then
in effect, and (iv) unpaid auto allowance and reimbursable expenses, if
any, properly incurred and documented prior to the date of such
termination. In the event of your termination by TSI or TVN for "cause",
you shall be entitled only to payment for items 8(i) and 8(iv) above, and
the exercise of the option shares which have fully vested as of the date of
such termination, subject to any damage caused to TSI or TVN or as a result
of the conduct giving rise to such termination for cause. Upon any
termination of your employment, including for cause by TSI or TVN, you
shall (a) return to TVN all TSI and/orTVN materials in your possession or
under your control, including all work in progress, work papers, computer
discs and files, information and documents created or worked on by you for
TSI or TVN, (b) provide a final report, if requested on the status of any
work in progress or remaining to be done, (c) continue to comply with your
separately documented non-disclosure and confidentiality obligations. For
purposes of this agreement, "cause" is defined as (i) an act of dishonesty
in connection with your duties and responsibilities as an employee and
which either causes substantial harm to TSI or TVN or results in your
substantial personal enrichment (ii) conviction of a felony, (iii) a
material violation of the conflict of interest provisions of paragraph 4
hereof, (iv) a willful act which constitutes gross misconduct and which
results in material injury to TSI or TVN, or (v) continued, substantial and
willful failure to perform your employment duties after you have received
one or more written notices or demands for performance which set forth the
factual basis for the determination that you have substantially failed to
perform your duties, and you have had a reasonable time period in which to
cure such defaults as are capable of being cured by subsequent curative
action. Termination for cause shall be effective upon delivery to you of a
notice stating that you have engaged in any of the above described "for
cause" conduct and specifying the particulars thereof, and that you have
not timely cured such defaults.
9. This contains our entire agreement for your employment by TSI; all prior
discussions, conversations and/or negotiations are merged herein; no
representations have been made to you by TSI or TVN or by any agent or
representative of either, or by you to TVN or TSI, other than those set
forth herein and in your employment application; and no agreements have
been entered into, other than those expressly set forth herein. The terms
of this employment agreement may not be modified or amended except by a
document signed both by you and on behalf of TSI or TVN. Any mutually
executed fax copy shall be deemed an original, and may be used by either
party as an original agreement. The laws of the State of California
applicable to agreements which are to be performed wholly within such state
shall govern this agreement, including its interpretation, construction,
performance and enforcement. All claims, disputes or
<PAGE>
Michael Wex
February 24, 1999
Page -6-
issues relating to you employment, including your hiring. work,
performance, compensation, bonuses, stock options, and/or termination for
any reason, shall be resolved a) initially by non-binding mediation efforts
conducted by the parties with the aid of an impartial mediation service, to
be paid for equally by the parties, and b) if such mediation efforts are
unsuccessful in resolving such claims, disputes or issues in a mutually
acceptable manner, by binding arbitration in Burbank, California under the
Commercial Arbitration Rules of the American Arbitration Association then
in effect. Accordingly, each party hereby waives any right to a trial by
jury of any dispute between you and TVN or TSI, and/or its employees,
officers, directors and agents. The prevailing party in any such
arbitration, as determined by the arbitrator(s), shall be entitled to his
or its reasonable attorney's fees incurred in connection with, and the
costs of, such arbitration proceeding, including the costs for the
arbitrator(s).
10. Since you will have access to TVN and TSI confidential information during
the course of performing your duties, as a material condition of your
employment by TSI, you are asked to sign a TVN Confidentiality and Non-
Disclosure Agreement, a copy of which is attached hereto.
All of us at TVN look forward to working with you on this project.
Sincerely,
/s/ James B. Ramo
James B. Ramo
for TVN Shopping, Inc.
JR:kf
Attachments
ACCEPTED AND AGREED:
The foregoing offer is accepted. I agree to the terms and conditions of my
employment by TVN Shopping, Inc. contained therein and the provisions of the
attached TVN Confidentiality and Non-Disclosure Agreement, both of which I have
signed after obtaining advice from my legal counsel.
/s/ Michael Wex February 25, 1999
- ----------------------- -----------
Michael Wex Date Signed
<PAGE>
EXHIBIT 10.12
[TVN ENTERTAINMENT CORPORATION LETTERHEAD]
SEVERANCE AGREEMENT
This Severance Agreement is entered into as of January 23, 1996, between TVN
Entertainment Corporation, a Delaware Corporation (the "Company"), and John C.
McWilliams, an individual ("Employee"), with reference to the following:
Upon termination of Employee's employment by Company for its convenience, in
full and complete satisfaction of any and all claims Employee has or may have
against the Company, its officers, directors and employees, including but not
limited to termination compensation or wrongful termination, the Company agrees
that it shall continue to pay to Employee, as severance pay, Employee's then
current full Base Salary for a period of six months after the effective dates of
such termination, less any amounts Employee actually earns in respect of such
period as a result of his employment by any other employer. In the event of
such termination, Employee shall diligently and promptly seek new employment at
a level commensurate with his duties hereunder.
IN WITNESS HEREOF, the parties have caused this agreement to be duly executed as
of the date hereinabove set forth.
THE COMPANY EMPLOYEE
TVN ENTERTAINMENT CORPORATION
a Delaware Corporation
By /s/ Art Fields /s/ John C. McWilliams
---------------------------- ----------------------------
Art Fields John C. McWilliams
Sr. Executive Vice President
<PAGE>
EXHIBIT 10.13
[TVN ENTERTAINMENT CORPORATION LETTERHEAD]
November 24, 1997
David Sears Personal & Confidential
704 Magnolia Avenue
Pasadena, CA 91106 Via Fax: (323) 964-9446
Dear David:
We are very pleased that you have agreed to join our Sales and Marketing
department, to head up affiliate sales and marketing for DCTV. This position is
essential to our continued growth, so you will be an important and valued member
of our TVN team.
Summarized below are the terms agreed upon for your employment by TVN
Entertainment Corp:
1. You will be employed on a full time basis as a Senior Vice President,
Affiliate Sales and Marketing, reporting to me as President of TVN.
2. Your duties will include those usually attendant to a position involving
national affiliate sales and relations, and such other duties consistent
with your position as we may assign you from time-to-time. Your employment
will begin no later than Monday, December 8, 1997, and will continue
thereafter for a two (2) year term, unless terminated earlier by TVN for
cause. TVN will have the option to renew this agreement for an additional
two (2) year term by written notice exercising such option, sent to you at
least sixty (60) days prior to the expiration of the initial term.
3. You will be paid based on an annual salary of $170,000.00 (Annual Salary),
in accordance with TVN's payroll policies (currently bi-monthly). You will
receive a $25,000 bonus after you have signed this Agreement and commenced
your employment (Signing Bonus), and a $45,000 guaranteed bonus payable
promptly after TVN's March 31, 1998 fiscal year-end (Guaranteed Bonus). You
will receive an annual bonus equal to fifty percent (50%) of your Annual
Salary (Annual Bonus), if we attain the annual affiliate and subscriber
milestones in our DCTV Business Plan. These Plan milestones are for each
calendar year will be payable promptly after each March 31 fiscal year-end,
when the applicable milestone figures have been compiled by TVN's Finance
Department. You will be reimbursed for reasonable out-of-pocket expenses
incurred by you on behalf of TVN, upon presentation of appropriate
documentation and in accordance with TVN's expense reimbursement policies.
<PAGE>
David Sears
November 24, 1997
Page -2-
4. You will be granted a stock option, which shall be, to the extent permitted
under the applicable rules of Section 422(d) of the Internal Revenue Code
of 1986 (IRC), as amended, an "incentive stock option" (as defined in
Section 422 of the IRC), to purchase a total of 50,000 shares of TVN Common
Stock, with a per share exercise price as determined by TVN's Board of
Directors, after receiving information from our ouTVNde auditors, Coopers &
Lybrand. This option shall be exercisable for a term of ten (10) years (or
shorter upon any termination of your employment as provide for herein other
than for "cause") and shall vest at the rate of 20% of the shares
originally subject to the option one year from the commencement date of
your employment, and one-sixtieth (1/60th) of the shares originally subject
to the option each month thereafter, conditioned upon your continued
employment with TVN as of each vesting date. This option grant will be
subject to the terms, definitions and provisions of TVN's Stock Option Plan
and the standard form Stock Option Agreement which will be entered into by
you and TVN, both of which will be provided to you upon signing this letter
agreement.
5. Subject to meeting eligibility requirements, you will be included in TVN's
employee benefit plans then available to other employees at your level.
Currently, we offer a health care plan that has a first complete calendar
month waiting period for eligibility. It also has certain qualification
requirements, including those applicable to pre-existing medical
conditions, all as described in the plan, a copy of which will be provided
to you. You will be entitled to a total of 15 days per year of paid
vacation, for use at your discretion upon reasonable advance coordination
with me.
6. You acknowledge and agree that TVN shall own, in perpetuity and throughout
the universe, all creative and ownership rights in and to all materials
created, written, produced or worked on by you, or under your direction,
including, without limitation, all affiliate sales, marketing and
promotional materials created by you or under your direction, and all
property rights of any kind therein emanating from your work. You hereby
assign to TVN all such creative materials, and the copyright, publishing,
and other enumerated and related rights, which TVN shall be entitled to own
and register, as it sees fit, in TVN's name and for its sole benefit.
7. Upon any termination of your employment other than for "cause" as defined
below, TVN's sole obligations to you shall be to pay you (i) any unpaid
portion of the agreed Annual Salary for time worked prior to termination,
(ii) any unpaid Annual Bonus due, for a full year's work and with annual
milestones attained, and (iii) unpaid reimbursable expenses properly
incurred and documented prior to the date of such termination. In the event
of your termination by TVN for "cause", you shall be entitled only to
payment for items 7(i) and 7(iii) above, and the
<PAGE>
David Sears
November 24, 1997
Page -3-
exercise of the option shares which have fully vested as of the date of
such termination, subject to any damage caused to TVN or as a result of the
conduct giving rise to such termination for cause by TVN. Upon any
termination of your employment, including for cause by TVN, you shall (a)
return to TVN all materials, including all work in progress, work papers,
computer discs and files, information and documents created or worked on by
you for TVN, (b) provide a final report, if requested on the status of any
work in progress or remaining to be done, (c) continue to comply with your
separately documented non-disclosure and confidentiality obligations. For
purposes of this agreement, "cause" is defined as (i) an act of dishonesty
in connection with your duties and responsibilities as an employee and
which either causes substantial harm to TVN or results in your substantial
personal enrichment (ii) conviction of a felony, (iii) a willful act which
constitutes gross misconduct or which results in material injury to TVN, or
(iv) continued, substantial failure to perform your employment duties after
you have received one or more written demands for performance which set
forth the factual basis for the determination that you have substantially
failed to perform your duties, and you have had a reasonable time period in
which to cure defaults that are capable of being cured by subsequent
action. Termination for cause shall be effective upon delivery to you of a
notice stating that you have engaged in any of the above described "for
cause" conduct, specifying the particulars thereof, and that you have not
timely cured such defaults.
8. This contains our entire agreement for your employment by TVN; all prior
discussions, conversations and/or negotiations are merged herein; no
representations have been made to you by TVN or by any agent or
representative of TVN, or by you to TVN, other than those set forth herein
and in your employment application; and no agreements have been entered
into, other than those expressly described or set forth herein. The terms
of this employment agreement may not be modified or amended except by a
document signed both by you and on behalf of TVN. The laws of the State of
California applicable to agreements which are to be performed wholly within
such state shall govern this agreement, including its interpretation,
construction, performance and enforcement. All claims, disputes or issues
relating to your employment, including your hiring, work performance,
bonuses, and/or termination for any reason, shall be resolved by
arbitration in Burbank, California under the Commercial Arbitration Rules
of the American Arbitration Association then in effect. Accordingly, each
party hereby waives any right to a trial by jury of any dispute between you
and TVN, and/or its employees, officers, directors and agents .
9. Since you will have access to TVN confidential information during the
course of performing your duties, you are asked to sign a TVN
Confidentiality and Non-Disclosure Agreement, a copy of which is attached
hereto.
<PAGE>
David Sears
November 24, 1997
Page -4-
All of us at TVN look forward to working with you. Welcome aboard!
Sincerely,
/s/ James B. Ramo
James B. Ramo
JR:cd
Attachments
ACKNOWLEDGED AND AGREED:
I acknowledge and agree to the foregoing terms of my employment by TVN, and the
provisions of the attached TVN Confidentiality and Non-Disclosure Agreement,
both of which I have signed.
/s/ David Sears 11/24/97, 1997
- ------------------------------- --------
David Sears Date Signed
<PAGE>
EXHIBIT 10.14
MEMORANDUM OF UNDERSTANDING
BETWEEN TVN AND NMN
This Memorandum of Understanding ("MOU") sets forth the overall objectives and
principal terms of a business relationship between TVN Entertainment Corporation
("TVN"), a Delaware corporation, and New Media Network, Inc., ("NMN"), a
Delaware corporation, whereby TVN will acquire a majority stock interest in NMN
for cash and services to be provided by TVN to NMN.
RECITALS:
. NMN is a privately held company which is designing and plans to deploy a
system utilizing state-of-the-art technology to deliver and sell
entertainment products such as music, movies and games (the "NMN System").
NMN is currently negotiating with the major music labels and distributors to
obtain initial licenses for the delivery of their music content in one or
more technical and marketing tests of this system and technology. The
founders and principal shareholders of NMN are Alan Morelli ("AEM") and Ian
Duffell ("IWD"), the Company's Chairman and President/CEO, respectively
(collectively, the "current NMN Shareholders" herein).
. Through a newly developed retail store format and website model, NMN will
demonstrate its System at initial flagship stores which will contain a vast
array of titles, samples, reviews and news exceeding that currently offered
in the largest retail stores. NMN stores as small as 2500 square feet will be
able to offer the same inventory as is available over the NMN website. NMN
will also seek to generate revenues from the NMN System through strategic
marketing relationships.
. NMN will exploit new technologies to enable stores to offer a vast selection
of titles without the need to maintain large inventories or lease large
retail locations. Each retail store will feature an array of multimedia
stations linked to NMN's digital storage and retrieval system ("NMN System").
Customers will access the database via an easy-to-use touchscreen interface
which replicates NMN's website, with the opportunity to sample a majority of
the titles in the NMN System database, including both new releases and titles
form older catalogues. Customers will make selections and place orders to
manufacture titles on demand. Ultimately, customers will be able to select
their preferred format, whether a CD, DVD or other media-playing format, from
an NMN station located right in the store.
. NMN intends to use the name "Grooveshop" to establish its brand with a
distinctive logo to be used in conjunction with its pending GROOVE.SHOP and
GROOVESHOP.COM trademarks. To create awareness for its brand name and logo,
NMN plans to align itself with a select number of leading music and film
artists in
<PAGE>
order to enhance its success. NMN also plans to utilize its unique in-store
NMN Server to promote emerging artists through a "Fresh Tracks" service.
. TVN owns and operates a multi-channel pay-per-view ("PPV") satellite
television network which provides PPV movies, events and other programming in
analog and digital formats to affiliated cable operators and to C-band home
satellite dish owners all across the U.S. TVN distributes and exhibits all
the newly released, top grossing PPV movies from the major film studios and
independent film distributors, championship boxing, wrestling and other
sports, live concerts, special event entertainment, live home shopping and
infomercial programming.
. TVN also markets its "TVN Digital Cable Television" ("DCTV") proprietary
digital pay-per-view programming and turn-key digital delivery and
transactional systems to affiliated cable operators, whose subscribers order
TVN PPV movies and events using their home telephone or remote control which
interfaces with TVN's conditional access and high speed ANI and impulse
transaction processing.
. TVN and its affiliates are developing various electronic commerce ("e-com"),
video, Internet and interactive ("IA") applications and services to offer
home shopping, IP telephony, high speed Internet access, banking, music,
games, education, health, stock market and transactional services (i) via
cable/broadband using cable television head-end equipment for reception and
retransmission of digital video, audio and data signals to digital set-tops
or similar receiver/decoder devices, (ii) via the Internet and World Wide Web
and (iii) via satellite.
TVN ACQUISITION OF NMN STOCK:
. TVN will purchase from NMN common stock (approximately 19.95 million shares),
equal to 60% of NMN's fully diluted stock (including all issued and
outstanding classes of stock and all stock options and warrants) for the sum
of $6.0 Million, payable to NMN by TVN as follows: $2.0 Million in cash, with
the $4.0 Million balance paid by TVN services to be provided to and utilized
by NMN (the "TVN Services") including, but not limited to, the following:
- satellite service; playback, encryption, uplink and
encryption services; digital server storage; transactional
services such as customer service, billing, license fee
administration, marketing and management reports;
interactive and e-commerce applications for the NMN Service;
office space, legal and accounting services as available;
and such other services as TVN can provide and NMN desires
to obtain from TVN.
. The TVN Services will be the subject of a separate Service Access and
Transponder Use Agreement ("SATU Agreement") to be entered into by the
parties as a condition
2
<PAGE>
to closing, and will be utilized by NMN on an "as needed" (draw-down) basis,
with a credit applied against the $4.0 Million balance for each NMN use/draw-
down of TVN Services, until fully utilized. The SATU Agreement will specify
in greater detail the TVN Services available for utilization by NMN, and the
draw-down rate applicable for such Services. NMN shall determine which TVN
Services it will acquire, the prices for which will be on a most favored
nations basis with those charged to other comparable service providers who
utilize such TVN Services. The TVN Services will be provided by TVN to NMN
over a three (3) year period, with not less than $1.0 Million of TVN Services
to be utilized by NMN in year 1 and $1.5 Million in each of years 2 and 3.
. $1.5 Million of the cash will be paid by TVN in installments, drawn down as
requested by NMN as needed to meet the cash funding requirements of the Board
approved Business Plan, with a mutually agreed part of the funding to be
provided immediately upon closing as needed for operations.
. From the cash paid to NMN by TVN, $500,000 will be paid by NMN to AEM
promptly after the closing as a partial payment of NMN's loan obligation owed
to AEM, in consideration of which AEM agrees to extend payment of the
approximately $800,000 balance (approximately $150,000 of which is escrowed
as security for the Santa Monica office lease, which will be paid to AEM from
such escrow in accordance with its terms) owing on such loan obligation
(including accrued interest at 8.6% per annum) to the last day of the 24th
month from the date of closing, such payment extension to be documented in
form acceptable to TVN and AEM, including provision for removal of existing
restrictive covenants, but with the UCC security interest remaining in place
until such time as the loan is paid off, or mutually acceptable substitute
security is provided by NMN or TVN.
NMN SYSTEM TECHNICAL TEST AND MARKETING TRIAL:
. NMN will conduct a technical test and marketing trial of its NMN Service at
two pilot retail store locations to be approved post-closing by NMN's Board
of Directors ("NMN Test"), the first of which is tentatively planned to begin
during the first calendar quarter of the year 2000. NMN will install its NMN
System at each pilot location for use in the technical test, with the
subsequent marketing trial anticipated to begin 90 days after successful
completion of the technical test.
. NMN will dedicate its best efforts to install and implement the NMN System at
each such pilot store location and make it fully operable. After successful
completion of the technical test, NMN will conduct an active sales and
marketing effort, using resources and services provided by it, TVN and music
content and other entertainment product distributors, for an effective
marketing trial of the NMN Service, during which customers may order NMN
licensed music and other NMN
3
<PAGE>
provided entertainment products in a customer selected format, using an NMN
Server station installed at such location.
BUSINESS OBJECTIVES:
. NMN and TVN will formulate and submit to TVN and the newly constituted NMN
Board of Directors for review and approval, a revised Business Plan for NMN
to implement the business objectives described herein, with pro forma
financials for the business which reflects the cost savings anticipated from
the TVN Services provided. NMN will be responsible for the creation of a
budget, timeline, plans and milestones for the business.
. Upon completion of the NMN Service marketing trial, the initial flagship
retail stores will continue to be operated by NMN and NMN's Board of
Directors will evaluate the trial results and ongoing operating results from
the flagship stores in order to determine how best to proceed with full
commercial deployment of the NMN Service in other NMN owned and operated
store locations, as well as an NMN Internet site and via TVN's digital cable
and e-commerce applications. NMN management will further develop the NMN
Service and will be responsible for operations, including entertainment
products and music content licensed from the creators and distributors of
music and other entertainment products and content.
. TVN will offer the NMN Service to its digital cable subscribers and web-site
customers as part of the array of e-commerce and interactive services to be
delivered by TVN. NMN will be the preferred music content provider, with a
preferred web-site position, the license fee for which will be on a most
favored nations basis with the license fees charged to other similarly
situated, preferred TVN web-site service providers, and will also be credited
as part of the $4.0 Million draw-down of TVN Services.
. NMN's management team will implement the Board approved NMN Business Plan,
hiring such additional qualified and experienced personnel as provided for
therein, as needed to carry out the NMN Business Objectives.
NMN COMPANY STRUCTURE
. NMN's Board of Directors will consist of five (5) Directors, two (2)
appointed by current NMN shareholders and three (3) Directors appointed by
TVN. One or more additional Directors may be added subsequently from mutually
approved strategic partners or investors; provided, however, TVN and current
NMN major shareholders shall always maintain, as between themselves, a
majority of the NMN Directors.
4
<PAGE>
. NMN management will be responsible for day-to-day business operations,
including hiring and firing of other company personnel, all under the
direction and control of NMN's Board of Directors and pursuant to the Board
approval Business Plan.
. Substantive matters which may materially deviate from the approved NMN
Business Plan, and the addition of new NMN Directors shall require mutual
consent of the NMN and TVN appointed Directors. NMN's governance provisions
(whether Articles of Incorporation or By-Laws) shall contain covenants which
prohibit the Directors or NMN management from taking certain actions
(including but not limited to, issuance of additional units/shares, sale of
units/shares, holding unscheduled Board of Directors meetings, sale of NMN,
its business or any substantial part or all of its assets, incurring new
debt, changing the name, nature or management of NMN's business) without the
consent of NMN's Board of Directors.
. Upon the closing, ownership of NMN shares shall be in accordance with the
following percentages:
- TVN shall own sixty percent (60%) of NMN's fully diluted
outstanding shares of stock or equity units with correlative
shareholder voting rights.
- The current NMN shareholders shall own forty percent (40%)
of NMN's fully diluted outstanding shares of stock or equity
units with correlative shareholder voting rights.
. Attendance by no less than four (4) such Directors, either in person or by
participation via scheduled conference call, including at least one (1)
Director appointed by TVN and one (1) by NMN management, shall constitute a
quorum for a Director's meeting, which shall take place no less often than
quarterly. Upon any such Director's resignation or inability to serve, the
entity or group which appointed such Director, may appoint a replacement
Director.
. IWD and AEM will receive employment or consulting agreements from NMN on
terms approved by the NMN Board in accordance with the NMN Business Plan.
. The parties shall use commercially reasonable efforts, including TVN's
investment banking relationships, to take NMN public in a manner and at a
time where the best and highest valuation can be obtained for NMN shares in
the initial public offering ("IPO"). In the event that an IPO for NMN shares
does not occur within five (5) years from the date hereof, and one or more
the current NMN shareholders (representing at least ten percent (10%) of the
issued and outstanding NMN stock) desires to sell all of its/his/her NMN
shares at the same time, then they may demand that NMN register their shares
with the SEC for public sale (other than in an IPO of
5
<PAGE>
NMN stock), or that they be "piggy-backed" on an NMN secondary stock
registration pursuant to customary registration rights provisions, or TVN
may, at its option, arrange for a third party or NMN to purchase such shares
at a mutually agreed price after good faith negotiation.
. After the closing, NMN will be recapitalized and AEM's NMN common stock will
be converted into an equal number of shares of a new class of NMN interest
bearing preferred stock, with (i) normal rights and preferences including
optional conversion into common, (ii) dividends accruing at 8% per annum
commencing one (1) year after issuance, if not previously repurchased by TVN,
(iii) optional redemption by NMN, during a three (3) year period after
issuance of the preferred stock to AEM, for $4.3 Million, plus all accrued
but unpaid dividends, (iv) mandatory redemption by NMN after such three (3)
year period, at AEM's option, for $2.68 Million and (v) standard liquidation
and information terms.
. TVN shall have the right, but not the obligation, to repurchase ("call") at
any time during a three (3) year period following the closing, all or part of
AEM's preferred stock at a price of $4.3 Million, plus accrued and unpaid
dividends. The price shall be paid to AEM, at TVN's sole option, in a) cash
within 15 days following NMN's or TVN's written notice to AEM of its exercise
of such right, or b) in TVN stock provided TVN's stock is publicly traded on
a national exchange. If the TVN shares received by AEM are not then freely
tradeable securities, TVN will arrange for registration of such stock within
six (6) months after the TVN stock is provided to AEM, to remedy the lack of
liquidity.
. If TVN has not repurchased all of AEM's NMN preferred stock by the end of
such three (3) year period and NMN has not redeemed such shares, AEM shall
have the right, but not the obligation, to have NMN mandatorily redeem all of
his NMN stock only if an IPO for NMN has not occurred by then, for a price of
$2.68 Million, plus all accrued but unpaid dividends. Such redemption
purchase price shall be paid by NMN to AEM, at TVN's sole option a) in cash
paid quarterly over a five (5) year period with interest continuing to accrue
on the unpaid balance at 8% per annum, or b) in TVN stock valued as provided
in the above "call" provision. Payment of such redemption purchase price
shall be guaranteed by TVN, i.e., paid by TVN to AEM if NMN fails to pay when
due, and shall be accelerated in the following events: an IPO for NMN, or a
sale or merger of NMN, or a sale of all or substantially all of its assets.
INITIAL FUNDING FOR NMN:
. NMN estimates that it will require an initial cash funding commitment of $1.5
Million ("Initial Funding") to further develop the NMN Service, which will be
provided by
6
<PAGE>
TVN's $1.5 Million cash infusion. The TVN Services will be used as needed for
NMN Service operations as above provided.
. The parties anticipate that additional funding, per the approved Business
Plan, will be needed to market and promote the NMN Service, to open
additional retail locations, to develop and operate the NMN Website, and to
service TVN's digital cable and e-commerce applications. The parties
anticipate that such additional funding will be provided by third party
loans, if obtainable; provided, however, TVN may provide such debt funding on
terms substantially comparable to any firm commitment third party loans, for
which TVN will receive debt instruments convertible to NMN equity. Additional
funding may be provided by growth capital, which the parties expect to obtain
from public market sources.
. If subsequent NMN fundings cannot be obtained by third party loans on
acceptable terms, and are available only by way of private equity funding,
all shares, options or warrants which are issued in connection therewith,
shall dilute all NMN shareholders prorata, in accordance with their then
existing respective NMN ownership percentages.
SUBSEQUENT AGREEMENT:
A more detailed description of the parties respective rights, duties,
obligations and services, consistent with the provisions of this MOU and
containing such additional, customary provisions as may be agreed upon by the
parties, will subsequently be set forth in a mutually acceptable and binding
definitive agreement to be entered into between the parties within sixty (60)
days from the date of TVN Board approval. Until such definitive agreement is
mutually executed by the parties, this MOU shall govern the parties
relationship.
GENERAL PROVISIONS:
All business plans and financial models, proprietary information, technology and
data, and other confidential information disclosed by NMN to TVN , and by TVN to
NMN shall be governed by the terms of a mutual Non-Disclosure/Confidentiality
Agreement to be signed by the parties concurrently herewith. Nothing contained
herein shall be deemed to constitute a grant, license, transfer, conveyance,
offer or sale by one party to the other of any right, title, or interest in the
assets or property of either party (including without limitation, with respect
to any software or intellectual property rights, or any rights, modifications,
enhancements, or derivatives of either). The parties agree that any joint or
separate press releases regarding TVN's involvement in NMN shall be jointly
planned and coordinated, and neither party shall issue any such press release or
make
7
<PAGE>
any press announcement regarding NMN and/or the NMN Services, except as may be
required by law, without the prior written approval of the other party.
NMN Management shall use its best efforts to obtain binding commitments to
license music content and other entertainment products to be utilized for the
NMN Test as contemplated herein and on mutually acceptable terms. The parties
hereto agree that this MOU (i) shall replace and supercede any and all prior and
contemporaneous understandings, agreements and/or original or amended MOU's, all
of which are deemed merged herein, (ii) shall be a binding Agreement,
enforceable pursuant to the terms and conditions set forth herein, (iii) may not
be modified, other than in writing signed by each party and (iv) shall be
interpreted and governed by the internal laws of the State of California.
Neither party shall be, nor hold itself out as, the partner, joint venturer,
agent or authorized representative of the other, or take any action or make any
representation for or on behalf of the other party, without that party's prior
written consent.
Any claims or disputes between the parties arising under or related to this MOU
or any definitive agreement shall be determined by arbitration in Los Angeles
under the Commercial Arbitration Rules of the American Arbitration Association,
and each party acknowledges that it is hereby waiving any right it has or may
have to have such claim or dispute heard or resolved by a court trial before a
judge or jury.
If the terms and conditions of this MOU correctly set forth our mutual
understanding and agreement, please sign below for NMN, in which event, upon
obtaining approval of TVN's Board of Directors within thirty (30) days from the
date this MOU is signed by the parties, this MOU will be in effect.
New Media Network, Inc. TVN Entertainment Corporationby:
by: /s/ Ian W. Duffel
/s/ Alan E. Morelli by: /s/ Stuart Z. Levin
-------------------------------- ---------------------------------
Name: Ian W. Duffel Name: Stuart Z. Levin
------------------------------ -------------------------------
Title: President & CEO Title: Chairman & CEO
----------------------------- ------------------------------
Name: Alan E. Morelli
------------------------------
Title: Chairman /s/ Alan E. Morelli
----------------------------- ------------------------------------
Alan E. Morelli, an individual
Date: April 9, 1999 Date: April 9, 1999
8
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES
Name Jurisdiction of Incorporation or Organization
---- ---------------------------------------------
DCTV, Inc. California
TVN Shopping, Inc. Delaware
Chromazone, LLC Delaware
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this prospectus on Form S-4 of our report dated
May 12, 1999 relating to the consolidated financial statements of TVN
Entertainment Corporation which appear is such prospectus. We also consent to
the references to us under the headings "Experts" and "Selected Financial Data"
in such prospectus.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Los Angeles, California
May 18, 1999
<PAGE>
EXHIBIT 25.1
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
----------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
One Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
----------------------
TVN ENTERTAINMENT CORPORATION
(Exact name of obligor as specified in its charter)
Delaware 95-4138203
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
2901 West Alameda Avenue
Seventh Floor
Burbank, California 91505
(Address of principal executive offices) (Zip code)
_____________
14% Senior Notes due 2008
(Title of the indenture securities)
===============================================================================
<PAGE>
1. General information. Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to which it
is subject.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
<S> <C>
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
</TABLE>
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission, are
incorporated herein by reference as an exhibit hereto, pursuant to Rule 7a-
29 under the Trust Indenture Act of 1939 (the "Act") and 17 C.F.R.
229.10(d).
1. A copy of the Organization Certificate of The Bank of New York (formerly
Irving Trust Company) as now in effect, which contains the authority to
commence business and a grant of powers to exercise corporate trust
powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed with
Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed
with Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed
with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
-2-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the 19th day of May, 1999.
THE BANK OF NEW YORK
By: /s/ REMO J. REALE
---------------------------------
Name: REMO J. REALE
Title: ASSISTANT VICE PRESIDENT
<PAGE>
Exhibit 7
---------
Consolidated Report of Condition of
THE BANK OF NEW YORK
of One Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business December 31,
1998, published in accordance with a call made by the Federal Reserve Bank of
this District pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
Dollar Amounts
in Thousands
<S> <C>
ASSETS
Cash and balances due from depository
institutions:
Noninterest-bearing balances and currency and
coin.......................................... $ 3,951,273
Interest-bearing balances...................... 4,134,162
Securities:
Held-to-maturity securities.................... 932,468
Available-for-sale securities.................. 4,279,246
Federal funds sold and Securities purchased
under agreements to resell..................... 3,161,626
Loans and lease financing receivables:
Loans and leases, net of unearned
income......................................... 37,861,802
LESS: Allowance for loan and
lease losses................................... 619,791
LESS: Allocated transfer risk
reserve........................................ 3,572
Loans and leases, net of unearned income,
allowance, and reserve........................ 37,238,439
Trading Assets................................... 1,551,556
Premises and fixed assets (including capitalized
leases)........................................ 684,181
Other real estate owned.......................... 10,404
Investments in unconsolidated subsidiaries and
associated companies........................... 196,032
Customers' liability to this bank on acceptances
outstanding.................................... 895,160
Intangible assets............................... 1,127,375
Other assets.................................... 1,915,742
Total assets..................................... $60,077,664
LIABILITIES
Deposits:
In domestic offices............................ $27,020,578
Noninterest-bearing............................ 11,271,304
Interest-bearing............................... 15,749,274
In foreign offices, Edge and Agreement
subsidiaries, and IBFs........................ 17,197,743
Noninterest-bearing............................. 103,007
Interest-bearing................................ 17,094,736
Federal funds purchased and Securities sold
under agreements to repurchase.................. 1,761,170
Demand notes issued to the U.S.Treasury.......... 125,423
Trading liabilities.............................. 1,625,632
Other borrowed money:
With remaining maturity of one year or less..... 1,903,700
With remaining maturity of more than one year 0
through three years............................
With remaining maturity of more than three years 31,639
Bank's liability on acceptances executed and
outstanding..................................... 900,390
Subordinated notes and debentures................ 1,308,000
Other liabilities................................ 2,708,852
Total liabilities................................ 54,583,127
EQUITY CAPITAL
Common stock..................................... 1,135,284
Surplus.......................................... 764,443
Undivided profits and capital reserves........... 3,542,168
Net unrealized holding gains (losses) on
available-for-sale securities................... 82,367
Cumulative foreign currency translation
adjustments..................................... (29,725)
Total equity capital............................. 5,494,537
Total liabilities and equity capital............. $60,077,664
</TABLE>
I, Thomas J. Mastro, Senior Vice President and Comptroller of the above-
named bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Thomas J. Mastro
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
Thomas A. Reyni
Gerald L. Hassell Directors
Alan R. Griffith
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> MAR-31-1998 MAR-31-1999
<PERIOD-START> APR-01-1997 APR-01-1998
<PERIOD-END> MAR-31-1998 MAR-31-1999
<CASH> 16,798 84,343
<SECURITIES> 0 25,909
<RECEIVABLES> 2,859 6,041
<ALLOWANCES> 159 427
<INVENTORY> 0 807
<CURRENT-ASSETS> 20,999 117,330
<PP&E> 119,348 122,829
<DEPRECIATION> 25,579 37,832
<TOTAL-ASSETS> 116,740 254,725
<CURRENT-LIABILITIES> 46,913 46,358
<BONDS> 133,147 298,167
52,616 53,047
8 8
<COMMON> 0 0
<OTHER-SE> (87,173) (127,184)
<TOTAL-LIABILITY-AND-EQUITY> 116,740 254,725
<SALES> 30,545 39,812
<TOTAL-REVENUES> 30,545 39,812
<CGS> 20,426 31,775
<TOTAL-COSTS> 20,426 31,775
<OTHER-EXPENSES> 24,570 34,354
<LOSS-PROVISION> 120 753
<INTEREST-EXPENSE> 15,163 34,195
<INCOME-PRETAX> (29,862) (54,876)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (29,862) (54,876)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 1,113
<CHANGES> 0 0
<NET-INCOME> (29,862) (53,763)
<EPS-PRIMARY> (272) (355)
<EPS-DILUTED> (272) (355)
</TABLE>
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
TVN Entertainment Corporation
Offer for all Outstanding
14% Senior Notes due 2008
in Exchange for
14% Senior Notes due 2008
Pursuant to the Prospectus, dated _____ __, 1999.
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON _____ __,
1999, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN
PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
- --------------------------------------------------------------------------------
The Bank of New York
<TABLE>
<S> <C> <C>
By Registered or Certified Mail: Facsimile Transmission Number: By Hand/Overnight Delivery:
(For Eligible Institutions Only) The Bank of New York
The Bank of New York Attn.: Theresa Gass 101 Barclay Street
101 Barclay Street, Floor 7E Reorganization Section Corporate Trust Services
New York, New York 10286 (212) 815-6339 Window
Attn.: Theresa Gass Ground Level
Reorganization Section Confirm by Telephone: New York, New York 10286
(212) 815-5942 Attn.: Theresa Gass
For Information Call: Reorganization Section
(212) 815-5942
</TABLE>
Delivery of this instrument to an address other than as set forth above, or
transmission of instructions via facsimile other than as set forth above, will
not constitute a valid delivery.
The undersigned acknowledges that he or she has received the Prospectus,
dated _____ __, 1999 (the "Prospectus") of TVN Entertainment Corporation, a
Delaware corporation (the "Company"), and this Letter of Transmittal (this
"Letter of Transmittal"), which together constitute the Company's offer (the
"Exchange Offer") to exchange an aggregate principal amount of up to 14%
Senior Notes due 2008 (the "New Notes") of the Company for a like principal
amount of the issued and outstanding 14% Senior Notes due 2008 (the "Old
Notes") of the Company from the holders thereof. Capitalized terms used herein
and not otherwise defined shall have the meanings herein as ascribed thereto in
the Prospectus.
<PAGE>
This Letter of Transmittal is to be used if certificates for the Old Notes
are to be forwarded herewith. If delivery of the Old Notes is to be made
through book-entry transfer into the Exchange Agent's account at The Depository
Trust Company ("DTC"), this Letter of Transmittal need not be delivered;
provided, however, that tenders of the Old Notes must be effected in accordance
with DTC's Automated Tender Offer Program procedures and the procedures set
forth in the Prospectus under the caption "The Exchange Offer--Procedures for
Tendering" and "--Book-entry Transfer."
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. Principal on the New Notes will accrete from the date of issuance of
the New Notes. If by July 29, 1999 the Company has not consummated the Exchange
Offer or caused the Shelf Registration Statement to be declared effective,
interest (in addition to interest otherwise due on the Exchange Securities on
such date) will accrue at a rate of 0.5% per annum and be payable in cash
semiannually on February 1 and August 1 of each year, commencing February 1,
1999, until the Exchange Offer is consummated or the Shelf Registration
Statement is declared effective. Holders of Old Notes accepted for exchange will
be deemed to have waived the right to receive any other payments or accrued
interest on the Old Notes. The Company reserves the right, at any time or from
time to time, to extend the Exchange Offer at its discretion, in which event
the term "Expiration Date" shall mean the latest time and date to which the
Exchange Offer is extended. The Company shall notify the holders of the Old
Notes of any extension by means of a press release or other public
announcement prior to 9:00 A.M., New York City time, on the next business day
after the previously scheduled Expiration Date.
This Letter of Transmittal is to be completed by a holder of Old Notes if
certificates are to be forwarded herewith. Holders of Old Notes whose
certificates are not immediately available, or who are unable to deliver their
certificates and all other documents required by this Letter of Transmittal or
confirmation of the book-entry tender of their Old Notes into the Exchange
Agent's account at DTC (a "Book-Entry Confirmation") to the Exchange Agent on or
prior to the Expiration Date, must tender their Old Notes according to the
guaranteed delivery procedures set forth in "The Exchange Offer--Guaranteed
Delivery Procedures" section of the Prospectus. See Instruction 1. Delivery of
documents to DTC does not constitute delivery to the Exchange Agent.
-2-
<PAGE>
The undersigned has completed the appropriate boxes below and signed this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer.
List below the Old Notes to which this Letter of Transmittal relates. If
the space provided below is inadequate, the certificate numbers and principal
amount of Old Notes should be listed on a separate signed schedule affixed
hereto.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES 1 2 3
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Name(s) and Address(es) of Registered Holder(s) Certificate Aggregate Principal Amount
(Please fill in, if blank) Number(s) Principal Amount Tendered*
of Old Note(s)
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
Total
- -------------------------------------------------------------------------------------------------------
</TABLE>
* Unless otherwise indicated in this column, a holder will be deemed to have
transferred ALL of the Old Notes represented by the Old Notes indicated in
column 2. See Instruction 2. Old Notes tendered hereby must be in
denominations of principal amount of $1,000 and any integral multiple
thereof. See Instruction 1.
- --------------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE
FOLLOWING:
Name(s) of Registered Holder(s)
-----------------------------------------
Window Ticket Number (if any)
-------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
----------------------
Name of Institution which guaranteed delivery
---------------------------
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
---------------------------------------------------------------------------
Address:
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-3-
<PAGE>
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY AND FOLLOW THE INSTRUCTIONS
BEGINNING ON PAGE 6 HEREOF.
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount of
Old Notes indicated above. Subject to, and effective upon, the acceptance for
exchange of the Old Notes tendered hereby, the undersigned hereby sells,
assigns and transfers to, or upon the order of, the Company all right, title
and interest in and to such Old Notes as are being tendered hereby.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Old Notes
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim when the same are accepted by the Company. The
undersigned hereby further represents that any New Notes acquired in exchange
for Old Notes tendered hereby will have been acquired in the ordinary course of
business of the person receiving each New Note, whether or not such person is
the undersigned, that neither the holder of such Old Notes nor any such other
person has an arrangement or understanding with any person to participate in the
distribution of such New Notes and that neither the holder of such Old Notes nor
any such other person is an "affiliate," as defined in Rule 405 under the
Securities Act of 1933, as amended (the "Securities Act"), of the Company.
The undersigned also acknowledges that the Exchange Offer is being made in
reliance on an interpretation by the staff of the Securities and Exchange
Commission that the New Notes issued in exchange for the Old Notes pursuant to
the Exchange Offer may be offered for resale, resold or otherwise transferred by
holders thereof (other than any such holder that is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act), without
compliance with the registration and prospectus delivery provisions of the
Securities Act; provided, that such New Notes are acquired in the ordinary
course of such holder's business and such holder has no arrangements with any
person to participate in the distribution of such New Notes. If the undersigned
is not a broker-dealer, the undersigned represents that it is not engaged in,
and does not intend to engage in, a distribution of New Notes. If the
undersigned is a broker-dealer that will receive New Notes for its own account
in exchange for Old Notes that were acquired as a result of market-making
activities or other trading activities, it acknowledges that it will deliver a
prospectus in connection with any resale of such New Notes; however, by so
acknowledging and delivering a prospectus, the undersigned will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter of Transmittal and every
obligation of the undersigned hereunder shall be binding upon the successors,
assigns, heirs, executors, administrators, trustees in bankruptcy and legal
representatives of the undersigned and
-4-
<PAGE>
shall not be affected by, and shall survive, the death or incapacity of the
undersigned. This tender may be withdrawn only in accordance with the procedures
set forth in "The Exchange Offer--Withdrawal Rights" section of the
Prospectus.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the New Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not exchanged)
in the name of the undersigned or, in the case of a book-entry delivery of Old
Notes, please credit the account indicated above maintained at DTC. Similarly,
unless otherwise indicated under the box entitled "Special Delivery
Instructions" below, please send the New Notes (and, if applicable, substitute
certificates representing Old Notes for any Old Notes not exchanged) to the
undersigned at the address shown above in the box entitled "Description of Old
Notes."
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES"
ABOVE AND SIGNING THIS LETTER OF TRANSMITTAL, WILL BE DEEMED TO HAVE TENDERED
THE OLD NOTES AS SET FORTH IN SUCH BOX ABOVE.
-5-
<PAGE>
INSTRUCTIONS TO LETTER OF TRANSMITTAL
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. Delivery of this Letter of Transmittal and Old Notes; Guaranteed Delivery
Procedures.
This Letter of Transmittal is to be completed by holders of Old Notes if
certificates are to be forwarded herewith. Certificates for all physically
tendered Old Notes as well as a properly completed and duly executed Letter of
Transmittal (or manually signed facsimile hereof) and any other documents
required by this Letter of Transmittal must be received by the Exchange Agent at
the address set forth herein on or prior to the Expiration Date, or the
tendering holder must comply with the guaranteed delivery procedures set forth
below. Old Notes tendered hereby must be in denominations of principal amount
of $1,000 and any integral multiple thereof.
Holders whose certificates for Old Notes are not immediately available or
who cannot deliver their certificates and all other required documents to the
Exchange Agent on or prior to the Expiration Date, or who cannot complete the
procedure for book-entry transfer of the Old Notes into the Exchange Agent's
account at DTC on a timely basis, may tender their Old Notes pursuant to the
guaranteed delivery procedures set forth in "The Exchange Offer--Guaranteed
Delivery Procedures" section of the Prospectus. Pursuant to such procedures,
(i) such tender must be made through an Eligible Institution (as defined below),
(ii) prior to the Expiration Date, the Exchange Agent must receive from such
Eligible Institution a Notice of Guaranteed Delivery, substantially in the form
provided by the Company (by facsimile transmission, mail or hand delivery),
setting forth the name and address of the holder of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that within three New
York Stock Exchange ("NYSE") trading days after the Expiration Date, the
certificates for all physically tendered Old Notes and any other documents
required by this Letter of Transmittal, or a Book-Entry Confirmation, as the
case may be, will be delivered by the Eligible Institution to the Exchange
Agent, and (iii) the Exchange Agent must receive certificates for all physically
tendered Old Notes, in proper form for transfer, and all other documents
required by this Letter of Transmittal, or a Book-Entry Confirmation, as the
case may be, within three NYSE trading days after the date of execution of the
Notice of Guaranteed Delivery.
The method of delivery of this Letter of Transmittal, the Old Notes and all
other required documents is at the election and risk of the tendering holders,
but the delivery will be deemed made only when actually received or confirmed by
the Exchange Agent. If Old Notes are sent by mail, it is suggested that the
mailing be made sufficiently in advance of the Expiration Date to permit the
delivery to the Exchange Agent prior to 5:00 p.m., New York City time, on the
Expiration Date.
See "The Exchange Offer" section in the Prospectus.
-6-
<PAGE>
2. Partial Tenders (not applicable to holders who tender by book-entry
transfer).
If less than all of the Old Notes evidenced by a submitted certificate are
to be tendered, the tendering holder(s) should fill in the aggregate principal
amount of Old Notes to be tendered in the box above entitled "Description of Old
Notes--Principal Amount Tendered." A reissued certificate representing the
balance of untendered Old Notes will be sent to such tendering holder, unless
otherwise provided in the appropriate box on this Letter of Transmittal,
promptly after the Expiration Date. All of the Old Notes delivered to the
Exchange Agent will be deemed to have been tendered unless otherwise indicated.
3. Signatures on this Letter of Transmittal; Bond Powers and Endorsements;
Guarantee of Signatures.
If this Letter of Transmittal is signed by the registered holder of the Old
Notes tendered hereby, the signature must correspond exactly with the name as
written on the face of the certificates without any change whatsoever.
If any tendered Old Notes are owned of record by two or more joint owners,
all such owners must sign this Letter of Transmittal.
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this Letter of Transmittal as there are different registrations of
certificates.
When this Letter of Transmittal is signed by the registered holder or
holders of the Old Notes specified herein and tendered hereby, no endorsements
of certificates or separate bond powers are required. If, however, the New
Notes are to be issued, or any untendered Old Notes are to be reissued, to a
person other than the registered holder, then endorsements of any certificates
transmitted hereby or separate bond powers are required. Signatures on such
certificate(s) must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder or holders of any certificate(s) specified herein, such
certificate(s) must be endorsed or accompanied by appropriate bond powers, in
either case signed exactly as the name or names of the registered holder or
holders appear(s) on the certificate(s) and signatures on such certificate(s)
must be guaranteed by an Eligible Institution.
If this Letter of Transmittal or any certificates or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must be
submitted.
-7-
<PAGE>
Endorsements on certificates for Old Notes or signatures on bond powers
required by this Instruction 3 must be guaranteed by a firm which is a member of
a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust company
having an office or correspondent in the United States or by such other Eligible
Institution within the meaning of Rule 17(A)(d)-15 under the Securities Exchange
Act of 1934, as amended (each an "Eligible Institution").
Signatures on this Letter of Transmittal need not be guaranteed by an
Eligible Institution, provided the Old Notes are tendered: (i) by a registered
holder of Old Notes (which term, for purposes of the Exchange Offer, includes
any participant in the DTC system whose name appears on a security position
listing as the holder of such Old Notes) tendered who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery Instructions" on
this Letter of Transmittal, or (ii) for the account of an Eligible Institution.
4. Special Issuance and Delivery Instructions.
Tendering holders of Old Notes should indicate in the applicable box the
name and address to which New Notes issued pursuant to the Exchange Offer and/or
substitute certificates evidencing Old Notes not exchanged are to be issued or
sent, if different from the name or address of the person signing this Letter of
Transmittal. In the case of issuance in a different name, the employer
identification or social security number of the person named must also be
indicated. Holders tendering Old Notes by book-entry transfer may request that
Old Notes not exchanged be credited to such account maintained at DTC as such
holder may designate hereon. If no such instructions are given, such Old Notes
not exchanged will be returned to the name and address of the person signing
this Letter of Transmittal.
5. Tax Identification Number.
Federal income tax law generally requires that a tendering holder whose Old
Notes are accepted for exchange must provide the Company (as payor) with such
holder's correct Taxpayer Identification Number ("TIN") on Substitute Form W-9
below, which in the case of a tendering holder who is an individual, is his or
her social security number. If the Company is not provided with the current TIN
or an adequate basis for an exemption, such tendering holder may be subject to a
$50 penalty imposed by the Internal Revenue Service. In addition, delivery to
such tendering holder of New Notes may be subject to backup withholding in an
amount equal to 31% of all reportable payments made after the exchange. If
withholding results in an overpayment of taxes, a refund may be obtained.
Exempt holders of Old Notes (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. See the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9 (the "W-9 Guidelines") for
additional instructions.
-8-
<PAGE>
To prevent backup withholding, each tendering holder of Old Notes must
provide its correct TIN by completing the "Substitute Form W-9" set forth below,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN) and that (i) the holder is exempt from backup withholding, or (ii) the
holder has not been notified by the Internal Revenue Service that such holder is
subject to a backup withholding as a result of a failure to report all interest
or dividends, or (iii) the Internal Revenue Service has notified the holder that
such holder is no longer subject to backup withholding. If the tendering holder
of Old Notes is a nonresident alien or foreign entity not subject to backup
withholding, such holder must give the Company a completed Form W-8, Certificate
of Foreign Status included herewith. If the Old Notes are in more than one name
or are not in the name of the actual owner, such holder should consult the W-9
Guidelines for information on which TIN to report. If such holder does not have
a TIN, such holder should consult the W-9 Guidelines for instructions on
applying for a TIN, check the box in Part 2 of the Substitute Form W-9 and write
"applied for" in lieu of its TIN. Note: Checking this box and writing "applied
for" on the form means that such holder has already applied for a TIN or that
such holder intends to apply for one in the near future. If such holder does
not provide its TIN to the Company within 60 days, backup withholding will begin
and continue until such holder furnishes its TIN to the Company.
6. Transfer Taxes.
The Company will pay all transfer taxes, if any, applicable to the transfer
of Old Notes to it or its order pursuant to the Exchange Offer. If, however,
New Notes and/or substitute Old Notes not exchanged are to be delivered to, or
are to be registered or issued in the name of, any person other than the
registered holder of the Old Notes tendered hereby, or if tendered Old Notes are
registered in the name of any person other than the person signing this Letter
of Transmittal, or if a transfer tax is imposed for any reason other than the
transfer of Old Notes to the Company or its order pursuant to the Exchange
Offer, the amount of any such transfer taxes (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted herewith, the amount of such transfer taxes will be billed directly to
such tendering holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes specified in this Letter of
Transmittal.
7. Waiver of Conditions.
The Company reserves the absolute right to waive satisfaction of any or all
conditions enumerated in the Prospectus.
8. No Conditional Tenders.
No alternative, conditional, irregular or contingent tenders will be
accepted . All tendering holders of Old Notes, by execution of this Letter of
Transmittal, shall waive any right to reserve notice of the acceptance of their
Old Notes for exchange.
-9-
<PAGE>
Neither the Company, the Exchange Agent nor any other person is obligated
to give notice of any defect or irregularity with respect to any tender of Old
Notes nor shall any of them incur any liability for failure to give any such
notice.
9. Mutilated, Lost, Stolen or Destroyed Old Notes.
Any holder whose Old Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above for further
instructions.
10. Requests for Assistance or Additional Copies.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter of Transmittal, may be
directed to the Exchange Agent, at the address and telephone number indicated
above.
-10-
<PAGE>
<TABLE>
<CAPTION>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 3 and 4) (See Instructions 3 and 4)
<S> <C>
To be completed ONLY if certificates for Old Notes not To be completed ONLY if certificates for Old Notes not
exchanged and/or New Notes are to be issued in the name exchanged and/or New Notes are to be issued in the name of
of and sent to someone other than the person or persons and sent to someone other than the person or persons whose
whose signature(s) appear(s) on this Letter of signature(s) appear(s) on this Letter of Transmittal below.
Transmittal above, or if Old Notes delivered by
book-entry transfer which are not accepted for exchange Mail: New Notes and/or Old Notes to:
are to be returned by credit to an account maintained at
DTC other than the account indicated below. Name(s)
-------------------------------------------------
Issue: New Notes and/or Old Notes to: (Please Type or Print)
-------------------------------------------------
Name(s) (Please Type or Print)
-------------------------------------------------
(Please Type or Print) Address
-------------------------------------------------
- -------------------------------------------------------- -------------------------------------------------
(Please Type or Print) (Zip Code)
Address
------------------------------------------------
------------------------------------------------
(Zip Code)
(Complete Substitute Form W-9)
Credit unexchanged Old Notes for "Debentures" delivered by
book-entry transfer to the DTC account set forth below.
- --------------------------------------------------------
(DTC Account Number, if applicable)
- --------------------------------------------------------
</TABLE>
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE HEREOF (TOGETHER WITH THE
CERTIFICATES FOR OLD NOTES) AND ALL OTHER REQUIRED DOCUMENTS HEREBY, A BOOK-
ENTRY CONFIRMATION OR THE NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE
EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(Complete Accompanying Substitute Form W-9)
Dated: , 1998
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x , 1998
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x , 1998
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Signature(s) of Owner(s) Date
Area Code and Telephone Number
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If a holder is tendering any Old Notes this Letter of Transmittal must be
signed by the registered holder(s) as the name(s) appear(s) on the
certificate(s) of the Old Notes by any person(s) authorized to become registered
holder(s) by endorsements and documents transmitted herewith. If signature is by
a trustee, executor, administrator, guardian, officer or other person acting in
a fiduciary or representative capacity, please set forth full title. See
Instruction 3.
Name(s):
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- --------------------------------------------------------------------------------
(Please Type or Print)
Capacity:
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Address:
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(Including Zip Code)
SIGNATURE GUARANTEE
(if requested by Instruction 3)
Signature Guaranteed by an Eligible Institution
------------------------------
- --------------------------------------------------------------------------------
(Title)
- --------------------------------------------------------------------------------
(Name and Firm)
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-11-
<PAGE>
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SUBSTITUTE FORM W-9
================================================================================
To Be Completed by All Tendering Noteholders
(See Instruction 5)
Sign this Substitute Form W-9 in Addition to the Signature(s)
Required Above
PAYOR'S NAME: THE BANK OF NEW YORK
================================================================================
SUBSTITUTE Part 1-Please provide your TIN (either your
social security TIN number or employer
Form W-9 identification number) in the box to the right
and certify by signing and dating below.
Department of the Treasury
Internal Revenue Service Part 2-Awaiting TIN [ ]
SIGN THIS FORM and THE CERTIFICATION OF
Payor's Request for AWAITING TAXPAYER IDENTIFICATION NUMBER BELOW.
Taxpayer
Identification Number (TIN) Part 3-Exempt [ ]
and Certification See enclosed Guidelines for additional
information and SIGN THIS FORM.
================================================================================
CERTIFICATION -- Under penalties of perjury, I certify that:
(1) the number shown on this form is my correct taxpayer identification number
(or I am waiting for a number to be issued to me); or
(2) I am not subject to backup withholding because (i) I am exempt from backup
withholding, or (ii) I have not been notified by the Internal Revenue
Service (IRS) that I am subject to backup withholding as a result of a
failure to report all interest or dividends, or (iii) the IRS has notified
me that I am no longer subject to backup withholding; and
(3) any other information provided on this form is true and correct.
Certification Instructions--You must cross out item (iii) in (2) above if you
have been notified by the IRS that you are subject to backup withholding because
of underreporting interest or dividends on your tax return and you have not been
notified by the IRS that you are no longer subject to backup withholding.
================================================================================
SIGNATURE___________________________ DATE____________________________
================================================================================
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE
BOX IN PART 2 OF THE SUBSTITUTE FORM W-9
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CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (2)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number by the time of payment, 31%
of all payments made to me on account of the New Notes shall be retained until I
provide a taxpayer identification number to the Exchange Agent and that, if I do
not provide my taxpayer identification number within 60 days, such retained
amounts shall be remitted to the Internal Revenue Service as backup withholding
and 31% of all reportable payments made to me thereafter will be withheld and
remitted to the Internal Revenue Service until I provide a taxpayer
identification number.
SIGNATURE___________________________ DATE____________________________
================================================================================
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU. PLEASE REVIEW THE
ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER
FOR ADDITIONAL INFORMATION.
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<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
A. TIN -- The Taxpayer Identification Number for most individuals is your
social security number. Refer to the following chart to determine the
appropriate number:
<TABLE>
<CAPTION>
Give the Give the
SOCIAL EMPLOYER
For this type of SECURITY For this type of IDENTIFICATION
account Number of account Number of
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Individual The individual 6. Sole proprietorship The owner(3)
2. Two or more The actual owner of the 7. A valid trust, Legal entity(4)
individuals (joint account or, if combined estate or pension
account) funds, the first individual trust
on the account(1)
8. Corporate The corporation
3. Custodian account The minor(2)
of a minor (Uniform 9. Association, club, The organization
Gift to Minors Act) religious, charitable,
4. a. The usual The grantor-trustee(1) educational or other
revocable tax-exempt organization
savings trust
(grantor is also 10. Partnership The partnership
trustee)
11. A broker or The broker or nominee
b. So-called trust The actual owner(1) registered nominee
account that is
not a legal or 12. Account with the The public entity
valid trust under Department of
state law Agriculture
5. Sole proprietorship The owner(3)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's name and social security
number.
(3) Show the individual's name. You may also enter your business name or "doing
business as" name. You may use either your Social Security number or your
employer identification number.
(4) List first and circle the name of the legal trust, estate, or pension trust.
Note: If no name is circled when there is more than one name, the number
will be considered to be that of the first name listed.
B. Exempt Payees -- The following lists exempt payees. If you are exempt, you
must nonetheless complete the form and provide your TIN in order to
establish that you are exempt. Check the box in Part 3 of the form, sign and
date the form.
For this purpose, Exempt Payees include: (1) a corporation; (2) an
organization exempt from tax under section 501(a), or an individual
retirement plan (IRA) or a custodial account under section 403(b)(7); (3)
the United States or any of its agencies or instrumentalities; (4) a state,
the District of Columbia, a possession of the United States, or any of their
political subdivisions or instrumentalities; (5) a foreign government or any
of its political subdivisions, agencies or instrumentalities; (6) an
international organization or any of its agencies or instrumentalities; (7)
a foreign central bank of issue; (8) a dealer in securities or commodities
required to register in the United States or a possession of the United
States; (9) a real estate investment trust; (10) an entity registered at all
times during the tax year under the Investment Company Act of 1940; (11) a
common trust fund operated by a bank under section 584(a); and (12) a
financial institution.
C. Obtaining a Number
If you do not have a taxpayer identification number or you do not know your
number, obtain Form SS-5, application for a Social Security Number, or Form
SS-4, Application for Employer Identification Number, at the local office of
the Social Security Administration or the Internal Revenue Service and apply
for a number.
D. Privacy Act Notice
Section 6109 requires most recipients of dividend, interest or other
payments to give taxpayer identification numbers to payors who must report
the payments to IRS. IRS uses the numbers for identification purposes.
Payors must be given the numbers whether or not recipients are required to
file tax returns. Payors must generally withhold 31% of taxable-interest,
dividend, and certain other payments to a payee who does not furnish a
taxpayer identification number. Certain penalties may also apply.
E. Penalties
(1) Penalty for Failure to Furnish Taxpayer Identification Number. If you
fail to furnish your taxpayer identification number to a payor, you are
subject to a penalty of $50 for each such failure unless your failure is
due to reasonable cause and not to willful neglect.
(2) Failure to Report Certain Dividend and Interest Payments. If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as
being due to negligence and will be subject to a penalty of 5% on any
portion of an under-payment attributable to that failure unless there is
clear and convincing evidence to the contrary.
(3) Civil Penalty for False Information with Respect to Withholding. If you
make a false statement with no reasonable basis which results in no
imposition of backup withholding, you are subject to a penalty of $500.
(4) Criminal Penalty for Falsifying Information. Falsifying certifications
or affirmations may subject you to criminal penalties including fines
and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL
REVENUE SERVICE.
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<PAGE>
EXHIBIT 99.2
TVN ENTERTAINMENT CORPORATION
NOTICE OF GUARANTEED DELIVERY
This form or one substantially equivalent hereto must be used to accept the
offer for all outstanding 14% Senior Notes due 2008 (the "Old Notes") of
TVN Entertainment Corporation (the "Company") in exchange for the Company's
14% Senior Notes due 2008 made pursuant to the prospectus, dated __________ ___,
1999 (the "Prospectus") and the related letter of transmittal (the "Letter of
Transmittal"), if (i) certificates for Old Notes are not immediately available,
(ii) the Old Notes, the Letter of Transmittal and all other required documents
cannot be delivered or transmitted by facsimile transmission, mail or hand
delivery to The Bank of New York (the "Exchange Agent") as set forth below on or
prior to 5:00 P.M., New York City time, on the Expiration Date, or (iii) the
procedures for delivery of the Old Notes through book-entry transfer into the
Exchange Agent's account at The Depository Trust Company ("DTC") in accordance
with DTC's Automated Tender Offer Program cannot be completed on a timely basis.
See "The Exchange Offer--Procedures for Tendering" section in the Prospectus.
Capitalized terms not defined herein are defined in the Prospectus.
The Bank of New York
<TABLE>
<S> <C> <C>
By Registered or Certified Facsimile Transmission By Hand/Overnight Delivery:
Mail: Number:
(Eligible Institutions Only) The Bank of New York
The Bank of New York Attn.: Theresa Gass 101 Barclay Street
101 Barclay Street, Floor 7E Reorganization Section Corporate Trust Services Window
New York, New York 10286 (212) 815-6339 Ground Level
Attn.: Theresa Gass Confirm by Telephone: New York, New York 10286
Reorganization Section (212) 815-5942 Attn.: Theresa Gass
For Information Call: Reorganization Section
(212) 815-5942
</TABLE>
Delivery of this instrument to an address other than as set forth above, or
transmission of instructions via facsimile other than as set forth above, will
not constitute a valid delivery.
<PAGE>
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the Letter of
Transmittal, the undersigned hereby tenders to the Company the principal amount
of Old Notes set forth below, pursuant to the guaranteed delivery procedures
described in "The Exchange Offer--Guaranteed Delivery Procedures" section of the
Prospectus.
<TABLE>
<S> <C>
Principal Amount of Old Notes If Old Notes will be delivered by
Tendered:/1/ book-entry transfer into Exchange Agent's
account with The Depository Trust Company,
provide account number:
$ Account Number
--------------------------------------- ------------------
Certificate Nos. (if available):
- ------------------------------------------
Total Principal Amount
Represented by Old Notes Certificate(s):
$
----------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned.
- -------------------------------------------------------------------------------
- -------------------------------
/1/ Must be in denominations of principal amount of $1,000 and any integral
multiple thereof.
-2-
<PAGE>
PLEASE SIGN HERE
X
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X
----------------------------------- -----------------------------
Signature(s) of Owner(s) or Date
Authorized Signatory
Area Code and Telephone Number:
---------------------------
Must be signed by the holder(s) of the Old Notes as their name(s) appear(s)
on certificates for Old Notes or on a security position listing, or by person(s)
authorized to become registered holder(s) by endorsement and documents
transmitted with this Notice of Guaranteed Delivery. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person must set
forth his or her full title below.
Please print name(s) and address(es)
Name(s):
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Capacity:
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Address(es):
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<PAGE>
GUARANTEE
The undersigned, an Eligible Institution within the meaning of Rule
17(A)(d)-15 under the Securities Exchange Act of 1934, as amended, hereby
guarantees that (i) the certificates representing the principal amount of Old
Notes tendered hereby, in proper form for transfer, together with a properly
completed and duly executed Letter of Transmittal (or a manually signed
facsimile thereof), any required signature guarantee and any other documents
required by the Letter of Transmittal, or (ii) timely confirmation of the book-
entry transfer of such Old Notes into the Exchange Agent's account at DTC
pursuant to the procedures set forth in "The Exchange Offer--Book-Entry
Transfer; Delivery and Form" section of the Prospectus, will be received by the
Exchange Agent at the address set forth above, no later than three New York
Stock Exchange trading days after the date of execution hereof.
- ------------------------------------ ------------------------------------
Name of Firm Authorized Signature
- ------------------------------------ ------------------------------------
Address Title
Name:
- ------------------------------------ ------------------------------
Zip Code (Please Type or Print)
Area Code & Telephone No. Dated:
--------- ------------------------------
NOTE: DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS FORM. CERTIFICATES FOR
OLD NOTES SHOULD ONLY BE SENT WITH YOUR LETTER OF TRANSMITTAL.
-4-
<PAGE>
EXHIBIT 99.3
[FORM OF EXCHANGE AGENT AGREEMENT]
As of ______, 1999
The Bank of New York
Corporate Trust Trustee Administration
101 Barclay Street, 21st Floor
New York, New York 10286
Ladies and Gentlemen:
TVN Entertainment Corporation (the "Company") proposes to make an offer
(the "Exchange Offer") to exchange its 14% Senior Notes due 2008
(the "Old Securities") for its 14% Senior Notes due 2008 (the "New
Securities"). The terms and conditions of the Exchange Offer as currently
contemplated are set forth in a prospectus, dated _____ __, 1999 (the
"Prospectus"), proposed to be distributed to all record holders of the Old
Securities.
The Company hereby appoints The Bank of New York to act as exchange agent
(the "Exchange Agent") in connection with the Exchange Offer. References
hereinafter to "you" shall refer to The Bank of New York.
The Exchange Offer is expected to be commenced by the Company on or
promptly after _____ __, 1999. The Letter of Transmittal accompanying the
Prospectus (the "Letter of Transmittal") or, in the case of book-entry transfer
of the Old Securities into your account at The Depository Trust Company ("DTC"),
DTC's Automated Tender Offer Program, is to be used by the holders of the Old
Securities to accept the Exchange Offer. The Letter of Transmittal contains
instructions with respect to the delivery of certificates for Old Securities
tendered in connection with the Exchange Offer.
The Exchange Offer shall expire at 5:00 P.M., New York City time, on the
date specified in the Prospectus or on such later date or time to which the
Company may extend the Exchange Offer (the "Expiration Date"). Subject to the
terms and conditions set forth in the Prospectus, the Company expressly reserves
the right to extend the Exchange Offer from time to time and may extend the
Exchange Offer by giving oral (confirmed in writing) or written notice to you
before 9:00 A.M., New York City time, on the business day following the
previously scheduled Expiration Date.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Securities not theretofore
accepted for exchange, upon the occurrence of any of the conditions of the
Exchange Offer specified in the Prospectus under the caption "The Exchange
Offer--Conditions." The Company will give oral (confirmed in writing) or
written notice of any amendment, termination or nonacceptance to you as promptly
as practicable.
In carrying out your duties as Exchange Agent, you are to act in accordance
with the following instructions:
<PAGE>
1. You will perform such duties and only such duties as are specifically
set forth in the section of the Prospectus captioned "The Exchange Offer", or as
specifically set forth herein; provided, however, that in no way will your
general duty to act in good faith be discharged by the foregoing.
2. You will establish an account with respect to the Old Securities at
DTC for purposes of the Exchange Offer within two business days after the date
of the Prospectus, and any financial institution that is a participant in DTC's
systems may make book-entry delivery of the Old Securities by causing DTC to
transfer such Old Securities into your account in accordance with DTC's
Automated Tender Offer Program procedures for such transfer.
3. You are to examine each of the Letters of Transmittal and certificates
for Old Securities and any other documents delivered or mailed to you by or for
holders of the Old Securities to ascertain whether: (i) the Letters of
Transmittal and any such other documents are duly executed and properly
completed in accordance with instructions set forth therein and (ii) the Old
Securities have otherwise been properly tendered. In each case where the Letter
of Transmittal or any other document has been improperly completed or executed
or any of the certificates for Old Securities are not in proper form for
transfer or some other irregularity in connection with the acceptance of the
Exchange Offer exists, you will endeavor to inform the presenters of the need
for fulfillment of all requirements and to take any other action as may be
necessary or advisable to cause such irregularity to be corrected.
4. With the approval of the President or any Vice President of the
Company (such approval, if given orally, to be confirmed in writing) or any
other party designated by such an officer in writing, you are authorized to
waive any irregularities in connection with any tender of Old Securities
pursuant to the Exchange Offer.
5. Tenders of Old Securities may be made only as set forth in the Letter
of Transmittal and in the section of the Prospectus captioned "The Exchange
Offer", and Old Securities shall be considered properly tendered to you only
when tendered in accordance with the procedures set forth therein.
Notwithstanding the provisions of this paragraph 5, Old Securities which
the President or any Vice President of the Company shall approve as having been
properly tendered shall be considered to be properly tendered (such approval, if
given orally, shall be confirmed in writing).
6. You shall advise the Company with respect to any Old Securities
received subsequent to the Expiration Date and accept its instructions with
respect to disposition of such Old Securities.
7. You shall accept tenders:
(a) in cases where the Old Securities are registered in two or more
names only if signed by all named holders;
-2-
<PAGE>
(b) in cases where the signing person (as indicated on the Letter of
Transmittal) is acting in a fiduciary or a representative capacity only when
proper evidence of his or her authority so to act is submitted; and
(c) from persons other than the registered holder of Old Securities;
provided, that customary transfer requirements, including any applicable
transfer taxes, are fulfilled.
You shall accept partial tenders of Old Securities where so indicated and
as permitted in the Letter of Transmittal and deliver certificates for Old
Securities to the transfer agent for split-up and return any untendered Old
Securities to the holder (or such other person as may be designated in the
Letter of Transmittal) as promptly as practicable after expiration or
termination of the Exchange Offer.
8. Upon satisfaction or waiver of all of the conditions to the Exchange
Offer, the Company will notify you (such notice if given orally, to be confirmed
in writing) of its acceptance, promptly after the Expiration Date, of all Old
Securities properly tendered and you, on behalf of the Company, will exchange
such Old Securities for New Securities and cause such Old Securities to be
canceled. Delivery of New Securities will be made on behalf of the Company by
you at the rate of $1,000 principal amount of New Securities for each $1,000
principal amount of the corresponding series of Old Securities tendered
promptly after notice (such notice if given orally, to be confirmed in
writing) of acceptance of said Old Securities by the Company; provided,
however, that in all cases, Old Securities tendered pursuant to the Exchange
Offer will be exchanged only after timely receipt by you of certificates for
such Old Securities and a properly completed and duly executed Letter of
Transmittal (or facsimile thereof) with any required signature guarantees and
any other required documents, or confirmations from DTC of book-entry
transfers of such Old Securities into your account at DTC, as the case may be.
You shall issue New Securities only in denominations of $1,000 or any integral
multiple thereof.
9. Tenders pursuant to the Exchange Offer are irrevocable, except that,
subject to the terms and upon the conditions set forth in the Prospectus and the
Letter of Transmittal, Old Securities tendered pursuant to the Exchange Offer
may be withdrawn at any time prior to the Expiration Date.
10. The Company shall not be required to exchange any Old Securities
tendered if any of the conditions set forth in the Exchange Offer are not met.
Notice of any decision by the Company not to exchange any Old Securities
tendered shall be given (and confirmed in writing) by the Company to you.
11. If, pursuant to the Exchange Offer, the Company does not accept for
exchange all or part of the Old Securities tendered because of an invalid
tender, the occurrence of certain other events set forth in the Prospectus under
the caption "The Exchange Offer--Conditions" or otherwise, you shall as soon as
practicable after the expiration or termination of the Exchange Offer return
those certificates for unaccepted Old Securities, together with any related
required documents and the
-3-
<PAGE>
Letters of Transmittal relating thereto that are in your possession, to the
persons who deposited them, or effect appropriate book-entry transfer, as the
case may be.
12. All certificates for reissued or unaccepted Old Securities or for New
Securities shall be forwarded by first-class certified mail.
13. You are not authorized to pay or offer to pay any concessions,
commissions or solicitation fees to any broker, dealer, bank or other person or
to engage or utilize any person to solicit tenders.
14. As Exchange Agent hereunder you:
(a) shall have no duties or obligations other than those specifically
set forth herein or as may be subsequently agreed in writing by you and the
Company;
(b) will be regarded as making no representations and having no
responsibilities as to the validity, sufficiency, value or genuineness of any of
the certificates or the Old Securities represented thereby deposited with you
pursuant to the Exchange Offer, and will not be required to and will make no
representation as to the validity, value or genuineness of the Exchange Offer;
(c) shall not be obligated to take any legal action hereunder which
might in your reasonable judgment involve any expense or liability, unless you
shall have been furnished with reasonable indemnity;
(d) may reasonably rely on and shall be protected in acting in
reliance upon any certificate, instrument, opinion, notice, letter, telegram or
other document or security delivered to you and reasonably believed by you to be
genuine and to have been signed by the proper party or parties;
(e) may reasonably act upon any tender, statement, request, comment,
agreement or other instrument whatsoever not only as to its due execution and
validity and effectiveness of its provisions, but also as to the truth and
accuracy of any information contained therein, which you shall in good faith
believe to be genuine or to have been signed or represented by a proper person
or persons;
(f) may rely on and shall be protected in acting upon written or oral
instructions from any officer of the Company;
(g) may consult with your counsel with respect to any questions
relating to your duties and responsibilities and the advice or opinion of such
counsel shall be full and complete
-4-
<PAGE>
authorization and protection in respect of any action taken, suffered or omitted
to be taken by you hereunder in good faith and in accordance with the advice or
opinion of such counsel; and
(h) shall not advise any person tendering Old Securities pursuant to
the Exchange Offer as to the wisdom of making such tender or as to the market
value or decline or appreciation in market, value of any Old Securities.
15. You shall take such action as may from time to time be requested by
the Company or its counsel (and such other action as you may reasonably deem
appropriate) to furnish copies of the Prospectus, the Letter of Transmittal and
the Notice of Guaranteed Delivery (as defined in the Prospectus) or such other
forms as may be approved from time to time by the Company, to all persons
requesting such documents and to accept and comply with telephone requests for
information relating to the Exchange Offer; provided, that such information
shall relate only to the procedures for accepting (or withdrawing from) the
Exchange Offer. The Company will furnish you with copies of such documents at
your request. All other requests for information relating to the Exchange Offer
shall be directed to the Company, Attention: Chief Financial Officer.
16. You shall advise by facsimile transmission or telephone, and promptly
thereafter confirm in writing to the Chief Financial Officer of the Company and
such other person or persons as it may request, daily (and more frequently
during the week immediately preceding the Expiration Date and if otherwise
requested) up to and including the Expiration Date, as to the number of Old
Securities which have been tendered pursuant to the Exchange Offer and the items
received by you pursuant to this Agreement, separately reporting and giving
cumulative totals as to items properly received and items improperly received.
In addition, you will also inform, and cooperate in making available to, the
Company or any such other persons, upon oral request made from time to time
prior to the Expiration Date, such other information as such other persons
reasonably request. Such cooperation shall include, without limitation, the
grant by you to the Company, and such persons as the Company may request, of
access to those persons on your staff who are responsible for receiving tenders,
in order to ensure that immediately prior to the Expiration Date the Company
shall have received information in sufficient detail to enable it to decide
whether to extend the Exchange Offer. You shall prepare a final list of all
persons whose tenders were accepted, the aggregate principal amount of Old
Securities tendered and the aggregate principal amount of Old Securities
accepted and deliver said list to the Company.
17. Letters of Transmittal and Notices of Guaranteed Delivery shall be
stamped by you as to the date and the time of receipt thereof and shall be
preserved by you for a period of time at least equal to the period of time you
preserve other records pertaining to the transfer of securities. You shall
dispose of unused Letters of Transmittal and other surplus materials by
returning them to the Company.
-5-
<PAGE>
18. You hereby expressly waive any lien, encumbrance or right of set-off
whatsoever that you may have with respect to funds deposited with you for the
payment of transfer taxes by reason of amounts, if any, borrowed by the Company,
or any of its subsidiaries or affiliates pursuant to any loan or credit
agreement with you or for compensation owed to you hereunder.
19. For services rendered as Exchange Agent hereunder, you shall be
entitled to such compensation as set forth on Schedule I attached hereto.
20. You hereby acknowledge receipt of the Prospectus and the Letter of
Transmittal and further acknowledge that you have examined each of them. Any
inconsistency between this Agreement, on the one hand, and the Prospectus and
the Letter of Transmittal (as they may be amended from time to time), on the
other hand, shall be resolved in favor of the latter two documents, except with
respect to the duties, liabilities and indemnification of you as Exchange Agent,
which shall be controlled by this Agreement.
21. The Company covenants and agrees to indemnify and hold you harmless in
your capacity as Exchange Agent hereunder against any loss, liability, cost or
expense, including reasonable attorneys' fees and expenses, arising out of or in
connection with any act, omission, delay or refusal made by you in reliance upon
any signature, endorsement, assignment, certificate, order, request, notice,
instruction or other instrument or document reasonably believed by you to be
valid, genuine and sufficient and in accepting any tender or effecting any
transfer of Old Securities reasonably believed by you in good faith to be
authorized, and in delaying or refusing in good faith to accept any tenders or
effect any transfer of Old Securities; provided, however, that the Company shall
not be liable for indemnification or otherwise for any loss, liability, cost or
expense to the extent arising out of your gross negligence or willful
misconduct. In no case shall the Company be liable under this indemnity with
respect to any claim against you unless the Company shall be notified by you, by
letter or by facsimile confirmed by letter, of the written assertion of a claim
against you or of any other action commenced against you, promptly after you
shall have received any such written assertion or notice of commencement of
action. The Company shall be entitled to participate at its own expense in the
defense of any such claim or other action, and, if the Company so elects, the
Company shall assume the defense of any suit brought to enforce any such claim.
In the event that the Company shall assume the defense of any such suit, the
Company shall not be liable for the fees and expenses of any additional counsel
thereafter retained by you so long as the Company shall retain counsel
satisfactory to you to defend such suit and so long as you have not
determined, in your reasonable judgment, that a conflict of interest exists
between you and the Company.
22. You shall arrange to comply with all requirements under the tax laws
of the United States, including those relating to missing Tax Identification
Numbers, and shall file any appropriate reports with the Internal Revenue
Service. The Company understands that you are required to deduct 31% on
payments to holders who have not supplied their correct Taxpayer Identification
Number or required certification. Such funds will be turned over to the
Internal Revenue Service in accordance with applicable regulations.
-6-
<PAGE>
23. You shall deliver or cause to be delivered, in a timely manner to each
governmental authority to which any transfer taxes are payable in respect of the
exchange of Old Securities, your check in the amount of all transfer taxes so
payable, and the Company shall reimburse you for the amount of any and all
transfer taxes payable in respect of the exchange of Old Securities; provided,
however, that you shall reimburse the Company for amounts refunded to you in
respect of your payment of any such transfer taxes, at such time as such refund
is received by you.
24. This Agreement and your appointment as Exchange Agent hereunder shall
be construed and enforced in accordance with the laws of the State of New York
applicable to agreements made and to be performed entirely within such state,
and without regard to conflicts of law principles, and shall inure to the
benefit of, and the obligations created hereby shall be binding upon, the
successors and assigns of each of the parties hereto.
25. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
26. In case any provision of this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
27. This Agreement shall not be deemed or construed to be modified,
amended, rescinded, canceled or waived, in whole or in part, except by a written
instrument signed by a duly authorized representative of the party to be
charged. This Agreement may not be modified orally.
28. Unless otherwise provided herein, all notices, requests and other
communications to any party hereunder shall be in writing (including facsimile
or similar writing) and shall be given to such party, addressed to it, at its
address or telecopy number set forth below:
If to the Company:
TVN Entertainment Corporation
2901 West Alameda Avenue
Seventh Floor
Burbank, California 91505
Facsimile: (818) 526-5003
Attention: Senior Executive Vice President and General Counsel
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<PAGE>
If to the Exchange Agent:
The Bank of New York
101 Barclay Street
Floor 21 West
New York, New York 10286
Facsimile: (212) 815-5915
Attention: Corporate Trust Trustee Administration
29. Unless terminated earlier by the parties hereto, this Agreement shall
terminate 90 days following the Expiration Date. Notwithstanding the foregoing,
paragraphs 19, 21 and 23 shall survive the termination of this Agreement. Upon
any termination of this Agreement, you shall promptly deliver to the Company any
certificates for Old Securities and New Securities, funds or property then held
by you as Exchange Agent under this Agreement.
30. This Agreement shall be binding and effective as of the date hereof.
[Remainder of page intentionally left blank.]
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<PAGE>
Please acknowledge receipt of this Agreement and confirm the arrangements
herein provided by signing and returning the enclosed copy.
TVN ENTERTAINMENT CORPORATION
By:
-----------------------------------------
Name:
Title:
Accepted as of the date
first above written:
THE BANK OF NEW YORK,
as Exchange Agent
By:
---------------------------------
Name:
Title:
