<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 10, 2000
REGISTRATION NO. 333-95573
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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CROWN MEDIA HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
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<TABLE>
<S> <C> <C>
DELAWARE 4841 84-1524410
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
SUITE 500
6430 S. FIDDLERS GREEN CIRCLE
ENGLEWOOD, COLORADO 80111
(303) 220-7990
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------
JUDITH C. WHITTAKER, ESQ.
SECRETARY
CROWN MEDIA HOLDINGS, INC.
DEPARTMENT 339
2501 MCGEE
KANSAS CITY, MISSOURI 64108
(816) 274-5583
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
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Copies to:
<TABLE>
<S> <C>
ERIC S. ROBINSON, ESQ. DAVID S. LEFKOWITZ, ESQ.
WACHTELL, LIPTON, ROSEN & KATZ WEIL, GOTSHAL & MANGES LLP
51 WEST 52ND STREET 767 FIFTH AVENUE
NEW YORK, NEW YORK 10019 NEW YORK, NEW YORK 10153
(212) 403-1000 (212) 310-8000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If the only securities being delivered pursuant to this Form are being
offered pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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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 THAT 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 AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SUCH SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be
used in connection with an underwritten United States and Canadian offering, and
one to be used in a concurrent underwritten offering outside the United States
and Canada. The two prospectuses will be identical in all respects except for
the front and back cover pages, the table of contents and the section captioned
"Amsterdam Stock Exchange Listing Information." The pages to be included in the
international prospectus and not the United States and Canadian prospectus are
marked "Alternate Page" and appear immediately before Part II of this
Registration Statement.
<PAGE> 3
WE WILL AMEND AND COMPLETE THE INFORMATION IN THIS PROSPECTUS. ALTHOUGH WE
ARE PERMITTED BY US FEDERAL SECURITIES LAWS TO OFFER THESE SECURITIES USING
THIS PROSPECTUS, WE MAY NOT SELL THEM OR ACCEPT YOUR OFFER TO BUY THEM UNTIL
THE DOCUMENTATION FILED WITH THE SEC RELATING TO THESE SECURITIES HAS BEEN
DECLARED EFFECTIVE BY THE SEC. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES OR OUR SOLICITATION OF YOUR OFFER TO BUY THESE SECURITIES IN ANY
JURISDICTION WHERE THAT WOULD NOT BE PERMITTED OR LEGAL.
SUBJECT TO COMPLETION - MARCH 10, 2000
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PROSPECTUS
, 2000
[CROWN MEDIA LOGO]
SHARES OF CLASS A COMMON STOCK
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CROWN MEDIA HOLDINGS, INC.:
- - We own and operate pay television channels dedicated to high quality family
programming with more than 50 million subscribers worldwide.
- - Crown Media Holdings, Inc.
Suite 500
6430 S. Fiddlers Green Circle
Englewood, Colorado 80111
(303) 220-7990
PROPOSED SYMBOL AND MARKETS:
- - CRWN
- - Nasdaq National Market
- - Amsterdam Stock Exchange
THE OFFERING:
- - We are offering shares of our Class A common stock. This prospectus relates to
an underwritten offering of shares in the United States and Canada.
In addition, we are offering shares outside the United States and
Canada in an underwritten offering.
- - The U.S. underwriters have an option to purchase up to an additional
shares from us to cover over-allotments.
- - We anticipate that the initial public offering price will be between $ and
$ per share.
- - This is our initial public offering, and no public market currently exists for
our shares of Class A common stock.
- - We plan to use the proceeds from this offering to pay accrued and unpaid
program license fees to an affiliate, to license additional programming, to
enhance our technical facilities, to expand our distribution, to expand our
advertising sales staff and to fund general corporate expenditures. We plan to
use any proceeds from the exercise of the underwriters' over-allotment option
to repay indebtedness owed to an affiliate.
- - Closing: , 2000.
<TABLE>
<CAPTION>
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Per Share Total
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<S> <C> <C>
Public offering price (Estimated): $ $
Underwriting fees:
Proceeds to Crown Media Holdings, Inc.:
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</TABLE>
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 8.
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Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
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DONALDSON, LUFKIN & JENRETTE
LEHMAN BROTHERS
SALOMON SMITH BARNEY
DLJDIRECT INC.
<PAGE> 4
[INSIDE COVERPAGE]
[CROWN MEDIA LOGO]
[HALLMARK ENTERTAINMENT NETWORK LOGO]
[ODYSSEY NETWORK LOGO]
CAPITALIZING ON THE
STRENGTH OF OUR FAMILY
[PHOTOGRAPH [PHOTOGRAPH [PHOTOGRAPH [PHOTOGRAPH
OF TED DANSON OF JAMES EARL OF ISABELLA OF PATRICK
FROM "GULLIVER'S JONES FROM ROSSELLINI FROM STEWART
TRAVELS"] "WHAT THE DEAF "THE ODYSSEY"] FROM "MOBY
MAN HEARD"] DICK"]
<PAGE> 5
[INSIDE FRONT COVERPAGE FOLD-OUT]
There are stories
WAITING TO BE TOLD
[PHOTOGRAPH OF [PHOTOGRAPH OF [PHOTOGRAPH OF
ADVERTISING FOR ADVERTISING FOR ADVERTISING FOR
"GULLIVER'S TRAVELS" "ARABIAN NIGHTS"] "SARAH, PLAIN &
WITH TED DANSON TALL" WITH GLENN
AND MARY STEENBURGEN] CLOSE AND
CHRISTOPHER
WALKEN]
ONLY A TRUE STORYTELLER CAN
BRING THEM TO LIFE
[HALLMARK ENTERTAINMENT NETWORK LOGO]
Time passes
GOOD STORIES ENDURE
<PAGE> 6
[INSIDE FRONT COVERPAGE FOLD-OUT]
[PHOTOGRAPH OF FAMILY
SAM NEIL FROM ENTERTAINMENT
"MERLIN"] THAT IS ENTERTAINING
[PHOTOGRAPH OF What more could today's family want from a
JESSICA TANDY AND network? We astonish adults, captivate kids and
HUME CRONYN FROM enrich everyone with outstanding family and
"TO DANCE WITH THE spiritually-oriented programming that includes
WHITE DOG"] "The Collection" from the Hallmark Hall of Fame
Library, The Muppet Show, critically
acclaimed Movies and original programming,
heartwarming Series like Doogie Howser, M.D.,
and spiritual Shows like Landmarks of Faith.
[PHOTOGRAPH OF Odyssey is the new force in entertainment that
BRENT CARVER, STAR doesn't just bring families together . . . we
OF "THE LEGEND OF bring them closer. So, for entertainment that has
SLEEPY HOLLOW"] more of the magical, mystical and spiritual
content families want, and want to watch
together, come to Odyssey.
TELEVISION FOR [ODYSSEY NETWORK LOGO]
TODAY'S FAMILY www.odysseychannel.com
<PAGE> 7
[INSIDE BACK COVERPAGE]
[CROWN MEDIA LOGO]
[MAP DEPICTING THE COMPANY'S WORLDWIDE CHANNEL DELIVERY PROCESS]
[PHOTOGRAPH [PHOTOGRAPH OF [PHOTOGRAPH [PHOTOGRAPH
OF SATELLITE] ARMAND OF SATELLITE OF TINA MAJORINO,
ASSANTE FROM UPLINK FACILITY] STAR OF "ALICE IN
"THE ODYSSEY"] WONDERLAND"]
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary...................... 1
Risk Factors............................ 8
Special Note with Respect to Forward-
Looking Information................... 14
Reorganization Transactions Occurring
Simultaneously with the Closing of
This Offering......................... 15
Use of Proceeds......................... 17
Dividend Policy......................... 17
Capitalization.......................... 18
Dilution................................ 20
Selected Historical Consolidated
Financial Data........................ 21
Selected Unaudited Pro Forma
Consolidated Financial Data........... 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 27
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Business................................ 37
Management.............................. 57
Certain Relationships and Related
Transactions.......................... 68
Principal Stockholders.................. 78
Description of Capital Stock............ 80
Shares Eligible for Future Sale......... 83
Material U.S. Federal Income Tax
Considerations for Non-U.S. Holders... 84
Material Netherlands Tax Consequences... 87
Underwriters............................ 89
Legal Matters........................... 93
Experts................................. 93
Where You Can Find More Information..... 93
Index to Consolidated Financial
Statements............................ F-1
</TABLE>
<PAGE> 9
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary does not contain all of the information that you should consider
before investing in our Class A common stock. You should read the entire
prospectus carefully, especially the risks of investing in our Class A common
stock discussed under "Risk Factors."
In this prospectus, the terms "we," "us" and "our" refer to Crown Media
Holdings, Inc. and, unless the context requires otherwise, Crown Media, Inc. and
Odyssey Holdings, L.L.C., the legal entities that now operate our business and
that, after this offering, will continue to operate our business as subsidiaries
of Crown Media Holdings, Inc.
OUR BUSINESS
OVERVIEW
We own and operate pay television channels dedicated to high quality family
programming, which we believe represents one of the most popular television
formats. We currently operate and distribute the Hallmark Entertainment Network
internationally and the Odyssey Network domestically, primarily through cable
and direct-to-home satellite systems. We have more than 50 million subscribers
worldwide.
Each of our channels benefits from a long-term program agreement with a
subsidiary of Hallmark Entertainment, Inc., our parent company. These program
agreements generally provide exclusive pay television access to Hallmark
Entertainment, Inc.'s first-run presentations and extensive library of original
made-for-television movies and miniseries. Hallmark Entertainment, Inc.'s
library consists of more than 4,000 hours of programming, including eight of the
10 most highly rated made-for-television movies for the 1993 through 1999
television seasons, based on A.C. Nielsen ratings. Programs contained in this
library have won more than 90 Emmy Awards, Golden Globe Awards and Peabody
Awards. The Odyssey Network also licenses a substantial amount of programming
produced by The Jim Henson Company, Inc., a producer of popular family and
children's programming, through a long-term program agreement. Programs
contained within The Jim Henson Company's library have won more than 40 Emmy
Awards and Peabody Awards. In addition, we and The Jim Henson Company each own
50% of the Kermit Channel. The Kermit Channel, which we operate primarily in
India, features popular family and children's programming.
We believe that with the programming we license from Hallmark
Entertainment, Inc. and The Jim Henson Company, we are establishing the Hallmark
Entertainment Network and the Odyssey Network as destinations for viewers
seeking high quality family entertainment and as attractive outlets for
advertisers seeking to target these viewers. We believe our programming will
continue to drive the growth in the number of our worldwide subscribers and the
growth of our revenues.
We have distribution agreements with leading pay television distributors in
each of our markets. Internationally, for the Hallmark Entertainment Network,
some of these include British Sky Broadcasting, Ltd., Multicanal, and United
Pan-European Communications. In the United States, the nine largest pay
television distributors account for approximately 80% of all pay television
subscribers. We currently distribute the Odyssey Network on cable systems
operated by each of these nine pay television distributors and have long term
distribution agreements with the AT&T, Time Warner and DirecTV distribution
systems, the three largest distributors. We are in discussions to sign long-term
agreements with the other six pay television distributors. We currently
distribute the Odyssey Network to approximately 35% of all United States pay
television subscribers.
1
<PAGE> 10
We derive revenues primarily from subscriber fees paid by television
distributors for the right to carry our channels and from the sale of
advertising time on our channels. We expect to increase the percentage of our
revenues from the sale of advertising time. To date, we have attracted more than
40 of the leading advertisers in the United States based on total advertising
expenditures, including Hallmark Cards, America Online, AT&T, Coca-Cola and
Procter & Gamble. No individual advertiser accounted for more than 2% of our
revenues for the year ended December 31, 1999. For the year ended December 31,
1999, we had revenues of $49.8 million on a pro forma basis.
COMPETITIVE STRENGTHS
Our primary competitive strengths include the following:
- unique collection of branded programming and pay television channels;
- guaranteed access to high quality programming;
- significant strategic benefits from our principal stockholders; and
- experienced management.
BUSINESS STRATEGY
Our principal objectives are to grow revenues and profitability by becoming
the destination of choice for viewers who seek high quality family programming
and for advertisers who target these viewers. The key elements of our business
strategies to achieve these objectives are to:
- capitalize on our unique brands by marketing to pay television
distributors, viewers and advertisers;
- expand distribution of our channels worldwide through leading
distributors in each market;
- increase advertising revenues by targeting leading advertisers,
localizing our channels and expanding our sales staff;
- continue to refine the attractiveness of our channels to viewers and
advertisers;
- capitalize on broadband distribution to create additional revenue streams
for our business; and
- facilitate the implementation of our strategies through the construction
of an advanced digital global network operating center.
RELATIONSHIP WITH HALLMARK CARDS, INCORPORATED
After this offering, Hallmark Entertainment, Inc. will own all of our
shares of Class B common stock. Each share of Class B common stock is entitled
to 10 votes per share. As a result, Hallmark Entertainment, Inc. will hold more
than 80% of our voting power and will continue to control us. Hallmark
Entertainment, Inc. is one of the world's leading producers and distributors of
award-winning made-for-television movies, miniseries and series. Hallmark
Entertainment, Inc. is wholly owned by Hallmark Cards, Incorporated. Hallmark
Cards is the leading U.S. manufacturer of greeting cards and since 1951, has
sponsored the Hallmark Hall of Fame, one of television's most honored and
enduring dramatic series. Hallmark Cards formed Hallmark Entertainment, Inc. in
1994 when it acquired RHI Entertainment, Inc., a producer of television
programming.
THE REORGANIZATION
Crown Media Holdings, Inc., a Delaware corporation, was formed to complete
this offering and the reorganization. After completion of the transactions
described under "Reorganization Transactions Occurring Simultaneously with the
Closing of This Offering," we will own 100% of the Hallmark Entertainment
Network, 77.5% of the Odyssey Network and 50% of the Kermit Channel.
2
<PAGE> 11
The following diagram illustrates the economic interests of our principal
stockholders in the Hallmark Entertainment Network, the Odyssey Network and the
Kermit Channel following the completion of the reorganization. For more details
regarding the reorganization, see "Reorganization Transactions Occurring
Simultaneously with the Closing of This Offering" and "Certain Relationships and
Related Transactions."
[Diagram showing ownership percentage of the Kermit Channel,
the Hallmark Entertainment Network and the Odyssey Network
held by Crown Media Holdings, Inc.; ownership percentage of
Crown Media Holdings, Inc. held by Public Stockholders, Chase
Equity Associates, L.L.C., Hallmark Entertainment, Inc.,
Liberty Media Corporation and National Interfaith Cable
Coalition, Inc.; and ownership percentage of Hallmark
Entertainment, Inc. held by Hallmark Cards, Incorporated.]
We were incorporated in Delaware in December 1999. Our principal executive
offices are located at Suite 500, 6430 S. Fiddlers Green Circle, Englewood,
Colorado 80111 and our telephone number is (303) 220-7990. The address of our
registered agent in Delaware is 1209 Orange Street, Wilmington, Delaware 19801.
Our website can be found at www.crownmedia.net. Information contained on our
website is not intended to be a prospectus and is not incorporated into this
prospectus.
3
<PAGE> 12
THE OFFERING
Class A common stock offered... Shares (1)
Common stock to be outstanding
after this offering:
Class A common stock...... Shares(1)(2)
Class B common stock...... Shares
Total............... Shares
Voting rights:
Class A common stock...... One vote per share
Class B common stock...... Ten votes per share
Conversion rights.............. Each share of Class B common stock is
convertible at the option of the holder into one
share of Class A common stock. Shares of Class B
common stock are generally automatically
convertible into Class A common stock upon sale
or other transfer by the selling stockholder.
Other common stock
provisions..................... With the exception of voting rights and
conversion rights, shares of Class A common
stock and shares of Class B common stock are
identical.
Dividend policy................ We anticipate that we will retain any earnings
in the foreseeable future to finance the
continued growth and expansion of our business
and as a result, we have no current intention to
pay dividends.
Use of proceeds................ We plan to use the proceeds from this offering
to pay accrued and unpaid program license fees
to an affiliate, to license additional
programming, to enhance our technical
facilities, to expand our distribution, to
expand our advertising sales staff and to fund
general corporate expenditures. We plan to use
any proceeds from the exercise of the
underwriters' over-allotment option to repay
indebtedness owed to an affiliate.
Nasdaq National Market and
Amsterdam Stock Exchange
symbol....................... CRWN
- ------------------------------
(1) References in this prospectus to shares of Class A common stock exclude
shares of Class A common stock that would be sold by us if the
over-allotment option is exercised in full.
(2) Excludes 10.0 million shares of Class A common stock reserved for issuance
in connection with options that may be granted under our 2000 Long Term
Incentive Plan.
4
<PAGE> 13
SUMMARY FINANCIAL AND OTHER DATA
(IN THOUSANDS)
Crown Media, Inc. and Odyssey Holdings, L.L.C. have historically operated
as separate entities and their results will only be reported on a consolidated
basis with Crown Media Holdings following the reorganization that will be
completed simultaneously with the closing of this offering. As a result, and in
accordance with generally accepted accounting principles, we have presented
separate, rather than combined, historical financial data for Crown Media and
Odyssey Holdings.
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA OF CROWN MEDIA AND ITS
SUBSIDIARIES AND PRO FORMA CONSOLIDATED FINANCIAL AND OTHER DATA OF CROWN MEDIA
HOLDINGS AND ITS SUBSIDIARIES
Crown Media operates the Hallmark Entertainment Network and the Kermit
Channel. In the table below, we provide you with summary historical consolidated
financial and other data of Crown Media and its subsidiaries. The following
summary consolidated statement of operations data for the years ended December
31, 1996, 1997, 1998 and 1999 and the consolidated balance sheet data as of
December 31, 1999 are derived from the audited financial statements of Crown
Media and its subsidiaries.
Crown Media Holdings' unaudited pro forma as adjusted consolidated
financial information for 1999 reflects the reorganization described under
"Reorganization Transactions Occurring Simultaneously with the Closing of This
Offering" and the completion of this offering and should be read in conjunction
with the selected unaudited pro forma consolidated financial data included
elsewhere in this prospectus.
5
<PAGE> 14
This data should also be read together with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
CROWN MEDIA HOLDINGS
PRO FORMA AS ADJUSTED
CROWN MEDIA YEAR ENDED
YEARS ENDED DECEMBER 31, DECEMBER 31,
----------------------------------------- ---------------------
1996 1997 1998 1999 1999
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues................ $ 3,048 $ 9,802 $ 23,687 $ 31,909 $ 49,792
Total cost of sales........... 9,399 25,082 43,325 41,579 93,706
Income (loss) from
operations................. (10,462) (21,399) (31,188) (35,947) (107,072)
Net income (loss)............. (10,491) (21,578) (35,465) (56,697) (98,614)
OTHER DATA:
Capital expenditures.......... $ 1,921 $ 1,031 $ 6,665 $ 2,569 $ 7,644
Total subscribers (at year
end):
Hallmark Entertainment
Network................. 1,942 5,121 8,710 20,794 20,794
Kermit Channel............. -- -- -- 6,721 6,721
Odyssey Network............ -- -- -- -- 27,354
-------- -------- -------- -------- --------
Total subscribers.... 1,942 5,121 8,710 27,515 54,869
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-------------------------
PRO FORMA
ACTUAL AS ADJUSTED
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 3,865 $221,350
Total assets.............................................. 81,046 686,551
Total long-term debt, excluding current maturities........ --(1) --
Stockholders' equity (deficit)............................ (62,967) 501,970
</TABLE>
- ---------------
(1) Current maturities include $10.0 million due to Odyssey Holdings as the
final installment of Crown Media's $50.0 million investment in Odyssey
Holdings. This $10.0 million was paid to Odyssey Holdings in February of
2000 and was funded through additional equity capital from Hallmark
Entertainment, Inc. and Chase Equity Associates.
6
<PAGE> 15
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA OF ODYSSEY HOLDINGS AND
ITS SUBSIDIARIES
(IN THOUSANDS)
Odyssey Holdings operates the Odyssey Network. In the table below, we
provide you with summary historical consolidated financial and other data of
Odyssey Holdings and its subsidiaries. The following summary consolidated
statement of operations data for the years ended December 31, 1996, 1997, 1998
and 1999 and the consolidated balance sheet data as of December 31, 1999 are
derived from the audited financial statements of Odyssey Holdings and its
subsidiaries. This data should be read together with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
consolidated financial statements and related notes included elsewhere in this
prospectus. Odyssey Holdings is organized as a limited liability company with
membership interests. Therefore, no share or per share data is presented.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1996 1997 1998 1999
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues...................................... $ 12,981 $ 15,254 $ 18,141 $ 17,883
Total cost of sales................................. 10,988 12,489 15,074 52,127
Income (loss) from operations....................... 45 (270) (3,122) (56,244)
Net income (loss)................................... 19 (421) (3,170) (55,063)
OTHER DATA:
Capital expenditures................................ $ 448 $ 123 $ 260 $ 5,075
Total Odyssey Network subscribers (at year end)..... 26,406 27,776 29,021 27,354
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-----------------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 19,485
Total assets.............................................. 137,112
Total long-term debt, excluding current maturities........ --
Members' equity (deficit)................................. (1,153)
</TABLE>
7
<PAGE> 16
RISK FACTORS
You should carefully consider the following risks and the other information
contained in this prospectus before investing in our Class A common stock. If we
do not successfully address the risks described below, our business, prospects,
financial condition, results of operations or cash flow could be materially
adversely affected. The trading price of our Class A common stock could decline
because of any of these risks, and you could lose all or part of your
investment. We urge you to refer to the other information included in this
prospectus, including the financial statements and related notes.
RISKS RELATING TO OUR BUSINESS
OUR BUSINESS HAS INCURRED NET LOSSES SINCE INCEPTION AND MAY CONTINUE TO INCUR
LOSSES.
The Hallmark Entertainment Network and the Odyssey Network both have a
history of net losses and we expect to continue to report net losses for the
foreseeable future. The Hallmark Entertainment Network reported net losses of
$35.5 million and $56.7 million and the Odyssey Network reported net losses of
$3.2 million and $55.1 million, respectively, for the years ended December 31,
1998 and 1999, respectively. As of December 31, 1999 we had a pro forma
accumulated deficit of approximately $131.3 million. We may not achieve or
sustain profitability. If we are not able to achieve or sustain profitability,
the trading price of our Class A common stock may fall significantly. In
addition, we could experience increased capital needs in the future if our
losses are greater, or continue for longer, than we anticipate. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Crown Media and Its Subsidiaries -- Liquidity and Capital
Resources" and "-- Odyssey Holdings and Its Subsidiaries."
BECAUSE WE DEPEND ON HALLMARK ENTERTAINMENT, INC. FOR A SIGNIFICANT PORTION OF
OUR PROGRAMMING, THE LOSS OR INTERRUPTION OF THAT PROGRAMMING WOULD SEVERELY
DISRUPT OUR OPERATIONS AND SERVICES.
We may be unable to implement our operating strategy successfully without
the continued availability and commercial success of programming from Hallmark
Entertainment, Inc. Under our program agreements with a subsidiary of Hallmark
Entertainment, Inc., we are required to license substantially all of the
programming owned or controlled by Hallmark Entertainment, Inc. for the markets
in which we operate during the five-year term of the agreements. Hallmark
Entertainment, Inc. programming represented approximately 51% of Hallmark
Entertainment Network's broadcast hours in 1999, and 17% of the Odyssey
Network's broadcast hours in the fourth quarter of 1999. If this programming
were to become unavailable or unsuccessful for any reason during the term of the
program agreements, we could be unable to obtain alternative programming of
equivalent quality and popularity or on terms as favorable to us. Consequently,
any significant interruption in the supply of programming from Hallmark
Entertainment, Inc. for any reason could hinder our ability to attract and
retain subscribers, generate revenues and achieve profitability.
IF WE ARE UNABLE TO OBTAIN PROGRAMMING FROM PARTIES OTHER THAN HALLMARK
ENTERTAINMENT, INC., WE MAY BE UNABLE TO INCREASE OUR SUBSCRIBER BASE.
We compete with other pay television channel providers for the acquisition
of programming. Programming from parties other than Hallmark Entertainment,
Inc., represented approximately 49% of Hallmark Entertainment Network's
broadcast hours in 1999, and 83% of the Odyssey Network's broadcast hours in the
fourth quarter of 1999. If we fail to continue to obtain programming on
reasonable terms for any reason, including as a result of competition, we could
be forced to incur additional costs of acquiring alternative programming and the
growth of our subscriber base could be hindered.
8
<PAGE> 17
IF OUR PROGRAMMING DECLINES IN POPULARITY, OUR SUBSCRIBER FEES AND ADVERTISING
REVENUE COULD FALL.
The success of our programming depends partly upon unpredictable and
volatile factors beyond our control, such as viewer preferences, competing
programming and the availability of other entertainment activities. A shift in
viewer preferences could cause our programming to decline in popularity, which
could cause a decline in both advertising and subscriber fee revenues. We may
not be able to anticipate and react effectively to shifts in tastes and
interests in our markets. In particular, our ability to react effectively may be
limited by our obligation to license programming from Hallmark Entertainment,
Inc., The Jim Henson Company and the National Interfaith Cable Coalition, each
of which has standards that limit the types of programming that they will
provide to us. In addition, our competitors may have more flexible programming
arrangements, as well as greater volumes of production, distribution and capital
resources, and may be able to react more quickly to shifts in tastes and
interests. We may be unable to maintain the commercial success of any of our
current programming, or to generate sufficient demand and market acceptance for
our new programming.
IF WE ARE UNABLE TO INCREASE OUR ADVERTISING REVENUE, WE MAY BE UNABLE TO
ACHIEVE PROFITABILITY.
If we fail to increase our advertising revenue, we may be unable to achieve
and sustain profitability, or expand our business. We currently generate
approximately 70% of our revenues from subscriber fees paid by television
distributors, and approximately 30% from the sale of advertising time and other
services, each on a pro forma basis. We expect that over time the portion of our
revenues derived from the sale of advertising time on our channels will
increase. We have a limited history of marketing and selling advertising time.
Our ability to achieve advertising revenue growth in the future will depend in
large part on our ability to expand our sales and marketing organization. We may
be unable to identify, attract and retain experienced sales and marketing
personnel with relevant experience, and our sales and marketing organization may
be unable to successfully compete against the significantly more extensive and
well-funded sales and marketing operations of our current or potential
competitors.
HALLMARK ENTERTAINMENT, INC. WILL CONTROL US AND THIS CONTROL COULD CREATE
CONFLICTS OF INTEREST OR INHIBIT POTENTIAL CHANGES OF CONTROL.
Following this offering, Hallmark Entertainment, Inc. will control all of
our outstanding shares of Class B common stock, representing more than % of
the voting power on all matters submitted to our stockholders ( % of the voting
power if the underwriters' over-allotment option is exercised in full). Hallmark
Entertainment, Inc.'s control could discourage others from initiating potential
merger, takeover or other change of control transactions that may otherwise be
beneficial to our businesses or holders of Class A common stock. As a result,
the market price of our Class A common stock or our business could suffer.
Hallmark Entertainment, Inc.'s control relationship with us also could give rise
to conflicts of interest, including:
- conflicts between Hallmark Entertainment, Inc., as our controlling
stockholder, and our other stockholders, whose interests may differ with
respect to, among other things, our strategic direction or significant
corporate transactions;
- conflicts related to corporate opportunities that could be pursued by us,
on the one hand, or by Hallmark Entertainment, Inc. or its other
affiliates, on the other hand; or
- conflicts related to existing or new contractual relationships between
us, on the one hand, and Hallmark Entertainment, Inc. and its affiliates,
on the other hand.
In addition, persons serving as directors, officers or employees of both us
and Hallmark Entertainment, Inc. may have conflicting duties to each. For
example, it is currently contemplated that Robert A.
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<PAGE> 18
Halmi, Jr. will continue in his current positions as our Chairman of the Board
and as President and Chief Executive Officer of Hallmark Entertainment, Inc.,
which could create potential conflicts of interest.
WE COULD LOSE THE RIGHT TO USE THE NAME "HALLMARK ENTERTAINMENT" BECAUSE WE
HAVE LIMITED-DURATION TRADEMARK LICENSE AGREEMENTS, WHICH COULD HARM OUR
BUSINESS.
We license the name "Hallmark Entertainment" from Hallmark Cards under a
three-year trademark license agreement dated as of August 1, 1999. Many of our
international subscribers may now associate our programming with the name
"Hallmark Entertainment." If Hallmark Cards fails to renew the trademark license
agreement for any reason, including our failure to meet minimum programming
thresholds dependent on programming provided by its affiliates or to comply with
Hallmark Cards' programming standards as determined in its sole discretion, we
would be forced to significantly revise our business plan and operations, and
could experience a significant erosion of our subscriber base and revenues. See
"Certain Relationships and Related Transactions -- Hallmark Trademark License
Agreements."
IF OUR THIRD-PARTY SUPPLIERS FAIL TO PROVIDE US WITH NETWORK INFRASTRUCTURE
SERVICES ON A TIMELY BASIS, OUR COSTS COULD INCREASE AND OUR GROWTH COULD BE
HINDERED.
We currently rely on third parties to supply key network infrastructure
services, including uplink, playback, transmission and satellite services, which
are available only from limited sources. We have occasionally experienced delays
and other problems in receiving communications equipment, services and
facilities and may, in the future, be unable to obtain such services, equipment
or facilities on the scale and within the time frames required by us on terms we
find acceptable, or at all. If we are unable to obtain, or if we experience a
delay in the delivery of, such services, we may be forced to incur significant
unanticipated expenses to secure alternative third party suppliers or adjust our
operations, which could hinder our growth.
WE DO NOT HAVE COMPLETE CONTROL OVER ODYSSEY HOLDINGS, WHICH COULD HINDER OUR
ABILITY TO EXPAND THAT BUSINESS.
Our ability to react to business opportunities that may arise and our
ability to raise capital in connection with Odyssey Holdings is limited. Under
an agreement relating to Odyssey Holdings, The Jim Henson Company has certain
protective rights requiring its consent, including:
- entering into any merger or consolidation;
- creating or issuing equity interests;
- incurring debt in excess of $50.0 million;
- distributing programming through free broadcast or transmission;
- transferring assets valued in excess of $500,000; and
- transferring our interests in Odyssey Holdings to a third party.
In addition, under a stockholders agreement to be signed immediately prior to
the completion of this offering, certain actions regarding programming produced
or acquired by the National Interfaith Cable Coalition, including the
requirements that we broadcast at least 10 hours weekly of faith and
values-based programming and that we broadcast at least 30 hours weekly of
programming provided by the National Interfaith Cable Coalition, and our ability
to transfer our interests in Odyssey Holdings, will require the consent of the
National Interfaith Cable Coalition. Our ability to implement strategies may be
limited if we do not receive these required consents from The Jim Henson Company
or the National Interfaith Cable Coalition.
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<PAGE> 19
WE MAY HAVE TO INCUR SIGNIFICANT CAPITAL EXPENDITURES IN ORDER TO ADAPT TO
TECHNOLOGICAL CHANGE.
The pay television industry has been, and is likely to continue to be,
subject to:
- rapid and significant technological change, including continuing
developments in technology which do not presently have widely accepted
standards; and
- frequent introductions of new services and alternative technologies,
including new technologies for providing video services.
We expect that new technologies will emerge that may be superior to, or may not
be compatible with, some of our current technologies, which may require us to
make significant capital expenditures to remain competitive. Our future success
will depend, in part, on our ability to anticipate and adapt to technological
changes and to offer, on a timely basis, services that meet customer demands and
evolving industry standards. We rely in part on third parties for the
development of, and access to, communications and network technology. As a
result, we may be unable to obtain access to new technology on a timely basis or
on satisfactory terms. If we fail to adapt successfully to any technological
change or obsolescence, or fail to obtain access to important technologies, our
business, prospects, financial condition or results of operations could be
materially adversely affected.
IF WE ARE UNABLE TO RETAIN KEY EXECUTIVES AND OTHER PERSONNEL, OUR GROWTH
COULD BE INHIBITED AND OUR BUSINESS HARMED.
Our success depends on the expertise and continued service of Robert A.
Halmi, Jr., David J. Evans and Margaret A. Loesch, and on our ability to hire
additional personnel to accommodate our anticipated growth. If we fail to
attract, hire or retain the necessary personnel, or if we lose the services of
our key executives, we may be unable to implement our business plan or keep pace
with developing trends in our industry. We do not carry key person life
insurance on all of our personnel, nor is the insurance that we do carry
necessarily sufficient to cover the losses that we would incur in the event we
lose one of our key executives to death or disability.
WE ARE SUBJECT TO THE RISKS OF DOING BUSINESS OUTSIDE THE UNITED STATES.
During 1999, 59% of our pro forma revenues were generated from foreign
operations. Certain foreign laws, regulations and judicial procedures may not be
as protective of programmer rights as those which apply in the United States. In
addition, many foreign countries have currency and exchange laws regulating the
international transfer of currencies. Substantially all of our transactions are
in U.S. dollars; however, to the extent that significant currency fluctuations
result in materially higher costs to a foreign customer, the customer may be
unable or unwilling to make the required payments. We are subject to delays in
access to courts and to the remedies local laws impose in order to collect our
payments and recover our assets. In the future, we may experience problems with
collecting accounts due from foreign customers, which would adversely affect our
revenues and income. Our growth and profitability may suffer also as a result
of, among other matters, competitive pressures on video delivery, labor
stoppages, recessions and other political or economic events adversely affecting
world or regional trading markets or affecting a particular customer.
OUR CURRENT AND FUTURE OPERATIONS IN EMERGING MARKETS MAY BE HARMED BY THE
INCREASED POLITICAL AND ECONOMIC RISKS ASSOCIATED WITH THESE MARKETS.
We currently broadcast in several foreign markets where market economies
have only recently begun to develop, and we may expand these operations in the
future. However, if the governments in these markets adopt more restrictive
economic policies, we may not be able to continue operating, or to implement our
expansion plans, in those markets. More generally, we are exposed to certain
risks, many of which are beyond our control, inherent in operating in emerging
market countries. These risks include
11
<PAGE> 20
changes in laws and policies affecting trade, investment and taxes (including
laws and policies relating to the repatriation of funds and to withholding
taxes), differing degrees of protection for intellectual property and the
instability of emerging market economies, currencies and governments.
RISKS RELATING TO OUR INDUSTRY
COMPETITION COULD REDUCE OUR CHANNEL REVENUES AND OUR PROFITABILITY.
We operate in the pay television business, which is highly competitive. If
we are unable to compete effectively with large diversified entertainment
companies that have substantially greater resources than we have, our operating
margins and market share could be reduced, and the growth of our business
inhibited. In particular, we compete for distribution with other pay television
channels and, when distribution is obtained, compete for viewers and advertisers
with pay television channels, broadcast television networks, radio, the Internet
and print media. We also compete, in varying degrees, with other leisure-time
activities such as movie theaters, television, the Internet, radio, print media,
personal computers and other alternative sources of entertainment and
information. In addition, future technological developments may affect
competition within this business.
A continuing trend towards business combinations and alliances in both the
domestic and foreign communications industry may create significant new
competitors for us. Many of these combined entities will have resources far
greater than ours. These combined entities may provide bundled packages of
programming, delivery and other services that compete directly with the products
we offer. These entities may also offer services sooner and at more competitive
rates than we do. In addition, these alliances may benefit from both localized
content and the local political climate.
We may need to reduce our prices or license additional programming to
remain competitive, and we may be unable to sustain future pricing levels as
competition increases. Our failure to achieve or sustain market acceptance of
our programming at desired pricing levels could impair our ability to achieve
profitability or positive cash flow, which would harm our business.
New distribution technologies may fundamentally change the way we
distribute our channels and could significantly decrease our revenues.
The advent of digital technology is likely to accelerate the convergence of
broadcast, telecommunications, Internet and other media and could result in
material changes in the economics, regulations, intellectual property usage and
technical platforms on which our business relies, including lower retail rates
for video services. These changes could fundamentally affect the scale, source
and volatility of our revenue streams, cost structures and profitability, and
may require us to significantly change our operations. There is a risk that our
business and prospects will be harmed by these changes or that we will not
identify or adapt to them as quickly as our competitors do.
THE EXPANSION OF DIGITAL DISTRIBUTION IN OUR MARKETS MAY INCREASE COMPETITION
FOR VIEWERS, RATINGS AND RELATED ADVERTISING REVENUES.
The increased capacity of digital distribution platforms, including the
introduction of digital terrestrial television, may reduce the competition for
the right to carry channels and allow development of extra services at low
incremental cost. Therefore, increased digital capacity could lower barriers to
entry for competing channels, and place pressure on our operating margins and
market position. A greater number of channels would likely increase competition
among channels for viewers and advertisers, which could affect our ability to
attract advertising and new distribution at desired pricing levels, and could
therefore hinder or prevent the growth of our subscriber base.
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<PAGE> 21
IF WE FAIL TO COMPLY WITH APPLICABLE GOVERNMENT REGULATIONS, OUR BUSINESS
COULD BE HARMED.
If, as a provider of television channels, we fail to comply with applicable
present or future government regulations in any markets in which we operate, we
could be prohibited from operating in those markets and could be subject to
monetary fines, either of which would increase our operating costs, reduce our
revenues and limit our ability to achieve profitability. The scope of regulation
to which we are subject varies from country to country, although in many
significant respects a similar approach is taken to the regulation of
broadcasting across all of the markets in which we operate. Typically,
broadcasting regulation in each of the countries in which we operate requires
that domestic broadcasters and platform providers secure broadcasting licenses
from the domestic broadcasting authority. Additionally, most nations have
broadcasting legislation and regulations which set minimum standards regarding
program content, prescribe minimum standards for the content and scheduling of
television advertisements and provide that a certain portion of programming
carried by broadcasters be produced domestically and to some degree be sourced
from domestic production companies who are independent of the broadcaster.
Moreover, broadcasting regulations are generally subject to periodic and
on-going governmental review and legislative initiatives which may, in the
future, affect the nature of programming we are able to offer and the means by
which it is distributed. The timing, scope or outcome of these reviews could be
unfavorable to us, and any changes to current broadcasting legislation or
regulations could require adjustments to our operations.
For more information on the regulations we face, see "Regulation."
RISKS RELATING TO THIS OFFERING
SINCE OUR STOCK HAS NOT PREVIOUSLY BEEN PUBLICLY TRADED, THE PRICE OF OUR
STOCK MAY BE SUBJECT TO WIDE FLUCTUATIONS.
Prior to this offering, you could not buy or sell our Class A common stock
publicly. The market price of our Class A common stock after this offering may
vary from the initial public offering price, and be subject to wide fluctuations
in response to factors such as the following, some of which are beyond our
control:
- quarterly variations in our operating results;
- operating results that vary from the expectations of securities analysts
and investors;
- announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
- announcements by third parties of significant claims or proceedings
against us;
- future sales of our Class A common stock; and
- overall stock market price and volume fluctuations.
SUBSTANTIAL SALES OF OUR COMMON STOCK FOLLOWING THIS OFFERING COULD ADVERSELY
AFFECT THE MARKET PRICE OF OUR CLASS A COMMON STOCK.
Sales of a substantial number of shares of our common stock after this
offering could adversely affect the market price of our Class A common stock by
introducing a large number of sellers to the market. Given the potential
volatility in the price of our shares, these sales could cause the market price
of Class A common stock to decline. Some of our securities will be subject to
restrictions under securities laws on the timing, manner and volume of sales of
restricted shares. However, under the terms of a stockholders agreement to be
signed immediately prior to completion of this offering, each of Hallmark
Entertainment, Inc., Chase Equity Associates, Liberty Media and VISN Management
will have rights to require us to
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<PAGE> 22
register their shares, subject to a two-year restriction on each to sell not
more than 25% of its shares acquired prior to this offering, without the consent
of the other stockholders who are parties to the stockholders agreement. See
"Certain Relationships and Related Transactions -- Stockholders Agreement and
Registration Rights" for more information on these registration rights.
We cannot predict if future sales of our common stock or the availability
of our common stock for sale will adversely affect the market price for Class A
common stock or our ability to raise capital by offering equity securities.
SPECIAL NOTE WITH RESPECT TO
FORWARD-LOOKING INFORMATION
We have made some statements in this prospectus, including some under
"Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business" and elsewhere, which
constitute forward-looking statements. These statements involve known and
unknown risks, uncertainties and other factors that may cause our actual
results, levels of activity, performance, or achievements to be materially
different from any results, levels of activity, performance or achievements
expressed or implied by any forward-looking statements. These factors include,
among other things, 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," "could," "expects," "intends,"
"plans," "anticipates," "believes," "estimates," "predicts," "potential," or
"continue" or the negative of these terms or other comparable terminology.
Although we believe that the expectations reflected in forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. We are under no duty to update any of the
forward-looking statements after the date of this prospectus.
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<PAGE> 23
REORGANIZATION TRANSACTIONS OCCURRING
SIMULTANEOUSLY WITH THE CLOSING OF THIS OFFERING
Simultaneously with the closing of this offering, Crown Media, the operator
of the Hallmark Entertainment Network, Odyssey Holdings, the operator of the
Odyssey Network, and H&H Programming-Asia, the operator of the Kermit Channel,
will be owned by the entities identified in the following diagram in the
following percentages. The diagram reflects the ultimate ownership of the
entities that operate the channels, but does not precisely reflect all the legal
entities in the ownership chain.
[Diagram showing ownership percentage of Odyssey Holdings,
L.L.C. and H&H Programming-Asia, LLC held by The Jim Henson
Company, Inc., Crown Media, Inc., National Interfaith Cable
Coalition, Inc. and Liberty Media Corporation; ownership of
Crown Media, Inc. held by Chase Equity Associates, L.L.C. and
Hallmark Entertainment, Inc; and ownership percentage of
Hallmark Entertainment, Inc. held by Hallmark Cards,
Incorporated.]
The reorganization, which will occur simultaneously with the closing of
this offering, will consist of the following transactions:
- Hallmark Entertainment, Inc. will transfer to us its interests in Crown
Media in exchange for shares of our Class B common stock that will
represent approximately 61% of our outstanding common stock before giving
effect to this offering;
- Chase Equity Associates will transfer to us its interests in Crown Media
in exchange for shares of our Class A common stock that will represent
approximately 8% of our outstanding common stock before giving effect to
this offering;
- Liberty Media will transfer to us its interests in Vision Group
Incorporated in exchange for shares of our Class A common stock that will
represent approximately 18% of our outstanding common stock before giving
effect to this offering; and
- National Interfaith Cable Coalition will transfer to us its common
interests in Odyssey Holdings in exchange for shares of our Class A
common stock that will represent approximately 13% of our outstanding
common stock before giving effect to this offering.
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<PAGE> 24
After completion of the transactions described above, Crown Media, Odyssey
Holdings, and H&H Programming-Asia will be owned by the entities identified in
the following diagram in the following percentages. The diagram reflects the
ultimate ownership of the entities that operate the channels, but does not
precisely reflect all the legal entities in the ownership chain.
[Diagram showing ownership percentage of H&H Programming -
Asia, LLC (Kermit Channel) and Odyssey Holdings, L.L.C.
(Odyssey Network) held by Crown Media Inc. (Hallmark
Entertainment Network), The Jim Henson Company, Inc. and
Crown Media Holdings, Inc.; ownership percentage of Crown
Media Holdings, Inc. held by Public Stockholders, Chase
Equity Associates, L.L.C., Hallmark Entertainment, Inc.,
Liberty Media Corporation and National Interfaith Cable
Coalition, Inc.; and ownership percentage of Hallmark
Entertainment, Inc. held by Hallmark Cards, Incorporated.]
EM. TV & Merchandising AG announced on February 21, 2000 that it has
entered into a definitive agreement to acquire all of the issued and outstanding
stock of The Jim Henson Company. EM. TV is a Munich-based producer and
distributor of children's television programming.
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<PAGE> 25
USE OF PROCEEDS
We estimate the net proceeds to us from the sale of the shares of
Class A common stock offered in this prospectus to be approximately $230.0
million, after deducting estimated offering expenses and underwriting discounts
and commissions of $20.0 million and assuming no exercise of the underwriters'
over-allotment option. We intend to use the net proceeds, over time, to:
- pay accrued and unpaid license fees to an affiliate, which will account
for $30.0 million, as described under "Certain Relationships and Related
Transactions -- Hallmark Program Agreements";
- license additional programming, which will account for approximately
$50.0 million, of which approximately $25.0 million will be paid to an
affiliate during this fiscal year, as described under "Certain
Relationships and Related Transactions -- Hallmark Program Agreements";
- enhance our technical facilities, which will account for approximately
$20.0 million;
- expand our distribution;
- expand our advertising sales staff; and
- fund other general corporate expenditures, which will account for the
remainder of the net proceeds.
If the underwriters exercise their over-allotment option in full, we
estimate the net proceeds to us will be approximately $34.5 million, after
deducting related expenses and underwriting discounts and commissions. If the
underwriters exercise their over-allotment option, we intend to use all of the
net proceeds, up to $30.0 million, for the repayment of indebtedness to an
affiliate. See "Certain Relationships and Related Transactions -- Hallmark
Demand Notes." This indebtedness is payable on demand and bears interest at 130%
of the applicable federal rate, as set forth in the Internal Revenue Code. We
used the proceeds from this indebtedness to fund working capital and for general
corporate purposes. We intend to use the remainder of any proceeds from the
exercise of the underwriters' over-allotment option to fund other general
corporate expenditures.
We have not yet determined the exact amounts of net proceeds to be used for
all of the foregoing purposes, and it is possible that unforeseen events will
require us to adapt or change our plans in order to remain competitive.
Accordingly, management will have significant flexibility in applying the net
proceeds of this offering. Pending these uses, we intend to invest the remainder
of the net proceeds in short-term, interest-bearing, investment-grade
securities.
DIVIDEND POLICY
We anticipate that we will retain all of our earnings in the foreseeable
future to finance the continued growth and expansion of our business, and we
have no current intention to pay cash dividends. Our future dividend policy will
depend on our earnings, capital requirements, requirements of the financing
agreements to which we may be a party, financial condition and other factors
considered relevant by our Board of Directors.
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<PAGE> 26
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999
on actual, pro forma and pro forma as adjusted bases:
- The Crown Media column represents Crown Media historical amounts prior to
the reorganization.
- The pro forma column reflects our capitalization as set forth in the
Crown Media column with the following adjustments as if each had occurred
on December 31, 1999:
-- Hallmark Entertainment Inc. transfers its 88.9% interest in Crown
Media to us in exchange for shares of our Class B common
stock;
-- Chase Equity Associates transfers its 11.1% interest in Crown Media to
us in exchange for shares of our Class A common stock;
-- Liberty Media transfers its interests in Vision Group Incorporated
(which owns a 32.5% interest in Odyssey Holdings) to us in exchange
for shares of our Class A common stock; and
-- National Interfaith Cable Coalition transfers its 22.5% interest in
Odyssey Holdings to us in exchange for shares of our Class
A common stock.
- The pro forma as adjusted column reflects our capitalization as set forth
in the pro forma column, with adjustments to reflect the issuance of the
shares of Class A common stock offered in this prospectus and our
receipt and use of the estimated net proceeds from the sale of these
shares, including the payment of accrued and unpaid program license fees
to an affiliate of $30.0 million, as if this offering had been completed
on December 31, 1999.
Upon completion of the reorganization and this offering, Crown Media will
become our wholly owned subsidiary. Prior to such time, Crown Media Holdings
will have no material assets, liabilities, contingent liabilities or operations.
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<PAGE> 27
This table should be read together with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-----------------------------------------
CROWN MEDIA HOLDINGS
-------------------------
CROWN PRO FORMA
MEDIA PRO FORMA AS ADJUSTED
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE
DATA)
<S> <C> <C> <C>
Cash and cash equivalents......................... $ 3,865 $ 23,350 $ 221,350
========= ========= =========
Total long-term debt, excluding current
maturities...................................... --(1) -- --
Minority interest................................. -- 29,241(2) 29,241(2)
--------- --------- ---------
Crown Media Class B common stock subject to put
and call ($0.01 par value) 1,000 shares
authorized; 136.1 shares issued and outstanding;
no shares outstanding pro forma and pro forma as
adjusted........................................ 60,338 -- --
--------- --------- ---------
Stockholders' equity (deficit):
Crown Media Class A common stock ($0.01 par
value) 2,000 shares authorized; 1,088.9
shares issued and outstanding; no shares
outstanding pro forma and pro forma as
adjusted..................................... -- -- --
Crown Media Holdings Class A common stock ($0.01
par value) shares authorized;
shares issued and outstanding;
shares issued and outstanding pro forma and
pro forma as adjusted........................ --
Crown Media Holdings Class B common stock ($0.01
par value) shares authorized;
shares issued and outstanding;
shares issued and outstanding pro
forma and pro forma as adjusted..............
Paid-in capital................................. 69,902 405,239 635,239
Accumulated deficit............................. (132,869) (131,269) (133,269)
--------- --------- ---------
Total stockholders' equity (deficit)............ (62,967) 273,970 501,970
--------- --------- ---------
Total capitalization.............................. $ (2,629) $ 303,211 $ 531,211
========= ========= =========
</TABLE>
- ------------------------------
(1) Current maturities include $10.0 million due to Odyssey Holdings as final
installment of Crown Media's $50.0 million investment in Odyssey Holdings.
This $10.0 million was paid to Odyssey Holdings in February of 2000 and was
funded through additional equity capital from Hallmark, Entertainment, Inc.
and Chase Equity Associates.
(2) Minority interest consists of The Jim Henson Company's 22.5% interest of
$4.2 million and VISN Management's $25.0 million preferred interest in
Odyssey Holdings.
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DILUTION
We determine net tangible book value (deficit) per share by subtracting
total liabilities, minority interests and common stock subject to put or call
from total tangible assets, and dividing the remainder by the number of shares
of common stock not subject to put or call. Dilution per share represents the
difference between the price per share to be paid by new stockholders for the
shares issued in this offering and the net tangible book value per share after
this offering.
The net tangible book value (deficit) of Crown Media as of December 31,
1999, prior to giving effect to the reorganization and this offering, was
approximately $(117.2) million or $(107,632) per share based on an aggregate of
1,088.9 shares of common stock outstanding. Net tangible book value per share is
determined by dividing the number of outstanding shares of common stock into
Crown Media's net tangible book value, which is the total tangible assets less
total liabilities. Assuming the reorganization had occurred as of December 31,
1999, our pro forma net tangible book value (deficit) would have been
approximately $(91.5) million or $( ) per share based on an aggregate of
shares of common stock outstanding. Assuming the reorganization and
the sale of shares of Class A common stock offered in this prospectus
had occurred as of December 31, 1999, and after deducting estimated offering
expenses and underwriting discounts and commissions based on an assumed initial
public offering price of $ per share, our net tangible book value (deficit) as
of December 31, 1999 would have been $136.5 million, or $ per share. This
represents an immediate dilution of $ per share to new investors purchasing
shares of Class A common stock at the initial offering price. The following
table illustrates this pro forma as adjusted per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Net tangible book value (deficit) per share as of
December 31, 1999...................................... $
Effect of reorganization before giving effect to the
offering...............................................
Increase in net tangible book value (deficit) per share
attributable to new investors in this offering.........
Pro forma net tangible book value (deficit) per share after
the reorganization and this offering......................
Dilution per share to new investors......................... $
</TABLE>
The following table sets forth, as of December 31, 1999, on the pro forma
as adjusted basis described above, the differences between the number of shares
of common stock purchased from us, the total price paid and average price per
share paid by existing stockholders and by the new investors in this offering at
the initial public offering price of $ per share, before deducting
the underwriting discount and estimated offering expenses payable by us.
<TABLE>
<CAPTION>
EFFECTIVE CASH
SHARES PURCHASED CONTRIBUTION AVERAGE
----------------- ------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Existing stockholders................. % $ 69,902 -- $ --
Reorganization........................ % %
New investors......................... % %
------- ----- --------- ----- --------
Total...................... 100.0% $ 100.0% $
</TABLE>
The foregoing discussion and tables assume that the underwriters'
over-allotment is not exercised.
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<PAGE> 29
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
Crown Media and Odyssey Holdings have historically operated as separate
entities and their results will only be reported on a consolidated basis with
Crown Media Holdings following the reorganization that will be completed
simultaneously with the closing of this offering. As a result, and in accordance
with generally accepted accounting principles, we have presented separate,
rather than combined, historical financial data for Crown Media and Odyssey
Holdings.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF CROWN MEDIA AND ITS
SUBSIDIARIES
In the table below, we provide you with selected historical consolidated
financial and other data of Crown Media and its subsidiaries. The following
selected consolidated statement of operations data for the years ended December
31, 1996, 1997, 1998 and 1999 and the consolidated balance sheet data as of
December 31, 1996, 1997, 1998 and 1999 are derived from the audited financial
statements of Crown Media and its subsidiaries. The following selected
consolidated statement of operations data for the period from June 1, 1995
(Inception) to December 31, 1995 and the consolidated balance sheet data as of
December 31, 1995 have been derived from the unaudited consolidated financial
statements of Crown Media and its subsidiaries which, in the opinion of
management, have been prepared on the same basis as the audited financial
statements and reflect all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation. This data should be read
together with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the consolidated financial statements and related
notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
JUNE 1
(INCEPTION) TO YEARS ENDED DECEMBER 31,
DECEMBER 31, ------------------------------------------
1995 1996 1997 1998 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Subscriber fees.................................... $ -- $ 3,048 $ 9,100 $ 20,648 $ 27,670
Advertising........................................ -- -- 176 84 1,729
Other.............................................. -- -- 526 2,955 2,510
------- -------- -------- -------- --------
Total revenues....................................... -- 3,048 9,802 23,687 31,909
------- -------- -------- -------- --------
Cost of sales:
Programming costs:
Affiliates....................................... 918 5,125 10,322 12,307 12,331
Non-affiliates................................... -- 1,380 7,770 14,187 10,452
Operating costs.................................... 253 2,894 6,990 16,831 18,796
------- -------- -------- -------- --------
Total cost of sales.................................. 1,171 9,399 25,082 43,325 41,579
General and administrative expenses.................. 1,574 4,111 6,119 11,550 26,277
------- -------- -------- -------- --------
Loss from operations................................. (2,745) (10,462) (21,399) (31,188) (35,947)
Equity in net losses of unconsolidated subsidiaries
and investment expenses............................ -- -- -- 4,918 18,992
Interest (income) expense, net....................... -- -- -- (1,273) (798)
Income tax provision................................. -- 29 179 632 2,556
------- -------- -------- -------- --------
Net loss............................................. $(2,745) $(10,491) $(21,578) $(35,465) $(56,697)
======= ======== ======== ======== ========
Loss per share....................................... (1) $(10,491) $(21,578) $(32,868) $(47,926)
======== ======== ======== ========
Weighted average shares outstanding.................. (1) 1,000 1,000 1,079 1,183
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------------
1995 1996 1997 1998 1999
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................ $ -- $ 5 $ 209 $ 2,877 $ 3,865
Total assets......................................... 4,269 13,560 30,276 117,674 81,046
Total long-term debt, excluding current maturities... -- -- -- 10,000(2) --(3)
Stockholders' equity (deficit)....................... (2,745)(1) (13,236) (34,813) (20,197) (62,967)
</TABLE>
- ------------------------------
(1) During 1995, Crown Media had not been incorporated and was functioning
solely as a division of Hallmark Entertainment, Inc. As such, no stock was
outstanding as of December 31, 1995.
(2) Current maturities includes $20.0 million due to Odyssey Holdings during
1999 as part of Crown Media's $50.0 million investment in Odyssey Holdings.
This $20.0 million was paid by Odyssey Holdings during 1999 and was funded
through additional equity capital from Hallmark Entertainment, Inc. and
Chase Equity Associates.
(3) Current maturities includes $10.0 million due to Odyssey Holdings as the
final installment of Crown Media's $50.0 million investment in Odyssey
Holdings, Inc. This $10.0 million was paid to Odyssey Holdings in February
of 2000 and was funded through additional equity capital from Hallmark
Entertainment, Inc. and Chase Equity Associates.
21
<PAGE> 30
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF ODYSSEY HOLDINGS AND ITS
SUBSIDIARIES
In the table below, we provide you with selected historical consolidated
financial and other data of Odyssey Holdings and its subsidiaries. The following
selected consolidated statement of operations data for the period from July 1
(Inception) to December 31, 1995 and for the years ended December 31, 1996,
1997, 1998 and 1999 and the consolidated balance sheet data as of December 31,
1995, 1996, 1997, 1998 and 1999 are derived from the audited financial
statements of Odyssey Holdings. This data should be read together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and related notes included
elsewhere in this prospectus. Odyssey Holdings is organized as a limited
liability company with membership interests. Therefore, no share or per share
data is presented.
<TABLE>
<CAPTION>
JULY 1
(INCEPTION) TO YEARS ENDED DECEMBER 31,
DECEMBER 31, ------------------------------------------
1995 1996 1997 1998 1999
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Subscriber fees.................... $ 2,468 $ 6,582 $ 6,188 $ 6,473 $ 7,844
Advertising........................ 2,531 6,015 8,834 11,542 9,333
Other.............................. 440 384 232 126 706
------- -------- -------- -------- ---------
Total revenues........................ 5,439 12,981 15,254 18,141 17,883
Cost of sales:
Programming costs:
Affiliates...................... -- -- -- -- 15,930
Non-affiliates.................. 630 1,380 2,815 3,754 5,882
Other.............................. 4,343 9,608 9,674 11,320 28,715
Amortization of subscriber
acquisition fees................ -- -- -- -- 1,600
------- -------- -------- -------- ---------
Total cost of sales................... 4,973 10,988 12,489 15,074 52,127
General and administrative expenses... 624 1,948 3,035 6,189 22,000
------- -------- -------- -------- ---------
Income (loss) from operations......... (158) 45 (270) (3,122) (56,244)
Interest (income) expense, net........ -- 26 151 48 (1,181)
------- -------- -------- -------- ---------
Net income (loss)..................... $ (158) $ 19 $ (421) $ (3,170) $ (55,063)
======= ======== ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------------
1995 1996 1997 1998 1999
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............. $ 712 $ 202 $ 140 $ 38,980 $ 19,485
Total assets.......................... 2,759 3,999 4,814 100,574 137,112
Total long-term debt, excluding
current maturities................. -- -- -- -- --
Members' equity (deficit)............. 138 157 (263) 13,601 (1,153)
</TABLE>
22
<PAGE> 31
SELECTED UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following selected unaudited pro forma financial data of Crown Media
Holdings and its subsidiaries as of and for the year ended December 31, 1999
have been derived from the audited financial statements of Crown Media and its
subsidiaries and Odyssey Holdings and its subsidiaries. We are a holding company
and prior to the completion of the reorganization and the offering will have no
material assets, liabilities, contingent liabilities or operations. The selected
unaudited pro forma financial data and accompanying notes thereto should be read
in conjunction with "Selected Historical Consolidated Financial Data" and the
consolidated financial statements of Crown Media and Odyssey Holdings and other
financial information, including "Management's Discussion and Analysis of
Financial Condition and Results of Operations," included elsewhere in this
prospectus.
Our consolidated financial statements will include the assets and
liabilities of Crown Media at their historical carrying values since both we and
Crown Media are entities under common control before and after this offering.
The assets and liabilities of Odyssey Holdings and its subsidiaries
relating to Crown Media's 22.5% interest in Odyssey Holdings which will be owned
indirectly by us following the reorganization, as well as The Jim Henson
Company's 22.5% interest in Odyssey Holdings, each will be included in Crown
Media Holdings' consolidated financial statements at their historical carrying
values. The acquisition of Liberty Media's 32.5% interest in Odyssey Holdings
and the National Interfaith Cable Coalition's 22.5% interest in Odyssey
Holdings, both of which will be transferred to us as part of the reorganization,
will be included in our consolidated financial statements at their fair market
value using purchase accounting as of the date of the reorganization.
Our consolidated financial statements are adjusted on a pro forma basis to
illustrate the effects of the reorganization as if it had occurred on December
31, 1999 for the balance sheet and as if it had occurred on January 1, 1999 for
the statements of operations presented. The pro forma financial data is not
necessarily indicative of results of operations that would have occurred had the
reorganization been completed as of, or at the beginning of, the period
presented or that might be attained in the future.
23
<PAGE> 32
SELECTED UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999
----------------------------------------------------------------------------
CROWN MEDIA HOLDINGS
-----------------------------------------------------
PRO
CROWN ODYSSEY FORMA PRO OFFERING PRO FORMA
MEDIA HOLDINGS ADJUSTMENTS FORMA ADJUSTMENTS AS ADJUSTED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Subscriber fees.............. $ 27,670 $ 7,844 $ -- $ 35,514 $ -- $ 35,514
Advertising.................. 1,729 9,333 -- 11,062 -- 11,062
Other........................ 2,510 706 -- 3,216 -- 3,216
-------- -------- -------- --------- -------- ---------
Total revenues................. 31,909 17,883 -- 49,792 -- 49,792
Cost of sales:
Programming costs:
Affiliates................ 12,331 15,930 -- 28,261 -- 28,261
Non-affiliates............ 10,452 5,882 -- 16,334 -- 16,334
Subscriber acquisition cost
amortization.............. -- 1,600 -- 1,600 -- 1,600
Other........................ 18,796 28,715 -- 47,511 -- 47,511
-------- -------- -------- --------- -------- ---------
Total cost of sales............ 41,579 52,127 -- 93,706 -- 93,706
General and administrative
expenses..................... 26,277 22,000 -- 48,277 -- 48,277
Amortization of goodwill....... -- -- 13,232(1) 14,881 -- 14,881
1,649(2)
-------- -------- -------- --------- -------- ---------
Income (loss) from
operations................... (35,947) (56,244) (14,881) (107,072) -- (107,072)
Equity in net losses of
unconsolidated subsidiaries
and investment expenses...... 18,992 -- (12,389)(3) 4,954 -- 4,954
(1,649)(2)
Minority interest in net
loss......................... -- -- (12,389)(4) (12,389) -- (12,389)
Interest (income) expense,
net.......................... (798) (1,181) -- (1,979) -- (1,979)
-------- -------- -------- --------- -------- ---------
Net loss before income taxes... (54,141) (55,063) 11,546 (97,658) -- (97,658)
Income tax provision........... 2,556 -- (1,600)(5) 956 -- 956
-------- -------- -------- --------- -------- ---------
Net loss....................... $(56,697) $(55,063) $ 13,146 $ (98,614) $ -- $ (98,614)
======== ======== ======== ========= ======== =========
Loss per share................. $(47,926) $ $
======== ========= =========
Weighted average number of
Class A and Class B shares
outstanding.................. 1,183
</TABLE>
See accompanying notes to selected unaudited pro forma consolidated financial
data.
24
<PAGE> 33
SELECTED UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
--------------------------------------------------------------------------------
CROWN MEDIA HOLDINGS
--------------------------------------------------------
CROWN ODYSSEY PRO FORMA PRO OFFERING PRO FORMA
MEDIA HOLDINGS ADJUSTMENTS FORMA ADJUSTMENTS AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents........ $ 3,865 $ 19,485 $ -- $ 23,350 $ 230,000(13) $ 221,350
(2,000)(14)
(30,000)(15)
Accounts receivable, net......... 8,847 5,063 -- 13,910 -- 13,910
Program license fees, net........ 10,846 21,562 -- 32,408 -- 32,408
Prepaids and other assets........ 1,829 177 10,000(6) 12,006 -- 12,006
--------- --------- --------- ---------- --------- ---------
Total current assets........... 25,387 46,287 10,000 81,674 198,000 279,674
Program license fees, net of
current portion................ 7,736 59,992 -- 67,728 -- 67,728
Property and equipment, net...... 7,985 4,663 -- 12,648 -- 12,648
Investment in Odyssey Holdings
and related investment
expenses....................... 35,363 -- (4,241)(7) -- -- --
(31,122)(7)
Prepaids and other assets, net of
current portion................ 4,575 26,170 -- 30,745 -- 30,745
Goodwill......................... -- -- 31,122(7) 295,756 -- 295,756
264,634(8)
--------- --------- --------- ---------- --------- ---------
Total assets................... $ 81,046 $ 137,112 $ 270,393 $ 488,551 $ 198,000 $ 686,551
========= ========= ========= ========== ========= =========
LIABILITIES AND
STOCKHOLDERS'/MEMBERS' EQUITY
(DEFICIT):
Accounts payable and accrued
liabilities.................... $ 8,743 $ 8,962 $ -- $ 17,705 $ -- $ 17,705
Payable to affiliates............ 43,848 34,627 -- 78,475 (30,000)(15) 48,475
Notes payable.................... 22,711 -- (10,000)(9) 12,711 -- 12,711
Other current liabilities........ 2,154 3,834 -- 5,988 -- 5,988
--------- --------- --------- ---------- --------- ---------
Total current liabilities...... 77,456 47,423 (10,000) 114,879 (30,000) 84,879
License fees payable to
affiliates, net of current
portion........................ -- 28,744 -- 28,744 -- 28,744
License fees payable to third
parties, net of current
portion........................ -- 6,466 -- 6,466 -- 6,466
Other long-term liabilities...... 6,219 30,632 (1,600)(10) 35,251 -- 35,251
Minority interest (including
redeemable preferred
interest)...................... -- 25,000 4,241(6) 29,241 -- 29,241
Class B common stock subject to
put and call................... 60,338 -- (60,338)(11) -- -- --
STOCKHOLDERS'/MEMBERS' EQUITY
(DEFICIT):
Class A common stock............. -- -- -- -- -- --
Class B common stock............. -- -- -- -- -- --
Paid-in capital.................. 69,902 -- 60,338(11) 405,239 230,000(13) 635,239
264,634(8)
10,365(12)
Accumulated earnings (deficit)... (132,869) -- 1,600(10) (131,269) (2,000)(14) (133,269)
Members' equity (deficit)........ -- (1,153) (4,241)(7) -- -- --
5,759(6)
10,000(9)
(10,365)(12)
--------- --------- --------- ---------- --------- ---------
Total stockholders'/members'
equity (deficit)............. (62,967) (1,153) 338,090 273,970 228,000 501,970
--------- --------- --------- ---------- --------- ---------
Total liabilities and
stockholders'/ members'
equity (deficit)............. $ 81,046 $ 137,112 $ 270,393 $ 488,551 $ 198,000 $ 686,551
========= ========= ========= ========== ========= =========
</TABLE>
See accompanying notes to selected unaudited pro forma consolidated financial
data.
25
<PAGE> 34
NOTES TO SELECTED UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The selected unaudited pro forma consolidated balance sheet and statement
of operations give effect to the following adjustments resulting from the
reorganization:
Statement of Operations Adjustments:
(1) Represents amortization of goodwill of $13.2 million based on a
twenty-year life resulting from the step-up in basis of our
proportionate share of all of the underlying assets and liabilities
of Odyssey Holdings at the time of the reorganization (see (8)
below).
(2) Represents the reclassification of $1.6 million of goodwill
amortization, from equity in the net losses in unconsolidated
subsidiaries and investment expenses to amortization of goodwill, as
a result of Crown Media's existing basis difference in Odyssey
Holdings.
(3) Represents the elimination of $12.4 million of equity in net losses
of unconsolidated subsidiaries and investment expenses relating to
Crown Media's share of Odyssey Holdings' net loss for 1999 that was
accounted for by Crown Media under the equity method.
(4) Represents the recording of a minority interest of $12.4 million
relating to The Jim Henson Company's 22.5% Odyssey Holdings' 1999
net loss.
(5) Represents the reversal of $1.6 million of Crown Media's tax
provision which will be offset by the benefit of net operating
losses generated by Odyssey Holdings.
Balance Sheet Adjustments:
(6) Represents the reclassification of a $10.0 million note receivable
from The Jim Henson Company to Odyssey Holdings and the recording of
$4.2 million relating to The Jim Henson Company's 22.5% minority
interest in Odyssey Holdings.
(7) Represents the elimination of the $4.2 million Crown Media
investment in Odyssey Holdings and the reclassification of $31.1
million existing excess purchase price to goodwill.
(8) Represents $264.6 million of goodwill, the difference between the
book value of Odyssey Holdings and the estimated value of the
contributions to us by Liberty Media and the National Interfaith
Cable Coalition of their interests in Odyssey Holdings.
(9) Represents the elimination of Crown Media's note payable to Odyssey
Holdings and Odyssey Holdings' corresponding note receivable of
$10.0 million.
(10) Represents the reversal of the $1.6 million deferred tax liability
balance that will be offset by the benefits resulting from Odyssey
Holdings' net operating losses.
(11) Represents a reclassification resulting from the conversion by Chase
Equity Associates of its shares of Class B common stock subject to
put and call of Crown Media into shares of our Class A common stock.
(12) Represents the elimination of Odyssey Holdings' members' equity of
$10.4 million acquired from Liberty Media and the National
Interfaith Cable Coalition in the reorganization.
The selected unaudited pro forma as adjusted balance sheet gives effect to
the following adjustments resulting from the offering:
(13) Represents the receipt of offering proceeds estimated at $250.0
million, less estimated issuance costs of $20.0 million.
(14) Represents a $2.0 million payment that Crown Media will be required
to pay to a former senior executive upon completion of this
offering.
(15) Represents a $30.0 million payment of accrued and unpaid program
license fees to an affiliate.
26
<PAGE> 35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations covers the years ended December 31, 1997, 1998 and 1999
and should be read together with "Selected Historical Consolidated Financial
Data," and the consolidated financial statements of Crown Media, Inc. and
Odyssey Holdings, L.L.C. and, in each case, the notes related to these financial
statements, included elsewhere in this prospectus. This discussion contains, in
addition to historical information, forward-looking statements that involve
risks and uncertainties including those set forth under "Risk Factors." Our
actual results may differ significantly from the results discussed in the
forward-looking statements.
OVERVIEW
Crown Media and Odyssey Holdings have historically operated as separate
entities and their results will only be reported on a consolidated basis with us
following the reorganization that will be completed simultaneously with the
closing of this offering. As a result, and in accordance with generally accepted
accounting principles, we have presented separate, rather than combined,
historical financial data for Crown Media and Odyssey Holdings. Crown Media
accounts for H&H Programming-Asia, of which it owns a 50% interest, and Odyssey
Holdings, of which it owns a 22.5% interest in the consolidated financial
statements of Crown Media using the equity method of accounting.
Crown Media Holdings' acquisition of Crown Media will be accounted for as a
reorganization of entities under common control. Our acquisition of the
additional 55% interest in Odyssey Holdings will be accounted for using the
purchase method of accounting. Following the completion of this offering and the
reorganization, Odyssey Holdings will be consolidated with us and will no longer
be accounted for using the equity method of accounting.
REVENUES
Our revenues consist primarily of subscriber fees and advertising revenue.
Subscriber fees are payable to us on a per subscriber basis by pay television
distributors for the right to carry our channels. Subscriber fee revenues are
recorded net of promotional subscribers. Prices vary according to:
- market;
- the relative position in the market of the distributor and the channel;
- the packaging arrangements for the channel; and
- other commercial terms such as platform exclusivity and length of term.
In some circumstances, distributors provide minimum revenue guarantees.
Our channels' growth in subscriber fees has been driven primarily by:
- expansion of our channels into new markets;
- new distribution agreements for our channels in existing markets; and
- growth in the number of multi-channel homes.
Advertising sales are made on the basis of a price per advertising spot or
per unit of audience measurement (for example, a ratings point). Prices vary on
a market-by-market basis. Rates differ within markets depending on audience
demographics.
In markets where regular audience measurements are available, our
advertising rates are calculated on the basis of an agreed upon price per unit
of audience measurement in return for a guaranteed investment
27
<PAGE> 36
level by the advertiser. In these countries, we commit to provide advertisers
with certain rating levels in connection with their advertising. Revenue is
recorded net of estimated shortfalls, which are usually settled by providing the
advertiser additional advertising time. In other markets, our advertising rates
are calculated on the basis of cost per advertising spot or package of
advertising spots, and the price varies by audience level expected (but not
measured) during a particular time slot. This is the predominant arrangement in
the countries outside the United States in which we sell advertising time.
Advertising rates also vary by time of year based on seasonal changes in
television viewership.
COST OF SALES
Our cost of sales consist primarily of program license fees and the cost of
signal distribution, dubbing and subtitling, marketing, and creating the
promotional segments that are aired between programs. In the United States, we
pay certain television distributors one-time subscriber acquisition fees to
carry our channels. However, internationally, the market does not require us to
pay these fees. Subscriber acquisition fees are capitalized and amortized over
the term of the applicable distribution agreement. At the time we sign a
distribution agreement, and periodically thereafter, we evaluate the
recoverability of the expenses we incur against the revenues directly associated
with each agreement. New market launches can require significant up front
investments in program license fees, signal distribution, dubbing and
subtitling, marketing, and interstitial and creative production. Initial
revenues from new market launches generally trail expenses by three to six
months. We expect cost of sales to continue to increase.
INCOME TAX PROVISION
We account for income taxes using the liability method. Under this method,
we recognize deferred tax assets and liabilities for future tax consequences
attributable to the difference between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled.
Crown Media has not recorded a tax benefit for federal or state tax losses
since these losses have been used by our parent and will not be available to us.
Crown Media has recorded a tax provision related to foreign taxes and to
establish a deferred tax liability as required for certain timing items.
Subscriber fees are subject to withholding tax in many of the foreign
jurisdictions that we currently operate in at rates ranging from 5% to 20%.
Crown Media attempts to take advantage of reduced withholding rates pursuant to
any treaties between the United States and foreign taxing jurisdictions to the
extent available.
Foreign withholding tax may be claimed as a credit against Crown Media's
U.S. tax liability, subject to certain limitations. Any amounts not allowed as a
credit in the year generated may be carried back to the two preceding tax years
and then forward to the five succeeding tax years. Alternatively, if taxes
cannot be claimed as a credit during these carry back and carryover periods, an
election may be made to claim these taxes as a deduction, thus resulting in a
tax benefit to the extent of Crown Media's tax rate and its ability to use such
deductions. Tax losses may only be used to offset taxable income. To the extent
losses are limited, such excess losses may be carried back to the two preceding
tax years and then forward to the 20 succeeding tax years.
Crown Media has generated tax losses since its inception and there is no
certainty that Crown Media will generate taxable income in the future. Crown
Media policy is to establish a valuation allowance against its tax credits and
tax losses until such time that realization is reasonably assured.
28
<PAGE> 37
We will generate goodwill as a result of the reorganization and any
amortization of such goodwill for financial reporting purposes is not deductible
for tax purposes. Consequently, our effective tax rate will be higher than the
statutory rate as a result of such non-deductible goodwill.
Following the reorganization, Odyssey Holdings will be consolidated with us
for financial reporting purposes but not for tax purposes. Odyssey Holdings is
treated as a partnership for tax purposes and we will be allocated income and
losses pursuant to the Amended and Restated Company Agreement of Odyssey
Holdings, L.L.C.
CROWN MEDIA AND ITS SUBSIDIARIES
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Revenues. Total revenues increased $8.2 million, or 35%, to $31.9 million
for the year ended December 31, 1999, from $23.7 million for the year ended
December 31, 1998. This increase was due primarily to a $7.1 million increase in
subscriber fees resulting from new market launches and expanded distribution in
existing markets. The number of subscribers increased to 20.8 million at
December 31, 1999 from 8.7 million at December 31, 1998, or 139%. During 1999,
Crown Media launched the Hallmark Entertainment Network in the following new
territories: Argentina, India, Philippines, Romania and Russia. Crown Media's
average monthly per subscriber fees decreased from $0.25 in 1998 to $0.16 in
1999, primarily due to the addition of a large number of promotional subscribers
in Latin America and Asia. Crown Media's promotional subscribers will convert to
paying subscribers over time, based on the specific terms of these distribution
contracts. Additionally, advertising revenue increased $1.6 million as Crown
Media began the implementation of its new advertising strategy in 1999. During
1999, 92% of total revenues were earned internationally.
Cost of sales. Cost of sales decreased $1.7 million, or 4%, to $41.6
million for the year ended December 31, 1999, from $43.3 million for the year
ended December 31, 1998. Cost of sales as a percent of total revenue decreased
from 183% in 1998 to 130% in 1999. This decrease was due primarily to a $3.7
million decrease in programming costs which was partially offset by a $2.0
million increase in signal distribution and language preparation costs.
Programming costs decreased as a result of the refinement of our program
acquisition and scheduling processes which enabled us to more efficiently
utilize our licensed program rights.
General and administrative expenses. General and administrative expenses
increased $14.8 million, or 129%, to $26.3 million for the year ended December
31, 1999, from $11.5 million for the year ended December 31, 1998. General and
administrative expenses as a percent of total revenue increased from 49% in 1998
to 82% in 1999. This increase was due to a $4.0 million severance charge related
to a former executive of the company, $2.8 million of expenses related to an SAR
plan and the balance due to new market launches and the continued development of
a corporate infrastructure to support increased distribution and advertising,
including expansion of the management team and increased staffing levels.
Loss from operations. Loss from operations was $35.9 million for the year
ended December 31, 1999, as compared to a loss from operations of $31.2 million
for the year ended December 31, 1998. The $4.7 million increase in the loss from
operations for the year ended December 31, 1999 from the year ended December 31,
1998 was attributable to the factors discussed above.
Equity in net losses of unconsolidated subsidiaries. Equity in net losses
of unconsolidated subsidiaries of $19.0 million represents Crown Media's
proportionate share of losses for 1999 for the Odyssey Network and the Kermit
Channel and amortization of the step-up in basis of our proportionate share of
all of the underlying assets and liabilities of Odyssey Holdings.
29
<PAGE> 38
Interest (income) expense, net. Net interest income of $798,000 for the
year ended December 31, 1999 was generated from an interest-bearing note
receivable from Hallmark Entertainment, Inc. The net interest income decreased
for the year ended December 31, 1999 as a result of the repayment of the note.
Income tax provision. Income tax provision increased $2.0 million to $2.6
million for the year ended December 31, 1999, from $632,000 for the year ended
December 31, 1998. The increase was attributable to higher foreign taxes based
on higher revenues derived from foreign tax jurisdictions and the establishment
of a deferred tax liability resulting from the allocation of Odyssey Holdings
tax losses in excess of book losses. During 1999, 29% of total revenues were
subject to foreign withholding taxes.
Net loss. Net loss was $56.7 million for the year ended December 31, 1999,
as compared to a net loss of $35.5 million for the year ended December 31, 1998.
The $21.2 million increase in the net loss for the year ended December 31, 1999
was attributable to the factors discussed above.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenues. Total revenues increased $13.9 million, or 142%, to $23.7
million for the year ended December 31, 1998, from $9.8 million for the year
ended December 31, 1997. This increase was due primarily to an $11.5 million
increase in subscriber fees resulting from new market launches and expanded
distribution in existing markets. The number of subscribers increased to 8.7
million at December 31, 1998 from 5.1 million at December 31, 1997, or 71%.
During 1998, Crown Media launched the Hallmark Entertainment Network in the
following new territories: Chile, Taiwan, Thailand, Malaysia, Japan, Poland and
the Czech Republic. Crown Media's average monthly per subscriber fees increased
from $0.22 in 1997 to $0.25 in 1998, primarily due to the growth of Crown
Media's distribution in territories with high subscriber fees such as Central
and Western Europe. The remaining revenue increase was due primarily to
increased management fees earned from the Kermit Channel, which was launched in
1998. During 1998, 94% of total revenues were earned internationally.
Cost of sales. Cost of sales increased $18.2 million, or 73%, to $43.3
million for the year ended December 31, 1998, from $25.1 million for the year
ended December 31, 1997. This increase was due primarily to an $8.4 million
increase in programming costs and a $9.8 million increase in signal distribution
and language preparation costs. These increases resulted primarily from new
market launches and expansion within existing markets. Cost of sales as a
percent of total revenue decreased from 256% in 1997 to 183% in 1998, due
primarily to a 142% increase in total revenue from 1997 to 1998.
General and administrative expenses. General and administrative expenses
increased $5.4 million, or 89%, to $11.5 million for the year ended December 31,
1998, from $6.1 million for the year ended December 31, 1997. This increase was
due primarily to higher costs associated with continued development of a
corporate infrastructure to support increased distribution, including expansion
of the management team and increased staffing levels. General and administrative
expenses as a percent of total revenue decreased from 62% in 1997 to 49% in
1998, due primarily to a 142% increase in total revenue from 1997 to 1998.
Loss from operations. Loss from operations was $31.2 million for the year
ended December 31, 1998, as compared to a loss from operations of $21.4 million
for the year ended December 31, 1997. This increase of $9.8 million was due
primarily to the factors discussed above.
Equity in net losses of unconsolidated subsidiaries. Equity in net losses
of unconsolidated subsidiaries of $4.9 million represents Crown Media's
proportionate share of losses for 1998 for the Odyssey Network and the Kermit
Channel from dates of investment.
Interest (income) expense, net. Net interest income of $1.3 million for
the year ended December 31, 1998, was generated from an interest-bearing note
receivable from Hallmark Entertainment, Inc.
Income tax provision. Income tax provision increased $453,000 to $632,000
for the year ended December 31, 1998, from $179,000 for the year ended December
31, 1997. This increase was due primarily
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<PAGE> 39
to higher revenues derived from foreign tax jurisdictions. During 1998, 27% of
total revenues were subject to foreign withholding taxes.
Net loss. Net loss was $35.5 million for the year ended December 31, 1998,
as compared to a net loss of $21.6 million for the year ended December 31, 1997.
This increase of $13.9 million was due primarily to the factors discussed above.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenues. Total revenues increased $6.8 million, or 227%, to $9.8 million
for the year ended December 31, 1997, from $3.0 million for the year ended
December 31, 1996. This increase was due primarily to a $6.1 million increase in
subscriber fees resulting from new market launches and expanded distribution in
existing markets. The number of subscribers increased to 5.1 million at December
31, 1997 from 1.9 million at December 31, 1996, or 168%. During 1997, Crown
Media launched the Hallmark Entertainment Network in the following new
territories: Brazil, Venezuela, Colombia, Italy and Spain. Crown Media's average
monthly per subscriber fees increased from $0.18 in 1996 to $0.22 in 1997, due
primarily to the growth of Crown Media's distribution in regions with high
subscriber fees such as Western Europe. During 1997, 100% of total revenues were
earned internationally.
Cost of sales. Cost of sales increased $15.7 million, or 167%, to $25.1
million for the year ended December 31, 1997 from $9.4 million for the year
ended December 31, 1996. This increase was due primarily to an $11.6 million
increase in programming costs and a $4.1 million increase in signal distribution
and language preparation costs. These increases resulted primarily from new
market launches and expansion within existing markets. Cost of sales as a
percent of total revenue decreased from 308% in 1996 to 256% in 1997, due
primarily to a 222% increase in total revenue from 1996 to 1997.
General and administrative expenses. General and administrative expenses
increased $2.0 million, or 49%, to $6.1 million for the year ended December 31,
1997, from $4.1 million for the year ended December 31, 1996. This increase was
due primarily to expanded distribution and the development of a corporate
infrastructure to support increased growth. General and administrative expenses
as a percent of total revenue decreased from 135% in 1996 to 62% in 1997, due
primarily to a 222% increase in total revenue from 1996 to 1997.
Loss from operations. Loss from operations was $21.4 million for the year
ended December 31, 1997, as compared to a loss from operations of $10.5 million
for the year ended December 31, 1996. This increase of $10.9 million was due
primarily to the factors discussed above.
Income tax provision. Income tax provision increased $150,000 to $179,000
for the year ended December 31, 1997, from $29,000 for the year ended December
31, 1996. This increase was attributable to higher foreign taxes based on higher
revenues derived from foreign tax jurisdictions. During 1997, 18% of total
revenues were subject to foreign withholding taxes.
Net loss. Net loss was $21.6 million for the year ended December 31, 1997,
as compared to a net loss of $10.5 million for the year ended December 31, 1996.
This increase of $11.1 million was due primarily to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, Crown Media has financed its operations primarily
through loans, advances and equity contributions from Hallmark Entertainment,
Inc., in addition to the issuance in 1998 of $50.0 million of Class B common
stock to Chase Equity Associates. Following the completion of this offering,
Hallmark Entertainment, Inc. will not have any obligation to provide, and we do
not currently expect to receive, financial support from Hallmark Entertainment,
Inc. As of December 31, 1999, Crown Media had obligations representing license
fees for programming, payables and notes and interest payable
31
<PAGE> 40
to affiliates of $34.6 million, $9.2 million, and $22.7 million, respectively.
As of December 31, 1999, receivables were $8.8 million, the current portion of
program license fees was $10.8 million and cash and cash equivalents were $3.9
million.
Cash used in operating activities was $12.3 million, $37.4 million and
$30.2 million for the years ended December 31, 1997, 1998 and 1999,
respectively. Net cash used was used primarily to fund operating expenditures
related to net losses of $21.6 million, $35.5 million and $56.7 million in 1997,
1998 and 1999, respectively. The increase in cash used from 1997 to 1998 was due
primarily to increased payments for programming assets relating to Crown Media's
expansion into new international markets. Crown Media decreased cash used from
1998 to 1999 as it refined its program acquisition and scheduling processes to
more efficiently utilize its licensed program rights and decrease payments for
programming assets.
Cash used in investing activities was $1.0 million and $54.6 million for
the years ended December 31, 1997 and 1998, respectively. Cash provided by
investing activities was $18.4 million for the year ended December 31, 1999. The
increase in cash used in investing activities from 1997 to 1998 resulted
primarily from the first installment payment of $20.0 million relating to Crown
Media's investment in Odyssey Holdings and a $25.0 million short-term loan to
Hallmark Entertainment, Inc. In 1999, cash provided by investing activities
resulted from Hallmark Entertainment, Inc.'s repayment of this $25.0 million
loan.
Cash provided by financing activities was $13.5 million, $94.6 million and
$12.8 million for the years ended December 31, 1997, 1998 and 1999,
respectively. The increase in cash provided by financing activities from 1997 to
1998 resulted primarily from $70.0 million of capital contributions, $50.0
million from the issuance of Class B Common Stock to Chase Equity Associates and
$20.0 million from Hallmark Entertainment, Inc. to fund the second installment
payment of Crown Media's investment in Odyssey Holdings. The decrease in cash
provided by financing activities in 1999 was due to reduced borrowings from
affiliates, as the 1998 capital contributions continued to finance operations in
1999.
In connection with our growth strategy, we expect that we will continue to
make significant investments in programming, distribution and technology, as
well as additional investments in infrastructure and facilities. We are
currently committed to spend more than $50.0 million for programming and more
than $25.0 million for distribution over the next 12 months. We also expect to
make capital expenditures of more than $20.0 million to complete construction of
the network operating center over the same period. We believe that the net
proceeds from this offering, together with cash generated from operations, will
be sufficient to meet our liquidity requirements, including the financing
requirements of both Crown Media and Odyssey Holdings, through at least the next
18 months.
ODYSSEY HOLDINGS AND ITS SUBSIDIARIES
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Revenues. Total revenues decreased $200,000, or 1%, to $17.9 million for
the year ended December 31, 1999, from $18.1 million for the year ended December
31, 1998. This decrease was due primarily to decreased advertising revenue of
$2.2 million, offset in part by increased subscriber fees revenue of $1.4
million and increased other revenue of $580,000. The increased subscriber fees
revenue was due primarily to higher rates. The average annual revenue per
subscriber increased by $0.05, representing approximately 100% of the increase.
The decrease in advertising revenue was due to a change in advertising strategy
from paid advertising to retail advertising implemented in 1999. Advertising
revenue is recorded net of agency fees, typically 15%, and audience deficiency
reserves, which totaled $1.8 million in 1999. The number of subscribers
decreased to 27.4 million at December 31, 1999 from 29.0 million at December 31,
1998 as the Odyssey Network relaunched in April 1999. The increase in other
revenue was due primarily to royalty income of $308,000. During 1999, 100% of
total revenues were earned domestically.
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<PAGE> 41
Cost of sales. Cost of sales increased $37.0 million, or 245%, to $52.1
million, for the year ended December 31, 1999, from $15.1 million, for the year
ended December 31, 1998. Cost of sales as a percent of total revenue increased
from 83% in 1998 to 291% in 1999. This increase was due primarily to an $18.1
million increase in programming costs and a $5.9 million increase in production
costs, with the balance ($13.0 million) primarily attributable to $11.5 million
of increased marketing and promotion costs associated with the April 1999
relaunch of the Odyssey Network. The increased programming costs were due
primarily to new multi-year program license agreements related to the relaunch
entered into with subsidiaries of Hallmark Entertainment, Inc., The Jim Henson
Company, and the National Interfaith Cable Coalition. The increased production
costs were due to an increased number of, and the improved quality of, in-house
productions, including promotional segments and billboards that are aired
between programs. The increased marketing and promotion costs were also
attributable to the relaunch. Odyssey Holdings expects that these cost of sales
expenses will continue at these higher levels as we pursue our aggressive growth
strategy.
General and administrative expenses. General and administrative expenses
increased $15.8 million, or 255%, to $22.0 million, for the year ended December
31, 1999, from $6.2 million, for the year ended December 31, 1998. General and
administrative expense as a percent of revenue increased from 34% in 1998 to
123% in 1999. This increase was due primarily to increased staffing levels
related to the relaunch of the network in April 1999. Compensation expense
increased $6.7 million in 1999. This increase was attributable to SAR plan
compensation expense. The remainder of the increase is primarily due to other
increased costs due to higher staffing levels. Odyssey Holdings expects that
this increased level of general and administrative expense will continue as we
pursue our aggressive growth strategy.
Loss from operations. Loss from operations was $56.2 million for the year
ended December 31, 1999, as compared to a loss from operations of $3.1 million
for the year ended December 31, 1998. The $53.1 million increase in loss from
operations for the year ended December 31, 1999 from the year ended December 31,
1998 was attributable to the factors discussed above.
Interest (income) expense, net. Net interest income was $1.2 million for
the year ended December 31, 1999, compared to interest expense of $48,000 for
the year ended December 31, 1998. This increase was due primarily to interest
income earned on increased cash balances from $80.0 million of capital
contributions made in late 1998 and early 1999.
Net loss. Net loss was $55.1 million for the year ended December 31, 1999,
compared to a net loss of $3.2 million for the year ended December 31, 1998. The
$51.9 million increase in net loss for the year ended December 31, 1999 from the
year ended December 31, 1998 was primarily a result of the factors discussed
above.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenues. Total revenues increased $2.8 million, or 18%, to $18.1 million
for the year ended December 31, 1998, from $15.3 million for the year ended
December 31, 1997. This increase was due primarily to an increase of $2.7
million in advertising revenues. The increase in advertising revenues was due
primarily to a greater amount of airtime devoted to both infomercial and direct
response advertising as compared to the prior year. The number of subscribers
increased to 29.0 million at December 31, 1998 from 27.8 million at December 31,
1997. During 1998, 100% of total revenues were earned domestically.
Cost of sales. Cost of sales increased $2.6 million, or 21%, to $15.1
million, for the year ended December 31, 1998, from $12.5 million, for the year
ended December 31, 1997. Cost of sales as a percent of total revenue increased
from 82% in 1997 to 83% in 1998. This increase was due primarily to a $938,000
increase in programming costs and a $2.0 million increase in production costs,
in each case to improve the quantity and quality of Odyssey Holdings'
programming.
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<PAGE> 42
General and administrative expenses. General and administrative expenses
increased $3.2 million, or 107%, to $6.2 million, for the year ended December
31, 1998, from $3.0 million, for the year ended December 31, 1997. General and
administrative expenses as a percent of total revenue increased from 20% in 1997
to 34% in 1998. This increase was primarily due to the cost of increased
staffing levels totaling $2.8 million in connection with a change in the
strategy for the Odyssey Network following Crown Media's investment in Odyssey
Holdings in November 1998. This change included replacing top operating
personnel, which process began late in 1998, relocating the headquarters from
New York to Los Angeles in February 1999 and relaunching the channel in April
1999 with a different programming mix intended to shift the audience and attract
a more favorable viewing demographic.
Loss from operations. Loss from operations was $3.1 million for the year
ended December 31, 1998, as compared to a loss from operations of $270,000 for
the year ended December 31, 1997. The $2.8 million increase in the loss from
operations in the year ended December 31, 1998 from the year ended December 31,
1997 was primarily a result of the factors discussed above.
Interest (income) expense, net. Net interest expense decreased $103,000,
or 68%, to $48,000 for the year ended December 31, 1998, from $151,000 for the
year ended December 31, 1997. This decrease was due primarily to the favorable
impact of interest income earned on a $40 million capital contribution received
in 1998.
Net loss. Net loss was $3.2 million for the year ended December 31, 1998,
compared to a net loss of $421,000 for the year ended December 31, 1997. The
$2.8 million increase in the net loss for the year ended December 31, 1998 from
the year ended December 31, 1997 was primarily a result of the factors discussed
above.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenues. Total revenues increased $2.3 million, or 18%, to $15.3 million
for the year ended December 31, 1997, from $13.0 million for the year ended
December 31, 1996. This increase was due primarily to a $2.8 million increase in
advertising revenues which was partially offset by a decrease in subscriber fee
revenue. The increase in advertising revenues was due primarily to a higher
amount of airtime devoted to both infomercial and direct response advertising in
1999 as compared to 1998. The decrease in subscriber fee revenue results
primarily from a decrease of approximately $1.2 million in subscriber fees paid
by a subsidiary of AT&T under a previous carriage agreement, partially offset by
increased revenue from additional subscribers. The number of subscribers
increased to 27.8 million at December 31, 1997 from 26.4 million at December 31,
1996. During 1997, 100% of total revenues were earned domestically.
Cost of sales. Cost of sales increased $1.5 million, or 14%, to $12.5
million, for the year ended December 31, 1997, from $11.0 million, for the year
ended December 31, 1996. Cost of sales as a percent of total revenue decreased
from 85% in 1996 to 82% in 1997. This change was due primarily to a $1.4 million
increase in programming costs as Odyssey Holdings began investing in more and
higher quality programming.
General and administrative expenses. General and administrative expenses
increased $1.1 million, or 58%, to $3.0 million, or 20% of revenue, for the year
ended December 31, 1997, from $1.9 million, or 15% of revenue, for the year
ended December 31, 1996. General and administrative expenses as a percent of
total revenue increased from 15% in 1996 to 20% in 1997. This increase was
attributed to increased staffing and overhead costs as Odyssey Holdings expanded
the scope of its operations.
Loss from operations. Loss from operations was $270,000 for the year ended
December 31, 1997, as compared to income from operations of $45,000 for the year
ended December 31, 1996. The change in the net income (loss) in the year ended
December 31, 1997 from the year ended December 31, 1996 was primarily a result
of the factors discussed above.
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<PAGE> 43
Interest (income) expense, net. Net interest expense increased $125,000,
or 481%, to $151,000 for the year ended December 31, 1997, from $26,000 for the
year ended December 31, 1996. This increase was due primarily to interest
expense on increased borrowings by Odyssey Holdings during the year to finance
its operations.
Net income (loss). Net loss was $421,000 for the year ended December 31,
1997 as compared to net income of $19,000 for the year ended December 31, 1996.
The $440,000 change in net income (loss) in the year ended December 31, 1997
from the year ended December 31, 1996 was primarily a result of the factors
discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, Odyssey Holdings has financed its operations primarily
through equity contributions from its members. In connection with the admittance
of subsidiaries of The Jim Henson Company and Crown Media as members in 1998,
each of these new members agreed to contribute $50.0 million, payable in
installments. The final installment was paid in February 2000. Each member
received a 22.5% common equity interest in exchange for its contribution. A
total of $40.0 million was paid by the new members in each of 1998 and 1999, and
the balance of $20.0 million was paid in February 2000, for a total of $100.0
million. The entire amount of equity contributions was received according to
this payment schedule. As of December 31, 1999, Odyssey Holdings had current
liabilities of $47.4 million, consisting of license fees payable to affiliates
totaling $34.6 million, license fees payable to third parties totaling $3.8
million, accounts payable and accrued liabilities totaling $5.7 million, and
deferred compensation totaling $3.3 million. As of December 31, 1999, Odyssey
Holdings had current assets of $46.3 million, consisting primarily of cash of
$19.5 million, accounts receivable of $5.1 million and program license fees of
$21.6 million.
Cash used in operating activities was $0.1 million, $1.3 million, and $53.3
million for the years ended December 31, 1997, 1998 and 1999, respectively. Net
cash used was used primarily to fund operating expenditures related to net
losses of $0.5 million, $3.2 million, and $55.1 million for the years ended
December 31, 1997, 1998 and 1999, respectively.
Cash used in investing activities was $0.1 million, $0.3 million, and $5.1
million for the years ended December 31, 1997, 1998, and 1999, respectively. Net
cash used was used for capital expenditures. The increase in capital
expenditures in 1999 was due primarily to investments in post-production and
computer equipment in connection with the relaunch of the Odyssey Network in
1999.
Cash provided by financing activities was $0.1 million, $40.4 million, and
$38.9 million for the years ended December 31, 1997, 1998 and 1999,
respectively. Cash received for equity contributions from members totaled $42.0
million in 1998 and $40.0 million in 1999.
We expect to continue to make significant investments in programming,
marketing and subscriber acquisitions over the next several years. Following
completion of the reorganization and this offering, our liquidity and capital
resources will be funded as a part of Crown Media Holdings. See "-- Crown Media
and Its Subsidiaries -- Liquidity and Capital Resources." Under the contemplated
reorganization and initial public offering, Odyssey Holdings anticipates that
its senior credit facility, as described in Note 4 to Odyssey Holdings
consolidated financial statements, will be terminated.
SIGNIFICANT ACCOUNTING POLICIES
Subscriber fee revenues derived from pay television distributors are
recognized when services are provided. Subscriber fees are recognized based upon
the reported level of subscribers by the pay television distributors and are
recorded net of promotional subscribers.
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<PAGE> 44
Advertising revenues are recognized as earned in the period in which the
advertising commercials are telecast. Advertising revenues are recorded net of
agency commissions and estimated advertising deficiency reserves.
The asset, program license fees, represents costs paid for the rights to
air programming licensed from others. In accordance with SFAS No. 63, "Financial
Reporting by Broadcasters," program license fees are capitalized and amortized
over each program's license period or anticipated usage, whichever is shorter.
The asset, subtitling and dubbing costs, represent costs incurred to
prepare programming for airing in international markets. These costs are
capitalized as incurred and are amortized over each programming license period
or anticipated usage, whichever is shorter.
In the United States, we pay some television distributors one-time
subscriber acquisition fees to carry our channels. Subscriber acquisition fees
are capitalized and amortized over the term of the applicable distribution
agreement.
New Accounting Principles
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued. This statement was subsequently amended by SFAS
No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133," which
changed the effective date to fiscal years beginning after June 15, 2000. SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. We intend to adopt the new accounting
standard in the year ending December 31, 2001, but do not expect it to have a
material effect on its financial statements.
Foreign Currency Exchange and Inflation
In general, we have not entered into hedging transactions to reduce our
exposure to foreign currency exchange rate risks. Accordingly, we may experience
economic loss and a negative effect on earnings and equity with respect to our
holdings solely as a result of foreign currency exchange rate fluctuations. See
"Risk Factors -- We are subject to the risks of doing business outside the
United States."
The functional currency for our operations generally is the U.S. dollar.
Assets and liabilities of foreign subsidiaries are translated at the exchange
rates in effect at year-end, and the statements of operations are translated at
the average exchange rates during the period. Exchange rate fluctuations in
translating foreign currency financial statements into U.S. dollars result in
unrealized gains or losses that are not material. Cumulative translation
adjustments are not material. Transactions denominated in currencies other than
the local currency are recorded based on exchange rates at the time such
transactions arise. Subsequent changes in exchange rates result in transaction
gains and losses which are reflected in income as realized upon settlement of
the transactions.
We have not been materially affected by inflation.
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<PAGE> 45
BUSINESS
COMPANY OVERVIEW
We own and operate pay television channels dedicated to high quality family
programming, which we believe represents one of the most popular television
formats. We believe that with the programming we license from Hallmark
Entertainment, Inc. and The Jim Henson Company, we are establishing the Hallmark
Entertainment Network and the Odyssey Network as destinations for viewers
seeking high quality family entertainment and as attractive outlets for
advertisers seeking to target these viewers. We have distribution agreements
with leading pay television distributors in each of our markets. The following
table shows programming sources, selected pay television distributors,
territories in which we operate and the total number of our subscribers as of
December 31, 1999, for each of our channels.
<TABLE>
<CAPTION>
HALLMARK ODYSSEY
ENTERTAINMENT NETWORK NETWORK KERMIT CHANNEL
<S> <C> <C> <C>
Programming Hallmark Hallmark Hallmark
Sources Entertainment, Inc. Entertainment, Inc. Entertainment,
Inc.
Third party sources The Jim Henson The Jim Henson
Company Company
National Interfaith Third party
Cable Coalition sources
Third party sources
Selected Pay BSkyB AT&T Modi Entertainment
Television Cablevision Time Warner Cable
Distributors Modi Entertainment DirecTV
United Pan-European
Communications
Territories International Domestic India
Total 20.8 million 27.4 million 6.0 million
Subscribers
</TABLE>
For a more detailed description of our channels, see "-- Channels -- The
Hallmark Entertainment Network," "-- Channels -- The Odyssey Network" and
"-- Channels -- The Kermit Channel."
HISTORICAL OVERVIEW
Hallmark Cards, founded in 1910, is the largest manufacturer of greeting
cards in the U.S., and the owner of Binney & Smith, the maker of Crayola
Crayons. In addition, since 1951, Hallmark Cards has sponsored the Hallmark Hall
of Fame, one of television's most honored and enduring dramatic series.
Beginning in 1990, Hallmark Cards began an extensive strategic review of
its business units. As a result, Hallmark Cards created a family entertainment
platform in 1991 as part of its overall corporate strategy.
In 1994, Hallmark Cards further expanded its commitment to family
entertainment with the acquisition of RHI Entertainment, Inc., an independent
producer of movies-of-the-week and miniseries in the United States. In addition
to having produced such highly regarded programs as Lonesome Dove, Scarlett and
Gypsy, RHI Entertainment owned an extensive production library containing more
than 1,800 hours of widely appealing programming, including Laurel & Hardy and
The Little Rascals. In connection with the acquisition of RHI Entertainment,
Hallmark Cards formed Hallmark Entertainment, Inc. to own RHI Entertainment. RHI
Entertainment was previously a publicly traded company, whose President and
Chief Executive Officer was Robert A. Halmi, Jr. Mr. Halmi is currently the
President and Chief Executive Officer of Hallmark Entertainment, Inc. and the
Chairman of our Board of Directors.
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<PAGE> 46
In June 1995, Hallmark Entertainment, Inc. expanded its business with the
formation of Crown Media (formerly Hallmark Entertainment Networks, Inc.) and
launched its first pay television channel, the Hallmark Entertainment Network,
in Belgium, The Netherlands and Luxembourg.
In November 1998, Crown Media continued to expand its family entertainment
business with the acquisition of 22.5% of Odyssey Holdings, which operates the
Odyssey Network. The predecessor of the Odyssey Network, the Vision Interfaith
Satellite Network, was formed by the National Interfaith Cable Coalition in
1988. The National Interfaith Cable Coalition is a consortium of more than 70
religious faith groups that produce, acquire and license programming for the
Odyssey Network. In April 1999, we relaunched the Odyssey Network as "the first
network for today's family."
Liberty Media acquired an interest in the Odyssey Network in July 1995.
Liberty Media is a media, communications and entertainment company with
interests in a diverse group of public and private companies. Its subsidiaries
and business affiliates are engaged in a broad range of programming,
communications, technology and Internet businesses.
Additionally, in 1998, we and The Jim Henson Company formed the Kermit
Channel. The Kermit Channel offers popular family and children's programming,
including programming produced by Hallmark Entertainment, Inc. and The Jim
Henson Company. The Jim Henson Company is a producer of popular family and
children's programming, including programs such as The Muppet Show, The Muppet
Movie, and Fraggle Rock.
INDUSTRY OVERVIEW
The pay television industry is comprised of program suppliers, pay
television channel providers and distributors. The following table shows the
estimated and projected number of television households and pay television
households for each of the markets specified, as estimated by Kagan World Media,
Inc., except where noted, for the years indicated.
<TABLE>
<CAPTION>
TOTAL TV TOTAL PAY TV % PAY TV
HOUSEHOLDS HOUSEHOLDS PENETRATION
----------------- ----------------- -------------
1998E 2003P 1998E 2003P 1998E 2003P
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Latin America......................... 109,800 119,400 14,039 25,404 12.8% 21.3%
Asia Pacific(1)....................... 180,128 223,525 50,091 108,562 27.8 48.6
Europe................................ 117,834 125,185 22,673 36,481 19.2 29.1
Scandinavia/Benelux................... 20,866 21,718 16,517 18,502 79.2 85.2
Africa(2)............................. 5,616 6,638 1,210 1,357 21.6 20.4
United States(3)...................... 99,000 104,000 79,200 93,400 80.0 89.8
------- ------- ------- -------
TOTAL...................... 533,244 600,466 183,730 283,706 34.5% 47.2%
======= ======= ======= ======= ===== =====
</TABLE>
- ------------------------------
(1) Excluding China, for which comparable data is not available.
(2) Baskerville Communications Corporation.
(3) Paul Kagan Associates, Inc.
Program suppliers, from whom we license our programming, include all of the
major production studios and independent production companies, such as Hallmark
Entertainment, Inc., The Jim Henson Company and the National Interfaith Cable
Coalition. These program suppliers create, develop and finance the production of
movies, television miniseries and series and other programming. Program
suppliers receive revenues by licensing this programming to broadcasters and
channel providers around the world. These licenses are typically specific by
territory and are limited to a certain number of showings within specified
periods of time.
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We are a pay television channel provider. Pay television channel providers
include all channel providers except free-to-air broadcasters, such as ABC, NBC,
CBS, FOX and the BBC. These pay television channel providers acquire or license
programming from program suppliers and generally package the programming
according to an overriding theme. Pay television channel providers compete with
each other for distribution and to attract viewers and advertisers. Pay
television providers generally target an audience with a certain demographic
composition, so that they can then sell that audience to advertisers.
Pay television distributors own and operate the platforms used to deliver
channels to subscribers. These distributors use several different technologies
to reach their subscribers as described below. Distributors attempt to create a
mix of channels that will be attractive to their subscriber population in an
attempt to gain new subscribers and to reduce subscriber turnover. More
recently, distributors have begun to offer additional broadband services such as
Internet access, telephony, and video-on-demand over their systems.
As a result of the recently increased competition for limited analog
channel space in the United States, pay television channel providers are often
required to pay up-front subscriber acquisition fees to pay television
distributors for carriage on their systems. These subscriber acquisition fees
are paid to television distributors on a per subscriber basis and generally in
advance of the receipt of subscriber fee revenues from such pay television
distributors.
DISTRIBUTION PLATFORMS
Four distribution platforms are currently used to transmit programming.
First, cable television systems use coaxial or fiber optic cable to transmit
multiple channels between a central facility, known as a headend, and the
individual subscriber's television set. Second, analog and digital DTH systems
use satellite transponders to broadcast television programming to individual
dwellings with satellite reception equipment, including a dish and a decoder.
Third, terrestrial television broadcasters typically broadcast locally or
through regional or national ground-based transmission networks. In general,
such broadcasters use landline, microwave or satellite transmission systems to
distribute programming to terrestrial transmission facilities for broadcast
directly to viewers' homes. Finally, channels can also be distributed through
satellite master antenna television (SMATV). SMATV is used primarily for
buildings, such as apartments and other buildings, that receive programming from
satellites by means of a single antenna that is connected to a pay television
distributor's headend. The television signals are then distributed to individual
units in the building by cable.
SOURCES OF REVENUE
Subscriber Fees
Pay television customers subscribe for basic services by paying monthly
fees for basic channels. The customers can also subscribe to additional packages
of premium or pay-per-view services upon payment of additional fees. In most
markets, pay television distributors generally pay a fee per subscriber to
channel providers.
Advertising Revenue
The advertising market differs greatly around the world. In the United
States, the most developed television market, it is estimated by Advertising Age
that 39% of all advertising expenditures are spent on television. In other parts
of the world, the amount spent by advertisers on television varies according to
the development of each country's television market. Program ratings systems in
many non-United States markets are also less developed, and as a result,
advertisers rely largely on subscriber counts rather than empirical measurements
when buying advertising time. We believe that the market opportunity for
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television advertising outside the United States is growing even faster than
inside the United States, as foreign markets increase television penetration and
develop advanced program ratings systems.
Television advertising is sold in a variety of formats. Many pay television
channels largely rely upon the spot advertisement format. Spot advertisements
are normally 30 seconds long and air during or between programs. They are often
sold in packages of a certain number of broadcasts or to deliver a certain
number of viewers. An alternative to spot advertising is sponsorship, which
involves companies sponsoring a program or selection of programs on a channel by
applying their branding around the programming.
The ability of a television channel to generate advertising revenue largely
depends on estimated or actual viewing levels, primarily based on ratings, and
on advertising rates. Typically, in the United States and some other markets,
independent ratings systems on which advertising sales can be based are well
established and widely accepted within the industry. In addition, pay television
channel providers and distributors may also provide estimated or actual
subscriber information.
Historically, advertisers have spent more on advertising through
traditional broadcast television than through pay television. We believe that as
pay television continues to gain viewership relative to broadcast television, it
should attract a larger percentage of the total available dollars spent on
television advertising.
COMPETITIVE STRENGTHS
We have established a track record of providing high quality family
programming throughout the world. We believe that our primary competitive
strengths include the following:
UNIQUE COLLECTION OF BRANDED PROGRAMMING AND PAY TELEVISION CHANNELS
Our channels benefit from high quality family programming licensed from
Hallmark Entertainment, Inc. and The Jim Henson Company. Our programming
distinguishes our channels as destinations for viewers seeking high quality
family entertainment and as attractive outlets for advertisers seeking to target
these viewers. We believe our branded channels will differentiate us as new
digital technologies provide many more channels and create additional ways to
distribute programming to viewers.
GUARANTEED ACCESS TO HIGH QUALITY PROGRAMMING
We have five-year program agreements under which we license substantially
all of the programming Hallmark Entertainment, Inc. owns or controls. We have
also signed long-term program agreements with The Jim Henson Company for
programming for the Odyssey Network and the Kermit Channel. The Odyssey Network
also has access to family and values-based programming from the National
Interfaith Cable Coalition. See "Business -- Channels -- The Hallmark
Entertainment Network -- Programming" and "-- The Odyssey
Network -- Programming."
SIGNIFICANT STRATEGIC BENEFITS FROM OUR PRINCIPAL STOCKHOLDERS
We receive significant benefits from our principal stockholders: Hallmark
Entertainment, Inc., Liberty Media, and the National Interfaith Cable Coalition.
For example, we gain access to programming from Hallmark Entertainment, Inc. and
the National Interfaith Cable Coalition. Liberty Media's industry contacts
facilitate our relationships with certain pay television distributors. We
believe we are able to attract advertisers who seek companies associated with
established brand names like those of our principal stockholders.
EXPERIENCED MANAGEMENT
Members of our senior management team have experience launching, promoting
and operating channels both domestically and internationally, having held senior
positions at ESPN, Fox Kids Network
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and HBO. Additionally, members of our senior management team have held senior
positions at the following major media companies: The News Corporation, Fox
Broadcasting Company, Sky Broadcasting, Tele-Communications, Inc., ABC, Inc. and
MediaOne.
BUSINESS STRATEGY
Our principal objective is to be the destination of choice for viewers who
seek high quality family programming and for advertisers who target these
viewers, with the goal of maximizing the profitability of our existing business
and leveraging our opportunities to develop new sources of revenue. The key
elements of our business strategy to achieve this objective are to capitalize on
our unique brands; increase advertising revenues; continue to refine the
attractiveness of our channels; capitalize on broadband distribution; and
facilitate our overall business strategies through the construction of an
advanced digital global network operating center.
We intend to pursue the following strategies, which are aimed at maximizing
our opportunities for additional growth, increasing our revenues and improving
our operating performance.
CAPITALIZE ON OUR UNIQUE BRANDS BY MARKETING TO PAY TELEVISION DISTRIBUTORS,
VIEWERS AND ADVERTISERS
We intend to capitalize on our unique branded content by marketing to pay
television distributors, viewers and advertisers. We believe family programming
represents one of the most popular television formats. According to a 1998
television viewers survey, 92% of viewers believe it is important to have
television that the whole family can watch together. We believe our branded
content attracts these viewers and makes us attractive to pay television
distributors who seek these viewers. We also believe our branded content
attracts advertisers because of the demographic attributes of these viewers.
EXPAND DISTRIBUTION OF OUR CHANNELS WORLDWIDE THROUGH THE LEADING DISTRIBUTORS
IN EACH MARKET
We seek to gain access to the largest number of potential subscribers. To
do this, we intend to expand the distribution of our channels by capitalizing on
our brands and the popularity of our programming. We also intend to expand
distribution by targeting the leading pay television distributors in each of the
markets we serve. We tailor the technical and economic terms of our distribution
agreements to meet the needs of our distributors, and often receive minimum
subscriber guarantees throughout the term of our distribution agreements.
For a more detailed description of how we distribute our channels, see
"-- Channels -- The Hallmark Entertainment Network -- Distribution" and
"-- Channels -- The Odyssey Channel."
INCREASE REVENUE FROM THE SALE OF ADVERTISING
We intend to increase revenue from the sale of advertising time by
targeting leading advertisers, localizing our channels and expanding our sales
staff. We recently have opened advertising sales offices in Miami, Florida,
Singapore, Taipei City and London. We also have representation agreements with
leading advertising sales representatives in India, Argentina, Mexico, Thailand,
Malaysia, South Africa, and the United Kingdom, to provide us with advertising
and marketing services. We believe their leadership position will enable us to
sell advertising in these markets.
We intend to continue to invest in programming designed to maximize
advertising opportunities. Since the relaunch of the Odyssey Network in April
1999 and the implementation of our advertising strategy, we have attracted more
than 40 of the leading advertisers in the United States based on total
advertising expenditures, including Hallmark Cards, America Online, AT&T,
Coca-Cola and Procter & Gamble. No individual advertiser accounted for more than
2% of our revenues for the year ended December 31, 1999. As we continue to
implement our strategy, we intend to leverage our relationships with these
advertisers in
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our international markets. Our international focus will initially be in Latin
America, Asia Pacific and the United Kingdom.
CONTINUE TO REFINE THE ATTRACTIVENESS OF OUR CHANNELS TO VIEWERS AND
ADVERTISERS
We intend to continue to refine the attractiveness of our channels. We
believe we can capitalize on our access to the high quality programming produced
by Hallmark Entertainment, Inc., The Jim Henson Company and the National
Interfaith Cable Coalition. In addition, we will refine the appearance of our
channels and tailor them to meet local market preferences by adjusting our
programming mix and schedule, reducing the number of repeat broadcasts on our
channels, and improving the quality of our promotional segments. We believe
these efforts will increase viewership and further attract advertisers in each
of our markets.
CAPITALIZE ON BROADBAND DISTRIBUTION
We intend to capitalize on our unique branded content and established
audience base to expand the distribution of our channels and to create new
revenue opportunities through the use of new technologies created by broadband
distribution. Digital technology, the Internet and interactive television will
allow us to provide many more channels and create additional ways for people to
view our programming and to interact with us. We believe the convergence of
these new technologies will enable audiences to have a better experience than is
currently possible, using interactive features available through advanced analog
or digital set-top boxes. Pioneers in the delivery of interactive television
features have independently proven that the opportunity exists for us to keep
the attention of our audiences longer and to create additional revenue streams
for our business such as e-commerce, interactive advertising and
video-on-demand. We believe we are positioned to capitalize on these
opportunities because we can format our programming content such that it can be
distributed in formats that these technologies require.
COMPLETE THE CONSTRUCTION OF AN ADVANCED DIGITAL GLOBAL NETWORK OPERATING
CENTER
We are building an advanced digital global network operating center in
Englewood, Colorado that will be operational in late 2000 to facilitate the
implementation of our overall business strategy. The facility will enable us to:
- efficiently expand distribution into new markets;
- enhance on air quality and reliability;
- insert regional and local advertising into programming; and
- distribute programming in digital and other formats as required in the
rapidly evolving broadband distribution environment.
CHANNELS
THE HALLMARK ENTERTAINMENT NETWORK
Overview
We currently distribute the Hallmark Entertainment Network to 10 geographic
markets covering more than 70 countries, dubbed or subtitled into more than 20
languages according to local market practices, viewer preferences and cost
considerations. Our largest markets include Asia Pacific, with more than eight
million subscribers, Latin America, with more than seven million subscribers,
and Central Europe, with more than two million subscribers. We also have a
significant presence in Italy, Spain, Sweden, Denmark, and Africa. We began 1999
with 8.7 million Hallmark Entertainment Network subscribers and ended the year
with 20.8 million subscribers, an increase of 139%.
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Programming
The Hallmark Entertainment Network offers a range of award-winning family
programming including made-for-television movies and miniseries from the
Hallmark Entertainment, Inc. library. This library consists of epics, historical
dramas, literary classics, romances and contemporary stories. We seek
programming that is consistent with our programming theme to provide "great
stories, well told." The high quality family programming we offer is based on
classic literature and universal themes, includes world-renowned actors and
actresses, such as Ted Danson, Paul Newman, Danny Glover, Tommy Lee Jones,
Isabella Rossellini, Robert Duvall and Vanessa Williams, and is often filmed in
international locations.
Our primary source for programming is Hallmark Entertainment, Inc., our
parent company. Hallmark Entertainment, Inc. is a worldwide leader in the
production of movies for television. Hallmark Entertainment, Inc. produces
approximately 40-50 movies each year, and has an extensive library with more
than 4,000 hours of quality family programming, including eight of the 10 most
highly rated made-for-television movies for the 1993 through 1999 television
seasons, based on A.C. Nielsen ratings. Programs contained in this library have
won more than 90 Emmy Awards, Golden Globe Awards and Peabody Awards. Hallmark
Entertainment, Inc. productions generally account for between 50% and 60% of the
programming on the Hallmark Entertainment Network. We license the remaining
portion of the Hallmark Entertainment Network's programming line-up from third
parties. This third party programming is consistent with the themes and quality
of the material licensed from Hallmark Entertainment, Inc. We license
programming from third party suppliers such as Aurum Producciones, S.A., CBS
Broadcast International, and Polygram Television International.
Examples of programming from the Hallmark Entertainment, Inc. library
include Gulliver's Travels, The Odyssey, Merlin, Alice in Wonderland and
Lonesome Dove, as well as programming from "The Collection," from the Hallmark
Hall of Fame library, such as What the Deaf Man Heard and To Dance with the
White Dog. Examples of third party productions on the Hallmark Entertainment
Network include Joan of Arc, Anne of Green Gables, and Little Men.
We enjoy preferred access to Hallmark Entertainment, Inc.'s programming
through a five-year program agreement. For more details regarding the program
agreements, see "Certain Relationships and Related Transactions -- Program
Agreements -- Hallmark Program Agreements."
Distribution
In the countries where we offer the Hallmark Entertainment Network, we
distribute the channel through a variety of distribution platforms, such as
cable and DTH. We seek to partner with the dominant pay television distributor
in the market in order to quickly establish a substantial subscriber base. Our
international distribution agreements generally last two to four years. Some of
our international distributors are BSkyB, Multicanal and United Pan-European
Communications.
We regularly review existing and potential markets to assess their
prospects. As the number of Hallmark Entertainment Network subscribers increases
in a market, we assess our ability to grow revenue or develop new revenue
sources by subdividing the market through the addition of satellite signals.
When we subdivide a market, we are able to customize the channel to appeal to a
more specific audience. The delivery of the Hallmark Entertainment Network to
more targeted audiences also increases the number of potential advertisers on
the channel by creating more targeted advertising opportunities for local or
regional businesses in the markets in which we operate.
The following chart shows the Hallmark Entertainment Network launch date,
the approximate number of television households and pay televisions households,
as estimated by Kagan World Media, Inc. for 1999 (except where noted), the
number of Hallmark Entertainment Network subscribers at year end 1997 and
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1999, and the average subscriber rate, in each of the markets in which we
operate the Hallmark Entertainment Network.
<TABLE>
<CAPTION>
HALLMARK HALLMARK
ENTERTAINMENT ENTERTAINMENT
NETWORK NETWORK 1999
PAY SUBSCRIBERS 1999 AVERAGE
TOTAL TV TELEVISION -------------- % OF MONTHLY
LAUNCH HOUSEHOLDS HOUSEHOLD % PAY TV 1997 1999 MULTICHANNEL SUBSCRIBER
MARKETS DATE (000'S) (000'S) PENETRATION (000'S) HOUSEHOLDS RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LATIN AMERICA:
Argentina............... 1999 10,000 5,231 52.3% 300 3,592 68.7% $.05
Mexico.................. 1995 17,100 3,327 19.5 1,260 1,985 59.7 .09
Brazil.................. 1997 36,900 3,000 8.1 356 511 17.0 .32
Venezuela............... 1997 3,800 772 20.3 -- 439 56.9 .31
Chile................... 1998 4,200 814 19.4 60 320 39.3 .15
Colombia................ 1997 8,000 382 4.8 -- 301 78.8 .30
Other Latin America..... Various 14,000 2,083 14.9 590 699 33.6 .21
------- ------- ----- ------
Subtotal......... 94,000 15,609 16.7 2,566 7,847 50.3
ASIA PACIFIC:
India................... 1999 68,020 24,016 35.3 -- 5,200 21.7 .00(1)
Taiwan.................. 1998 5,950 4,711 79.1 -- 1,200 25.5 .00(1)
Philippines............. 1999 8,650 783 9.1 285 457 58.4 .18
Thailand................ 1998 13,230 470 3.6 100 286 60.9 .10
Malaysia................ 1998 3,330 516 15.5 120 237 45.9 .67
Australia............... 1996 6,800 809 11.9 105 335 41.4 .47
Japan................... 1998 47,200 23,250 49.3 75 114 0.5 .55
New Zealand............. 1996 1,240 382 30.8 50 79 20.7 .08
Other Asia Pacific(2)... Various 29,420 1,651 5.6 465 351 21.3 .47
------- ------- ----- ------
Subtotal......... 183,840 56,588 30.8 1,200 8,259 14.6
EUROPE:
Poland.................. 1998 12,381 5,958 48.1 -- 912 15.3 .11
Romania................. 1999 7,556 3,469 45.9 -- 655 18.9 .02
Other Central Europe.... Various 4,999 2,267 45.4 -- 200 8.5 .25
Czech Republic.......... 1998 3,986 1,572 39.4 -- 330 21.0 .13
Russia/Middle East...... 1997 58,037 7,398 12.8 150 233 3.2 .18
Italy................... 1997 20,054 1,970 9.8 150 600 30.5 .51
Spain................... 1997 12,791 2,798 21.9 250 513 18.3 .48
------- ------- ----- ------
Subtotal......... 119,804 25,432 21.2 550 3,443 13.5
SCANDINAVIA/BENELUX
Sweden.................. 1996 4,109 2,707 65.9 260 290 10.7 .16
Denmark................. 1996 2,418 1,792 74.1 125 151 8.4 .13
Norway.................. 1996 1,853 1,101 45.5 75 105 9.5 .13
Finland................. 1996 2,050 1,156 56.4 95 99 8.6 .13
Benelux................. 1996 10,589 10,223 96.5 80 125 1.2 .15
------- ------- ----- ------
Subtotal......... 21,019 16,979 80.8 635 770 4.5
AFRICA.................... 1996 5,841(3) 1,343(3) 23.0 170 475 35.4 .42
------- ------- ----- ------
TOTAL............ 424,504 115,951 27.3% 5,121 20,794 17.9%
======= ======= ===== ===== ====== =====
</TABLE>
- ------------------------------
(1) Rates appear as zero due to rounding.
(2) Includes Middle East subscribers.
(3) Source: Baskerville Communications Corporation.
In 1999, we signed agreements to distribute the Hallmark Entertainment
Network in two significant markets, the United Kingdom and Israel, and are
scheduled to launch the channel in these territories in 2000. These launches are
expected to significantly increase the number of Hallmark Entertainment Network
subscribers.
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United Kingdom. The United Kingdom is a developed television market with
nearly 24.0 million television households. Cable penetration is approximately
13% of television households with 3.1 million basic subscribers. However,
satellite continues to be the primary platform with approximately 3.5 million
digital subscribers.
In August 1999, we completed a distribution agreement with BSkyB, a large
pay television distributor in the United Kingdom. Pursuant to this agreement,
the Hallmark Entertainment Network will be carried on BSkyB's digital DTH
service for five years following the launch of the service. The contract
provides the Hallmark Entertainment Network a minimum number of subscribers as a
percent of BSkyB's total basic digital residential subscribers, and provides
BSkyB an 18-month period of exclusive distribution of the Hallmark Entertainment
Network in the United Kingdom. We intend to launch the Hallmark Entertainment
Network under this agreement in the United Kingdom in the second quarter of
2000.
Following the October 1998 launch of its BSkyB's digital package of over
100 channels, and the reduction in the pricing of its service to consumers in
mid-1999, BSkyB has converted a significant portion of its analog subscribers to
digital, and had more than 3.0 million digital subscribers.
Israel. Israel is a technologically advanced market with 1.6 million
television households. Cable penetration is approximately 70% of television
households with more than 1.1 million cable television households. In December
1999, we completed a distribution agreement with Tevel International
Communications Ltd. Under this agreement, Tevel will provide distribution of the
Hallmark Entertainment Network to more than 400,000 subscribers. We intend to
launch the Hallmark Entertainment Network in Israel during 2000.
Sources of Revenues
Like most pay television channels, we currently derive substantially all of
our revenues from subscriber fees and advertising sales. Subscriber fees are
currently our primary source of revenue. We charge our pay television
distributors a fee per subscriber for the right to broadcast the Hallmark
Entertainment Network. We have significantly increased the number of subscribers
to the Hallmark Entertainment Network in the past year, and have consequently
seen an increase in revenues generated from subscriber fees. For the year ended
December 31, 1999, subscriber fee revenues were $27.7 million, an increase of
$7.1 million from December 31, 1998.
We also derive revenues from the sale of advertising time on the Hallmark
Entertainment Network. We generate revenues directly from advertisers as well as
from our pay television distributors under distribution agreements that
typically provide for a sharing of net revenues from advertising. We believe
that the increasing number of subscribers to the Hallmark Entertainment Network
and the favorable demographics of its family audience provide us with the
opportunity to substantially increase revenues from the sale of advertising
time.
We are expanding our advertising sales staff to take advantage of the
opportunities that have been created through our growing family oriented
subscriber base. We have hired a core advertising staff that has developed and
is implementing our advertising sales strategy. They have identified key
markets, opened sales offices in these key markets, and identified potential
clients in these markets. We have opened advertising sales offices in Miami,
Singapore, Taipei City and London, and entered into representation agreements
with third parties to increase advertising sales in India, Argentina, Poland and
Romania, South Africa and the United Kingdom.
We also expect to increase our advertising revenues following the
introduction of two new initiatives planned for 2000. First, we intend to
increase the number of satellite feeds delivering our channel, which will enable
us to further customize our channel in specific markets. For example, instead of
sending the same signal to all of Latin America as we have done thus far, we
will soon be able to send multiple signals
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to Latin America that will each be customized to cater to the specific
sub-regions of Latin America that they cover. We believe localized feeds will
lead to more opportunities for the sale of advertising to local businesses or to
multinational advertisers interested in reaching specific regions. Second, we
are building a network operating center which will allow us to originate and
compress the channel. We will be able to insert commercials into our
programming, instead of relying on our affiliates for that service, and thus, we
will reduce our expenses.
For the year ended December 31, 1999, revenues from the sale of advertising
on the Hallmark Entertainment Network were $1.7 million. We expect that figure
to grow as we become more focused on advertising sales as a source of revenue.
Sales and Marketing
Hallmark Entertainment Network focuses its marketing efforts to maximize
our two revenue streams in the individual markets in which the channel is
distributed. Hallmark Entertainment Network's marketing efforts vary by market
depending on the maturity of the local television industry, the level of
distribution of the Hallmark Entertainment Network and the potential for the
sale of advertising.
In markets where the Hallmark Entertainment Network has not maximized its
carriage with pay television distributors, marketing efforts are primarily
directed toward potential new distributors. These marketing efforts include
advertising in trade publications and participating in industry trade shows, as
well as direct mail and public relations campaigns. In these markets, efforts
are also made to market the channel to potential viewers to drive consumer
demand for carriage of the channel by local affiliates.
In markets where the Hallmark Entertainment Network has obtained
substantial distribution or has exclusive agreements with primary distributors,
marketing efforts are primarily directed toward maintaining and increasing
subscribers and viewers. Our efforts in these markets are directed toward adults
18 to 54 years old, with an emphasis on females and heads-of-households of that
group. These consumer directed marketing efforts are coordinated with and are
often partially funded by our pay television distributors in each market. These
efforts often include traditional marketing campaigns consisting of print,
billboard, radio and television advertising. Additionally, we emphasize our
unique relationship with our primary content supplier, Hallmark Entertainment,
Inc., through the use of premier screening events, press tours with actors and
actresses and viewer trips to movie sets. We also use Hallmark Entertainment
Network's website, www.hallmarknetwork.com, to market and promote the channel
though schedule information, movie synopses, games and contests.
In markets where we are developing Hallmark Entertainment Network's
advertising business, marketing efforts are also directed toward potential
advertisers. When marketing the Hallmark Entertainment Network to potential
advertisers, we focus on media planners and buyers and on regional and
international advertisers.
THE ODYSSEY NETWORK
Overview
We distribute the Odyssey Network in the United States to 27.4 million
subscribers through more than 50 pay television distributors. The nine largest
pay television distributors in the United States account for approximately 80%
of all pay television subscribers. We have signed agreements with the AT&T, Time
Warner and DirecTV distribution systems, the three largest distributors, and are
seeking to increase our subscriber base by signing long-term distribution
agreements with the other six pay television distributors.
Predecessors of the Odyssey Network operated under various names as a
primarily religious network. Ratings were generally flat and the viewer
demographics were skewed to viewers over the age of 55, which are not generally
targeted as broadly by advertisers. Most advertising was in the form of
infomercials. In
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1998, we performed extensive market research on the potential of an enhanced
Odyssey Network featuring family and values-based programming. We found that
most of the existing family-based programming was designed primarily to appeal
to children. We believe that this strategy limits the potential audience and
revenue potential for several reasons. First, most adults do not want to watch
children's programming, thus limiting its appeal to the largest group of
potential viewers. Second, the children's market is already a mature market with
significant competition. We believe that family programming that is targeted to
adults yet is also appealing to children will encourage families to watch
television together, resulting in larger audiences and viewer demographics more
attractive to advertisers. In addition, a 1998 Television Viewers Survey
indicated that 92% of viewers feel that it is important to have television that
the whole family can watch together.
Our research also indicated that the American family had changed
significantly over the past twenty to thirty years and now consists of many
variations of the traditional family, including extended families. Most existing
family-based programming has been targeted at the traditional family. We believe
that family-based programming targeted at this new American family, which we
call "today's family," would significantly increase the market potential of the
Odyssey Network. Other research supported this brand positioning.
As a result, we began operating the Odyssey Network in November 1998 and
relaunched the channel in April 1999 with a strategy to make it "the first
network for today's family." This relaunch featured programming from the
Hallmark Entertainment, Inc. and The Jim Henson Company libraries, which
promotes family viewing and appeals to "today's family." We also added an
additional programming feed which allowed us to provide primetime programming
nationwide. This relaunch resulted in an immediate positive shift in audience
demographics without the loss of ratings which typically occurs when a pay
television network changes its target audience. According to A.C. Nielsen
ratings, viewership among adults aged 18-49 increased more than 78%, while
viewership among adults over 55 decreased by 30%, when comparing the third
quarter of 1999 with the third quarter of 1998. During this same period,
primetime viewership among women aged 25-54 ratings increased by more than 90%,
daytime households delivered increased by 188%, and viewership among women ages
18-49 late night ratings increased by over 67%.
We believe that the Odyssey Network is uniquely positioned to become a
leading provider of family-oriented pay television programming and enjoys
significant competitive advantages.
Our access to the Hallmark Entertainment, Inc. and The Jim Henson Company
libraries and their future output provides guaranteed access to high quality
family programming that is consistent with our brand positioning. In addition,
our association with these known and trusted brands:
- provides our viewers with tangible evidence of our commitment to provide
entertainment appropriate for the entire family;
- significantly enhances our ability to attract advertising commitments
from the largest advertisers. We were able to attract more than 40 of the
largest 200 advertisers within eight months of our relaunch; and
- provides a competitive advantage in negotiating long-term distribution
agreements with pay television distributors.
Our relationship with the National Interfaith Cable Coalition provides us
with a unique advantage due to the National Interfaith Cable Coalition's
national presence and affiliations with local community groups. These groups
provide a grass-roots means of promoting the Odyssey Network to local pay
television distributors through community events and these groups' relationships
with local business and community leaders. National Interfaith Cable Coalition's
programming is produced to be relevant to today's family, to inspire and to
bring families together.
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Programming
The Odyssey Network offers a range of high quality family and values-based
programming including historical dramas, romances, literary classics,
contemporary stories and animated series that is consistent with its programming
theme to provide "magical, mystical, spiritual and always entertaining"
programming. Our primary sources for programming on the Odyssey Network are
Hallmark Entertainment, Inc., The Jim Henson Company and the National Interfaith
Cable Coalition. We also license programming from third parties for exhibition
on the Odyssey Network. Programming from Hallmark Entertainment, Inc. accounted
for 17% of the Odyssey Network's programming in the fourth quarter of 1999, and
programming from The Jim Henson Company accounted for 8% of the Odyssey
Network's programming in the fourth quarter of 1999.
Examples of programming from the Hallmark Entertainment, Inc. library
include Gulliver's Travels and The Odyssey, as well as programming from "The
Collection" from the Hallmark Hall of Fame library such as What the Deaf Man
Heard. In addition to the Hallmark Entertainment, Inc. library of movies and
miniseries we license programming from the extensive and popular library of The
Jim Henson Company, which includes award-winning theatrical and children's
productions. Programs contained within The Jim Henson Company library have won
more than 40 Emmy Awards and Peabody Awards. Examples of The Jim Henson Company
programming include The Muppet Show, The Muppet Movie, and Fraggle Rock. We also
have the benefit of a selection of values-based programming, such as News
Odyssey, and programming from the National Interfaith Cable Coalition, such as
Today's Life Choices. Examples of third party programming shown on the Odyssey
Network include the popular drama series Beauty and the Beast, Snowy River: The
McGregor Saga, Avonlea and The Young Riders, and the hit comedy series Doogie
Howser, M.D., Sister Kate and ALF.
We also benefit from premiering and airing original movies, miniseries and
series on the Odyssey Network. Hallmark Entertainment, Inc., The Jim Henson
Company, and the National Interfaith Cable Coalition each produce original
programs that will premier, and sometimes air exclusively, on the Odyssey
Network. For example, the Odyssey Network recently began featuring new episodes
of the award-winning creative parenting series Donna's Day, produced by The Jim
Henson Company, and new episodes of the inspiring Quiet Triumphs, hosted by Mary
Alice Williams and produced by Odyssey Holdings. In addition, the Odyssey
Network recently aired The Legend of Sleepy Hollow, produced exclusively for the
Odyssey Network by Hallmark Entertainment, Inc. The Legend of Sleepy Hollow
generated our highest-ever rating for a movie, with an overall rating of 1.0.
This original movie also generated ratings as high as 3.6 in markets where we
targeted our local marketing campaign.
Our program agreements with a subsidiary of Hallmark Entertainment, Inc.
and The Jim Henson Company typically provide for a one-time license fee for the
right to exhibit a program in the United States within a specified period of
time. Generally, our program agreements with third parties are structured
similarly.
Distribution
The nine largest pay television distributors account for approximately 80%
of all United States pay television subscribers. The Odyssey Network is
currently carried by more than 50 pay television distributors, including all
nine of these pay television distributors. Our distribution growth strategy is
to enter into new long-term distribution contracts with these nine pay
television distributors. We have signed contracts with the AT&T, Time Warner and
DirecTV distribution systems, the three largest distributors, and are currently
in discussions with the other six pay television distributors. We currently
distribute the Odyssey Network to approximately 35% of all United States pay
television subscribers.
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The following table shows the approximate number of pay television
households and Odyssey Network subscribers for each of the nine largest pay
television distributors, and all other pay television distributors as a group,
in the United States.
<TABLE>
<CAPTION>
ODYSSEY ODYSSEY NETWORK
TOTAL PAY TV NETWORK % OF PAY TV
HOUSEHOLDS(1) SUBSCRIBERS(1) HOUSEHOLDS
PAY TELEVISION DISTRIBUTOR (IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C>
Time Warner Cable........................................... 12,543 7,478 59.6%
AT&T Broadband and Internet Services........................ 12,283 7,104 57.8
DirecTV..................................................... 8,079 1,524 18.9
Comcast..................................................... 5,831 1,489 25.5
Charter..................................................... 5,359 1,603 29.9
Cox......................................................... 5,156 1,841 35.7
Adelphia.................................................... 4,685 1,034 22.1
MediaOne.................................................... 4,647 731 15.7
Cablevision................................................. 3,445 1,184 34.4
All Others.................................................. 17,166 3,366 19.6
------ ------
Total.............................................. 79,194 27,354 34.5%
====== ====== ====
</TABLE>
- ------------------------------
(1) Source: Nielsen Media Research and Media Business Corp., December 1999.
Sources of Revenues
We currently derive substantially all of our revenues from subscriber fees
and advertising sales. We charge our pay television distributors a monthly per
subscriber fee for the right to broadcast the Odyssey Network. Generally, these
distribution agreements last for six to ten years, and include annual increases
of both subscribers and per subscriber fees. For the year ended December 31,
1999, revenues derived from subscriber fees for the Odyssey Network were
approximately $7.8 million.
As a result of the Odyssey Network's large and demographically favorable
subscriber base we generate significant revenues from the sale of advertising
time on the channel. We have also established an advertising infrastructure with
sales offices in New York, Los Angeles and Chicago. In addition, we have also
made significant investments in programming, research, marketing and promotions,
all specifically designed to support the sale of advertising time on the Odyssey
Network. In the year ended December 31, 1999, revenues from the sale of
advertising time on the Odyssey Network were approximately $9.3 million.
Sales and Marketing
We focus our marketing efforts on subscribers, pay television distributors
and advertisers. Odyssey Network's subscriber marketing efforts reflect Odyssey
Network's brand positioning and target audience. Our target audience is adults
ages 18-54 with an emphasis on women, and children ages 2-11. We believe that
Odyssey Network's unique blend of programming is designed to encourage family
viewing, as it is designed to appeal to adults and to encourage children to view
together with parents. We believe our marketing efforts will enable us to
maintain and increase our subscriber and viewer levels while improving the
demographic composition of our audience. We use traditional marketing campaigns
consisting of print, billboard, radio and television advertising. In addition,
subscribers can learn more about Odyssey Network's programming by logging on to
our website www.odysseychannel.com, where they can access our programming
schedule, view programming clips and read synopses of our programming.
When marketing the Odyssey Network to pay television distributors, we focus
on the nine largest pay television distributors and on local cable operators.
Our marketing efforts include advertising in trade publications and
participating in industry trade shows, as well as direct mail and public
relations campaigns. We often target local cable operators by earmarking a
portion of our local advertising budget for cooperative marketing. Cooperative
marketing, common in the entertainment industry, is typically
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structured in a way that the parties to these arrangements each contribute 50%
of the total marketing expenditures. Our strategy is to enter into these
arrangements for local marketing efforts which otherwise we would have fully
funded without such an arrangement.
When marketing the Odyssey Network to advertisers, we focus on media
planners and buyers and on national and regional brands. We have already
attracted more than 40 of the leading advertisers based on total advertising
expenditures.
Our primary marketing goals in the first year since our relaunch have been
to build the Odyssey Network brand, increase awareness of the Odyssey Network,
retain existing viewers, grow our distribution, build a solid base of blue-chip
advertisers, and maintain and grow ratings. Our Odyssey Network marketing staff
is working closely with the other Odyssey Network departments to help achieve
all of these goals.
KERMIT CHANNEL
We and The Jim Henson Company each own 50% of the Kermit Channel. The
Kermit Channel, which we operate primarily in India, features popular family and
children's programming.
We broadcast a range of family entertainment and children's programming on
the Kermit Channel. A majority of that programming is provided pursuant to
program agreements with a subsidiary of Hallmark Entertainment, Inc. and The Jim
Henson Company. The Kermit Channel program agreements, typically provide for a
one-time license fee for the right to exhibit a program on a country-by-country
basis during three distinct 18-month periods. Examples of children's programming
from The Jim Henson Company shown on the Kermit Channel include The Muppet Show,
Muppets Tonight, and Fraggle Rock. Examples of programming from Hallmark
Entertainment, Inc. shown on the Kermit Channel include Gulliver's Travels and
Moby Dick, and animated series such as Fat Albert, The Archies, and She-Ra. We
also license programming produced by third parties.
Most of the revenues derived by the Kermit Channel are generated from
subscriber fees. We distribute the Kermit Channel in generally the same manner
as we distribute and market the Hallmark Entertainment Network in our Asia
Pacific market.
CHANNEL OPERATIONS
CHANNEL CREATION
The programming departments at each of our channels are responsible for
ensuring the consistent quality of the family programming we offer. The
programming, scheduling and acquisitions departments work in conjunction with
the creative services and traffic departments to create the distinctive
appearance of our channels.
The creation of our channels begins with the acquisition of programming.
The acquisitions department licenses programming from Hallmark Entertainment,
Inc., The Jim Henson Company, the National Interfaith Cable Coalition, and other
program suppliers. The acquisitions department's screening staff reviews and
summarizes all potential programming to ensure compliance with our quality and
content standards. The acquisitions department licenses programming based on the
amount of new programming required on our channels as well as cost
considerations.
In most of our international markets, we customize the Hallmark
Entertainment Network by dubbing or subtitling program elements into local
languages. The decision to customize the channel into local languages is based
on local market practices, viewer preferences and cost considerations. Language
preparation is coordinated by our program operations department. Program
language elements are typically shipped to the specific region to ensure that
nuances in dialect of the particular language are captured. The elements are
then returned to our Denver headquarters, where the language elements are
combined with the other programming elements.
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The creative services department is responsible for all of the non-licensed
programming (other than advertisements) on each channel. For example, the
creative services department creates the promotional segments that are aired
between the movies, miniseries and series. This interstitial material helps to
enhance each channel's brand. The creative services department at the Odyssey
Network also develops scripts for the original programming produced for the
Odyssey Network.
The scheduling department creates the playlist which contains a list of
daily programming. The scheduling department works with the creative services
and marketing personnel to continuously monitor the programming mix. The
playlist is then forwarded to the traffic department.
The traffic department inserts promotional segments into the playlist and
creates the daily log, which is the stream of programming that will ultimately
be viewed by the subscriber. The daily log, together with digital tapes that
contain the corresponding programming, are then forwarded to an origination and
playback facility, which is operated by a third party. Digital tapes that
contain the promotional segments are forwarded to the third party origination
and playback facility separately.
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CHANNEL DELIVERY
We deliver the daily log and digital tapes to the third party origination
and playback facility for each market, where the programming and promotional
segments are compressed into a single signal, and delivered to an uplink
facility. The uplink facility then transmits the signal to the satellite
transponder that covers the relevant geographic market, and the transponder
reflects the signal back within its designated geographic area to head-end
facilities operated by pay television distributors who receive and decode our
signal and transmit our channel. Our origination, playback and uplink services
are currently provided by third parties.
We are building an advanced global network operating center at our
Englewood, Colorado headquarters, which will have the ability to perform
origination and playback services for the Hallmark Entertainment Network for up
to 36 programming channels. The facility will enable us to:
- efficiently expand distribution into new markets;
- enhance on air quality and reliability;
- insert regional and local advertising into programming; and
- distribute programming in digital and other formats as required in the
rapidly evolving broadband distribution environment.
We intend to consolidate origination and playback for most of our Hallmark
Entertainment Network signals into our headquarters by mid-2001.
The diagram below illustrates our channel delivery process.
[Diagram showing box that contains "origination and playback
center", box that contains "compression and encryption",
satellites, box that contains "integrated receiver/decoder
and television]
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The following chart summarizes, for each of our markets, the distribution
platforms through which we deliver our channels, our primary pay television
distributors, the various languages in which our channels are broadcast, and the
uplink and satellites we currently use to deliver our channels.
<TABLE>
<CAPTION>
PRIMARY PRIMARY UPLINK
DISTRIBUTION PAY TV PROVIDERS/
MARKET PLATFORMS DISTRIBUTORS LANGUAGES LOCATIONS SATELLITES
<S> <C> <C> <C> <C> <C>
Latin America Cable Direct TV Spanish Hero NSS 806
DBS Sky Latin Portuguese Productions,
America Miami, Florida
Cablevision
Asia Pacific Cable Modi Mandarin WTCI Apstar IIR
DBS Rebar MSO Arabic Hong Kong
UBC MSO Thai
Japanese JCSat-3
English
Central Europe Cable United Pan- Polish Hero Telstar 12
DBS European Hungarian Productions,
Communications Croatian Miami, Florida
Romanian
Scandinavia/ Cable Via Sat Swedish Hero Telstar 12
Benelux DBS Stjarn-TV Dutch Productions,
Norwegian Miami, Florida
Danish
Italy DBS Telepiu Italian Telepiu Hot Bird
Milan
Spain DBS Via Digital Castillian Via Digial Hispasat
Portuguese Madrid
Africa DBS Multichoice English Multichoice PanAmSat 4
Johannesburg
Czech Republic Cable Kabel Plus Czech Kabel Plus Kopernicus 2
Cable Association Slovak Prague
Australia Cable Foxtel English Foxtel Optus B3
DBS Austar Sydney
Russia and Cable NTV Russian Hero Telstar 12
Middle East DBS Metromedia Arabic Productions,
Miami, Florida
United Kingdom DBS BSkyB English BSkyB Telstar 12
London
Israel Cable Tevel English Hero Telstar 12
Productions,
Miami, Florida
United States Cable AT&T English AT&T GE C-3
Time Warner Los Angeles,
Cable California
</TABLE>
COMPETITION
The pay television industry is highly competitive. Our channels compete for
distribution, viewers and advertisers with other pay television channels,
broadcast television channels and with other general forms of entertainment.
There are several sources of competition within our industry, each of which
affects our business strategy. Our channels compete with other family oriented
programming from TNT, USA Network, Discovery, A&E, Fox Family, Lifetime and
other similarly targeted channels. We compete with these
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channels for carriage on cable and satellite systems that may have limited
capacity. We also compete with these channels for viewers and advertising
dollars based upon quality of programming, number of subscribers, ratings and
subscriber demographics.
Competition recently has intensified as the industry shifts from analog
distribution to digital distribution. Many pay television distributors are in
the process of upgrading their physical infrastructures to accommodate digital
delivery, which will provide significantly more channel capacity. We believe
that it will take several years for the majority of current subscribers to
convert to, and begin paying for, upgraded services. In an effort to accelerate
the conversion, pay television distributors are attempting to place channels on
their digital tier as opposed to their limited, yet more widely distributed,
analog tiers. As a result, the competition for the remaining widely distributed
analog channel space is intense. However, as more and more subscribers are
converted, the digital tier is expected to become the dominant platform.
EMPLOYEES
We had 310 employees as of December 31, 1999. Neither we nor any of our
subsidiaries are parties to collective bargaining agreements. We believe that
our relations with our employees are good.
Substantially all of our Hallmark Entertainment Network employees work at
our headquarters in Englewood, Colorado. Substantially all of our Odyssey
Network employees work at our offices in Studio City, California and New York,
New York.
PROPERTIES
A description of the location, use and approximate square footage of our
principal offices and facilities, all of which are leased, is set forth below.
HALLMARK ENTERTAINMENT NETWORK LOCATIONS
<TABLE>
<CAPTION>
APPROXIMATE AREA
LOCATION USE IN SQUARE FEET
<S> <C> <C>
6430 South Fiddlers Executive and administrative 50,310
Green Circle, offices
Englewood, Colorado
5670 Greenwood Plaza Post production and editing 5,344
Englewood, Colorado facilities
12700 Ventura Blvd. Administrative offices 3,183
Studio City, California
1325 Avenue of the Americas Advertising sales and program 3,600
New York, New York acquisition
95 Merrick Way Sales and administrative office 2,179
Coral Gables, Florida
234 A Kings Road Scheduling and sales 5,786
London, England
</TABLE>
We intend to relocate our post-production and editing facilities from the
5670 Greenwood Plaza location to the network operations center located at 6430
South Fiddlers Green Circle prior to July 2000.
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ODYSSEY NETWORK LOCATIONS
<TABLE>
<CAPTION>
APPROXIMATE AREA
LOCATION USE IN SQUARE FEET
<S> <C> <C>
12700 Ventura Blvd. Executive and administrative 29,467
Studio City, California offices and post production
and editing facilities
1177 Avenue of the Americas Sales and administrative 15,000
New York, New York offices
205 N. Michigan Ave. Sales offices 1,172
Chicago, Illinois
</TABLE>
The leases for these offices and facilities expire between July 2000 and
August 2008. We believe our properties are sufficient for our foreseeable
business needs.
LEGAL PROCEEDINGS
We are not involved in any material pending legal proceedings.
REGULATION
The provision of television channels in the markets in which we operate,
including the United States, is regulated. The scope of regulation varies from
country to country, although in many significant respects a similar approach is
taken to the regulation of broadcasting across all of the markets in which we
operate. For example, throughout most of our Western European markets
broadcasting regulation has been formally harmonized to a substantial degree
under the regulatory structure of the European Union. Typically, broadcasting
regulation in each of the countries in which we operate requires that domestic
broadcasters and platform providers secure broadcasting licenses from the
domestic broadcasting authority. Additionally, most nations have broadcasting
legislation and regulations which set minimum standards regarding program
content, prescribe minimum standards for the content and scheduling of
television advertisements and provide that a certain portion of programming
carried by broadcasters be produced domestically and to some degree be sourced
from domestic production companies who are independent of the broadcaster.
The content regulations concerning programming generally prohibit
pornographic, exploitative and gratuitously violent material and usually provide
for heightened protection where children may form part of the audience. Many
nations also specifically proscribe material which may cause offense or incite
racial or religious hatred. The general scheme of regulations governing the
content of television advertising focus on prohibiting fraudulent, misleading
and subliminal advertising and require that advertising is readily
distinguishable from normal programming. The promotion of illegal goods and
services is universally prohibited and many nations also prohibit television
advertising of tobacco products and restrict alcohol and prescription drug
advertising. Generally, the responsibility for enforcing and monitoring
compliance with broadcasting and advertising laws and regulations is vested in
the domestic broadcasting licensing authorities.
Within the European Union, broadcasters are required to secure a
broadcasting license in those member states in which they are established. Under
European Union law, broadcasters validly licensed in one member state may freely
broadcast to or retransmit their programming in other member states. Outside of
the European Union, broadcasters are generally required to secure a broadcasting
license only if they physically broadcast programs from within the country
concerned. Foreign licensed broadcasters who transmit their programming
unaltered into another country from outside of that country, or whose programs
are retransmitted unaltered by a domestic cable or satellite distributor, are
generally not subject to local
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licensing requirements. Accordingly, foreign broadcasters are not directly
subject to the broadcasting and advertising laws of foreign countries in which
their programs are broadcast or retransmitted. However, in each of the countries
in which we operate local pay television distributors which retransmit foreign
broadcasters' programming are required under local broadcasting laws to obtain a
broadcasting license and hence are subject to local broadcasting and advertising
laws. Consequently, local pay television distributors have a statutory duty to
ensure that the programming and advertising they retransmit on behalf of foreign
broadcasters conforms to the regulatory scheme under which each local platform
provider is licensed. Our contracts with many of our local platform providers
require that our programming comply with domestic broadcasting regulations.
With the exceptions of the United Kingdom and the United States, we are a
foreign broadcaster in every market in which we operate. We use our Englewood,
Colorado facility in the United States to prepare programming tapes for
rebroadcast in each of our foreign markets by local satellite and cable platform
providers. However, each of these pay television distributors and consequently,
in most cases, our programming carried on their systems, must adhere to the
broadcasting and advertising regulations of each platform provider's licensing
jurisdiction.
Within the United States, program access rules applicable to channel
providers with ownership ties to pay television distributors limit business
combinations between these two types of companies that do not comply with these
rules.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The individuals who will be our directors and executive officers
immediately following this offering, as well as their ages and positions, are
listed below.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
<S> <C> <C>
Robert A. Halmi, Jr.*..................... 42 Chairman of the Board of Directors
David J. Evans*........................... 59 President, Chief Executive Officer and
Director
William J. Aliber*........................ 38 Executive Vice President and Chief
Financial Officer
Russel H. Givens, Jr...................... 53 Executive Vice President and Chief
Operating Officer
Andrew P. Brilliant....................... 53 Executive Vice President, Sales and
Marketing
Wilford V. Bane, Jr....................... 61 Director
Arnold L. Chavkin......................... 48 Director
Robert J. Druten*......................... 52 Director
William M. Haber.......................... 57 Director
Donald J. Hall, Jr........................ 44 Director
Irvine O. Hockaday, Jr.*.................. 63 Director
David B. Koff............................. 41 Director
Peter A. Lund............................. Director
John P. Mascotte.......................... 60 Director
</TABLE>
- ----------
* These individuals have been serving as our directors since December 1999 and
will be our only directors prior to this offering.
Each of our directors and executive officers can be reached c/o Crown Media
Holdings, Inc., Suite 500, 6430 S. Fiddlers Green Circle, Englewood, Colorado
80111.
Mr. Halmi has been the Chairman of the Board of Directors of Crown Media
since April 1996. He has also been the President and Chief Executive Officer of
Hallmark Entertainment, Inc. since April 1994. Mr. Halmi has been an executive
producer of award-winning television programming, such as Lonesome Dove, which
won several Emmy awards, a Golden Globe award, and a Peabody award. Prior to
joining Hallmark Entertainment, Inc., he was with RHI Entertainment since its
inception in 1989.
Mr. Evans has been the President and Chief Executive Officer of Crown Media
since March 1999 and a Director of Crown Media since July 1999. Prior to that,
he was the President and Chief Executive Officer of Telecommunications
International, Inc. from September 1997 until February 1999. From July 1996
until August 1997, Mr. Evans was the Executive Vice President of News Corp. and
also the President and Chief Executive Officer of Sky Latin America. Prior to
that, he was the President and Chief Operating Officer for Fox Television from
August 1994 until June 1996.
Mr. Aliber has been the Vice President and Chief Financial Officer of
Hallmark Entertainment, Inc. since June 1996. Prior to that, he was the Director
of Corporate Finance for Hallmark Cards from January 1995 until June 1996. It is
currently contemplated that, upon completion of this offering, Mr. Aliber will
resign as Chief Financial Officer of Hallmark Entertainment, Inc. and resign as
a director of us.
Mr. Givens has been the Executive Vice President and Chief Operating
Officer of Crown Media since July 1998. Prior to that, Mr. Givens served as the
Vice President, European Cable/Telephony, for Media One, Intl. from October 1994
until July 1998.
Mr. Brilliant has been the Executive Vice President, Sales and Marketing of
Crown Media since June 1998. Prior to that, he was the Senior Vice President,
International, of Cable Network Services, Inc. from
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September 1996 until June 1998. From January 1980 until July 1996, Mr. Brilliant
was the General Counsel and Executive Vice President, International, of ESPN,
Inc.
Mr. Bane has been the Associate General Secretary of United Methodist
Communications, the communications agency for the United Methodist Church, since
October 1990. He also serves as chair of VISN Management. Mr. Bane helped found
and launch the Vision Interfaith Satellite Network, the predecessor of Odyssey
Network, and served as the interim Chief Executive Officer for its first two
years.
Mr. Chavkin has been a Director of Crown Media since 1998. He has also been
a General Partner of Chase Capital Partners, a general partnership which invests
in private equity opportunities with a significant concentration on the media
and telecommunications industries, since April 1991. Prior to that, Mr. Chavkin
was a member of Chemical Bank's merchant banking group and a generalist in its
corporate finance group. He is a member of the board of directors of American
Tower Corporation, Encore Acquisition Partners, Inc., R&B Falcon Corporation,
SMG, Inc., TeleCorp PCS, Inc., Triton Cellular Partners, L.P., Triton PCS, Inc.,
U.S. Silica Company, Carrizo Oil & Gas, Inc., and Wireless One, Inc.
Mr. Druten has been a Director of Crown Media since April 1996. He has also
been the Vice President and Chief Financial Officer of Hallmark Cards since
November 1994. Mr. Druten is the Trustee of Entertainment Properties Trust. He
is also a member of the board of directors of Hallmark Entertainment, Inc. and
Hallmark Cards Holdings Limited.
Mr. Haber has been the President of OSTAR Enterprises, Inc., a theatrical
holding company, since 1995. Mr. Haber co-founded the Creative Artist Agency in
1975. He is a member of the board of directors of Jim Henson Productions, Inc.
Mr. Hall has been the Vice President, Strategy and Development, of Hallmark
Cards since September 1999. He has also been the Vice Chairman of the board of
directors of Hallmark Cards since 1996. Mr. Hall has served in a variety of
positions for Hallmark Cards since 1971. Mr. Hall was the Vice President,
Product Development, of Hallmark Cards from September 1997 until September 1999.
Prior to that, he was the Vice President, Creative, from March 1995 until
September 1997. Mr. Hall is a member of the board of directors of Hallmark
Entertainment, Inc. and Business Men's Assurance Company of America.
Mr. Hockaday has been a Director of Crown Media since April 1996. He has
also been the President and Chief Executive Officer of Hallmark Cards since
January 1986. Prior to joining Hallmark Cards in 1983, Mr. Hockaday served as
President and Chief Executive Officer of Kansas City Southern Industries, Inc.,
from 1971 until 1983. He is a member of the board of directors of Hallmark
Cards, Ford Motor Company, Dow Jones & Company, Inc., Sprint Corporation, and
UtiliCorp United, Inc. Mr. Hockaday is a trustee of the Hall Family Foundations,
the Aspen Institute, and Princeton University.
Mr. Koff has been a Senior Vice President of Liberty Media since February
1998. Prior to that, he was the Vice President, Corporate Development, of
Liberty Media from August 1994 until February 1998. Mr. Koff also served as the
interim President and Chief Executive Officer of Liberty Digital, Inc. from May
1997 until January 1998. He has served as a member of the board of directors of
Liberty Digital since May 1997.
Mr. Lund has been a private investor and a media consultant since June
1997. He was the President and Chief Executive Officer of CBS, Inc. from October
1995 until June 1997. Prior to that, Mr. Lund served in a variety of positions
with CBS since 1977. He is a member of the board of directors of dreamlife, inc.
and Lycos, Inc.
Mr. Mascotte has been the President and Chief Executive Officer of Blue
Cross and Blue Shield of Kansas City, Inc. since July 1997. Prior to that, he
was the Chairman of Johnson & Higgens of Missouri, Inc. from January 1996 until
June 1997. Mr. Mascotte also served as a consultant to CNA Insurance from
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May 1995 until December 1995. From January 1995 until May 1995, he was the
Chairman and Chief Executive Officer of Continental Corporation. Mr. Mascotte is
a member of the board of directors of American Home Products Corporation, AMC
Entertainment, Inc., Hallmark Entertainment, Inc., and Blue Cross and Blue
Shield of Kansas City, Inc.
ODYSSEY HOLDINGS KEY PERSONNEL
The key personnel of Odyssey Holdings, including their ages and positions,
are listed below:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
<S> <C> <C>
Margaret A. Loesch........................ 53 President and Chief Executive Officer
Susan A. G. Frank......................... 50 General Manager and Executive Vice
President
Lana E. Corbi............................. 44 Chief Operating Officer
</TABLE>
Ms. Loesch has been the President and Chief Executive Officer of Odyssey
Holdings since November 1998. She was the President of Jim Henson Television
from February 1998 until November 1998. Prior to that, Ms. Loesch was the Vice
Chairman of Fox Kids Worldwide from May 1997 until November 1997. She was the
President and Chief Executive Officer of Fox Kids Networks Worldwide from March
1990 until May 1997.
Ms. Frank has been the General Manager and Executive Vice President of
Odyssey Holdings since February 1999. She was the Executive Vice President,
Corporate Marketing Worldwide, for The Jim Henson Company from May 1998 until
February 1999. Ms. Frank was a Consultant at The Jim Henson Company from
February 1998 until May 1998. Prior to that, she was Executive Vice President,
Marketing and Promotions Worldwide, for Fox Kids Worldwide from October 1996
until November 1997. From April 1995 until October 1996, Ms. Frank was Senior
Vice President at Hanna Barbera. Prior to that, she served in a variety of
positions for McDonald's Corp. from March 1979 until April 1995.
Ms. Corbi has been the Chief Operating Officer of Odyssey Holdings since
April 1999. She was the President, Network Distribution, of Fox Broadcasting
Company from May 1997 until April 1999. Prior to that, Ms. Corbi was the
Executive Vice President, Network Distribution, of Fox Broadcasting Company from
May 1996 until May 1997. She was the President and Chief Operating Officer of
Blackstar, L.L.C. from September 1995 until May 1996. Prior to that, Ms. Corbi
was Senior Vice President, Network Distribution, for Fox Broadcasting Company
from October 1994 until September 1995.
BOARD OF DIRECTORS
Our Board of Directors is currently comprised of five individuals, four of
whom are directors or officers of Hallmark Entertainment, Inc. or its affiliates
and one of whom is an employee of ours. Pursuant to a stockholders agreement,
upon completion of the offering, we will have a Board of Directors comprised of
11 individuals, nominated as follows: six nominated by Hallmark Entertainment,
Inc., one nominated by each of Liberty Media, the National Interfaith Cable
Coalition and Chase Equity Associates and two independent directors nominated by
the Board of Directors who will not be officers or employees of Hallmark
Entertainment, Inc., Liberty Media, the National Interfaith Cable Coalition or
Chase Equity Associates.
Under our by-laws, our directors are elected at the annual stockholders
meeting upon the vote of a plurality of the voting power of shares of our
outstanding common stock cast in the election. Our directors may be removed with
or without cause upon the vote of holders of a majority of the voting power of
shares of our outstanding common stock.
Directors who are our employees will receive no compensation for their
service as members of our Board of Directors or its committees. Directors who
are not our employees will receive compensation and
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stock options under plans we describe below. We reimburse all directors for
expenses incurred in connection with attendance at meetings. See
"Management -- Compensation of Outside Directors."
COMMITTEES OF THE BOARD OF DIRECTORS
Upon completion of this offering, our Board of Directors will establish an
Audit Committee and a Compensation Committee. The functions of the Audit
Committee will be to:
- recommend annually to our Board of Directors the appointment of our
independent auditors;
- discuss and review in advance the scope and the fees of our annual audit
and review the results thereof with our independent auditors;
- review and approve non-audit services of our independent auditors;
- review compliance with our existing major accounting and financial
reporting policies;
- review the adequacy of major accounting and financial reporting policies;
- review our management's procedures and policies relating to the adequacy
of our internal accounting controls and compliance with applicable laws
relating to accounting practices;
- review compliance with applicable Securities and Exchange Commission and
Nasdaq rules regarding audit committees;
- prepare a report for our annual proxy statement; and
- comply with any additional requirements set forth in the Audit
Committee's charter.
We anticipate the Audit Committee will consist solely of directors who are
independent directors as defined under the rules of the National Association of
Securities Dealers, Inc.
The functions of the Compensation Committee will be to review and approve
annual salaries, bonuses, and grants of stock options, if any, for all executive
officers and key members of our management staff, and to review and approve the
terms and conditions of all employee benefit plans or changes to these plans. We
anticipate the Compensation Committee will consist of directors who are not our
employees.
In addition, our Board of Directors will form an Executive Committee, which
will have the authority to exercise the powers of our Board of Directors, other
than those reserved to the Audit Committee and the Compensation Committee or to
our full Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As noted above, our Board of Directors does not currently have a
Compensation Committee, but our Board of Directors anticipates establishing one
as described above. Prior to this offering, our principals and senior management
were directly involved in setting compensation for our executives.
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EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid to the Chief
Executive Officer and the other four most highly compensated executive officers
of Crown Media for the fiscal year ended December 31, 1999. Following the
closing of the offering, we anticipate that the executive officers named below
will be our executive officers, except as otherwise noted.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
1999 1999 OTHER ANNUAL
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) COMPENSATION
<S> <C> <C> <C>
David J. Evans........................................ 604,791 -- --
President and Chief Executive Officer
Russel H. Givens, Jr.................................. 354,571 34,631 --
Executive Vice President and Chief Operating Officer
Andrew P. Brilliant................................... 316,859 47,120 --
Executive Vice President - Sales and Marketing
Jeffrey J. Johnson(1)................................. 287,081(2) -- 130,476(3)
Vice President, Marketing Director - Asia Pacific
Mark N. Grenside...................................... 237,954 24,460 --
Senior Vice President, Managing Director, Sales -
Europe/ Middle East/Africa
</TABLE>
- ------------------------------
(1) Mr. Johnson voluntarily terminated his employment with Crown Media effective
February 24, 2000.
(2) 1999 salary includes 1998 compensation paid in 1999.
(3) Represents auto allowance, relocation expense, tax equalization and
expatriate cost of living adjustment.
STOCK APPRECIATION RIGHT EXERCISES AND HOLDINGS
The following tables provide information regarding grants and holdings of
stock appreciation rights by Crown Media's Chief Executive Officer and its other
four most highly compensated executive officers for the fiscal year ended
December 31, 1999. We did not grant any options to, and no options were
exercised by, any of the named executive officers in 1999. Upon completion of
the offering, the SARs will be converted into stock options. See "-- Executive
Employment Arrangements -- Share Appreciation Rights Plan."
SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERCENT OF POTENTIAL REALIZABLE
TOTAL VALUE AT
SARS ASSUMED ANNUAL RATES OF
NUMBER OF GRANTED STOCK
SECURITIES TO PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES BASE SAR TERM
SARS IN FISCAL PRICE EXPIRATION -----------------------
NAME GRANTED(#) YEAR ($/SH) DATE 5% ($) 10% ($)
<S> <C> <C> <C> <C> <C> <C>
David J. Evans........ 2,000,000 66.67% 4.50 December 31, 2002 1,852,734 3,977,254
Russel H. Givens,
Jr.................. 300,000 10.00% 4.50 December 31, 2002 277,910 596,588
Andrew P. Brilliant... 300,000 10.00% 4.50 December 31, 2002 277,910 596,588
Jeffrey J. Johnson.... -- -- -- -- --
Mark N. Grenside...... 100,000 3.33% 4.50 December 31, 2002 92,637 198,863
</TABLE>
No stock appreciation rights were exercised by any of the named executive
officers in 1999.
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The following summary descriptions of employment agreements and
compensation plans are qualified in their entirety by reference to those plans,
copies of which we have filed as exhibits to the registration statement of which
this prospectus is a part.
EXECUTIVE EMPLOYMENT ARRANGEMENTS
EMPLOYMENT AGREEMENT WITH DAVID J. EVANS
On March 1, 1999, Crown Media entered into an employment agreement with Mr.
Evans that provides for his employment as its President and Chief Executive
Officer. The term of this agreement is three years and may be extended by mutual
consent. The agreement provides for an annual base salary of $675,000.
Additionally, Mr. Evans will receive a performance bonus based on the growth in
its net revenues from its fully or partially owned channels, for each
twelve-month period beginning on March 1, 1999. If this net revenue growth
during a twelve-month period is 20% or more, the performance bonus will be 50%
of Mr. Evans' annual base salary. Crown Media will prorate the bonus if this net
revenue growth is under 20% and Mr. Evans will not receive a performance bonus
if there is no net revenue growth. Crown Media guaranteed a performance bonus of
$337,500 for the period ending on February 28, 2000, and it paid Mr. Evans that
amount on March 1, 2000. Under the agreement, Crown Media may also pay an
additional bonus as it determines in its discretion.
The agreement provides that if Crown Media terminates Mr. Evans' employment
other than for cause or disability, or if Mr. Evans resigns for good reason,
then he will be entitled to a discounted lump sum cash payment equal to the
amount of the base salary due through the end of the term of the agreement and,
except for any annual bonus that is due to Mr. Evans under the agreement, Crown
Media will have no further obligations under the agreement. However, if Crown
Media terminates Mr. Evans' employment other than for cause within the 180-day
period before the end of the term of the agreement, the discounted lump sum
payment will be equal to the amount of the base salary for 180 days following
the date of the termination.
Under the employment agreement, Mr. Evans cannot compete with Crown Media,
or solicit its employees, during the term of his employment. Additionally, for
the one-year period following his termination of employment for any reason, Mr.
Evans may not solicit any person who is working for Crown Media as an officer,
policymaker or who is involved in high-level creative development or
distribution.
EMPLOYMENT AGREEMENT WITH RUSSEL H. GIVENS, JR.
Crown Media entered into an employment agreement on July 27, 1998 with Mr.
Givens that provides for his employment as its Executive Vice President, Chief
Operating Officer, and Crown Media amended the agreement on July 1, 1999. The
agreement expires on June 30, 2002 and may be extended by mutual consent. The
agreement provides for an annual base salary of $387,500 and for minimum annual
increases of the base salary that are the greater of: (1) 7% and (2) the annual
increase in the Consumer Price Index. Additionally, the agreement provides for
annual bonuses that Crown Media determines. The minimum guaranteed bonus for the
1999 year is 30% of the base salary and the minimum guaranteed bonus for each
year during the remainder of the term of the agreement is 20% of the base
salary.
The agreement provides that if Crown Media terminates Mr. Givens'
employment other than for cause or disability, then he will be entitled to a
discounted lump sum cash payment equal to the sum of the base salary due through
the later of 180 days from the date of termination and the end of the term of
the agreement and, except for any pro-rated annual bonus that is due to Mr.
Givens under the agreement, Crown Media will have no further obligations under
the agreement.
Under the employment agreement, Mr. Givens cannot compete with Crown Media,
or solicit its employees, during the term of his employment. Additionally, for
the one-year period following his
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termination of employment for any reason, Mr. Givens may not solicit any person
who is working for Crown Media as an officer, policymaker or who is involved in
high-level creative development or distribution.
EMPLOYMENT AGREEMENT WITH ANDREW P. BRILLIANT
Crown Media entered into an employment agreement on June 23, 1998 with Mr.
Brilliant that provides for his employment as its Executive Vice President,
Sales and Marketing, and Crown Media amended the agreement on July 1, 1999. The
agreement expires on June 30, 2002, but may be extended by mutual consent.
During the term of the employment agreement, Mr. Brilliant's annual base salary
is $350,000, and he will be entitled to minimum annual increases of the base
salary that are the greater of: (1) 7% and (2) the annual increase in the
Consumer Price Index. Additionally, the agreement provides for annual bonuses
that Crown Media determines. The minimum guaranteed bonus for the 1999 year is
30% of the base salary and the minimum guaranteed annual bonus for each year
during the remainder of the term of the agreement is 20% of the annual base
salary.
The agreement provides that if Crown Media terminates Mr. Brilliant's
employment other than for cause, then he will be entitled to a discounted lump
sum cash payment equal to the sum of the base salary due through the later of
180 days from the date of termination and the end of the term of the agreement
and reasonable relocation expenses to move back to New York and, except for any
pro-rated annual bonus that is due to Mr. Brilliant under the agreement, Crown
Media will have no further obligations under the agreement.
Under the employment agreement, Mr. Brilliant cannot compete with Crown
Media, or solicit its employees, during the term of his employment.
Additionally, for the one-year period following his termination of employment
for any reason, Mr. Brilliant may not solicit any person who is working for
Crown Media as an officer, policymaker or who is involved in high-level creative
development or distribution.
EMPLOYMENT AGREEMENT WITH JEFFREY J. JOHNSON
Crown Media entered into an employment agreement on November 28, 1998 with
Mr. Johnson that provides for his employment as its Vice President and Managing
Director -- HEN Asia Pacific. The agreement was scheduled to expire on November
30, 2002. Mr. Johnson voluntarily terminated his employment with Crown Media
effective February 24, 2000. The agreement provides for an annual base salary of
$200,000 and for annual increases of the base salary and annual bonuses at Crown
Media's discretion. During the employment period, Mr. Johnson was entitled to
receive tax assistance, tax equalization and cost of living adjustments not to
exceed $110,000 per year.
Under the employment agreement, Mr. Johnson cannot compete with Crown
Media, or solicit its employees, during the term of his employment. For the
one-year period following his termination of employment for any reason, Mr.
Johnson may not solicit any person who is working for Crown Media as an officer,
policymaker or who is involved in high-level creative development or
distribution.
EMPLOYMENT AGREEMENT WITH MARK N. GRENSIDE
Hallmark Entertainment Networks (UK) Limited, a subsidiary of Crown Media,
signed an employment agreement on January 1, 1999 with Mr. Grenside that
provides for his employment as its Senior Vice President, Managing Director
Sales-Europe/Middle East/Africa. The agreement expires on December 31, 2000 and
may be extended by mutual consent. The agreement provides for an annual base
salary of $250,000 which may be increased at its discretion. Additionally, the
agreement also provides for annual bonuses of up to 30% of Mr. Grenside's base
salary. Under the agreement, 17.5% of the bonus is
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based on the performance of Crown Media, 7.5% of the bonus is based on Mr.
Grenside's achievement of personal objectives and 5% of the bonus is based on
Mr. Grenside's achievement of specified tasks.
The agreement provides that if Hallmark Entertainment Networks (UK)
terminates Mr. Grenside's employment other than for cause, then he will be
entitled to a lump sum cash payment equal to the sum of the base salary payments
due through the end of the term of the agreement and, except for any pro-rated
annual bonus that is due to Mr. Grenside under the agreement, Hallmark
Entertainment Networks (UK) will have no further obligations under the
agreement.
Under the employment agreement, Mr. Grenside cannot compete with Crown
Media, or solicit its employees, during the term of his employment. For the
one-year period following his termination of employment for any reason, Mr.
Grenside may not solicit any person who is working for Crown Media as an
officer, policymaker or who is involved in high-level creative development or
distribution.
SEPARATION AGREEMENT WITH GEORGE STEIN
Crown Media entered into a separation agreement with George Stein, its
former Chief Executive Officer, on January 28, 1999. Under this agreement, it is
obligated to pay Mr. Stein the following amounts:
- $2.0 million within 15 business days after January 31, 2000 (which it
paid to Mr. Stein on January 18, 2000), and $1.0 million within 15
business days after each of January 31, 2001 and January 31, 2002, and
- an additional payment of (1) $2.0 million if Crown Media completes an
initial public offering before January 31, 2001, (2) $1.0 million if an
initial public offering is completed between January 31, 2001 and January
31, 2002, or (3) no additional payment if Crown Media does not complete
an initial public offering by January 31, 2002.
Mr. Stein may not solicit any of its employees before January 31, 2001 and
if he solicits any of its employees before this date, he will forfeit $250,000
of the above payments.
SHARE APPRECIATION RIGHTS PLAN
Crown Media established a Share Appreciation Rights Plan in 1999, under
which ten of its officers were granted the following numbers of phantom share
appreciation rights, also referred to as SARs: David J. Evans -- 2.0 million
SARs; Russel H. Givens, Jr. -- 300,000 SARs; Andrew P. Brilliant -- 300,000
SARs; and other officers -- 400,000 SARs in the aggregate. Each SAR represents
the right to a cash payment equal to a percentage of the increase in the value
of Crown Media following the grant date of the SAR and is exercisable in 36
equal monthly installments.
Upon the completion of this offering, each officer's outstanding SARs will
be converted into stock options to acquire shares of our Class A common stock
under our Amended and Restated 2000 Long Term Incentive Plan, which is described
below. Each holder of an SAR will receive stock options with respect to that
number of shares of our Class A common stock equal to the product of (1) the
percentage of total SARs held by the holder, times (2) the product of (A) 3%,
times (B) the number of shares of our common stock owned by Hallmark
Entertainment, Inc. and Chase Equity Associates, in each case immediately after
this offering. The shares of our Class A common stock subject to the stock
options to be granted to Crown Media's Chief Executive Officer, its other four
most highly compensated executive officers and the other officers as a group
upon cancellation of all their SARs, are as follows: Mr. Evans, ;
Mr. Givens, ; Mr. Brilliant, ; Mr. Johnson,
; Mr. Grenside, ; and the other officers as a group, .
The exercise price per share of Class A common stock subject to the stock
options will be $500 million divided by the total our shares of common stock
outstanding immediately after this offering,
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excluding any shares of Class A common stock sold by us upon exercise of the
U.S. underwriters over-allotment option. Each officer's stock option will retain
the original vesting provisions of the SARs. Following completion of this
offering, the other terms of these stock options will be generally the same as
the terms of stock options granted under any Amended and Restated 2000 Long Term
Incentive Plan. The stock options will generally expire on January 1, 2009. No
awards will be granted under this plan following this offering.
THE AMENDED AND RESTATED 2000 LONG TERM INCENTIVE PLAN
We have adopted and approved our Amended and Restated 2000 Long Term
Incentive Plan. This plan is designed to promote our success and enhance our
value by linking the interests of our officers, employees and directors to those
of our stockholders and by providing participants with an incentive for
outstanding performance. This plan is further intended to provide flexibility in
its ability to motivate, attract and retain employees upon whose judgement,
interest and special efforts our business is largely dependent. Our officers,
employees and directors, including non-employee directors, and officers,
employees and directors of our subsidiaries and affiliates are eligible to
participate in this plan. This plan is intended to remain in effect until 2010.
The description below summarizes the material terms of this plan.
General
The 2000 plan will be administered by the Compensation Committee of our
Board of Directors, or another committee designated by our Board of Directors,
and will provide for the grant to officers and employees of non-qualified and
incentive stock options and other types of equity-based and cash-based awards.
The only awards that we will grant to non-employee directors will be stock
options and deferred stock units with respect to the number of shares of Class A
common stock determined by the Board of Directors.
The 2000 plan provides that the maximum number of shares of Class A common
stock available for issuance under the 2000 plan is 10 million. No more than one
million of these shares may be used for grants of restricted stock. The maximum
number of shares that may be issued under incentive stock options will not
exceed five million.
The term of options granted under the 2000 plan may not exceed 10 years.
Unless otherwise determined by our Compensation Committee, any options granted
to an employee or consultant after the date of this offering will vest ratably
on each of the first five anniversaries after the grant date and options granted
to a non-employee director will vest on the first anniversary of the grant date.
A participant exercising an option may pay the exercise price in cash. If
approved by our Compensation Committee, a participant may pay the exercise price
with previously acquired shares of Class A common stock that the participant has
either purchased on the open market or held for six months or longer, or in a
combination of cash and stock. Our Compensation Committee, in its discretion,
may allow the broker-assisted cashless exercise of options.
Options are generally nontransferable other than by will or the laws of
descent and distribution. At the discretion of our Compensation Committee,
options may be transferable by a written beneficiary designation or, in the case
of a non-qualified option, by a gift to members of the holder's immediate
family. The gift may be made directly or indirectly or by means of a trust or
partnership or limited liability company and, during the participant's lifetime,
may be exercised only by the participant, any such permitted transferee or a
guardian, legal representative or beneficiary.
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Other Awards
A stock appreciation right, or SAR, permits a participant to receive cash
or shares of Class A common stock, or a combination thereof, as determined by
our Board of Directors or our Compensation Committee. We may grant freestanding
SARs or SARs in connection with options. The amount of cash or the value of the
shares is equal to the excess of the fair market value of a share of Class A
common stock on the date of exercise over the SAR exercise price, multiplied by
the number of shares with respect to which the SAR is exercised. Restricted
stock may be granted subject to performance or service-based goals upon which
restrictions will lapse. Performance units may be granted subject to performance
goals and/or service-based restrictions, and will be payable in cash or shares
of Class A common stock or a combination as determined by our Board of Directors
or our Compensation Committee. We may also grant other awards of Class A common
stock and other stock-based awards, including dividend equivalents.
Additionally, a non-employee director may defer all or a portion of his or her
fees into a deferred share account which will also accrue additional shares to
reflect dividends that would have been paid on the shares credited to the share
account.
Additionally, any non-employee directors will receive a number of shares of
Class A Common Stock equal to the number of shares in the non-employee
director's share account, plus cash for fractional shares.
Change in Control
In the event of a change in control, any option or SAR that is not then
exercisable or vested shall become exercisable and vested and restrictions on
restricted stock will lapse and performance units will be deemed earned at
targeted performance levels and will be paid on a pro rata basis for the portion
of the related performance period that has elapsed as of the date of the change
in control. Change in control generally means:
- the acquisition of at least 20% of the outstanding common stock or voting
power unless, after the acquisition, Hallmark Entertainment, Inc. owns,
directly or indirectly, at least 50% of our outstanding voting power;
- a change in the majority of the members of the Board of Directors, unless
approved by the incumbent directors;
- the completion of a merger, reorganization, consolidation or sale of
assets involving Crown Media Holdings in which our stockholders do not
retain more than 50% of the voting power of the resulting entity, or
pursuant to which certain other events constituting a change in control
occur; and
- approval by our stockholders or a liquidation or dissolution.
Amendments
Our Board of Directors may at any time amend or terminate the 2000 plan and
may amend the terms of any outstanding option or other award, except that no
termination or amendment may impair the rights of the participants as they
relate to outstanding options or awards. However, no such amendment to the 2000
plan will be made without the approval of our stockholders to the extent such
approval is required by law or stock exchange rule.
U.S. Federal Income Tax Consequences of Stock Options
The grant of an option will create no tax consequences for the participant
or us. Upon exercising an option, other than an incentive stock option, the
participant will generally recognize ordinary income equal to the difference
between the exercise price and the fair market value of the shares acquired on
the date of exercise and we generally will be entitled to a tax deduction in the
same amount. A participant generally will not recognize taxable income upon
exercising an incentive stock option and we will not be entitled to
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any tax deduction with respect to an incentive stock option if the participant
holds the shares for the applicable periods specified in the Internal Revenue
Code.
COMPENSATION OF OUTSIDE DIRECTORS
Each of our non-employee directors who are not employees of Hallmark Cards
or its subsidiaries will receive a single annual retainer fee of $28,000 for
serving on our Board of Directors and an additional meeting fee of $1,000 per
meeting for each extraordinary meeting or meeting in excess of the number of
regularly-scheduled meetings. All directors will receive reimbursement of
expenses incurred in connection with participation in Board of Directors
meetings.
On the day of the pricing of this offering, each non-employee director who
is not an employee of Hallmark Cards or its subsidiaries will be granted options
for 7,800 shares of Class A common stock under our 2000 Long Term Incentive Plan
exercisable at the initial public offering price. Following the offering, each
new non-employee director will receive an initial grant of an option, at an
exercise price equal to the fair market value of such shares at the date of
grant, for a number of shares of Class A common stock with an aggregate fair
market value of $120,000 upon being elected or appointed to our Board of
Directors and, after each annual meeting of stockholders, each continuing
non-employee director will be granted options, at an exercise price equal to the
fair market value of the Class A common stock on the date of grant, for a number
of shares of Class A common stock with a fair market value of $40,000.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by applicable Delaware 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
by-laws 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. At present, we are
not aware of any pending or threatened litigation or proceeding involving a
director, officer, employee or agent of ours in which indemnification would be
required or permitted. We believe that these indemnification provisions are
necessary to attract and retain qualified persons as directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be granted to directors, officers or persons controlling us under
the foregoing provisions, we have been informed that in the opinion of the SEC
this indemnification is against public policy as expressed in the Securities Act
of 1933 and is therefore unenforceable.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following summary descriptions of agreements to which we are a party
are qualified in their entirety by reference to the agreement to which each
summary description relates, each of which we have filed as an exhibit to the
registration statement of which this prospectus is a part.
PROGRAM AGREEMENTS
HALLMARK PROGRAM AGREEMENTS
Crown Media. Crown Media licenses programming from Hallmark Entertainment
Distribution, a subsidiary of Hallmark Entertainment, Inc. for distribution on a
country-by-country basis outside the United States and Canada. Under a program
agreement dated as of July 1, 1999, we are required to license from Hallmark
Entertainment Distribution and it is required to license to us substantially all
of the television motion pictures and miniseries it owns or controls during the
term of the agreement, which ends on December 31, 2004. The program agreement is
renewable at Hallmark Entertainment Distribution's option for an additional
period beginning on January 1, 2005 and ending on December 31, 2009. Hallmark
Entertainment Distribution has agreed to renew the program agreement unless we
are in default under the program agreement or any other agreement we have with
Hallmark Entertainment Distribution.
Hallmark Entertainment Distribution has existing contractual relationships
with distributors that preclude us from obtaining programming under the program
agreement in several territories in which we do not currently operate, the most
significant of which is Germany. Hallmark Entertainment Distribution is
expressly permitted to renew indefinitely its contracts with distributors in
Germany, Italy and Spain and may renew contracts with other distributors to the
extent the existing contracts afford the distributor renewal rights.
We have the right to distribute the programming we license under the
program agreement through cable and DTH systems. However, we do not license
programming for distribution on a pay-per-view basis. In addition, we and
Hallmark Entertainment Distribution have agreed to negotiate in good faith on a
product-by-product basis for pay television license rights to programming not
covered under the program agreement, including documentaries, series and
specials.
Under the program agreement we generally license each movie or miniseries
for a minimum of three time periods of 18 months or 12 months, with each 18- or
12-month period separated by a period of one to three years depending on whether
Hallmark Entertainment Distribution licenses the programming to a third party
during the interim periods. The first 18- or 12-month time period begins on the
later of the date specified in the program agreement or the date we launch in a
country. The number of times we can telecast a movie or miniseries is determined
by viewer preferences and industry practices on a country-by-country basis.
We pay license fees to Hallmark Entertainment Distribution on a
country-by-country, program-by-program basis for each of the three time periods
for which we license programming. The fees generally increase 5% per year and
are payable in four equal installments for the first time period and in six
equal installments for subsequent time periods. During the year ended December
31, 1999, we paid Hallmark Entertainment Distribution $6.8 million in fees under
the program agreement. As of December 31, 1999, we had $34.6 in accrued and
unpaid fees, $30.0 million of which we expect to pay with a portion of the
proceeds we receive from this offering.
Odyssey Holdings. Odyssey Holdings licenses programming from Hallmark
Entertainment Distribution under a program agreement, dated as of November 13,
1998, for distribution within the United States. Under the program agreement,
Odyssey Holdings generally licenses made-for-television movies and miniseries
owned or controlled by Hallmark Entertainment Distribution, as well as all
programming produced by or on behalf of Hallmark Entertainment Distribution for
Odyssey Holdings. The agreement
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has a term of five years, and is automatically renewable for additional
three-year periods subject to rate adjustments, so long as Hallmark
Entertainment, Inc. or its affiliates own 10% or more of Odyssey Holdings. In
the event that Hallmark Entertainment, Inc. owns less than 10% of Odyssey
Holdings, the remaining term of the program agreement will be two years from the
date of that event.
Odyssey Holdings has the right to telecast the programming it licenses
under the program agreement through all forms of television, except on a
pay-per-view basis. Under the program agreement we generally license each movie
or miniseries for a period of five years and have the right to telecast the
movie or miniseries 30 times during that period. Odyssey Holdings and Hallmark
Entertainment Distribution have agreed to negotiate in good faith on a
product-by-product basis for pay television license rights to programming not
covered under the program agreement, including documentaries and specials. In
addition, under the program agreement, Odyssey Holdings has the right to order,
and Hallmark Entertainment Distribution is required to produce, four two-hour
movies and one series during the term of the program agreement.
Odyssey Holdings pays license fees to Hallmark Entertainment Distribution
in equal annual installments over the five-year period that it telecasts the
movie or miniseries. The fees generally increase 5% per year. During the year
ended December 31, 1999, Odyssey Holdings paid Hallmark Entertainment
Distribution $4.4 million in fees under the program agreement. As of December
31, 1999, Odyssey Holdings had $47.2 million in accrued and unpaid program
license fees under the program agreement.
H&H Programming - Asia. H&H Programming - Asia, which owns the Kermit
Channel, licenses programming from Hallmark Entertainment Distribution under a
program agreement dated as of May 12, 1998. Under the program agreement, H&H
Programming - Asia licenses specified made-for-television movies, miniseries and
series owned or controlled by Hallmark Entertainment Distribution for
distribution within certain countries in Asia, including India, during three
time periods of 18 months. Each 18-month period is generally separated by a
period of one to two years depending on whether Hallmark Entertainment
Distribution licenses the programming to a third party during the interim
periods. The first 18-month time period begins on the date specified in the
program agreement. The program agreement ends when the last of 18-month time
period ends. H&H Programming - Asia also has a right of first negotiation in
connection with programming not covered by the program agreement in the
countries covered by the agreement, except for to prior agreements.
H&H Programming - Asia pays license fees to Hallmark Entertainment
Distribution on a program-by-program basis for each of the three time periods
for which it licenses programming. The fees generally increase 5% per year and
are payable in six equal installments. During the year ended December 31, 1999,
H&H Programming - Asia paid Hallmark Entertainment Distribution $800,000 in fees
under the program agreement. As of December 31, 1999, H&H Programming - Asia had
$1.2 million in accrued and unpaid fees under the program agreement.
NATIONAL INTERFAITH CABLE COALITION PROGRAM AGREEMENT
Odyssey Holdings licenses programming owned or controlled by the National
Interfaith Cable Coalition, under a program agreement dated as of November 13,
1998, for distribution within the United States. The National Interfaith Cable
Coalition is obligated to furnish a minimum of 200 hours of programming each
year under the programming agreement. The agreement terminates upon termination
of the Odyssey Holdings amended and restated company agreement discussed below.
Under the program agreement, Odyssey Holdings has agreed to pay any
required residual or step-up payments if it telecasts any over-the-air
programming. In addition, Odyssey Holdings pays the National Interfaith Cable
Coalition fees under the Odyssey Holdings amended and restated company agreement
to be used solely for programming related purposes. See "-- Odyssey Holdings
Amended and Restated Company Agreement."
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ODYSSEY HOLDINGS AMENDED AND RESTATED COMPANY AGREEMENT
In connection with our investment in Odyssey Holdings on November 13, 1998,
our wholly owned subsidiary, HEN Domestic Holdings, Inc., and Vision Group, VISN
Management and Henson Cable Networks, Inc. signed an amended and restated
company agreement governing the operation of Odyssey Holdings.
VISN Management, a subsidiary of the National Interfaith Cable Coalition,
owns a $25.0 million preferred interest in Odyssey Holdings. Under the amended
and restated company agreement, the members agreed that if during any year
ending after January 1, 2005 and prior to December 31, 2009, Odyssey Holdings
has net profits in excess of $10.0 million, and the preferred interest has not
been redeemed, Odyssey Holdings will redeem the preferred interest in an amount
equal to the lesser of:
- such excess;
- $5.0 million; or
- the amount equal to the preferred liquidation preference on the date of
redemption.
The members also agreed that Odyssey Holdings will redeem the preferred interest
at the preferred interest liquidation preference on the date of redemption by
December 31, 2010.
Under the amended and restated company agreement, Odyssey Holdings will pay
to the National Interfaith Cable Coalition annually in equal quarterly
installments an amount equal to $3.5 million and, so long as VISN Management
owns the preferred interest, $1.5 million multiplied by the quotient of the
preferred liquidation preference divided by $25.0 million. The $3.5 million
portion of the fees described above is increased annually based on the Consumer
Price Index. The National Interfaith Cable Coalition is required to use these
payments solely for programming related activities.
In addition, Odyssey Holdings must broadcast a minimum of 30 hours of
programming from the National Interfaith Cable Coalition and an additional 10
hours of values-based programming.
Under the amended and restated company agreement, we may not transfer our
interests in Odyssey Holdings until the fifth anniversary of the agreement,
except to one of our affiliates or to another member or one of its affiliates.
In addition, any transaction between us or any of our affiliates and Odyssey
Holdings must be approved by the Odyssey Holdings governance committee.
Following the completion of the reorganization, we will own 77.5% of
Odyssey Holdings and The Jim Henson Company will own the remaining 22.5%.
HALLMARK ADVERTISING
Hallmark Cards made a $2.5 million advertising commitment to Odyssey
Holdings covering a one-year period from the fourth quarter of 1999 through the
third quarter of 2000. As of December 31, 1999, Hallmark Cards had purchased
$375,000 of advertising time on the Odyssey Network.
HALLMARK DEMAND NOTES
On November 19, 1999, Crown Media entered into an agreement with HC Crown
Corporation, an affiliate of Hallmark Cards, under which HC Crown agreed to lend
Crown Media up to $20.0 million. Amounts borrowed under this agreement bear
interest at 130% of the applicable federal rate, as set forth in the Internal
Revenue Code, and are payable on demand. The aggregate balance outstanding as of
December 31, 1999 was $12.7 million, including accrued interest. This agreement
can be terminated by either party at any time.
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On February 23, 2000, Crown Media entered into another agreement with HC
Crown under which HC Crown agreed to lend Crown Media up to an additional $10.0
million, on terms similar to the November 19, 1999 agreement.
REAL PROPERTY LEASES
In connection with our lease of office facilities at 6430 South Fiddlers
Green Circle, Englewood, Colorado, Hallmark Entertainment, Inc. signed a
guaranty of lease obligations on June 1, 1998. Under the guaranty, Hallmark
Entertainment, Inc. agreed to guarantee full and timely performance of all of
our obligations during our lease term. The lease is for 50,310 square feet and
has a term of 10 years that ends in August 2008. The lease provides for a rate
of $22.64 per square foot during the first year of the lease and increases
annually to $26.06 per square foot in 2008.
We sublease office space and our post production and editing facilities at
5670 Greenwood Plaza, Englewood, Colorado from Hallmark Entertainment, Inc.
Under three separate leases, we paid a total of approximately $303,000 for the
year ended December 31, 1999, on the same terms as the underlying lease. We do
not intend to renew the leases which expire on July 31, 2000. We expect to
relocate our operations from these facilities to our facilities at 6430 South
Fiddlers Green Circle prior to the end of the leases.
CONTRIBUTION AGREEMENT
In connection with the reorganization referred to below, we entered into a
contribution agreement with Hallmark Entertainment, Inc., Crown Media, Liberty
Media, Vision Group, VISN Management, the National Interfaith Cable Coalition
and Chase Equity Associates under which some of the parties will contribute
equity interests in various legal entities to us in exchange for our equity
interests. Specifically, the following exchanges, which we refer to as the
reorganization, will occur if the conditions to the contribution agreement are
satisfied:
- Hallmark Entertainment, Inc. will transfer to us its interests in Crown
Media in exchange for shares of our Class B common stock representing
approximately 61% of our common stock outstanding before the completion
of this offering;
- Chase Equity Associates will transfer to us its interests in Crown Media
in exchange for shares of our Class A common stock representing
approximately 8% of our common stock outstanding before the completion of
this offering;
- Liberty Media will transfer to us its interests in Vision Group in
exchange for shares of our Class A common stock representing
approximately 18% of our common stock outstanding before the completion
of this offering; and
- National Interfaith Cable Coalition, will transfer to us its common
interests in Odyssey Holdings in exchange for shares of our Class A
common stock representing approximately 13% of our common stock
outstanding before the completion of this offering.
Under the contribution agreement, the parties agree that, during the period
from the date of the contribution agreement until the completion of the
reorganization, they will comply with certain covenants, including those in
connection with the conduct of our business, and the signing of a stockholders
agreement and a tax sharing agreement prior to the completion of the
reorganization.
The respective obligations of the parties to complete the reorganization
are subject to the satisfaction of several conditions, including that this
offering must be completed simultaneously with the completion of the
reorganization and that each of the parties to the stockholders agreement must
have executed and delivered that agreement.
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Under the contribution agreement, we have agreed to indemnify the other
parties and certain of their affiliates, other than Hallmark Entertainment,
Inc., against any liabilities resulting from any untrue statement of a material
fact made in this prospectus, or any omission of a material fact from this
prospectus, required to make the statements made in this prospectus, in light of
the circumstances under which they were made, not misleading, during the period
of the applicable statute of limitations. In addition, the parties to the
contribution agreement have agreed to indemnify other parties and certain of
their affiliates against liabilities resulting from the breach or inaccuracy of
representations made by them regarding corporate existence, power and authority
to sign the contribution agreement, capitalization and the retention of brokers.
Hallmark Entertainment, Inc. has agreed to indemnify us against consolidated,
combined or unitary income taxes of Crown Media for the period prior to the
completion of the reorganization and Liberty Media has agreed to indemnify us
against all taxes of Vision Group for the period prior to the completion of the
reorganization. If we or Crown Media actually realize a tax benefit as the
result of an adjustment of a tax for which Hallmark Entertainment, Inc. or
Liberty Media is required to indemnify us, we are required under the
contribution agreement to pay Hallmark Entertainment, Inc. or Liberty Media, as
applicable, the amount of such tax benefit.
We have agreed to reimburse each of the other parties to the contribution
agreement for reasonable costs and expenses related to the contribution
agreement, up to $150,000 for parties other than Hallmark Entertainment, Inc.,
and up to $2.0 million for Hallmark Entertainment, Inc.
STOCKHOLDERS AGREEMENT AND REGISTRATION RIGHTS
GENERAL
In connection with the reorganization, we will enter into a stockholders
agreement with Hallmark Entertainment, Inc., Liberty Media, VISN Management and
Chase Equity Associates. The stockholders agreement will provide that our Board
of Directors will consist of not less than 11 directors, with six nominated by
Hallmark Entertainment, Inc., one nominated by each of Liberty Media, VISN
Management and Chase Equity Associates and two independent directors who will
not be officers or employees of any of the parties or their affiliates nominated
by the Board of Directors. The rights of the parties to nominate a director will
terminate on the later of (1) such party owning less than 5% of our common stock
then outstanding or (2) such party ceasing to own at least 75% of our common
stock such party owns immediately following the completion of the
reorganization.
The stockholders agreement will also provide that we will not enter into
any material transactions, except for specified transactions, with any of the
other parties or their affiliates involving an aggregate value of (1) $35.0
million or less, unless such transactions are approved by a majority of our
independent directors and (2) more than $35.0 million, unless such transactions
are approved by a majority of the members of our Board of Directors not
nominated by the interested party.
The other parties to the stockholders agreement will agree not to transfer
any shares of our common stock until after 180 days from the completion of this
offering. They will also agree not to transfer more than 25% of our common stock
owned by them immediately following the reorganization until after the second
anniversary of the stockholders agreement, except to their affiliates, another
party to the stockholder agreement or their affiliates, to their executives
under a stock-based compensation package, or in a transaction involving a
merger, consolidation or business combination with, or sale of all of our common
stock to a third party that is not affiliated with us.
In addition, the stockholders agreement will provide that, in the event
Hallmark Entertainment, Inc. proposes to transfer 20% or more of our outstanding
common stock to an unaffiliated third party, each other party to the
stockholders agreement will have the right to participate on the same terms in
that transaction with respect to a proportionate number of such other party's
shares. The stockholders agreement will also provide that if we issue for cash
an amount of our common stock, in either a public
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offering or private transaction, that causes Liberty Media and its affiliates to
own, in the aggregate, less than 10% of our outstanding common stock, Liberty
Media will have the right to purchase, at such public offering price or the
average closing price of the Class A common stock over a five-day period prior
to the closing of such private transaction, as applicable, an amount of our
Class A common stock so as to restore its 10% ownership interest. Liberty Media
must exercise such right not less than seven days prior to the closing of such
issuance.
REGISTRATION RIGHTS
Under the stockholders agreement, Hallmark Entertainment, Inc. will have
the right to require us on four occasions, and the other parties, as a group,
will have the right to require us on two occasions, to register for sale the
shares of our common stock they hold, so long as the number of shares they
require us to register in each case is at least 7% of our common stock then
outstanding. The other parties will also have an unlimited number of "piggy
back" registration rights. This means that any time we register our common stock
for sale, they will have the right to include their common stock in that
offering and sale.
We will be obligated to pay all expenses that result from the registration
of the other parties' common stock under the stockholders agreement, other than
registration and filing fees, attorneys fees, underwriter fees or expenses and
underwriting discounts and commissions. We will also agree to indemnify the
other parties against any liabilities that may result from their sale of common
stock they hold, including Securities Act liabilities.
RIGHTS RELATING TO ODYSSEY HOLDINGS AMENDED AND RESTATED COMPANY AGREEMENT
Under the stockholders agreement, we will also agree that, for so long as
we or any of our affiliates are entitled to have a representative on the Odyssey
Holdings governance committee and VISN Management and its affiliates are either:
- entitled to nominate to, or designate a member of, our Board of Directors
or
- beneficially own any preferred interests in Odyssey Holdings,
neither we nor any of our affiliates will, without the consent of the member of
our Board of Directors nominated by VISN Management or a representative of the
National Interfaith Cable Coalition, vote in favor of:
- any specified change in, or action described in, the Odyssey Holdings
amended and restated company agreement that relates to VISN Management's
preferred interest in Odyssey Holdings or that relates to VISN
Management's rights to programming on the Odyssey Network or its
programming budget;
- any repayment or redemption of specified equity interests in Odyssey
Holdings;
- any transfer of all of Odyssey Holdings' assets or any business
combination involving Odyssey Holdings where Odyssey Holdings is not the
surviving entity, unless the transferee assumes specified obligations
under the Odyssey Holdings amended and restated company agreement until
the later of the fifth anniversary of this offering or the second
anniversary of the transfer or business combination;
- the dissolution of Odyssey Holdings, except in connection with a complete
liquidation;
- any transfer of all of Odyssey Holdings' assets to, or any business
combination involving Odyssey Holdings' with, us or any of our
affiliates, or any other material transaction with us or any of our
affiliates, unless we comply with specified restrictions relating to any
financial benefit we receive
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from the transaction that is more than what we would have received had
the transaction been on an arm's-length basis or on commercially
reasonable terms;
- any transfer of all of Odyssey Holdings' assets or any business
combination involving Odyssey Holdings where Odyssey Holdings is not the
surviving entity, prior to the second anniversary of this offering; or
- any amendment to the Odyssey Holdings' amended and restated company
agreement that would result in none of us or our affiliates having the
right to consent to take any of the actions listed in the above bullet
points.
We will agree under the stockholders agreement not to transfer any of our
interests in Odyssey Holdings prior to the second anniversary of this offering
without the consent of VISN Management or the National Interfaith Cable
Coalition. In addition, we will agree not to transfer any of our interests in
Odyssey Holdings after the second anniversary of this offering unless the
transfer is conditioned on the requirement that the transferee assume our
obligations described above. Under the terms of the stockholders agreement, the
transferee's obligations will generally expire on the later of (1) the fifth
anniversary of this offering, (2) the second anniversary of the transfer or (3)
the repayment of VISN Management's preferred interest in Odyssey Holdings,
except that the obligations of the transferee will expire upon dissolution of
Odyssey Holdings.
CORPORATE OPPORTUNITIES POLICY
The following is a description of a general policy adopted by the Hallmark
Entertainment, Inc. board of directors in connection with the stockholders
agreement and this offering. The policy provides that we will be the primary
(but not exclusive) vehicle for the pursuit of corporate opportunities relating
to the ownership and operation of pay television channels dedicated to family
programming, "Pay Television Opportunities," that are provided or otherwise made
available to Hallmark Entertainment, Inc. and its subsidiaries. However, Pay
Television Opportunities do not include opportunities: (1) developed by or made
available to any public company that is a subsidiary of Hallmark Entertainment,
Inc. or any of Hallmark Entertainment, Inc.'s subsidiaries (other than us and
our subsidiaries), (2) relating to the production or distribution of programming
that are developed by, or provided or made available to, a subsidiary of
Hallmark Entertainment, Inc. that does not own or operate pay television
channels dedicated to family programming and whose primary business is the
production or distribution of programming, (3) arising out of or relating to Pay
Television Opportunities that have been provided or made available to us but
which we have determined not to pursue or have failed to pursue within the
applicable time period reasonably specified by Hallmark Entertainment, Inc., or
(4) that Hallmark Entertainment, Inc. or any of its subsidiaries is legally or
contractually obligated to provide or make available to a person other than us.
Under the policy, we are not obligated to pursue any Pay Television
Opportunity presented to it by Hallmark Entertainment, Inc. If we determine not
to pursue or fail to pursue an opportunity, in each case within such time as
Hallmark Entertainment, Inc. may reasonably specify (taking into account the
type and nature of the Pay Television Opportunity provided or made available) in
its communication to us relating to such Pay Television Opportunity, then
Hallmark Entertainment, Inc. and its subsidiaries may pursue such Pay Television
Opportunity.
The policy is effective from the closing of this offering. The policy
automatically terminates upon the first to occur of: (1) Hallmark Entertainment,
Inc. and its subsidiaries ceasing to beneficially own, in the aggregate, at
least a majority in voting power of our outstanding voting securities entitled
to vote generally upon all matters submitted to common stockholders and (2) the
third anniversary of the completion of this offering.
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The policy provides that the Hallmark Entertainment, Inc. board of
directors is required to act in accordance with its fiduciary duties owed to
Hallmark Entertainment, Inc. and Hallmark Entertainment, Inc.'s fiduciary
duties, if any, to its subsidiaries in making all determinations in connection
with the policy. With respect to any Pay Television Opportunity that may be
subject to the policy and any obligation (fiduciary or otherwise) to one or more
other subsidiaries, the Hallmark Entertainment, Inc. board of directors will
have discretion to determine, without reference to the policy, to which of us or
such other subsidiary of Hallmark Entertainment, Inc. such Pay Television
Opportunity will be provided or made available. Notwithstanding anything set
forth in the policy, Hallmark Entertainment, Inc. will have no obligation to
exercise any rights it may have as a shareholder, partner or member of any
entity that is not a wholly owned subsidiary or to exercise any rights available
to it under agreements with other shareholders, partners or members, in order to
implement determinations under the policy. All determinations of the Hallmark
Entertainment, Inc. board of directors with respect to the Hallmark
Entertainment, Inc. policy and the interpretation of the Hallmark Entertainment,
Inc. policy are conclusive and binding.
The policy further provides that Hallmark Entertainment, Inc.'s board of
directors from time to time may amend, modify or rescind the policy or adopt
additional or other policies or make exceptions with respect to the application
of the policy in connection with particular facts and circumstances, all as the
Hallmark Entertainment, Inc. board of directors may determine, consistent with
its fiduciary duties and in accordance with the stockholders agreement.
The policy provides that the transactions contemplated by the contribution
agreement shall not create any inference or course of dealing as to the
opportunities to which the policy applies.
INTERCOMPANY SERVICES AGREEMENT
We signed an intercompany services agreement dated as of January 1, 2000
with Hallmark Cards under which Hallmark Cards has agreed for a term of three
years to provide us with the following services:
- tax services;
- risk management, health, safety and environmental services and insurance;
- legal services;
- treasury and cash management services; and
- real estate consulting services.
We have agreed to pay Hallmark Cards $500,000 per year for these services,
plus out-of-pocket expenses and third party fees, payable in arrears on the last
business day of each quarter.
In addition to the services described above, we have incurred costs that
have been paid by Hallmark Entertainment, Inc. on our behalf related to payroll
and benefits, insurance, and operating, financial and capital expenditures.
These costs are reflected on our financial statements, and to the extent that we
have not reimbursed Hallmark Entertainment, Inc., the costs are reflected as a
payable to Hallmark Entertainment, Inc. We reimbursed Hallmark Entertainment,
Inc. $8.3 million for the year ended December 31, 1999. The balance of the
payable as of December 31, 1999 was approximately $9.2 million.
HALLMARK TRADEMARK LICENSE AGREEMENTS
We are permitted to use the Hallmark Entertainment trademark in accordance
with the terms of a royalty-free three-year trademark license agreement dated as
of August 1, 1999 between Hallmark Cards and Crown Media. Under that agreement,
we may use the Hallmark Entertainment trademark outside the United States and
Canada only for so long as Hallmark Cards and its wholly owned subsidiaries
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collectively own at least 51% of the voting interest and at least 35% of the
equity interest of Crown Media and there is no event of default under the
agreement.
We have the non-exclusive right to use the Hallmark Entertainment trademark
to promote, market, advertise, distribute and sell television motion pictures
and miniseries produced by or at the direction of Hallmark Entertainment
Productions, LLC or its subsidiaries. We also have the non-exclusive right to
use the Hallmark Entertainment trademark to promote, market, advertise,
distribute and sell our networks and channels so long as these television motion
pictures and miniseries along with other television motion pictures and
miniseries acquired under our program agreement with Hallmark Entertainment
Distribution represent at least 50% of the monthly programming of that network
or channel or 20% of the monthly programming during the first six months that we
launch the Hallmark Entertainment Network in a territory. Our program license
agreement with Hallmark Entertainment Distribution does not require it to make
available to us a minimum amount of programming. Except for the Hallmark
Entertainment trademark, we are not permitted to use the Hallmark name alone or
with any other names.
Under the agreement, if Hallmark Cards notifies us in writing that it has
determined that we have failed to comply with the usage standards set forth in
the agreement or have otherwise breached our obligations under the agreement, we
must stop any non-complying activity within 10 days of that notice or we will be
in default of the agreement. We will also be in default if Hallmark Cards
delivers such a written notice to us with respect to its standards three or more
times in any 12-month period. In addition, we will be in default of the
agreement if we fail to cure any breach of our program agreement with Hallmark
Entertainment Distribution, if we fail to make any payments due under loan
agreements within five days of the due date, or if our auditors determine that
Crown Media is no longer a going concern.
The license agreement can be terminated immediately and without notice if
we transfer in any way our rights under the license agreement, as a result of an
event of default under the agreement or in events of bankruptcy, insolvency or
similar proceedings. With respect to a particular country in which we use the
Hallmark Entertainment trademark, the license agreement will terminate if the
network or channel using the mark fails to program at least 50% of its scheduled
programming.
There is a similar trademark license agreement between Hallmark Cards and a
subsidiary of Crown Media that permits the use of the Hallmark Entertainment,
Inc. trademark in the United Kingdom for five years from the date of the launch
of the Hallmark Entertainment Network in the United Kingdom.
TAX SHARING AGREEMENT
Hallmark Entertainment, Inc. will enter into a tax sharing agreement with
us and certain of our subsidiaries (collectively, Crown Group) that will provide
for tax sharing payments between Hallmark Entertainment, Inc. and the Crown
Group with respect to any consolidated, combined or unitary tax return in which
the Crown Group, or any member of the Crown Group, joins Hallmark Cards or
certain of its subsidiaries (collectively, Hallmark Group) that is filed after
the closing of this offering. Such tax sharing payments will not be made in
respect of United States federal income taxes of the Crown Group because the
Crown Group will not be part of the Hallmark Cards affiliated group of
corporations filing consolidated returns for United States federal income tax
purposes.
Under the tax sharing agreement, where the Hallmark Group and the Crown
Group do file consolidated, combined or unitary tax returns, Crown Group will
make tax sharing payments to Hallmark Entertainment, Inc. (or receive from
Hallmark Entertainment, Inc.) equal to the taxes (or tax refunds) that Crown
Group would have paid (or received) if it filed on a stand-alone basis. Such
payments will be computed based upon Crown Group's income, loss and other tax
items after the day following the closing of this offering.
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The Crown Group will appoint Hallmark Entertainment, Inc. as its agent in
connection with any tax return or proceeding involving both one or more members
of the Hallmark Group and one or more members of the Crown Group for any
pre-closing or post-closing period.
SECURITIES PURCHASE AGREEMENTS
Crown Media signed a securities purchase agreement dated as of February 18,
1999 with Hallmark Entertainment, Inc. and Chase Equity Associates, a
stockholder of Crown Media, under which Chase Equity Associates paid Crown Media
approximately $2.2 million in exchange for approximately 5.6 shares of Crown
Media Class B common stock. Crown Media signed similar agreements dated as of
June 17, 1999 and February 15, 2000 with Hallmark Entertainment, Inc. and Chase
Equity Associates under which Chase Equity Associates paid Crown Media
approximately $2.2 million and $1.1 million, respectively, in exchange for
approximately 5.6 shares and 2.8 shares, respectively, of Crown Media Class B
common stock.
In connection with the securities purchase agreements, Hallmark
Entertainment, Inc. paid Crown Media on February 18, 1999, June 17, 1999 and
February 15, 2000 approximately $17.8 million, $17.8 million and $8.9 million,
respectively, in exchange for approximately 44.4 shares, 44.4 shares and 22.2
shares, respectively, of Crown Media Class A common stock.
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PRINCIPAL STOCKHOLDERS
The following tables sets forth certain information with respect to
beneficial ownership of our Class A common stock and Class B common stock,
including the percent of total voting power, as of , 2000 and as
adjusted giving effect to the transactions contemplated by the reorganization,
including the percent of the total voting power, as of , and as
adjusted to reflect completion of this offering, by:
- each of our five most highly compensated officers;
- each director;
- each holder of more than 5% of either class of common stock; and
- all current directors and executive officers as a group.
Except as indicated in the footnotes to this table, the individuals named
in this table have sole voting and investment power with respect to all shares
of Class A common stock and Class B common stock shown as beneficially owned by
them, subject to community property laws where applicable.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BEFORE
OFFERING
---------------------------------
CLASS A CLASS B % TOTAL
COMMON COMMON VOTING
STOCK STOCK POWER
--------------- --------------
5% STOCKHOLDERS: SHARES % SHARES %
<S> <C> <C> <C> <C> <C>
Hallmark Entertainment, Inc. ............... 100 94.1
1325 Avenue of the Americas
New York, NY 10019
Liberty Media Corporation................... 47.3 2.8
9197 South Peoria Street
Englewood, CO 80112
National Interfaith Cable Coalition,
Inc. ..................................... 32.8 1.9
810 12th Avenue South
Nashville, TN 37203
Chase Equity Associates, L.L.C. ............ 19.9 1.2
380 Madison Avenue
New York, NY 10017
ROBERT A. HALMI, JR. ....................... --
ARNOLD L. CHAVKIN(1)........................ 19.9 1.2
WILFORD V. BANE, JR. ....................... --
ROBERT J. DRUTEN............................
WILLIAM M. HABER............................
DONALD J. HALL, JR. ........................
IRVINE O. HOCKADAY, JR. ....................
DAVID B. KOFF............................... --
PETER A. LUND...............................
JOHN P. MASCOTTE............................
DAVID J. EVANS..............................
RUSSEL H. GIVENS, JR. ...................... *
ANDREW P. BRILLIANT......................... *
MARK N. GRENSIDE............................ --
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A
GROUP (14 PERSONS)........................ --
</TABLE>
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<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP AFTER
OFFERING
--------------------------------
CLASS A CLASS B % TOTAL
COMMON COMMON VOTING
STOCK STOCK POWER
---------------- ------------- -------
5% STOCKHOLDERS SHARES % SHARES %
<S> <C> <C> <C> <C> <C>
Hallmark Entertainment, Inc. ................. 100
1325 Avenue of the Americas
New York, NY 10019
Liberty Media Corporation.....................
9197 South Peoria Street
Englewood, CO 80112
National Interfaith Cable Coalition, Inc. ....
810 12th Avenue South
Nashville, TN 37203
Chase Equity Associates, L.L.C. ..............
380 Madison Avenue
New York, NY 10017
ROBERT A. HALMI, JR. ......................... --
ARNOLD L. CHAVKIN(1)..........................
WILFORD V. BANE, JR. ......................... --
ROBERT J. DRUTEN..............................
WILLIAM M. HABER..............................
DONALD J. HALL, JR. ..........................
IRVINE O. HOCKADAY, JR. ......................
DAVID B. KOFF................................. --
PETER A. LUND.................................
JOHN P. MASCOTTE..............................
DAVID J. EVANS................................ *
RUSSEL H. GIVENS, JR. ........................ *
ANDREW P. BRILLIANT........................... *
MARK N. GRENSIDE.............................. --
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A
GROUP (14 PERSONS).......................... --
</TABLE>
- ------------------------------
* The percentage of shares or voting power beneficially owned does not exceed
1% of the class.
(1) The amounts shown consist of shares to be received by Chase Equity
Associates following the reorganization that will be completed
simultaneously with the closing of this offering. Mr. Chavkin is a general
partner of Chase Capital Partners, which is an affiliate of Chase Equity
Associates. Mr. Chavkin exercises shared investment and voting power with
respect to such shares, but disclaims beneficial ownership of such shares.
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DESCRIPTION OF CAPITAL STOCK
The following summary description of provisions in our amended and restated
certificate of incorporation and by-laws is qualified in its entirety by
reference to our certificate of incorporation and by-laws, which we have filed
as exhibits to the registration statement of which this prospectus is a part.
GENERAL
We filed our original certificate of incorporation on December 15, 1999.
Our amended and restated certificate of incorporation and bylaws will become
effective upon the closing of this offering. Under Article III of our
certificate of incorporation, our purpose is to engage in any lawful act or
activity for which corporations may be organized and incorporated under the
Delaware General Corporation Law. In accordance with Delaware General
Corporation Law and except as described below, provisions in our certificate of
incorporation regarding capitalization and stockholder rights may be amended
only with the approval of our board of directors and of a majority of each class
of our stock outstanding entitled to vote on these amendments, except that the
number of authorized shares of any class or classes of stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
vote of the majority of voting power of our stock outstanding entitled to vote.
Our authorized capital stock consists of shares of Class A
common stock, par value $0.01 per share and shares of Class B
common stock, par value $0.01 per share, and shares of preferred
stock, par value $0.01 per share. As of , 2000, assuming completion
of the reorganization, we will have shares of Class A common
stock and shares of Class B common stock and no shares of
preferred stock outstanding. After this offering, there will be an additional
shares of Class A common stock outstanding.
COMMON STOCK
Subject to the rights of the holders of any preferred stock that may be
outstanding, holders of Class A common stock are entitled to receive, share for
share with holders of Class B common stock, dividends as may be declared by our
Board of Directors out of funds legally available to pay dividends, and, in the
event of liquidation, to share pro rata with the holders of Class B common stock
in any distribution of our assets after payment or providing for the payment of
liabilities and the liquidation preference of any outstanding preferred stock.
Except as required by Delaware law, Class A common stock and Class B common
stock will vote together as a single class on all matters presented to a vote of
stockholders, including the election of directors. Each holder of Class A common
stock is entitled to one vote for each share held of record on the applicable
record date for all of these matters. Holders of Class A common stock have no
cumulative voting rights or preemptive rights to purchase or subscribe for any
stock or other securities, and there are no conversion rights or redemption or
sinking fund provisions with respect to Class A common stock. All outstanding
shares of Class A common stock are, and the shares of Class A common stock
offered hereby will be when issued, fully paid and nonassessable. Additionally,
our certificate of incorporation requires that we reserve and keep available out
of authorized but unissued Class A common stock, solely for effecting conversion
of Class B common stock, sufficient shares to effect conversion of all
outstanding shares of Class B common stock.
Class B common stock is identical in all respects to Class A common stock,
except with respect to voting and conversion rights. Class A common stock and
Class B common stock will vote together as a single class on all matters
presented to a vote of stockholders, including the election of directors. Each
holder of Class B common stock is entitled to ten votes for each share held of
record on the applicable record date for all of these matters. After this
offering, Hallmark Entertainment, Inc. will own all of our outstanding shares of
Class B common stock.
Each share of Class B common stock will be automatically converted into one
share of Class A common stock upon transfer of such share of Class B common
stock, whether or not for value, by any
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registered holder of that share, except transfers by that holder to a nominee of
that holder (without any change in beneficial ownership, within the meaning of
Section 13(d) of the Securities Exchange Act of 1934). Further, any transfer by
any registered holder to any affiliate of that holder will not result in
conversion.
Lastly, any bona fide pledge by a registered holder to a financial
institution in connection with a borrowing will not result in any conversion.
Any subsequent transfer by the pledgor to a person other than an affiliate of
such registered holder which remains such will be subject to automatic
conversion upon these terms and conditions. In addition, each share of Class B
common stock may be converted at any time into one share of Class A common stock
at the option of the holder.
PREFERRED STOCK
Our certificate of incorporation authorizes shares of
preferred stock. Our Board of Directors has the authority to issue shares of
preferred stock in one or more class or series and to fix, by resolution, the
powers, designations, preferences, rights and qualifications, limitations and
restrictions thereof, if any, including the number of shares in each series
(which our Board of Directors may increase or decrease as permitted by Delaware
law), liquidation preferences, dividend rates, conversion rights and redemption
provisions of the shares constituting any class or series, without any further
vote or action by the stockholders. Any shares of preferred stock so issued
would have priority over the common stock with respect to dividend or
liquidation rights or both. As of the time of this offering, we will have no
shares of preferred stock outstanding.
STOCKHOLDERS MEETINGS
Subject to the rights of holders of preferred stock, of whom there are
currently none, only a majority of our Board of Directors may call a special
meeting of stockholders.
REQUIREMENTS FOR ADVANCE NOTIFICATION OF STOCKHOLDER NOMINATION AND PROPOSALS
Our by-laws establish advance notice procedures with regard to stockholder
proposals and the nomination, other than by or at the direction of our Board of
Directors or a committee thereof, of candidates for election as directors.
EFFECT OF DELAWARE ANTI-TAKEOVER STATUTE
We are subject to Section 203 of the Delaware General Corporation Law,
which regulates corporate acquisitions. Section 203 prevents certain Delaware
corporations, including those with securities quoted on the Nasdaq National
Market, from engaging under certain circumstances in a business combination with
any interested stockholder for three years following the date that the
stockholder became an interested stockholder. For purposes of Section 203, a
"business combination" includes, among other things, a merger or consolidation
involving us and the interested stockholder and a sale of more than 10% of our
assets. In general, the anti-takeover law defines an "interested stockholder" as
any entity or person beneficially owning 15% or more of our outstanding voting
stock and any entity or person affiliated with or controlling or controlled by
that entity or person. A Delaware corporation may "opt out" of Section 203 with
an express provision in its original certificate of incorporation or an express
provision in its certificate of incorporation or by-laws resulting from
amendments approved by holders of at least a majority of a corporation's
outstanding voting shares. We have not "opted out" of the provisions of Section
203. Hallmark Entertainment, Inc. is not an interested stockholder for purposes
of Section 203.
ACTION BY WRITTEN CONSENT
Under the Delaware General Corporation Law, unless the certificate of
incorporation expressly prohibits action by the written consent of stockholders,
any action required or permitted to be taken by our stockholders at a duly
called annual or special meeting of stockholders may be taken by a consent in
writing executed by stockholders possessing the requisite votes for the action
to be taken. Our certificate of
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<PAGE> 90
incorporation does not expressly prohibit action by the written consent of
stockholders. As a result, Hallmark Entertainment, Inc., as holder of % of
our total voting power after this offering, will be able to take any action to
be taken by stockholders without the necessity of holding a stockholder meeting.
We intend, however, to hold annual meetings of stockholders.
TRANSFER AGENT AND REGISTRAR
The transfer agent for Class A common stock is ChaseMellon Shareholder
Services, Inc.
LISTING
We expect our Class A common stock to be quoted on the Nasdaq National
Market under the symbol "CRWN" and listed on the Official Segment of the
Amsterdam Exchange N.V.'s stock market under the symbol "CRWN."
TRADING THROUGH THE AMSTERDAM SECURITY ACCOUNT SYSTEM
Trading of shares of our Class A common stock on the Stock Market of the
Amsterdam Exchanges will take place through the improved Amsterdam Security
Account System, or New ASAS, in the form of ASAS rights.
Under New ASAS, the legal owner of the Class A common stock traded on the
Stock Market of the Amsterdam Exchanges will be the Nominee Amsterdam Stock
Exchange N.V., or the ASAS Nominee, a wholly owned subsidiary of the Stock
Market of the Amsterdam Exchanges. The shares of Class A common stock held by
the ASAS Nominee will be deposited to its account with the Bank of New York. For
each share of Class A common stock so deposited, the ASAS Nominee will issue an
ASAS right representing the share of Class A common stock. This ASAS right will
be deposited with the Netherlands securities settlement system, Nederlands
Centraal Instituut voor Giraal Effectenverkeer B.V., or NEGICEF. The ASAS rights
representing shares of our Class A common stock will trade on the Stock Market
of the Amsterdam Exchanges and can be cleared by its securities clearing
division, AEX-Effectenclearing, and settled through NEGICEF.
Investors holding ASAS rights will have a claim for delivery of our shares
of Class A common stock owned by the ASAS Nominee in respect of which the ASAS
rights have been created.
Prices of the ASAS rights representing our shares of Class A common stock
on the Stock Market of the Amsterdam Exchanges will be quoted in the Euro.
Payments, if any, we make in respect of our shares of Class A common stock
traded through New ASAS will be made through that system. Any payments we make
in respect of our shares of Class A common stock will be made in U.S. dollars.
Pursuant to New ASAS procedures, stockholder notices will not be sent
directly to investors holding ASAS rights, but will instead be published in the
Daily Official List (Officiele Prijscourant) of the Stock Market of the
Amsterdam Exchanges and in at least one Netherlands newspaper indicating, when
applicable, where stockholders can obtain copies of any documents referred to in
the notice.
The above description is only a summary of New ASAS. Investors should
consult with their professional advisors if they require more information or if
they have any questions about New ASAS or the Stock Market of the Amsterdam
Exchanges.
MeesPierson N.V. is our Sponsor and listing agent for purposes of the
listing of our Class A common stock on the official segment of the Amsterdam
Exchange N.V.'s stock market. MeesPierson N.V. is also our paying agent in The
Netherlands. The address of MeesPierson is Rokin 55, 1012 KK, Amsterdam, The
Netherlands and its telephone number is +31 (0) 527 2467.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for any of our
Class A common stock or Class B common stock. Future sales of substantial
amounts of our Class A common stock in the public market could adversely affect
prevailing market prices. Upon the closing of this offering, we will have
shares of Class A common stock outstanding, of which the shares offered
hereby will be freely tradable, unless purchased by our affiliates, as that term
is defined in Rule 144 under the Securities Act of 1933. All other shares,
including all shares of Class B common stock outstanding, will be
"restricted shares" for purposes of the Securities Act of 1933 and subject to
the volume and other limitations set forth in Rule 144.
In general, under Rule 144, as currently in effect, a person, or persons
whose shares are aggregated, who has beneficially owned shares for at least one
year, including the holding period of any prior owner, except an affiliate from
whom these shares were purchased, is entitled to sell in "brokers' transactions"
or to market makers, within any three-month period commencing 90 days after the
date of this prospectus, a number of shares that does not exceed the greater of
- 1% of the then outstanding shares of Class A common stock, shares
immediately after this offering, without giving effect to the
over-allotment option; or
- the average weekly trading volume of our common stock during the four
calendar weeks preceding the required filing of a Form 144 with respect
to this sale.
Sales under Rule 144 are generally subject to the availability of current public
information about us. Under Rule 144(k), a person who is not deemed to have been
our affiliate at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an affiliate from
whom these shares were purchased, is entitled to sell these shares without
having to comply with the manner of sale, public information, volume limitation
or notice provisions of Rule 144.
Immediately after the offering Hallmark Entertainment, Inc. will own
shares of Class B common stock, Liberty Media will own shares of Class A
common stock, the National Interfaith Cable Coalition will own shares of
Class A common stock and Chase Equity Associates will own shares of Class A
common stock. We have granted to these entities the right to demand registration
under the Securities Act of 1933 of all or a portion of the shares of Class A
common stock they own prior to this offering, or into which Hallmark
Entertainment, Inc.'s shares of Class B common stock are convertible, subject to
a two-year transfer restriction with respect to most of such shares, without the
consent of the other stockholders who are parties to the stockholders agreement.
See "Certain Relationships and Related Transactions -- Stockholders Agreement
and Registration Rights" for more information on these registration rights.
Our executive officers and directors and all of our existing stockholders
have signed lock-up agreements with the Representatives of the underwriters
wherein they have agreed not to sell any of their shares within 180 days after
the date of this prospectus without the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation on behalf of the underwriters. These
agreements have certain exceptions. For more information, see "Underwriters."
In addition, in accordance with the rules for admission to listing on the
Amsterdam Stock Exchange, all of our directors who directly hold shares of our
Class A common stock as of the date of this prospectus have agreed with us that
they will not, for a period of 180 days after the date of admission to listing,
dispose of any shares of our Class A common stock they held directly as of the
date of this prospectus.
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MATERIAL U.S. FEDERAL INCOME TAX
CONSIDERATIONS FOR NON-U.S. HOLDERS
The following is a general discussion of certain U.S. federal income and
estate tax considerations with respect to the ownership and disposition of Class
A common stock applicable to Non-U.S. Holders. In general, a "Non-U.S. Holder"
is any holder other than:
- a citizen or resident of the United States;
- a corporation created or organized in the United States or under the laws
of the United States or of any state;
- an estate, the income of which is includible in gross income for U.S.
federal income tax purposes regardless of its source; and
- a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more U.S.
persons have the authority to control all substantial decisions of the
trust.
This discussion is based on current provisions of the Internal Revenue
Code, Treasury Regulations promulgated thereunder, judicial opinions, published
positions of the Internal Revenue Service, and all other applicable authorities,
all of which are subject to change (possibly with retroactive effect). This
discussion does not address all aspects of income and estate taxation or any
aspects of state, local, or non-U.S. taxes, nor does it consider any specific
facts or circumstances that may apply to a particular Non-U.S. Holder that may
be subject to special treatment under the U.S. federal income tax laws (such as
insurance companies, tax-exempt organizations, financial institutions, brokers,
dealers in securities, and certain U.S. expatriates). Accordingly, prospective
investors are urged to consult their tax advisors regarding the U.S. federal,
state, local and non-U.S. income and other tax considerations of acquiring,
holding and disposing of shares of common stock.
DIVIDENDS
In general, dividends paid to a Non-U.S. Holder will be subject to U.S.
withholding tax at a 30% rate of the gross amount (or a lower rate prescribed by
an applicable income tax treaty) unless the dividends are effectively connected
with a trade or business carried on by the Non-U.S. Holder within the United
States. Dividends effectively connected with such a U.S. trade or business
generally will not be subject to U.S. withholding tax if the Non-U.S. Holder
files certain forms, including Internal Revenue Service Form 4224 (or any
successor form, including a Form W-8ECI), with the payor of the dividend, and
generally will be subject to U.S. federal income tax on a net income basis, in
the same manner as if the Non-U.S. Holder were a resident of the United States.
A Non-U.S. Holder that is a corporation may be subject to an additional branch
profits tax at a rate of 30% (or such lower rate as may be specified by an
applicable income tax treaty) on the repatriation from the United States of its
"effectively connected earnings and profits," subject to certain adjustments. To
determine the applicability of a tax treaty providing for a lower rate of
withholding under the currently effective Treasury Regulations (Current
Regulations) and published Internal Revenue Service positions, dividends paid to
an address in a foreign country are presumed to be paid to a resident of that
country absent knowledge to the contrary. Under Treasury Regulations issued in
October 1997 (Final Regulations), and generally effective for payments made
after December 31, 2000, however, a Non-U.S. Holder (including, in certain cases
of Non-U.S. Holders that are entities, the owner or owners of such entities)
will be required to satisfy certain certification requirements in order to claim
a reduced rate of withholding under an applicable income tax treaty.
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<PAGE> 93
GAIN OR SALE OR OTHER DISPOSITION OF COMMON STOCK
In general, a Non-U.S. Holder will not be subject to U.S. federal income
tax on any gain realized upon the sale or other disposition of the holder's
shares of Class A common stock unless:
- the gain is effectively connected with a trade or business carried on by
the Non-U.S. Holder within the United States (in which case the branch
profits tax discussed above may also apply if the Non-U.S. Holder is a
corporation);
- the Non-U.S. Holder is an individual who holds shares of Class A common
stock as a capital asset and is present in the United States for 183 days
or more in the taxable year of disposition and certain other tests are
met;
- the Non-U.S. Holder is subject to tax under the provisions of the
Internal Revenue Code regarding the taxation of U.S. expatriates; or
- We are or have been a U.S. real property holding corporation (USRPHC) for
U.S. federal income tax purposes (which we do not believe that we
currently are, or will become) at any time within the shorter of the
five-year period preceding such disposition and such Non-U.S. Holder's
holding period. If we were or were to become a USRPHC at any time during
this period, gains realized upon a disposition of Class A common stock by
a Non-U.S. Holder that did not directly or indirectly own more than 5% of
the Class A common stock during this period generally would not be
subject to U.S. federal income tax, provided that Class A common stock is
"regularly traded on an established securities market" (within the
meaning of Section 897(c)(3) of the Code).
ESTATE TAX
Class A common stock owned or treated as owned by an individual who is not
a citizen or resident (as defined for U.S. federal estate tax purposes) of the
United States at the time of death will be includible in the individual's gross
estate for U.S. federal estate tax purposes, unless an applicable estate tax
treaty provided otherwise, and therefore may be subject to U.S. federal estate
tax.
BACKUP WITHHOLDING, INFORMATION REPORTING AND OTHER REPORTING REQUIREMENTS
We must report annually to the Internal Revenue Service and to each
Non-U.S. Holder the amount of dividends paid to, and the tax withheld with
respect to, each Non-U.S. Holder. These reporting requirements apply regardless
of whether withholding was reduced or eliminated by an applicable tax treaty.
Copies of this information also may be made available under the provisions of a
specific treaty or agreement with the tax authorities in the country in which
the Non-U.S. Holder resides or is established.
Under the Current Regulations, U.S. backup withholding tax (which generally
is imposed at the rate of 31% on certain payments to persons that fail to
furnish the information required under the U.S. information reporting
requirements) and information reporting requirements (other than those discussed
in the previous paragraph) generally will not apply to dividends paid on Class A
common stock to a Non-U.S. Holder at an address outside the United States.
Backup withholding and information reporting generally will apply, however, to
dividends paid on shares of Class A common stock to a Non-U.S. Holder at an
address in the United States if the holder fails to establish an exemption or to
provide certain other information to the payor.
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Under the Current Regulations, the payment of proceeds from the disposition
of Class A common stock to or through a U.S. office of a broker will be subject
to information reporting and backup withholding, unless the beneficial owner,
under penalties of perjury, certifies, among other things, its status as a
Non-U.S. Holder or otherwise establishes an exemption. The payment of proceeds
from the disposition of Class A common stock to or through a Non-U.S. office of
a broker generally will not be subject to backup withholding and information
reporting, except as noted below. In the case of proceeds from a disposition of
Class A common stock paid to or though a non-U.S. office of a broker that is:
- a U.S. person;
- a "controlled foreign corporation" for U.S. federal income tax purposes;
or
- a foreign person 50% or more of whose gross income from certain periods
is effectively connected with a U.S. trade or business;
information reporting (but not backup withholding) will apply unless the broker
has documentary evidence in its files that the owner is a Non-U.S. Holder and
certain other conditions are satisfied, or the beneficial owner otherwise
establishes an exemption (and the broker has no actual knowledge to the
contrary).
Under the Final Regulations, generally effective for payments made after
December 31, 2000, the payment of dividends or the payment of proceeds from the
disposition of Class A common stock to a Non-U.S. Holder may be subject to
information reporting and backup withholding unless the recipient satisfies the
certification requirements of the Final Regulations or otherwise establishes an
exemption.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from a payment to a Non-U.S. Holder can be refunded or
credited against the Non-U.S. Holder's U.S. federal income tax liability, if
any, provided that the required information is furnished to the Internal Revenue
Service in a timely manner.
THE FOREGOING DISCUSSION OF CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH
PROSPECTIVE NON-U.S. HOLDER OF CLASS A COMMON STOCK SHOULD CONSULT THAT HOLDER'S
OWN TAX ADVISER WITH RESPECT TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF COMMON STOCK.
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<PAGE> 95
MATERIAL NETHERLANDS TAX CONSEQUENCES
GENERAL
The following describes the principal Dutch tax consequences of the
acquisition, holding and disposal of Class A common stock. This summary does not
purport to be a comprehensive description of all the Dutch tax considerations
that may be relevant to a decision to acquire, to hold, and to dispose of Class
A common stock. The discussion of certain Dutch taxes set forth below is
included for general information only. Prospective investors should therefore
consult their own tax advisors as to the Dutch tax consequences of an investment
in Class A common stock. No conclusions may be drawn from the summary with
regard to aspects, which it does not discuss.
The following summary is based on the tax legislation, published case law,
and other regulations in force as at the date hereof, without prejudice to any
amendments introduced at a later date and implemented with or without
retroactive effect.
INCOME TAX AND CORPORATE INCOME TAX
A holder of Class A common stock that is resident or deemed to be resident
in the Netherlands or a non-resident holder of Class A common stock as mentioned
under (i), (ii), (iii) or (iv) below, may be subject to Dutch tax on dividends
and other revenue from Class A common stock, unless such holder is subject to
Dutch corporate income tax and such income is exempt under the participation
exemption.
A holder of Class A common stock that is resident or deemed to be resident
in the Netherlands, or that has a permanent establishment or permanent
representative in the Netherlands to which the Class A common stock is
attributable, will not be subject to any Dutch tax on capital gains arising on
the disposal of Class A common stock, unless such holder is:
(i) subject to Dutch corporate income tax and such capital gain is not
exempt under the participation exemption; or
(ii) an individual, who has an enterprise or an interest in an
enterprise, to which enterprise or part of an enterprise the Class A common
stock is attributable; or
(iii) an individual, who has a substantial interest or deemed
substantial interest in us as defined in article 20a of the Dutch Income
Tax Act 1964 ('Wet op de inkomstenbolasting 1964'); or
(iv) an individual in whose hands income or capital gains arising on
the disposal of Class A common stock is to be treated as (taxable) income
from labour activities performed outside employment or enterprise.
NET WEALTH TAX
Dutch net wealth tax applies to individuals only. Individuals who are
resident or deemed to be resident in the Netherlands, are in principle subject
to Dutch net wealth tax with respect to Class A common stock. If the individual
who is resident or deemed to be resident in the Netherlands has a substantial
interest in us or if the Class A common stock forms part of the business assets
of an enterprise carried on by the individual, a (partial) exemption of net
wealth tax may apply.
GIFT, ESTATE AND INHERITANCE TAXES
Dutch residents may be subject to gift, estate and inheritance taxes. Gift,
estate or inheritance taxes will arise in the Netherlands in respect of the
acquisition of Class A common stock by way of gift by, or on the death of, a
holder of Class A common stock who is resident or deemed to be resident in the
Netherlands.
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An individual of Dutch nationality is deemed to be resident in the
Netherlands for the purpose of Dutch gift and inheritance tax, if he or she has
been resident in the Netherlands at any time during the ten years preceding the
gift or death. An individual of any other nationality is deemed to be resident
in the Netherlands for the purpose of the Dutch gift tax only if he or she has
been residing in the Netherlands at any time during the twelve months preceding
the time of the gift.
VALUE ADDED TAX ("VAT")
In general, no Dutch VAT should arise in respect of the issue or offering
of Class A common stock and with regard to dividend distributions, (partial)
repayment of paid-in capital or other payments and distributions on the Class A
common stock.
OTHER TAXES AND DUTIES
No Dutch registration tax, customs duty, transfer tax, stamp duty or any
other similar documentary tax or duty, other than court fees, will be levied by
or on behalf of the Netherlands in respect of or in connection with the
subscription, issue, placement, allotment or delivery of Class A common stock.
PROPOSED DUTCH TAX LEGISLATION
Proposed Dutch tax legislation will substantially change the Dutch income
tax system as of 1 January 2001. It will, among others, change the taxation in
relation to Class A common stock held by individuals resident or deemed resident
in the Netherlands. Under the proposed legislation, Dutch resident individuals,
other than those referred to under 'Income tax and corporate income tax',
sections (ii), (iii) and (iv), will be taxed annually at a flat rate of 30% on a
deemed income of 4% of the average of the individual's yield basis
('rendementsgrondslag') at the beginning of the year and the individual's yield
basis at the end of the year to the extent that this average value exceeds the
applicable personal allowance. Under this proposed legislation, the Dutch net
wealth tax is to be abolished.
The Second Chamber of the Dutch Parliament accepted the proposed
legislation on 3 February 2000. Each prospective investor should consult his or
her tax adviser as to the specific consequences of the proposed legislation with
respect to acquiring Class A common stock.
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UNDERWRITERS
Subject to the terms and conditions in the underwriting agreement, dated
, 2000, the U.S. underwriters named below, who are represented
by Donaldson, Lufkin & Jenrette Securities Corporation, Lehman Brothers Inc.,
Salomon Smith Barney Inc. and DLJdirect Inc. and the international managers
named below, together with the U.S. underwriters, the "underwriters," who are
represented by DLJ International Securities, Lehman Brothers International
(Europe), Salomon Brothers International Limited and MeesPierson N.V., together
with the U.S. representatives, the "representatives," have severally agreed to
purchase from us the number of shares of our Class A common stock indicated
opposite each of their names below.
<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITERS SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........
Lehman Brothers Inc. .......................................
Salomon Smith Barney Inc. ..................................
DLJdirect Inc. .............................................
--------
Subtotal..................................................
--------
INTERNATIONAL MANAGERS
DLJ International Securities................................
Lehman Brothers International (Europe)......................
Salomon Brothers International Limited......................
MeesPierson N.V. ...........................................
--------
Subtotal..................................................
--------
Total............................................
========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares of Class A common
stock offered by this prospectus are subject to approval by their counsel of
legal matters and to other specified conditions. The underwriters are obligated
to purchase and accept delivery of all the shares of Class A common stock
offered by this prospectus, other than those shares covered by the
over-allotment option described below, if any are purchased.
The underwriters initially propose to offer the shares of Class A common
stock in part directly to the public at the initial public offering price
indicated on the cover page of this prospectus and in part to dealers, including
the underwriters, at that price less a concession not in excess of $ per share.
The underwriters may allow, and the dealers may re-allow, to other dealers a
concession not in excess of $ per share. After the initial offering of the
Class A common stock, the public offering price and other selling terms may be
changed by the representatives at any time without notice. The underwriters do
not intend to confirm sales to any accounts over which they exercise
discretionary authority.
We have granted to the U.S. underwriters an option, exercisable within 30
days after the date of this prospectus, to purchase, from time to time, in whole
or in part, up to an aggregate of additional shares of Class A
common stock at the initial public offering price less underwriting discounts
and commissions. The U.S. underwriters may exercise this option solely to cover
over-allotments, if any, made in connection with this offering. To the extent
that the U.S. underwriters exercise this option, each U.S. underwriter will
become obligated, subject to specified conditions, to purchase its pro rata
portion of the additional shares based on the U.S. underwriter's percentage
underwriting commitment as indicated in the preceding table.
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<PAGE> 98
The following table shows the underwriting fees to be paid to the
underwriters by us in this offering. These amounts are shown assuming both no
exercise and full exercise of the underwriters' option to purchase additional
shares of our Class A common stock to cover over-allotments.
<TABLE>
<CAPTION>
NO FULL
EXERCISE EXERCISE
<S> <C> <C>
Per Share................................................... $ $
Total....................................................... $ $
</TABLE>
We will pay the offering expenses, estimated to be $2.0 million.
An electronic prospectus is available on the Internet site maintained by
DLJdirect Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation. Other than the prospectus in electronic format, the information on
the Internet site relating to our offering is not a part of this prospectus, has
not been approved or endorsed by us or any underwriter and should not be relied
on by prospective purchasers.
We have agreed to indemnify the underwriters against specified liabilities,
including liabilities under the Securities Act, or to contribute to payments
that the underwriters may be required to make in connection with these
liabilities.
Our executive officers and directors and all of our existing stockholders
have agreed, for a period of 180 days after the date of this prospectus, with
some exceptions, that without the prior written consent of Donaldson, Lufkin &
Jenrette Securities Corporation, they will not:
- 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 or 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
- enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any common
stock.
In addition, during this 180-day period, we have also agreed not to file
any registration statement for the registration of any shares of common stock or
any securities convertible into or exercisable or exchangeable for common stock
without the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation. Likewise, each of our executive officers, directors and
stockholders has agreed not to make any demand for, or exercise any right for,
registration of any shares of common stock or any securities convertible into or
exercisable or exchangeable for common stock without Donaldson, Lufkin &
Jenrette Securities Corporation's written consent.
Before this offering, there has been no established trading market for our
Class A common stock. The initial public offering price for the shares of Class
A common stock offered by this prospectus will be determined by negotiation
among us and the representatives. The factors to be considered in determining
the initial public offering price include the history of and the prospects for
the industry in which we compete, our past and present operations, our
historical results of operations, our prospects for future earnings, the recent
market prices of securities of generally comparable companies and the general
condition of the securities markets at the time of this offering.
We have applied to have our Class A common stock approved for quotation on
the Nasdaq National Market, and for trading on the Amsterdam Stock Exchange,
under the symbol, "CRWN."
Under an intersyndicate agreement between the U.S. underwriters and
international managers, each U.S. underwriter has represented and agreed that,
with some exceptions:
- it is not purchasing any shares of common stock included in this offering
for the account of anyone other than a United States or Canadian person;
and
90
<PAGE> 99
- it has not offered or sold, and will not offer or sell, directly or
indirectly, any shares of Class A common stock included in this offering
or distribute any prospectus relating to the shares of Class A common
stock outside the United States or Canada or to anyone other than a
United States or Canadian person.
Under the intersyndicate agreement, each international manager has
represented and agreed that, with some exceptions:
- it is not purchasing any shares of Class A common stock included in this
offering for the account of any United States or Canadian person; and
- it has not offered or sold, and will not offer or sell, directly or
indirectly, any shares of Class A common stock included in this offering
or distribute any prospectus relating to the shares of Class A common
stock in the United States or Canada or to any United States or Canadian
person.
With respect to any underwriter that is both a U.S. underwriter and an
international manager, those representations and agreements made by it in its
capacity as a U.S. underwriter apply only to it in its capacity as a U.S.
underwriter and these representations and agreements made by it in its capacity
as an international manager apply only to it in its capacity as an international
manager. These limitations do not apply to stabilization transactions and to
other transactions specified in the intersyndicate agreement. As used in this
section, "United States or Canadian person" means any individual who is resident
in the United States or Canada, or any corporation, pension, profit-sharing or
other trust or other entity organized under or governed by the laws of the
United States or Canada or of any political subdivision thereof, other than the
foreign branch of any United States or Canadian person, and includes any United
States or Canadian branch of a person other than a United States or Canadian
person.
Under the intersyndicate agreement, sales may be made between the
syndicates of U.S. underwriters and international managers of a number of the
shares of Class A common stock included in this offering as may be mutually
agreed. Unless otherwise determined by the representatives of the U.S.
underwriters and international managers, the per share price of any shares of
Class A common stock so sold shall be the initial public offering price set
forth on the cover page hereof, in United States dollars, less an amount not
greater than the per share amount of the concession to dealers described above.
Under the intersyndicate agreement, each U.S. underwriter has represented
and agreed that:
- it has not offered or sold and will not offer or sell, directly or
indirectly, any shares of Class A common stock included in this offering
in any province or territory of Canada or to, or for the benefit of, any
resident of any province or territory of Canada in contravention of the
applicable securities laws; and
- without limiting the generality of the foregoing, any offer or sale of
shares of Class A common stock in Canada will be made only pursuant to an
exemption from the requirement to file a prospectus in the province or
territory of Canada in which the offer or sale is made.
Each U.S. underwriter has further agreed to send to any dealer who
purchases from it any shares of Class A common stock included in this offering a
notice stating in substance that by purchasing those shares of Class A common
stock the dealer represents and agrees that:
- it has not offered or sold and will not offer or sell, directly or
indirectly, any of those shares of Class A common stock in any province
or territory of Canada or to, or for the benefit of, any resident of any
province or territory of Canada in contravention of applicable securities
laws;
91
<PAGE> 100
- any offer or sale of those shares of Class A common stock in Canada will
be made only pursuant to an exemption from the requirement to file a
prospectus in the province or territory of Canada in which the offer or
sale is made; and
- it will send to any other dealer to whom it sells any of those shares of
Class A common stock a notice containing substantially the same statement
as is contained in this sentence.
Under the intersyndicate agreement, each international manager has
represented and agreed that:
- it has not offered or sold and, prior to the date six months after the
closing date for the sale of shares of common stock to the international
managers under the Underwriting Agreement, will not offer or sell any
shares of Class A common stock included in this offering to persons in
the United Kingdom except to persons whose ordinary activities involve
them in acquiring, holding, managing or disposing of investments, as
principal or agent, for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to
the public in the United Kingdom within the meaning of the Public Offers
of Securities Regulations 1995;
- it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in
relation to the shares of common stock included in this offering in, from
or otherwise involving the United Kingdom; and
- it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with this
offering to a person who is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions)
Order 1996 or is a person to whom the document may otherwise lawfully be
issued or passed on.
Other than in the United States, no action has been taken by us or the
underwriters that would permit a public offering of the shares of Class A common
stock offered by this prospectus in any jurisdiction where action for that
purpose is required. The shares of Class A common stock offered by this
prospectus may not be offered or sold, directly or indirectly, nor may this
prospectus or any other offering material or advertisements in connection with
the offer and sale of any of the shares of Class A common stock be distributed
or published in any jurisdiction, except under circumstances that will result in
compliance with the applicable rules and regulations of the jurisdiction.
Persons into whose possession this prospectus comes are advised to inform
themselves about and to observe any restrictions relating to this offering and
the distribution of this prospectus. This prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any shares of Class A common
stock offered by this prospectus in any jurisdiction in which an offer or a
solicitation is unlawful.
In connection with this offering, the underwriters may engage in
transactions that stabilize, maintain or affect the price of our Class A common
stock. Specifically, the underwriters may over-allot this offering, meaning
syndicate sales may be in excess of the offering size which creates a syndicate
short position. The underwriters may bid for and purchase shares of Class A
common stock in the open market to cover the syndicate short position or to
stabilize the price of our Class A common stock. In addition, the underwriting
syndicate may reclaim selling concessions from syndicate members if the
syndicate repurchases previously distributed shares of our Class A common stock
in syndicate covering transactions, in stabilization transactions or in other
transactions. Any of these activities may stabilize or maintain the market price
of our Class A common stock above independent market levels. The underwriters
are not required to engage in these activities, and may end any of these
activities at any time.
The underwriters, at our request, have reserved for sale at the initial
public offering price up to 8% of the shares of Class A common stock to be sold
in this offering for sale to our employees, directors and other persons we
designate. The number of shares available for sale to the general public will be
reduced to
92
<PAGE> 101
the extent that any reserved shares are purchased. Any reserved shares not
purchased will be offered by the underwriters on the same basis as the other
shares offered by this prospectus.
LEGAL MATTERS
Certain legal matters will be passed upon for us by Wachtell, Lipton, Rosen
& Katz, New York, New York and Judith C. Whittaker, Esq., Vice President and
General Counsel of Hallmark Cards, Incorporated, and for the underwriters by
Weil, Gotshal & Manges LLP, New York, New York.
EXPERTS
The consolidated financial statements of Crown Media and Odyssey Holdings
included in this prospectus and elsewhere in the registration statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission, a registration
statement on Form S-1 under the Securities Act with respect to the Class A
common stock offered in this prospectus. This prospectus does not contain all of
the information set forth in the registration statement and the exhibits and
schedules to that registration statement. For further information with respect
to us and the Class A common stock, we refer you to this registration statement
and its exhibits and schedules. The description of each contract or document
contained in this prospectus is qualified in its entirety by reference to the
copy of such contract or document filed as an exhibit to the registration
statement. The registration statement, including exhibits thereto, may be
inspected and copied at the public reference facilities maintained by the SEC at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and
at the SEC's Regional Offices located at Suite 1400, 500 West Madison Street,
Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New
York 10048. Copies of these materials may be obtained from the Public Reference
Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The SEC also maintains a world wide web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants such as us which file electronically
with the SEC. The registration statement, including all exhibits thereto and
amendments thereof, is available on that website.
Upon completion of this offering, we will be subject to the informational
requirements of the Securities Exchange Act of 1934 and, in accordance
therewith, will file reports, proxy and information statements with the SEC. You
may inspect and copy these reports, proxy and information statements and other
information at the addresses set forth above.
93
<PAGE> 102
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
CROWN MEDIA, INC. AND ITS SUBSIDIARIES
Report of Independent Public Accountants.................. F-2
Consolidated Balance Sheets as of December 31, 1998 and
1999................................................... F-4
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999....................... F-6
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended December 31, 1997, 1998 and 1999... F-7
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999....................... F-8
Notes to Consolidated Financial Statements................ F-10
ODYSSEY HOLDINGS, L.L.C. AND ITS SUBSIDIARIES
Report of Independent Public Accountants.................. F-22
Consolidated Balance Sheets as of December 31, 1998 and
1999................................................... F-24
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999....................... F-26
Consolidated Statements of Members' Equity (Deficit) for
the years ended December 31, 1997, 1998 and 1999....... F-27
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999....................... F-28
Notes to Consolidated Financial Statements................ F-29
NOTE -- Upon completion of a reorganization pursuant to
which shares of Crown Media Holdings will be
issued in exchange for shares of Crown Media
and Odyssey Holdings stock and a public
offering of shares of Class A common stock of
Crown Media Holdings:
- Crown Media Holdings will directly own
100% of Crown Media, and
- Crown Media Holdings will directly and
indirectly, through Crown Media, own 77.5%
of Odyssey Holdings.
Prior to the completion of the contemplated
reorganization and offering, Crown Media Holdings
will have no material assets, liabilities,
contingent liabilities or operations.
</TABLE>
F-1
<PAGE> 103
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Crown Media, Inc.:
We have audited the accompanying consolidated balance sheets of Crown
Media, Inc. (a Delaware corporation) and its subsidiaries as of December 31,
1998 and 1999, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the three years in the
period ended December 31, 1999. These financial statements are the
responsibility of Crown Media, Inc.'s management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Crown Media,
Inc. and its subsidiaries as of December 31, 1998 and 1999, and the results of
its operations and its cash flows for the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado
January 18, 2000
F-2
<PAGE> 104
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-3
<PAGE> 105
CROWN MEDIA, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------
1998 1999
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 2,876,779 $ 3,865,455
Receivables:
Accounts receivable, less allowance for doubtful
accounts of $70,877 and $695,409, respectively....... 4,643,395 7,184,999
Receivables from unconsolidated subsidiaries........... 563,332 1,628,642
Demand note and interest receivable from affiliate..... 25,450,222 33,625
------------ -----------
Total receivables................................ 30,656,949 8,847,266
------------ -----------
Program license fees, net of accumulated amortization..... 15,721,307 10,845,675
Subtitling and dubbing, net of accumulated amortization... 1,252,086 976,431
Prepaids and other assets:
Prepaid satellite services............................. 968,004 590,992
Other.................................................. 155,450 261,404
------------ -----------
Total prepaids and other assets.................. 1,123,454 852,396
------------ -----------
Total current assets............................. 51,630,575 25,387,223
Program license fees, net of current portion................ 4,459,611 7,735,657
Subtitling and dubbing, net of current portion.............. 3,250,950 3,594,659
Property and equipment, net................................. 7,795,164 7,984,587
Investment in Odyssey Holdings.............................. 49,400,604 35,362,626
Prepaids and other assets, net of current portion:
Prepaid satellite services................................ 838,492 423,968
Other..................................................... 298,683 557,494
------------ -----------
Total prepaids and other assets.................. 1,137,175 981,462
------------ -----------
Total assets..................................... $117,674,079 $81,046,214
============ ===========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these financial statements.
F-4
<PAGE> 106
CROWN MEDIA, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 1998 1999
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued liabilities.................. $ 9,285,345 $ 5,493,053
License fees payable to Hallmark Entertainment
Distribution........................................... 30,245,282 34,605,831
Payable to Hallmark Entertainment......................... 9,171,567 9,242,744
Notes and interest payable to affiliates.................. 20,000,000 22,710,670
Deferred compensation..................................... -- 3,250,000
Deferred programming revenue.............................. 2,634,667 2,153,786
------------ -------------
Total current liabilities........................ 71,336,861 77,456,084
LONG-TERM LIABILITIES:
Accrued liabilities....................................... -- 18,491
Deferred programming revenue, net of current portion...... 2,150,666 --
Note payable to affiliate, net of current portion......... 10,000,000 --
Investment in the Kermit Channel.......................... 118,633 1,043,322
Deferred compensation..................................... -- 3,556,988
Deferred income taxes..................................... -- 1,600,000
Commitments and contingencies...............................
Class B common stock subject to put and call, $.01 par
value; 1,000 shares authorized; issued and outstanding
shares of 130.6 and 136.1 as of December 31, 1998 and
1999, respectively........................................ 54,264,795 60,338,173
STOCKHOLDERS' EQUITY (DEFICIT):
Class A common stock, $.01 par value; 2,000 shares
authorized; issued and outstanding shares of 1,044.4
and 1,088.9 as of December 31, 1998 and 1999,
respectively........................................... 10 11
Paid-in capital........................................... 52,123,727 69,901,504
Accumulated deficit....................................... (72,320,613) (132,868,359)
------------ -------------
Total stockholders' equity (deficit)............. (20,196,876) (62,966,844)
------------ -------------
Total liabilities and stockholders' equity
(deficit)...................................... $117,674,079 $ 81,046,214
============ =============
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these financial statements.
F-5
<PAGE> 107
CROWN MEDIA, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1997 1998 1999
<S> <C> <C> <C>
REVENUES:
Subscriber fees................................ $ 9,100,305 $ 20,648,242 $ 27,669,571
Advertising.................................... 176,310 84,358 1,729,454
Other:
Management fees from unconsolidated
subsidiary............................... -- 1,529,200 2,509,891
Sublicensing fees........................... 525,000 1,425,000 --
------------ ------------ ------------
Total other........................... 525,000 2,954,200 2,509,891
------------ ------------ ------------
Total revenues........................ 9,801,615 23,686,800 31,908,916
------------ ------------ ------------
COST OF SALES:
Programming costs:
Affiliate................................... 10,321,805 12,306,668 12,331,157
Non-affiliates.............................. 7,770,004 14,187,307 10,451,996
Operating costs................................ 6,989,881 16,831,150 18,795,432
------------ ------------ ------------
Total cost of sales................... 25,081,690 43,325,125 41,578,585
General and administrative expenses.............. 6,118,117 11,549,537 26,277,462
------------ ------------ ------------
Loss from operations.................. (21,398,192) (31,187,862) (35,947,131)
Equity in net losses of unconsolidated
subsidiaries and investment expenses........... -- 4,918,029 18,991,667
Interest (income) expense, net................... -- (1,272,867) (798,390)
------------ ------------ ------------
Net loss before income taxes.......... (21,398,192) (34,833,024) (54,140,408)
Income tax provision............................. 179,352 631,690 2,556,182
------------ ------------ ------------
Net loss.............................. $(21,577,544) $(35,464,714) $(56,696,590)
============ ============ ============
Loss per share................................... $ (21,578) $ (32,868) $ (47,926)
============ ============ ============
Weighted average number of Class A and B shares
outstanding.................................... 1,000 1,079 1,183
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
F-6
<PAGE> 108
CROWN MEDIA, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CLASS A TOTAL
CLASS A COMMON PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES STOCK CAPITAL DEFICIT EQUITY (DEFICIT)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996...... 1,000.0 $10 $ -- $ (13,235,782) $(13,235,772)
Net loss...................... -- -- -- (21,577,544) (21,577,544)
------- --- ----------- ------------- ------------
Balance, December 31, 1997...... 1,000.0 10 -- (34,813,326) (34,813,316)
Conversion of Hallmark
Entertainment debt into
equity..................... -- -- 34,345,949 -- 34,345,949
Hallmark Entertainment capital
contribution related to
investment in Odyssey
Holdings................... 44.4 -- 17,777,778 -- 17,777,778
Accretion related to Class B
common stock subject to put
and call................... -- -- -- (2,042,573) (2,042,573)
Net loss...................... -- -- -- (35,464,714) (35,464,714)
------- --- ----------- ------------- ------------
Balance, December 31, 1998...... 1,044.4 10 52,123,727 (72,320,613) (20,196,876)
Hallmark Entertainment capital
contribution related to
investment in Odyssey
Holdings................... 44.5 1 17,777,777 -- 17,777,778
Accretion related to Class B
common stock subject to put
and call................... -- -- -- (3,851,156) (3,851,156)
Net loss...................... -- -- -- (56,696,590) (56,696,590)
------- --- ----------- ------------- ------------
Balance, December 31, 1999...... 1,088.9 $11 $69,901,504 $(132,868,359) $(62,966,844)
======= === =========== ============= ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
F-7
<PAGE> 109
CROWN MEDIA, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1997 1998 1999
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.......................................... $(21,577,544) $(35,464,714) $(56,696,590)
Adjustments to reconcile net loss to net cash used
in operating activities:
Amortization of program license fees........... 18,091,809 26,493,975 22,783,153
Depreciation and amortization of property and
equipment................................... 737,458 1,504,392 2,379,481
Amortization of subtitling and dubbing and
other assets................................ 1,296,824 1,372,674 2,528,366
Provision for losses on accounts receivable.... 143,978 38,160 672,306
Equity in net losses of unconsolidated
subsidiaries................................ -- 3,480,621 17,342,775
Amortization of equity investment basis
difference.................................. -- 137,408 1,648,892
Deferred compensation.......................... -- -- 6,806,988
Provisions for deferred taxes.................. -- -- 1,600,000
Changes in operating assets and liabilities:
Increase in accounts receivable............. (1,407,382) (2,415,878) (3,213,910)
Increase in receivables from unconsolidated
subsidiaries............................. -- (563,332) (1,065,310)
(Increase) decrease in interest
receivable............................... -- (450,222) 416,597
Gross additions to program license fees..... (27,058,914) (25,668,456) (21,183,567)
Increase in subtitling and dubbing.......... (2,619,493) (3,156,032) (2,596,420)
(Increase) decrease in prepaids and other
assets................................... (4,665,731) (820,372) 426,771
Increase (decrease) in accounts payable and
accrued liabilities...................... 4,209,852 1,991,333 (3,773,801)
Increase in payable to Hallmark
Entertainment Distribution............... 11,156,947 720,635 4,360,549
Increase (decrease) in deferred revenue..... 9,386,666 (4,601,333) (2,631,547)
------------ ------------ ------------
Net cash used in operating activities.... (12,305,530) (37,401,141) (30,195,267)
------------ ------------ ------------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
F-8
<PAGE> 110
CROWN MEDIA, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1997 1998 1999
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............. $(1,030,880) $ (6,664,519) $ (2,568,904)
Proceeds from (investment in) note receivable
from Hallmark Entertainment.................. -- (25,000,000) 25,000,000
Investment in Odyssey Holdings ................. -- (20,000,000) --
Investment in the Kermit Channel................ -- (2,900,000) (4,029,000)
----------- ------------ ------------
Net cash provided by (used in)
investing activities................. (1,030,880) (54,564,519) 18,402,096
----------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on Odyssey Holdings note payable........ -- -- (20,000,000)
Capital contributions........................... -- 70,000,000 20,000,000
Borrowings from affiliates...................... 13,540,239 24,633,610 12,781,847
----------- ------------ ------------
Net cash provided by financing
activities........................... 13,540,239 94,633,610 12,781,847
----------- ------------ ------------
Net increase in cash and cash
equivalents.......................... 203,829 2,667,950 988,676
Cash and cash equivalents, beginning of year...... 5,000 208,829 2,876,779
----------- ------------ ------------
Cash and cash equivalents, end of year............ $ 208,829 $ 2,876,779 $ 3,865,455
=========== ============ ============
Supplemental disclosure of cash and non-cash
activities:
Income taxes paid............................... $ 179,352 $ 631,690 $ 956,182
=========== ============ ============
Investment in Odyssey Holdings through issuance
of note payable.............................. $ -- $ 30,000,000 $ --
=========== ============ ============
Accretion related to Class B common stock
subject to put and call...................... $ -- $ 2,042,573 $ 3,851,156
=========== ============ ============
Conversion of Hallmark Entertainment
Distribution program license fee payable into
contributed capital.......................... $ -- $ 34,345,949 $ --
=========== ============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
F-9
<PAGE> 111
CROWN MEDIA, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
1. BUSINESS AND ORGANIZATION
ORGANIZATION
Crown Media, Inc., a Delaware corporation ("Crown Media"), owns and
operates the Hallmark Entertainment Network, a pay television channel dedicated
to high quality family programming that is distributed in more than 70
countries. Crown Media also owns 50% of, and operates, the Kermit Channel, a pay
television channel featuring popular family and children's programming that is
distributed primarily in India. Crown Media began operations in June 1995 and is
a majority-owned subsidiary of Hallmark Entertainment, Inc. ("Hallmark
Entertainment").
The accompanying financial statements also include the assets and
liabilities and results of operations of Crown Media's wholly and majority-owned
subsidiaries.
LIQUIDITY
Crown Media has incurred significant recurring losses since inception as it
acquired programming rights and expanded into new international markets.
Hallmark Entertainment currently is contemplating an initial public offering of
shares of Class A common stock of Crown Media Holdings, Inc. ("Crown Media
Holdings") (see Note 14) and believes that the proceeds from that offering,
together with cash generated from operations, will be sufficient to meet Crown
Media's liquidity requirements through 2001. However, in the event a public
offering does not occur or alternative financing is not obtained, Hallmark
Entertainment has committed to provide funding, to the extent necessary, until
the earlier of the completion of the public offering or March 31, 2001.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the consolidated accounts of
Crown Media and those of its majority-owned and controlled subsidiaries.
Investments in entities which are not majority-owned and controlled by Crown
Media are accounted for under the equity method. All significant intercompany
balances and transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
Crown Media considers all highly liquid debt instruments purchased with an
initial maturity of three months or less to be cash equivalents. The carrying
value of Crown Media's cash equivalents approximates cost at each balance sheet
date.
PROGRAM LICENSE FEES
Program license fees are the rights to air programs acquired from others.
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 63,
"Financial Reporting by Broadcasters," program rights are deferred and then
amortized over their license periods (the "airing window") or anticipated usage,
whichever is shorter. At the inception of these contracts and periodically
thereafter, Crown Media evaluates the recoverability of these costs versus the
revenues directly associated with the programming and related expense. Where an
evaluation indicates that a programming contract ultimately will result in a
loss, additional amortization is provided to currently recognize that loss.
SFAS No. 63 also requires an entity providing programming to report an
asset and liability for the rights licensed under a programming agreement only
when the license period begins and when certain other
F-10
<PAGE> 112
CROWN MEDIA, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
defined requirements are met. As such, the accompanying consolidated balance
sheets do not reflect assets and liabilities of $12.9 million and $42.8 million
as of December 31, 1998 and 1999, respectively, related to program license fees
with airing windows to begin subsequent to period-end.
Program license fees consist of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------
1998 1999
<S> <C> <C>
Program license fees -- affiliates....................... $ 16,795,395 $ 17,361,575
Program license fees -- non-affiliates................... 17,919,174 11,195,652
Prepaid program license fees............................. 3,250,000 6,750,000
------------ ------------
Program license fees, at cost....................... 37,964,569 35,307,227
Accumulated amortization................................. (17,783,651) (16,725,895)
------------ ------------
Program license fees, net........................... $ 20,180,918 $ 18,581,332
============ ============
</TABLE>
SUBTITLING AND DUBBING
Subtitling and dubbing costs represent costs incurred to prepare
programming for airing in international markets. These costs are capitalized as
incurred and are amortized over the shorter of the program's airing window (for
programming licensed from unaffiliated third-parties), the program's estimated
life (for programming licensed from Hallmark Entertainment Distribution LLC
("Hallmark Entertainment Distribution"), a wholly-owned subsidiary of Hallmark
Entertainment) or 10 years. Accumulated amortization related to subtitling and
dubbing as of December 31, 1998 and 1999 was $3.0 million and $2.4 million,
respectively.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and amortization
of property and equipment are provided for by the straight-line method over the
estimated useful lives of the respective assets, ranging from five to seven
years. When property is sold or otherwise disposed of, the cost and related
accumulated depreciation is removed from the accounts and any resulting gain or
loss is included in income. The costs of normal maintenance and repairs are
charged to expense when incurred.
REVENUE RECOGNITION
Subscriber fees are recognized as revenue when programming is provided to
pay television distributors and collectibility is reasonably assured. Subscriber
fee revenues are recorded net of promotional subscribers.
Advertising revenues are recognized as earned in the period in which the
advertising commercials are telecast. Advertising revenues are recorded net of
agency commissions.
Foreign revenues for each of the years ended December 31, 1997, 1998 and
1999 represented 100% of total subscriber fee revenues. Such revenues, generally
denominated in United States dollars, were primarily from sales to customers in
Australia, Benelux, Italy, New Zealand, South Africa, Spain, and certain
countries in Asia, the Middle East and Latin America.
COST OF SALES
Cost of sales includes programming distribution expenses and amortization
of program license fees, subtitling and dubbing.
F-11
<PAGE> 113
CROWN MEDIA, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MINORITY INTEREST
The minority interest in the net income or loss of Crown Media's non
wholly-owned, consolidated subsidiaries is insignificant and therefore not
separately reflected in the accompanying financial statements. To the extent the
minority interest in the net losses of Crown Media's consolidated subsidiaries
exceeds the minority investment in those subsidiaries, such excess losses are
charged to Crown Media.
TRANSLATION OF FOREIGN CURRENCY
The balance sheets and statements of operations of Crown Media's foreign
subsidiaries are measured using local currency as the functional currency.
Revenues and expenses of such subsidiaries are translated into U.S. dollars at
the average exchange rates prevailing during the period. Assets and liabilities
are translated at the rates of exchange at the balance sheet date. Translation
gains and losses are deferred as a component of stockholders' equity, unless
there is a sale or complete or substantially complete liquidation of the
underlying foreign investments. Aggregate foreign currency transaction gains and
losses are included in determining net income.
COMPREHENSIVE INCOME
Crown Media has adopted SFAS No. 130, "Reporting Comprehensive Income,"
effective the year ended December 31, 1998. This statement establishes standards
for the reporting and display of comprehensive income and its components in
financial statements and thereby reports a measure of all changes in equity of
an enterprise that result from transactions and other economic events other than
transactions with owners. Aside from net loss, there are no other comprehensive
income items for years ended December 31, 1997, 1998 and 1999.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings Per Share." This statement provides computation,
presentation and disclosure requirements for earnings per share. There was no
dilutive impact to weighted average shares for years ended December 31, 1997,
1998 and 1999.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires Crown Media 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.
FAIR VALUE
The carrying amounts of financial instruments, including amounts payable
and receivable, are reasonable estimates of their fair value. The fair values
were estimated using the current rates at which loans would be made to Crown
Media for similar remaining maturities. Investments in private companies and
partnerships are recorded at fair value as of the date of investment. Crown
Media periodically reviews the projected undiscounted cash flows related to its
investments. If a review indicates that the carrying value of an asset is not
recoverable, the carrying value is reduced to its estimated fair value.
F-12
<PAGE> 114
CROWN MEDIA, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject Crown Media to a
concentration of credit risk consist primarily of accounts receivable. At
December 31, 1998 and 1999, 100% of Crown Media's accounts receivable were due
from entities with foreign operations. Generally, Crown Media does not require
collateral to secure receivables.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued. This statement was subsequently amended by SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities --
Deferral of the Effective Date of FASB Statement No. 133," which changed the
effective date to fiscal years beginning after June 15, 2000. SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. Crown Media intends to adopt the new accounting standard in
the year ended December 31, 2001, but does not expect it to have a material
effect on its financial statements.
3. PROPERTY AND EQUIPMENT
Property and equipment are comprised of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------
1998 1999
<S> <C> <C>
Technical equipment and computers.......................... $ 8,874,796 $10,329,767
Furniture and fixtures..................................... 879,306 966,306
Leasehold improvements..................................... 325,459 460,701
Construction-in-progress................................... 246,378 1,065,397
----------- -----------
Property and equipment at cost........................... 10,325,939 12,822,171
Less -- Accumulated depreciation and amortization.......... (2,530,775) (4,837,584)
----------- -----------
Property and equipment, net.............................. $ 7,795,164 $ 7,984,587
=========== ===========
</TABLE>
4. INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES
THE KERMIT CHANNEL
In May 1998, Crown Media formed two New York limited liability companies,
H&H Programming-Latin America, LLC ("HHPLA") and H&H Programming-Asia, LLC
(collectively operating as the "Kermit Channel") with The Jim Henson Company,
Inc. ("The Jim Henson Company"), a New York corporation, for the purpose of
developing, owning and operating pay television programming services in Latin
America and Asia. Each of Crown Media and The Jim Henson Company holds a 50%
interest in each of the limited liability companies. The Kermit Channel is
reflected in Crown Media's financial statements using the equity method of
accounting for investments. Crown Media's equity in the net loss of the Kermit
Channel of approximately $3.0 million and $5.0 million for the years ended
December 31, 1998 and 1999, respectively, is included in the consolidated
statements of operations as equity in net losses of unconsolidated subsidiaries
and investment expenses.
Crown Media provides services to the Kermit Channel in exchange for a fee
as provided in an agreement between Crown Media and the Kermit Channel. This
fee, which was approximately $1.5 million and $2.5 million for the years ended
December 31, 1998 and 1999, respectively, includes direct and indirect
F-13
<PAGE> 115
CROWN MEDIA, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
costs incurred on behalf of the Kermit Channels, as provided by the agreements.
Additionally, Hallmark Entertainment Distribution provides programming to the
Kermit Channel in exchange for a fee through a license agreement.
Effective December 1998, HHPLA discontinued all operations and committed to
a plan of dissolution. HHPLA was dissolved in December 1999. All dissolution
costs have been accrued and included in equity in net losses of unconsolidated
subsidiaries and investment expenses in the accompanying 1998 consolidated
statement of operations to the extent of Crown Media's economic interest. Crown
Media also incurred $1.3 million in costs on behalf of HHPLA in 1998. These
costs were not charged to HHPLA and are included in equity in net losses of
unconsolidated subsidiaries and investment expenses for the year ended December
31, 1998.
Crown Media made capital contributions, through cash advances and/or
conversion of receivables in the Kermit Channel, of $2.9 million and $4.0
million during 1998 and 1999, respectively.
INVESTMENT IN ODYSSEY HOLDINGS, L.L.C.
In November 1998, Crown Media, through its wholly-owned subsidiary Hallmark
Domestic Holdings, Inc., entered into an agreement to acquire a 22.5% common
equity interest in Odyssey Holdings, L.L.C. ("Odyssey Holdings"), a Delaware
limited liability company. Odyssey Holdings was formed to develop, own and
operate the Odyssey Network. The purchase price for Crown Media's interest in
Odyssey Holdings was $50.0 million. Crown Media paid $20.0 million of this
purchase price in November 1998 and an additional $20.0 million in May 1999. The
final payment of $10.0 million is due no earlier than January 1, 2000 and no
later than March 31, 2000. Consequently, at December 31, 1998 and 1999, Crown
Media had an outstanding note payable related to this investment, included in
notes and interest payable to affiliates in the accompanying consolidated
balance sheets, of $30.0 million and $10.0 million, respectively.
Crown Media funded its 1998 capital contribution to Odyssey Holdings with
the proceeds of additional investments of $17.8 million and $2.2 million in
Crown Media by its stockholders, Hallmark Entertainment and Chase Equity
Associates ("Chase"), respectively. Hallmark Entertainment and Chase were issued
44.444 shares of Class A common stock and 5.555 shares of Class B common stock,
respectively, related to the additional funding. In May 1999, Hallmark
Entertainment and Chase provided Crown Media with additional funding of $17.8
million and $2.2 million, respectively, to fund Crown Media's additional capital
contribution to Odyssey Holdings. In connection with this funding, Crown Media
issued 44.444 shares of Class A common stock to Hallmark Entertainment and 5.555
shares of Class B common stock to Chase. Crown Media anticipates funding its
remaining obligation through additional contributions from its shareholders. The
Class B shares issued in connection with this funding provided by Chase are
subject to the put and call arrangement discussed in Note 6.
Crown Media's investment in Odyssey Holdings is reflected in the financial
statements using the equity method of accounting. Crown Media's equity in the
net loss of Odyssey Holdings was approximately $462,000 for the period from the
date of investment through December 31, 1998 and approximately $12,389,000 as of
the year ended December 31, 1999. These amounts are included in the consolidated
statements of operations as equity in net losses of unconsolidated subsidiaries
and investment expenses. Crown Media's investment in Odyssey Holdings as of
December 31, 1998 exceeded the underlying equity in the net assets of Odyssey
Holdings by approximately $33.0 million. This amount represents goodwill and is
being amortized over a 20 year life. For the year ended December 31, 1998 and
1999, $137,000 and $1.6 million, respectively, was amortized related to this
difference and is reflected in equity in net losses of
F-14
<PAGE> 116
CROWN MEDIA, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
unconsolidated subsidiaries and investment expenses in the accompanying
consolidated statements of operations. Additionally, Hallmark Entertainment
Distribution provides programming to Odyssey Holdings in exchange for a fee
through a license agreement.
5. DEFERRED PROGRAMMING REVENUE
In December 1997, Crown Media renegotiated a distribution agreement with a
pay television distributor which extends through December 2000. As a result of
the renegotiation, the pay television distributor paid Crown Media $5.0 million
and agreed to provide Crown Media with approximately $4.3 million in future
transponder services and playback and uplink services. The entire $9.3 million
from the renegotiated agreement was initially included in deferred revenue. At
December 31, 1998 and 1999, amounts deferred were approximately $4.8 million and
$2.2 million, respectively. Revenue is recognized in subscriber fees as services
are provided and over the life of the contract. Revenues recognized under the
renegotiated agreement were approximately $4.5 million and $2.6 million for the
years ended December 31, 1998 and 1999, respectively.
6. CLASS B COMMON STOCK SUBJECT TO PUT AND CALL
On May 28, 1998, Crown Media obtained financing through the sale and
issuance of 125 shares of Class B Common Stock to Chase. The 125 shares of
nonvoting Class B common stock, comprising 100% of the total Class B common
stock issued and outstanding and representing an 11.11% equity interest in Crown
Media, were sold to Chase for $50.0 million. Prior to the transaction, Hallmark
Entertainment was the sole stockholder of Crown Media, and continues to hold
1,088.9 shares of the total outstanding Class A common stock, representing an
88.89% equity interest in Crown Media.
Chase has the option to put its Class B common stock to Crown Media within
120 days after December 31, 2001, at the then fair market value of the shares or
at a price to provide Chase with a defined rate of return. After December 31,
2003, Chase may only put at a price equal to the fair market value. Chase may
also put the shares at any time upon the occurrence of certain triggering
events, as defined by the Securities Purchase Agreement. At December 31, 1998
and 1999, $2.0 million and $5.9 million, respectively, had been cumulatively
accreted related to this put.
Pursuant to the terms of the Securities Purchase Agreement, Crown Media has
the right, after December 31, 2004, to call the securities held by Chase at the
then fair market value.
Based on the put and call features, these securities have been presented
outside the equity section in the consolidated balance sheets. The put and call
options expire upon the completion of an initial public offering.
7. CONVERSION OF DEBT INTO EQUITY
Pursuant to the Securities Purchase Agreement, in May 1998 Hallmark
Entertainment Distribution (for the benefit of Hallmark Entertainment) converted
$34.3 million of amounts due from Crown Media related to program license fees
and operating advances into equity in Crown Media.
8. RELATED PARTY TRANSACTIONS
COSTS INCURRED ON CROWN MEDIA'S BEHALF
Since inception, Hallmark Entertainment has paid certain costs related to
payroll and benefits, insurance, operational and financing expenditures and
capital expenditures on behalf of Crown Media. These transactions are recorded
in the books and records of Crown Media. Unreimbursed costs of
F-15
<PAGE> 117
CROWN MEDIA, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$9.2 million are included in payable to Hallmark Entertainment in the
accompanying consolidated balance sheets as of December 31, 1998 and 1999.
NOTE RECEIVABLE -- HALLMARK ENTERTAINMENT
During 1998, Crown Media invested $25 million of the proceeds from the
issuance of Class B common stock to Chase, as described in note (6), in a note
receivable from Hallmark Entertainment. The interest rate on this note is 7%,
and payment of the outstanding principal and interest is due on demand. Included
in the demand note and interest receivables from affiliate in the accompanying
December 31, 1998 and 1999 consolidated balance sheets is principal of $25.0
million and $0, respectively. For the years ended December 31, 1998 and 1999,
approximately $957,000 and $691,000, respectively, of interest income was
recorded related to interest earned under this note. Interest receivable of
$450,000 and $34,000 is included in demand note and interest receivable from
affiliate in the accompanying consolidated balance sheets as of December 31,
1998 and 1999, respectively.
PROGRAM LICENSE AGREEMENT WITH HALLMARK ENTERTAINMENT DISTRIBUTION
The primary supplier of programming to Crown Media is Hallmark
Entertainment Distribution. Crown Media has a program agreement with Hallmark
Entertainment Distribution through December 31, 2004, which is renewable through
December 31, 2009 at Hallmark Entertainment Distribution's option. Under the
terms of the agreement, Crown Media has the exclusive right to exhibit Hallmark
Entertainment Distribution's programming in the territories in which Crown Media
operates during three distinct 18-month time periods. Crown Media also has the
exclusive right to exhibit programming in markets where it does not currently
operate, subject to any third party agreement existing at the time Crown Media
launches in those markets. In addition, under the agreement, Hallmark
Entertainment Distribution is generally obligated to sell to Crown Media and
Crown Media is obligated to purchase all of the programming it produces during
the term of agreement.
Programming costs related to the program agreement were $10.3 million,
$12.3 million, and $12.3 million, respectively for the years ended December 31,
1997, 1998 and 1999, respectively. As of December 31, 1998 and 1999, $30.2
million and $34.6 million, respectively, are included in license fees payable to
Hallmark Entertainment Distribution in the accompanying consolidated balance
sheets.
SERVICES AGREEMENT WITH HALLMARK ENTERTAINMENT
Hallmark Entertainment, its subsidiaries and various affiliates, provide
Crown Media with services that include payroll, legal, financial, tax and other
general corporate services. For each of the years ended December 31, 1997, 1998
and 1999, Crown Media has accrued $1.0 million, $1.0 million and $500,000,
respectively, under the agreement. At December 31, 1998 and 1999, unpaid accrued
service fees of $3.0 million and $3.5 million, respectively, are included in
payable to Hallmark Entertainment in the accompanying consolidated balance
sheets.
EMPLOYEE HEALTH INSURANCE
All risk of loss related to employee health insurance of Crown Media is
borne by Hallmark Entertainment or its reinsurers. Crown Media paid Hallmark
Entertainment $247,000, $443,000 and $1.1 million for the years ended December
31, 1997, 1998 and 1999, respectively, as consideration to Hallmark
Entertainment for the transfer of risk related to health insurance provided to
employees of Crown Media.
F-16
<PAGE> 118
CROWN MEDIA, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DEMAND NOTE
In November 1999, Crown Media entered into an agreement with HC Crown
Corporation, an affiliate of Hallmark Cards, under which HC Crown agreed to lend
Crown Media up to $20.0 million. Amounts borrowed under this agreement bear
interest at 130% of the Applicable Federal Rate as set forth in the Internal
Revenue Code, with the interest compounding on an annual basis. Amounts
outstanding are due on demand. As of December 31, 1999, principal borrowings
under the note were approximately $12.7 million with accrued interest of
$49,000, both of which are included in notes and interest payable to affiliates
on the accompanying consolidated balance sheets.
9. INCOME TAXES
Crown Media accounts for income taxes using the liability method. Under
this method, Crown Media recognizes deferred tax assets and liabilities for
future tax consequences attributable to the difference between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
Since its inception, Crown Media has been included in the consolidated
federal income tax return of Hallmark Cards, Inc. ("Hallmark"). Crown Media has
also been included in combined state income tax returns of Hallmark or Hallmark
Entertainment. Crown Media does not have a tax sharing agreement with Hallmark
or Hallmark Entertainment. Hallmark has used all federal tax losses and foreign
tax credits relating to Crown Media. Hallmark and Hallmark Entertainment have
used state tax losses relating to Crown Media in combined state income tax
returns. Hallmark and Hallmark Entertainment will not reimburse Crown Media for
the use of such tax benefits. Accordingly, Crown Media has not recorded a tax
benefit for federal or state tax losses. Crown Media has recorded a tax
provision related to foreign taxes and to establish a deferred tax liability as
required for certain timing items.
Total income tax provision consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1997 1998 1999
<S> <C> <C> <C>
Current:
Federal..................................... $ -- $ -- $ --
Foreign..................................... 179,352 631,690 956,182
State and local............................. -- -- --
-------- -------- ----------
Total current............................ 179,352 631,690 956,182
Deferred:
Federal..................................... -- -- 1,600,000
State and local............................. -- -- --
-------- -------- ----------
Total deferred........................... -- -- 1,600,000
-------- -------- ----------
Total.................................... $179,352 $631,690 $2,556,182
======== ======== ==========
</TABLE>
The following table reconciles the income tax provision at the U.S.
statutory rate to that in the financial statements:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1998 1999
<S> <C> <C> <C>
Taxes computed at 35%........................ $(7,489,367) $(12,191,558) $(18,949,143)
Net operating losses not benefiting Crown
Media...................................... 7,489,367 12,191,558 17,349,143
Additional tax on foreign income............. (179,352) (631,690) (956,182)
----------- ------------ ------------
Income tax provision.................... $ (179,352) $ (631,690) $ (2,556,182)
=========== ============ ============
</TABLE>
F-17
<PAGE> 119
CROWN MEDIA, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of Crown Media's deferred tax assets and liabilities were as
follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------
1998 1999
<S> <C> <C>
Deferred tax assets:
Deferred revenue......................................... $ 1,914,133 $ 861,514
Unconsolidated subsidiaries' losses...................... 590,129 --
Bad debt reserve......................................... 28,351 278,164
Accrued compensation..................................... -- 1,922,795
Valuation allowance...................................... (2,100,631) --
----------- -----------
Total deferred tax assets............................. 431,982 3,062,473
Deferred tax liabilities:
Depreciation............................................. (431,982) (555,982)
Unconsolidated subsidiaries' losses...................... -- (4,014,660)
Other.................................................... -- (91,831)
----------- -----------
Total deferred tax liabilities........................ (431,982) (4,662,473)
----------- -----------
Net deferred taxes................................. $ -- $(1,600,000)
=========== ===========
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
Crown Media leases transponders, office facilities, and various office
equipment under operating leases that generally are not cancelable. The leases
expire at various dates through August 2008, and some contain escalation clauses
and renewal options.
Rent expense under these agreements was $654,000, $5.6 million and $6.7
million, respectively, for the years ended December 31, 1997, 1998 and 1999,
respectively. At December 31, 1999, the minimum annual rental commitments under
the leases are as follows:
<TABLE>
<S> <C>
2000.................................................... $ 6,789,000
2001.................................................... 7,149,000
2002.................................................... 7,227,000
2003.................................................... 6,279,000
2004.................................................... 5,127,000
Thereafter.............................................. 18,600,000
-----------
$51,171,000
===========
</TABLE>
Certain of the above amounts related to transponder leases are directly
allocable, by contract, to the Kermit Channel. Future allocations to the Kermit
Channel are expected to be $2.0 million, $2.0 million, $2.0 million, $1.6
million, $1.1 million and $3.9 million for 2000, 2001, 2002, 2003, 2004 and
thereafter, respectively.
F-18
<PAGE> 120
CROWN MEDIA, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEVERANCE AGREEMENT
In January 1999, under the terms of a severance agreement with a former
senior executive, Crown Media recorded $4.0 million of expense which is
reflected in general and administrative expenses for the year ended December 31,
1999. The $4.0 million remains accrued in deferred compensation at December 31,
1999. The agreement requires a payment of $2.0 million (which was paid on
January 18, 2000), $1.0 million and $1.0 million in January 2000, 2001 and 2002,
respectively. The agreement requires an additional payment of $2.0 million
contingent upon an initial public offering of Crown Media's shares prior to
January 31, 2001 or $1.0 million contingent upon an initial public offering
after January 31, 2001 but prior to January 31, 2002.
11. SHARE APPRECIATION RIGHTS PLAN
In March 1999, Crown Media adopted a Share Appreciation Rights Plan (the
"SAR Plan") to provide key officers of Crown Media incentives linked to the
increase in Crown Media's market value. The SAR Plan allows for the issuance of
up to 3 million rights that accrete value over an initial valuation and vest
over a period of thirty-six months. The SAR Plan expires on December 31, 2002.
The maximum distributions under the SAR Plan are $15.0 million in aggregate and
$10.0 million to any individual. As of December 31, 1999, Crown Media had issued
3 million rights and accrued $2.8 million in deferred compensation under the SAR
Plan.
12. BENEFIT PLANS
Crown Media's employees may participate in the Company's 401(k) Plan (the
"Plan"). Employees that qualify for participation can contribute up to 15% of
their salary, on a before tax basis, subject to a maximum contribution limit as
determined by the Internal Revenue Service.
Crown Media may make matching contributions on behalf of all participants
who make elective deferrals in an amount equal to a variable percentage of
participants' pre-tax contributions. This percentage is decided upon annually by
the Plan administration committee. Crown Media contributed $0, $34,000 and
$32,000 for the years ended December 31, 1997, 1998 and 1999, respectively. In
addition, Crown Media may make profit sharing contributions on behalf of
employees, other than highly compensated employees, in an amount determined by
Crown Media, to be allocated in proportion to each employee's compensation as a
percentage of total employee compensation. For the years ended December 31,
1997, 1998 and 1999, there were no profit sharing contributions.
13. OPERATIONS IN DIFFERENT GEOGRAPHIC AREAS
Crown Media adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" in 1998. This statement requires companies
to report in their financial statements certain information about operating
segments, their services, the geographic areas in which they operate, and their
major customers.
F-19
<PAGE> 121
CROWN MEDIA, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
All of Crown Media's material operations are part of the international pay
television programming service industry and therefore Crown Media reports as a
single industry segment. Crown Media does not have operating decision authority
through its minority investments in the Kermit Channel (note 4) and Odyssey
Holdings (note 5). Consequently, selected operating and asset data of the Kermit
Channel and Odyssey Holdings are not included in the following table.
Foreign operations in 1999 were conducted in 7 countries in the
Scandinavia/Benelux region, 16 countries in the Asia Pacific region, 19
countries in the Latin America region, 15 countries in the Europe region and 2
countries in the Africa region. Information relating to Crown Media's continuing
operations is set forth in the following table (operating income (loss) is
defined as revenue less costs of goods sold and general and administrative
expenses; home office costs are reflected in the United States' operating income
(loss) and are not allocated to other geographic regions):
<TABLE>
<CAPTION>
REVENUE FROM REVENUE FROM OPERATING IDENTIFIABLE
UNRELATED ENTITIES RELATED ENTITIES INCOME (LOSS) ASSETS
(IN MILLIONS)
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1997:
United States......... $ 0.0 $0.0 $ (9.7) $ 5.5
Scandinavia/Benelux... 3.2 0.0 (2.5) 10.5
Asia Pacific.......... 2.3 0.0 (1.6) 3.3
Latin America......... 2.3 0.0 (4.1) 3.5
Europe................ 1.0 0.0 (2.9) 6.3
Africa................ 1.0 0.0 (0.6) 1.2
----- ---- ------ ------
$ 9.8 $0.0 $(21.4) $ 30.3
===== ==== ====== ======
YEAR ENDED DECEMBER 31,
1998:
United States......... $ 0.0 $1.5 $(18.6) $ 11.5
Scandinavia/Benelux... 5.5 0.0 (3.8) 5.3
Asia Pacific.......... 4.7 0.0 (2.0) 4.5
Latin America......... 5.4 0.0 (3.5) 4.9
Europe................ 5.1 0.0 (3.6) 7.5
Africa................ 1.5 0.0 0.3 1.0
----- ---- ------ ------
$22.2 $1.5 $(31.2) $ 34.7
===== ==== ====== ======
YEAR ENDED DECEMBER 31,
1999:
United States......... $ 0.0 $2.5 $(30.1) $ 8.2
Scandinavia/Benelux... 3.7 0.0 (1.2) 3.0
Asia Pacific.......... 6.2 0.0 (2.5) 4.4
Latin America......... 9.7 0.0 (0.2) 3.3
Europe................ 7.8 0.0 (2.5) 13.1
Africa................ 2.0 0.0 0.6 1.0
----- ---- ------ ------
$29.4 $2.5 $(35.9) $ 33.0
===== ==== ====== ======
</TABLE>
The countries in the Asia Pacific region and Latin America region have
experienced illiquidity, volatile currency exchange rates and interest rates,
and reduced economic activity. Crown Media will be affected in
F-20
<PAGE> 122
CROWN MEDIA, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the foreseeable future by economic conditions in these regions, although it is
not possible to predict the extent of such impact.
No customer accounted for more than 10% of Crown Media's revenue for the
year ended December 31, 1999.
14. SUBSEQUENT EVENTS
PLANNED REORGANIZATION AND INITIAL PUBLIC OFFERING
Crown Media is currently contemplating a transaction whereby a holding
company ("Crown Media Holdings") will be created, and stock in Crown Media
Holdings will be exchanged for certain member interests in Odyssey Holdings.
Crown Media also currently contemplates that stock of Crown Media Holdings will
be sold in an initial public offering. Upon completion of the contemplated
reorganization and the initial public offering, Crown Media Holdings will own
100% of Crown Media and 77.5% of Odyssey Holdings.
DEMAND FOR PAYMENT ON ODYSSEY HOLDINGS NOTE
On January 18, 2000, Crown Media received notification from Odyssey
Holdings of the exercise by Odyssey Holdings of its right to demand payment of
the remaining $10.0 million due from Crown Media's 1998 investment in Odyssey
Holdings. The $10.0 million payment is due on or before February 14, 2000, and
Crown Media anticipates funding this payment through additional contributions
from its stockholders.
F-21
<PAGE> 123
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members of
Odyssey Holdings, L.L.C.:
We have audited the accompanying consolidated balance sheets of Odyssey
Holdings, L.L.C. (a Delaware limited liability company) and its subsidiaries, as
of December 31, 1998 and 1999, and the related consolidated statements of
operations, members' equity (deficit) and cash flows for each of the three years
in the period ended December 31, 1999. These financial statements are the
responsibility of Odyssey Holdings, L.L.C.'s management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Odyssey
Holdings, L.L.C. and its subsidiaries as of December 31, 1998 and 1999, and the
results of their operations and their cash flows for the three years in the
period ended December 31, 1999, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
January 12, 2000
F-22
<PAGE> 124
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-23
<PAGE> 125
ODYSSEY HOLDINGS, L.L.C. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------
1998 1999
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 38,979,682 $ 19,485,074
Accounts receivable, less allowance for doubtful accounts
of $183,379 and $736,600, respectively................. 2,730,137 5,063,473
Due from affiliates....................................... 1,800 --
Program license fees, net of accumulated amortization..... 13,570,430 21,561,515
Other current assets...................................... 46,395 176,707
------------ ------------
Total current assets............................. 55,328,444 46,286,769
------------ ------------
Restricted cash............................................. -- 339,535
Program license fees, net of current portion................ 44,893,377 59,991,936
Property and equipment, net................................. 352,600 4,662,692
Subscriber acquisition fees, net............................ -- 25,610,000
Other assets, net of current portion........................ -- 220,833
------------ ------------
Total assets..................................... $100,574,421 $137,111,765
============ ============
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these financial statements.
F-24
<PAGE> 126
ODYSSEY HOLDINGS, L.L.C. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------
1998 1999
<S> <C> <C>
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable.......................................... $ 1,265,471 $ 176,664
Accrued liabilities....................................... 1,683,229 5,495,314
Deferred compensation..................................... -- 3,290,000
License fees payable to affiliates:
The Jim Henson Company................................. 10,000,000 7,500,000
Hallmark Entertainment Distribution.................... 3,286,000 27,126,921
License fees payable to third parties..................... 1,761,440 3,834,281
Notes payable............................................. 797,413 --
Due to VISN Management Corp. ............................. 77,037 --
------------ ------------
Total current liabilities........................ 18,870,590 47,423,180
------------ ------------
LONG-TERM LIABILITIES:
Deferred compensation..................................... -- 3,421,000
License fees payable to affiliates:
The Jim Henson Company................................. 8,226,060 8,214,286
Hallmark Entertainment Distribution.................... 34,481,202 20,530,040
License fees payable to third parties..................... 395,840 6,466,312
Subscriber acquisition fees payable....................... -- 27,210,000
Commitments and contingencies...............................
Redeemable preferred interest............................... 25,000,000 25,000,000
Members' equity (deficit)................................... 13,600,729 (1,153,053)
------------ ------------
Total liabilities and members' equity
(deficit)...................................... $100,574,421 $137,111,765
============ ============
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these financial statements.
F-25
<PAGE> 127
ODYSSEY HOLDINGS, L.L.C. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1997 1998 1999
<S> <C> <C> <C>
REVENUES:
Subscriber fees:
Affiliate....................................... $ 3,000,000 $ 3,000,000 $ 3,687,606
Non-affiliates.................................. 3,188,486 3,473,302 4,156,397
----------- ----------- ------------
Total subscriber fees..................... 6,188,486 6,473,302 7,844,003
Advertising........................................ 8,834,412 11,541,501 9,333,089
Other.............................................. 230,755 126,147 706,318
----------- ----------- ------------
Total revenues............................ 15,253,653 18,140,950 17,883,410
----------- ----------- ------------
COST OF SALES:
Programming costs:
Affiliates...................................... -- -- 15,929,537
Non-affiliates.................................. 2,815,282 3,753,511 5,882,096
Production costs................................... 6,017,301 8,021,404 13,955,801
Marketing and promotion costs...................... 3,656,622 3,298,863 14,759,491
Amortization of subscriber acquisition fees........ -- -- 1,600,000
----------- ----------- ------------
Total cost of sales....................... 12,489,205 15,073,778 52,126,925
General and administrative expenses.................. 3,034,380 6,189,272 22,000,685
----------- ----------- ------------
Loss from operations...................... (269,932) (3,122,100) (56,244,200)
Interest (income) expense, net....................... 150,569 47,882 (1,181,610)
----------- ----------- ------------
Net loss.................................. $ (420,501) $(3,169,982) $(55,062,590)
=========== =========== ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
F-26
<PAGE> 128
ODYSSEY HOLDINGS, L.L.C. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
MEMBERS' NOTES
EQUITY (DEFICIT) RECEIVABLES TOTAL
<S> <C> <C> <C>
Balance, December 31, 1996...................... $ 157,380 $ -- $ 157,380
Net loss...................................... (420,501) -- (420,501)
------------ ------------ ------------
Balance, December 31, 1997...................... (263,121) -- (263,121)
Capital contribution.......................... 102,033,832 (60,000,000) 42,033,832
Preferred interest............................ (25,000,000) -- (25,000,000)
Net loss...................................... (3,169,982) -- (3,169,982)
------------ ------------ ------------
Balance, December 31, 1998...................... 73,600,729 (60,000,000) 13,600,729
Payments of notes receivables................. -- 40,000,000 40,000,000
Capital contribution.......................... 308,808 -- 308,808
Net loss...................................... (55,062,590) -- (55,062,590)
------------ ------------ ------------
Balance, December 31, 1999...................... $ 18,846,947 $(20,000,000) $ (1,153,053)
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
F-27
<PAGE> 129
ODYSSEY HOLDINGS, L.L.C. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1998 1999
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.......................................... $ (420,501) $ (3,169,982) $(55,062,590)
Adjustments to reconcile net loss to net cash used
in operating activities:
Amortization of program license fees........... 2,815,282 3,753,511 21,811,633
Amortization of subscriber acquisition fees.... -- -- 1,600,000
Amortization of debt issuance costs............ -- -- 29,167
Depreciation and amortization of property
and equipment............................... 210,761 415,249 765,407
Changes in operating assets and liabilities:
Increase in accounts receivable............. (559,843) (368,168) (2,333,336)
Increase (decrease) in due to/from
affiliates............................... 49,298 4,955 (75,237)
Gross additions to program license fees..... (3,231,413) (60,505,540) (44,901,277)
(Increase) decrease in other current
assets................................... (17,911) 45,516 (130,312)
Increase in subscriber acquisition fees..... -- -- (27,210,000)
Increase in accounts payable and
accrued liabilities...................... 1,230,529 1,299,070 2,734,673
Increase in deferred compensation........... -- -- 6,711,000
(Decrease) increase in license fees
payable.................................. (150,966) 57,267,900 15,521,298
Increase in subscriber acquisition fees
payable.................................. -- -- 27,210,000
----------- ------------ ------------
Net cash used in operating activities.......... (74,764) (1,257,489) (53,329,574)
----------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............... (122,720) (259,733) (5,075,499)
----------- ------------ ------------
Net cash used in investing activities.......... (122,720) (259,733) (5,075,499)
----------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions............................. -- 40,000,000 40,000,000
Payments on term loans............................ (864,460) (142,857) (500,000)
Proceeds from term loans.......................... 1,000,000 500,000 --
Increase in restricted funds...................... -- -- (339,535)
Deferred debt issuance costs...................... -- -- (250,000)
----------- ------------ ------------
Net cash provided by financing activities...... 135,540 40,357,143 38,910,465
----------- ------------ ------------
Net increase (decrease) in cash and cash
equivalents................................. (61,944) 38,839,921 (19,494,608)
Cash and cash equivalents, beginning of year........ 201,705 139,761 38,979,682
----------- ------------ ------------
Cash and cash equivalents, end of year.............. $ 139,761 $ 38,979,682 $ 19,485,074
=========== ============ ============
Supplemental disclosure of cash and non-cash
activities:
Interest paid..................................... $ 92,747 $ 55,153 $ 9,022
=========== ============ ============
Non-cash capital contribution..................... $ -- $ 2,033,832 $ 308,808
=========== ============ ============
Redeemable preferred interest..................... $ -- $ 25,000,000 $ --
=========== ============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
F-28
<PAGE> 130
ODYSSEY HOLDINGS, L.L.C. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
1. BUSINESS AND ORGANIZATION
ORGANIZATION
National Interfaith Cable Coalition, Inc. ("National Interfaith Cable
Coalition"), VISN Management Corp. ("VISN Management Corp."), a wholly-owned
subsidiary of National Interfaith Cable Coalition, Liberty Media Corporation
("Liberty Media") and Vision Group Inc. ("VGI"), a wholly-owned subsidiary of
Liberty Media, entered into an agreement, effective July 1, 1995, to form The
F&V Channel, L.L.C. ("F&V") as a Delaware limited liability company. At that
time, VISN Management Corp. and VGI transferred their assets and liabilities to
F&V in exchange for 51% and 49%, respectively, of the membership interests in
F&V. In November 1996, F&V formed a wholly-owned subsidiary, Odyssey
Productions, Ltd., to produce a number of its television programs. During 1997,
F&V changed its name to Odyssey Holdings, L.L.C. ("Odyssey Holdings").
On November 13, 1998, Odyssey Holdings entered into an amended and restated
operating agreement (the "Company Agreement") with its members. The Company
Agreement provided for the admittance of Henson Cable Networks, Inc. ("HCN"), a
wholly owned subsidiary of The Jim Henson Company, Inc. ("The Jim Henson
Company"), and Crown Media, Inc. ("Crown Media"), through a wholly owned
subsidiary. Under the terms of the Company Agreement, HCN and Crown Media each
agreed to pay $50.0 million, payable in installments, for a 22.5% common equity
interest in Odyssey Holdings. As a result of these transactions, the common
equity interest for VISN Management Corp., VGI, The Jim Henson Company and Crown
Media (collectively the "Members") are 22.5%, 32.5%, 22.5% and 22.5%,
respectively.
Odyssey Holdings initially operated the Odyssey Network as a pay television
channel in the United States dedicated primarily to religious programming. In
April 1999, Odyssey Holdings relaunched the Odyssey Network as a channel
dedicated to high quality family programming.
LIQUIDITY
Odyssey Holdings incurred substantial net losses during 1998 and 1999 as it
acquired programming rights and expanded its distribution. Odyssey Holdings
expects to incur losses in the future. Historically, Odyssey Holdings' losses
have been financed from capital contributions from the Members. These
contributions were $42.0 million in 1998 and $40.3 million in 1999. Odyssey
Holdings believes it will need to raise additional capital through equity
financing or borrowings to finance its operations. As indicated in Note 10,
Odyssey Holdings is contemplating a reorganization pursuant to which it will
become a subsidiary of a new holding company that will provide it with financing
in the future. If the reorganization is not completed and additional financing
is not provided, Odyssey Holdings believes it will be able to significantly
reduce its planned expenditures in order to meet its financial obligations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Odyssey
Holdings consolidated with the accounts of its wholly-owned and controlled
subsidiaries. All significant intercompany balances and transactions have been
eliminated.
F-29
<PAGE> 131
ODYSSEY HOLDINGS, L.L.C. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CASH AND CASH EQUIVALENTS
Odyssey Holdings considers all highly liquid debt instruments, purchased
with an initial maturity of three months or less, to be cash equivalents. The
carrying value of Odyssey Holdings' cash equivalents approximated cost at each
balance sheet date.
RESTRICTED CASH
Restricted cash includes amounts deposited to secure a letter of credit in
accordance with certain lease agreements.
PROGRAM LICENSE FEES
Program license fees are the rights to air programs acquired from others.
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 63,
"Financial Reporting by Broadcasters," program rights are deferred and then
amortized on a straight-line basis over their license periods (the "airing
windows") or anticipated usage, whichever is shorter. At the inception of these
contracts and periodically thereafter, Odyssey Holdings evaluates the
recoverability of these costs versus the revenues associated with the program
and related expense. Where an evaluation indicates that a programming contract
will result in an ultimate loss, additional amortization is provided to
currently recognize that loss.
SFAS No. 63 also requires an entity providing programming to report an
asset and liability for the rights licensed under a programming agreement only
when the license period begins and when certain other defined requirements are
met. As such, the accompanying consolidated balance sheets do not reflect assets
and liabilities of $49.5 million and $41.8 million as of December 31, 1998 and
1999, respectively, related to program license fees with airing windows to begin
subsequent to period-end.
Program license fees consist of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------
1998 1999
<S> <C> <C>
Program license fees -- affiliates........................ $59,654,829 $ 90,479,710
Program license fees -- non-affiliates.................... 5,323,143 19,399,539
----------- ------------
Program license fees, at cost........................... 64,977,972 109,879,249
Accumulated amortization.................................. (6,514,165) (28,325,798)
----------- ------------
Program license fees, net............................... $58,463,807 $ 81,553,451
=========== ============
</TABLE>
SUBSCRIBER ACQUISITION FEES
In July 1999, Odyssey Holdings entered into a distribution agreement with a
pay television distributor which will carry the Odyssey Network on some of its
cable systems. The initial term of the agreement is from August 15, 1999 through
December 31, 2005. Odyssey Holdings is obligated to pay subscriber acquisition
fees if certain subscriber levels are met, as defined. The total cost to Odyssey
Holdings is estimated to be $27.2 million, which is payable on January 1, 2001.
Odyssey Holdings believes that the subscriber levels will be met. Subscriber
acquisition fees are capitalized and amortized on a straight-line basis over the
term of the distribution agreement. At the time Odyssey Holdings enters into a
distribution agreement, and periodically thereafter, Odyssey Holdings evaluates
the recoverability of the subscriber acquisition fees against the revenues
directly associated with each agreement.
F-30
<PAGE> 132
ODYSSEY HOLDINGS, L.L.C. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OTHER ASSETS
Other assets include $250,000 of debt issuance costs related to the Senior
Credit Facility discussed in Note 4, net of amortization. These costs are
amortized using the effective interest method over the term of the Senior Credit
Facility.
PROPERTY AND EQUIPMENT
Furniture, fixtures and equipment, including exhibit booths, are stated at
cost and depreciated on a straight-line basis over the estimated useful lives of
the assets, which are usually five years. Leasehold improvements are amortized
on a straight-line basis over the estimated useful life of the improvement or
the length of the lease, whichever is shorter. When property is sold or
otherwise disposed of, the cost and related accumulated depreciation is removed
from the accounts, and any resulting gain or loss is included in income. The
costs of normal maintenance and repairs are charged to expense when incurred.
REVENUE RECOGNITION
Subscriber fees are recognized as revenue when services are provided and
collectibility is reasonably assured. Subscriber fees are based upon the
reported level of subscribers and are recorded net of promotional subscribers.
Advertising revenues are recognized as earned in the period in which the
advertising commercials or infomercials are telecast and are net of estimated
advertising deficiency reserves.
INCOME TAXES
No provision has been made in the accompanying consolidated financial
statements for federal or state income taxes as the liability for such income
taxes is the responsibility of the Members.
COMPREHENSIVE INCOME
Odyssey Holdings has adopted SFAS No. 130, "Reporting Comprehensive
Income," effective for the year ended December 31, 1998. This statement
establishes standards for the reporting and presentation of comprehensive income
and its components in financial statements and thereby reports a measure of all
changes in equity of an enterprise that result from transactions and other
economic events other than transactions with owners. Aside from net loss, there
are no other comprehensive income items for the years ended December 31, 1997,
1998, and 1999.
SEGMENT REPORTING
Odyssey Holdings adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" in 1998. This statement requires companies
to report certain information about operating segments in a financial statement
and information about their services, the geographic areas in which they
operate, and their major customers. Odyssey Holdings has only one reportable
operating segment of its business and it operates only in the United States. As
a result, there is no segment information to report for the years ended December
31, 1997, 1998, and 1999.
F-31
<PAGE> 133
ODYSSEY HOLDINGS, L.L.C. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES
The preparation of consolidated 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 consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
FAIR VALUE
The carrying amounts of financial instruments, including amounts payable
and receivable, are reasonable estimates of their fair value. The fair values
were estimated using the current rates at which loans would be made to Odyssey
Holdings for similar remaining maturities.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject Odyssey Holdings to a
concentration of credit risk consist primarily of accounts receivable. Odyssey
Holdings generally does not require collateral to secure receivables.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year amounts to conform
to current year presentation.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued. This statement was subsequently amended by SFAS
No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133," which
changed the effective date to fiscal years beginning after June 15, 2000. SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. Odyssey Holdings intends to adopt the new
accounting standard in the year ended December 31, 2001, but does not expect it
to have a material effect on its financial statements.
3. PROPERTY AND EQUIPMENT
Property and equipment are comprised of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------
1998 1999
<S> <C> <C>
Furniture, fixtures and equipment.......................... $ 637,562 $ 2,865,970
Production equipment....................................... -- 2,294,003
Exhibit booth.............................................. 462,184 667,038
Leasehold improvements..................................... 29,226 377,460
---------- -----------
Property and equipment, at cost.......................... 1,128,972 6,204,471
Less -- Accumulated depreciation and amortization.......... (776,372) (1,541,779)
---------- -----------
Property and equipment, net.............................. $ 352,600 $ 4,662,692
========== ===========
</TABLE>
F-32
<PAGE> 134
ODYSSEY HOLDINGS, L.L.C. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. NOTES PAYABLE
Notes payable are comprised of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------
1998 1999
<S> <C> <C>
Note payable to VGI......................................... $297,413 $ --
Term loans.................................................. 500,000 --
-------- --------
$797,413 $ --
======== ========
</TABLE>
NOTE PAYABLE TO VGI
A note payable to VGI in the amount of $297,413 was originally due October
31, 1996. The interest rate was adjusted to 12% beginning November 1, 1996. As
of December 31, 1998, the note remained outstanding. In September 1999, VGI
forgave the loan and accrued interest of $11,395, and this has been accounted
for as a capital contribution.
TERM LOANS
In June 1997, Odyssey Holdings borrowed $1.0 million from First Union
National Bank. This loan bore interest at a rate of 9.5% per annum and was
payable on December 15, 1997. Proceeds from this loan were to be used to fund
programming costs and expenses. Odyssey Holdings repaid this loan in January
1998. On March 16, 1998, Odyssey Holdings established a $500,000 unsecured line
of credit with the Bank of New York for short-term working capital requirements.
The line of credit was available until March 31, 1999. Odyssey Holdings repaid
its borrowings under the line of credit in February 1999. Borrowings under the
line of credit bore interest at the prime rate.
SENIOR CREDIT FACILITY
In May 1999, Odyssey Holdings obtained from The Bank of New York Company,
Inc. ("BNY"), a $30.0 million Senior Credit Facility (as amended, the "Senior
Credit Facility"), including a $10.0 million sublimit for letters of credit, for
a term of five years. Borrowings under the Senior Credit Facility bear interest
at a rate per annum equal to the greater of: (a) the prime rate or (b) the
Federal Funds rate plus 1/2%, plus the applicable margin as defined in the
Senior Credit Facility. There were no borrowings outstanding under the Senior
Credit Facility during the year ended December 31, 1999.
The Senior Credit Facility will be unsecured unless: (a) usage under the
Senior Credit Facility exceeds $10.0 million, and $100.0 million of aggregate
equity has not been contributed by the Members, or (b) subsequent equity
contributions are not contributed as scheduled. If either event occurs, the
Senior Credit Facility will be secured by the assets of Odyssey Holdings, all
member interests of Odyssey Holdings, all intercompany notes and all proceeds
from the foregoing. BNY will have second priority interest in HCN's equity
interests. The Senior Credit Facility contains various covenants relating to:
minimum capital contributions to Odyssey Holdings by certain members,
consolidated EBITDA levels and the maintenance of certain financial ratios.
Odyssey Holdings was in compliance with the covenants as of December 31, 1999.
F-33
<PAGE> 135
ODYSSEY HOLDINGS, L.L.C. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. SHARE APPRECIATION RIGHTS PLAN
In November 1998, Odyssey Holdings adopted the Odyssey Holdings, L.L.C.
Share Appreciation Rights Plan (the "SAR Plan") to provide key officers and
employees with incentives linked to the increase in Odyssey Holdings' market
value. The SAR Plan allows for the issuance of up to 5.0 million rights that
vest over a three to five year period. The SAR Plan expires on December 31,
2005. On November 11, 1998 and January 1, 1999, Odyssey Holdings' granted
2,500,000 and 1,750,000 SARs, respectively at $2.22 per SAR. Compensation
expense of $6.7 million has been recorded through December 31, 1999 with respect
to vested SARs.
6. 401(k) PLAN
Odyssey Holdings implemented a defined contribution plan under section
401(k) of the Internal Revenue Code (the "401(k) Plan") covering most of the
employees of Odyssey Holdings. Odyssey Holdings makes contributions to the
401(k) Plan based on a percentage of employee contributions. Maximum employee
and company contributions are limited by Internal Revenue Code regulations and
by the terms of the 401(k) Plan. For the years ended December 31, 1997, 1998 and
1999, Odyssey Holdings contributed $202,613, $314,903 and $534,987,
respectively, to the 401(k) Plan.
7. REDEEMABLE PREFERRED INTEREST AND MEMBERS' EQUITY
PREFERRED INTEREST
In connection with the November 1998 investments by Crown Media and The Jim
Henson Company discussed in Note 1, VISN Management Corp. received a redeemable
preferred interest of $25.0 million, which ranks senior to the common equity
interests of Odyssey Holdings. Odyssey Holdings has the right to redeem the
preferred interest in whole (but not in part) for cash at 100% of the Preferred
Liquidation Preference, as defined by the agreement. If during any fiscal year
subsequent to January 1, 2005 or prior to December 31, 2009, Odyssey Holdings
has net profits in excess of $10.0 million and the preferred interest has not
been redeemed, Odyssey Holdings will redeem the preferred interest in an amount
equal to the lesser of such excess, or $5.0 million. Odyssey Holdings shall
redeem the entire preferred interest at the Preferred Liquidation Preference on
the redemption date of December 31, 2010.
CAPITAL CONTRIBUTIONS
On November 13, 1998, each of Crown Media and HCN agreed to pay $50.0
million, in three installments, for 22.5% equity interests in Odyssey Holdings.
As of December 31, 1998 and 1999, each of Crown Media's and HCN's unfunded
capital commitments to Odyssey Holdings was $30.0 million and $10.0 million,
respectively. Under the terms of the Company Agreement, Crown Media and HCN are
each required to contribute $10.0 million no earlier than January 1, 2000 and no
later than March 31, 2000.
Under the terms of the Company Agreement, VGI has made an additional
capital contribution of $2.0 million, by paying all amounts due and payable to
National Digital Television Center ("NDTC") as of October 31, 1998 pursuant to
the C-3 Satellite Transponder Service Agreement("C-3 Agreement") previously
entered into (see Note 8).
In September 1999, VGI forgave a note payable and accrued interest of
$308,808 as discussed in Note 4.
F-34
<PAGE> 136
ODYSSEY HOLDINGS, L.L.C. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ALLOCATION OF NET INCOME AND LOSSES
Net income earned prior to November 13, 1998 was allocated 51% to VMC and
49% to VGI, and net losses were allocated 99% to VGI and 1% to VISN Management
Corp.
Following the admittance of Crown Media and HCN as members of Odyssey
Holdings on November 13, 1998, the net income and losses of Odyssey Holdings are
allocated based on the economic interest of the Members.
8. RELATED PARTY TRANSACTIONS
Odyssey Holdings has entered into the following transactions with its
affiliates that Odyssey Holdings believes to be on an arms-length basis.
SUBSCRIBER FEES -- AFFILIATE
Subscriber fees -- affiliate represents revenue earned in connection with a
distribution agreement with a subsidiary of AT&T, which purchased Liberty Media
in 1999.
PROGRAM LICENSE AGREEMENTS
On November 13, 1998, Odyssey Holdings entered into a program license
agreement with the National Interfaith Cable Coalition ("NICC Program License
Agreement") under which Odyssey Holdings licenses programming from the National
Interfaith Cable Coalition for distribution within the United States. The
agreement terminates upon termination of the Company Agreement. The National
Interfaith Cable Coalition is obligated to furnish a minimum of 200 hours of
programming each year under the program license agreement.
Under the NICC Program License Agreement, Odyssey Holdings has agreed to
advance an annual program license fee of $5.0 million, payable in quarterly
installments and subject to adjustment in accordance with the terms of the
Company Agreement as discussed below. The advance is treated as an advance
payment against programs undertaken to be produced or acquired by the National
Interfaith Cable Coalition.
Under the Company Agreement, the advance will be an amount equal to the sum
of $3.5 million and, so long as VISN Management Corp. owns the preferred
interest in the Company, $1.5 million multiplied by the quotient of the
preferred liquidation preference (as adjusted under certain circumstances)
divided by $25.0 million. The $3.5 million portion of this fee is increased
annually based on the Consumer Price Index. The National Interfaith Cable
Coalition is required to use these payments solely for programming related
activities. Odyssey Holdings paid the National Interfaith Cable Coalition $5.0
million in 1999 in accordance with the Company Agreement. No amounts were paid
in 1998.
Odyssey Holdings also licenses programming for distribution in the United
States from Hallmark Entertainment Distribution and The Jim Henson Company under
separate program license agreements, each dated as of November 13, 1998. Under
each program agreement, Odyssey Holdings generally licenses made-for-television
movies and miniseries owned or controlled by Hallmark Entertainment Distribution
and The Jim Henson Company, as well as all programming produced by or on behalf
of Hallmark Entertainment Distribution or The Jim Henson Company for Odyssey
Holdings. Each program agreement has a term of five years and is automatically
renewable for additional three-year periods, subject to rate adjustments, so
long as Hallmark Entertainment Distribution or The Jim Henson Company, as
applicable, or their affiliates, own 10% or more of Odyssey Holdings. In the
event that either Hallmark Entertainment
F-35
<PAGE> 137
ODYSSEY HOLDINGS, L.L.C. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Distribution or The Jim Henson Company own less than 10% of Odyssey Holdings,
the remaining term of the applicable program agreement will be two years from
the date its ownership reaches that level.
SERVICE AGREEMENTS
Odyssey Holdings paid VISN Management Corp. $3.8 million, $5.0 million and
$1.4 million for management services for the years ended December 31, 1997,
1998, and 1999, respectively.
On December 20, 1990, VGI entered into a Service Agreement with NDTC, which
was assigned to the National Interfaith Cable Coalition and subsequently
assigned to Odyssey Holdings. Under the terms of the Service Agreement, NDTC
provides production, transmission and reception services as defined in the
Service Agreement. The Service Agreement had an initial term of five years. The
Service Agreement was subsequently amended on July 19, 1995 to extend the term
for six years beginning September 1, 1995. The amended Service Agreement
requires Odyssey Holdings to pay a minimum of $59,600 per month in service fees
to NDTC. This agreement was superseded by a master service agreement with NDTC
on November 9, 1999. The agreement has an initial term of six years and
automatically renews for successive one-year periods and requires Odyssey
Holdings to pay a minimum of $68,609 per month in service fees to NTDC.
OTHER
Odyssey Holdings leased space from The Parish of Trinity Church whose
Rector is the Chairman of the Board of National Interfaith Cable Coalition. This
lease terminated in November 1999. The aggregate lease payments for the years
ended December 31, 1997, 1998, and 1999 were $238,390, $355,115, and $186,756,
respectively.
On June 30, 1995, VGI assigned its rights with respect to the C-3
Transponder Agreement with NDTC to the National Interfaith Cable Coalition, and
subsequently to Odyssey Holdings. Under the terms of the C-3 Transponder
Agreement, which Odyssey Holdings accounts for as an operating lease, minimum
lease payments of $192,500 per month are required. A four year option period of
the lease has been exercised by Odyssey Holdings, and the required monthly
payments will increase to $202,500 through the lease expiration in 2004.
As discussed in Note 7, VGI made an additional capital contribution on
November 13, 1998 which settled all outstanding commitments under the C-3
Agreement and Service Agreement through October 31, 1998. Fees paid to NDTC were
$504,200 and $2.6 million for the two months ended December 31, 1998 and the
year ended December 31, 1999. VGI also forgave a note from Odyssey Holdings,
which is discussed further in Note 4.
Hallmark Cards, Incorporated made an advertising commitment to Odyssey
Holdings totaling $2.5 million covering a one-year period from the fourth
quarter of 1999 through the third quarter of 2000. As of December 31, 1999,
Hallmark Cards, Incorporated purchased $365,000 of advertising time on the
Odyssey Network. No amounts were paid as of December 31, 1999.
F-36
<PAGE> 138
ODYSSEY HOLDINGS, L.L.C. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
Odyssey Holdings leases office space and equipment under operating leases.
Total lease expense was $295,873, $394,779, and $1.1 million for the years ended
December 31, 1997, 1998, and 1999, respectively. At December 31, 1999, the
minimum annual rental commitments under the leases are as follows:
<TABLE>
<S> <C>
2000........................................................ $1,484,585
2001........................................................ 1,414,041
2002........................................................ 1,364,662
2003........................................................ 1,066,761
2004........................................................ 268,007
----------
$5,598,056
==========
</TABLE>
ASCAP
The American Society of Composers, Authors and Publishers ("ASCAP"), the
organization that collects performance royalties on behalf of its writer and
publisher members, is involved in proceedings with the cable industry to
determine the royalty rate applicable for the cable industry. Odyssey Holdings
is paying fees on an interim basis subject to a retroactive adjustment when
final fees are arrived at by agreement or court decision. In management's
opinion, disposition of this matter is not expected to have a material effect on
the Odyssey Holdings' financial position or results of operations.
10. SUBSEQUENT EVENTS
PLANNED REORGANIZATION AND INITIAL PUBLIC OFFERING
Crown Media is currently contemplating a transaction whereby a holding
company ("Crown Media Holdings") will be created, and stock in Crown Media
Holdings will be exchanged for certain member interests in Odyssey Holdings. It
is also currently contemplated that stock of Crown Media Holdings will be sold
in an initial public offering. Upon completion of the contemplated
reorganization and the initial public offering, Crown Media Holdings will own
100% of Crown Media and 77.5% of Odyssey Holdings. Under the contemplated
reorganization and initial public offering, Odyssey Holdings anticipates that
the Senior Credit Facility (See Note 4) will be terminated.
DEMAND OF PAYMENT OF NOTES RECEIVABLE FROM MEMBERS
Odyssey Holdings anticipates demanding, in January 2000, payment of the $10
million receivables from each of Crown Media and HCN, representing their
respective final installment on their investments in Odyssey Holdings (see Note
7). In the event the demand is made, receipt of these funds, totaling $20.0
million, would be expected in February 2000.
F-37
<PAGE> 139
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 2000
[CROWN MEDIA LOGO]
SHARES OF CLASS A COMMON STOCK
------------------------
PROSPECTUS
------------------------
DONALDSON, LUFKIN & JENRETTE
LEHMAN BROTHERS
SALOMON SMITH BARNEY
DLJDIRECT INC.
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of Crown Media
Holdings, Inc. have not changed since the date hereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Until , 2000 (25 days after the date of this prospectus), all dealers
that effect transactions in these shares of Class A common stock may be required
to deliver a prospectus. This is in addition to the dealer's obligation to
deliver a prospectus when acting as an underwriter and with respect to their
unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
<PAGE> 140
WE WILL AMEND AND COMPLETE THE INFORMATION IN THIS PROSPECTUS. ALTHOUGH WE ARE
PERMITTED BY US FEDERAL SECURITIES LAWS TO OFFER THESE SECURITIES USING THIS
PROSPECTUS, WE MAY NOT SELL THEM OR ACCEPT YOUR OFFER TO BUY THEM UNTIL THE
DOCUMENTATION FILED WITH THE SEC RELATING TO THESE SECURITIES HAS BEEN
DECLARED EFFECTIVE BY THE SEC. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES OR OUR SOLICITATION OF YOUR OFFER TO BUY THESE SECURITIES IN ANY
JURISDICTION WHERE THAT WOULD NOT BE PERMITTED OR LEGAL.
[Alternate Page]
SUBJECT TO COMPLETION - MARCH 10, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROSPECTUS
, 2000
[CROWN MEDIA LOGO]
SHARES OF CLASS A COMMON STOCK
- --------------------------------------------------------------------------------
CROWN MEDIA HOLDINGS, INC.:
- - We own and operate pay television channels dedicated to high quality family
programming with more than 50 million subscribers worldwide.
- - Crown Media Holdings, Inc.
Suite 500
6430 S. Fiddlers Green Circle
Englewood, Colorado 80111
(303) 220-7990
PROPOSED SYMBOL AND MARKETS:
- - CRWN
- - Nasdaq National Market
- - Amsterdam Stock Exchange
THE OFFERING:
- - We are offering shares of our Class A common stock. This prospectus relates to
an underwriters offering of shares outside the United States and
Canada. In addition, we are offering shares in the United States and
Canada in an underwritten offering.
- - The U.S. underwriters have an option to purchase up to an additional
shares from us to cover over-allotments.
- - We anticipate that the initial public offering price will be between $ and
$ per share.
- - This is our initial public offering, and no public market currently exists for
our shares of Class A common stock.
- - We plan to use the proceeds from this offering to pay accrued and unpaid
program license fees to an affiliate, to license additional programming, to
enhance our technical facilities, to expand our distribution, to expand our
advertising sales staff and to fund general corporate expenditures. We plan to
use any proceeds from the exercise of the underwriters' over-allotment option
to repay indebtedness owed to an affiliate.
- - Closing: , 2000.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
E Per Share $ Per Share Total
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Public offering price (Estimated): E $ $
Underwriting fees:
Proceeds to Crown Media Holdings, Inc.:
- ---------------------------------------------------------------------------------------
</TABLE>
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 8.
- --------------------------------------------------------------------------------
Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
- --------------------------------------------------------------------------------
DONALDSON, LUFKIN & JENRETTE
LEHMAN BROTHERS
MEESPIERSON N.V.
SALOMON SMITH BARNEY INTERNATIONAL
<PAGE> 141
[ALTERNATE PAGE]
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary...................... 1
Risk Factors............................ 8
Special Note with Respect to Forward-
Looking Information................... 14
Reorganization Transactions Occurring
Simultaneously with the Closing of
This Offering......................... 15
Use of Proceeds......................... 17
Dividend Policy......................... 17
Capitalization.......................... 18
Dilution................................ 20
Selected Historical Consolidated
Financial Data........................ 21
Selected Unaudited Pro Forma
Consolidated Financial Data........... 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 27
</TABLE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Business................................ 37
Management.............................. 57
Certain Relationships and Related
Transactions.......................... 68
Principal Stockholders.................. 78
Description of Capital Stock............ 80
Shares Eligible for Future Sale......... 83
Material U.S. Federal Income Tax
Considerations for Non-U.S. Holders... 84
Material Netherlands Tax Consequences... 87
Underwriters............................ 89
Legal Matters........................... 93
Experts................................. 93
Where You Can Find More Information..... 93
Amsterdam Stock Exchange Listing
Information........................... 94
Index to Consolidated Financial
Statements............................ F-1
</TABLE>
<PAGE> 142
[Alternate Page]
AMSTERDAM STOCK EXCHANGE LISTING INFORMATION
The following information is required in connection with the listing of our
common stock on the Amsterdam Stock Exchange.
A copy of this prospectus, including financial statements, our certificate
of incorporation to be filed and effective upon the closing of this offering and
our by-laws to be in effect upon the closing of this offering are available at
and can be obtained from the offices of MeesPierson N.V., Rokin 55, 1012 KK,
Amsterdam, The Netherlands. For purpose of the Stock Market of the Amsterdam
Exchanges, our certificate of incorporation and bylaws are incorporated by
reference. MeesPierson N.V. is our Sponsor and listing agent for the purposes of
the listing of our Class A common stock on the official segment of the Amsterdam
Exchange N.V.'s stock market. MeesPierson N.V. is also our paying agent in The
Netherlands. The telephone number of MeesPierson N.V. is +31 (0) 527 2467 and
the facsimile number is +31 (0) 527 1928.
Under applicable law, if we pay dividends on shares of our Class A common
stock, dividends on shares of our Class A common stock that are not claimed or
presented for payment for a period of five years or more would generally be
turned over to the state in which the record holder of the shares resides, in
accordance with the escheat laws of that state. If we do not have an address for
the holder of record of the shares, then unclaimed dividends would be turned
over to our state of incorporation, the state of Delaware, in accordance with
its escheat laws.
The issuance of the shares of Class A common stock being offered by us in
this offering was authorized by resolution of our board of directors on January
24, 2000.
Other than as may be disclosed in this prospectus, there has been no
material adverse change in our financial condition or results of operations
since December 31, 1999.
The following table shows the estimated costs and expenses, other than
underwriting discounts and commissions, payable in connection with our sale of
the Class A common stock offered by this prospectus.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 75,900
NASD filing fee............................................. 29,250
Nasdaq National Market listing fee.......................... *
Amsterdam Stock Exchange listing fee........................ *
Printing and engraving expenses............................. 350,000
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue sky fees and expenses (including legal fees)........... 3,500
Transfer agent and registrar fees and expenses.............. 25,000
Miscellaneous............................................... *
--------
Total............................................. $ *
========
</TABLE>
We confirm that, to the best of our knowledge and belief as of the date of
this prospectus, the information contained in this prospectus relating to us
does not contain any untrue statement of a material fact and this prospectus
does not omit to state any material fact necessary in order to make the
statements made about us, in light of the circumstances under which they were
made, not misleading. We are responsible for the accuracy and completeness of
the information contained in this prospectus.
94
<PAGE> 143
[ALTERNATE PAGE]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 2000
[CROWN MEDIA LOGO]
SHARES OF CLASS A COMMON STOCK
------------------------
PROSPECTUS
------------------------
DONALDSON, LUFKIN & JENRETTE
LEHMAN BROTHERS
MEESPIERSON N.V.
SALOMON SMITH BARNEY INTERNATIONAL
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of Crown Media
Holdings, Inc. have not changed since the date hereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Until , 2000 (25 days after the date of this prospectus), all dealers
that effect transactions in these shares of Class A common stock in the United
States may be required to deliver a prospectus. This is in addition to the
dealer's obligation to deliver a prospectus when acting as an underwriter and
with respect to their unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
<PAGE> 144
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale of
common stock being registered, all of which will be paid by the Registrant:
<TABLE>
<CAPTION>
AMOUNT
<S> <C>
SEC registration fee........................................ $ 75,900
NASD filing fee............................................. 29,250
Nasdaq National Market listing fee.......................... *
Amsterdam Stock Exchange listing fee........................ *
Printing and engraving expenses............................. 350,000
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue sky fees and expenses (including legal fees)........... 3,500
Transfer agent and registrar fees and expenses.............. 25,000
Miscellaneous............................................... *
--------
Total............................................ $ *
========
</TABLE>
- ------------------------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware
provides as follows:
A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation)
by reason of the fact that he is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interest of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction
or upon a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment
in its favor by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request
of the corporation, as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorney's fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably
II-1
<PAGE> 145
believed to be in or not opposed to the best interests of the corporation
and except that no indemnification shall be made in respect to 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 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 Court of
Chancery or such other court shall deem proper.
As permitted by the DGCL, the Registrant has included in its certificate of
incorporation a provision to eliminate the personal liability of its directors
for monetary damages for breach of their fiduciary duties as directors, subject
to certain exceptions. In addition, the Registrant's certificate of
incorporation and by-laws provide that the Registrant is required to indemnify
its officers and directors under certain circumstances, including those
circumstances in which indemnification would otherwise be discretionary, and the
Registrant is required to advance expenses to its officers and directors as
incurred in connection with proceedings against them for which they may be
indemnified.
Under the Contribution Agreement, dated as of January 27, 2000, by and
among Hallmark Entertainment, Inc., Crown Media, Inc., Liberty Media
Corporation, Vision Group Incorporated, VISN Management Corp., National
Interfaith Cable Coalition, Inc., Chase Equity Associates, L.L.C. and the
Registrant, the Registrant has agreed to indemnify the other parties and certain
of their affiliates, other than Hallmark Entertainment, Inc., against any
liabilities resulting from any untrue statement of material fact from the
prospectus contained herein, or any omission of a material fact from the
prospectus contained herein, required to make the statements made therein, not
misleading, during the period of the applicable statute of limitations.
Under the Stockholders Agreement, which will be dated as of the closing
date of the offering, , 2000, the Registrant will indemnify any
stockholder that demands or participates and any underwriter that participates
in a registration pursuant to the terms of the Stockholders Agreement, as well
as each of their respective officers, directors and control persons, from and
against any losses, claims, damages or liabilities, joint or several, to which
such indemnified persons may become subject under the Securities Act, the
Exchange Act or otherwise, insofar as such losses, claims, damages or
liabilities arise out of or are based upon any untrue statement of material fact
contained in any registration statement relating to such registration, or any
prospectus contained therein, or arise out of or are based on the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading.
The Underwriting Agreement is expected to provide that the Underwriters are
obligated, under certain circumstances, to indemnify directors, officers and
controlling persons of the Registrant against certain liabilities, including
liabilities under the Securities Act of 1933. Reference is made to the form of
Underwriting Agreement to be filed as Exhibit 1.1 hereto.
The Registrant maintains directors and officers liability insurance for the
benefit of its directors and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following is a summary of the transactions by the Registrant during the
past three years involving sales of the Registrant's securities that were not
registered under the Securities Act of 1933:
In connection with a reorganization to be completed simultaneously with the
closing of the offering, Crown Media Holdings, Inc. will issue: (1)
shares of its Class B Common Stock to Hallmark Entertainment, Inc. in exchange
for all shares of common stock of Crown Media, Inc. held by Hallmark
Entertainment, Inc.; (2) shares of its Class A Common Stock to Chase
Equity
II-2
<PAGE> 146
Associates, L.L.C. in exchange for all shares of common stock of
Crown Media, Inc. held by Chase Equity Associates, L.L.C., which, together with
the Crown Media, Inc. common stock being exchanged by Hallmark Entertainment,
Inc., represent all of the issued and outstanding shares of Crown Media, Inc.
common stock; (3) shares of its Class A Common Stock to Liberty Media
Corporation in exchange for the 32.5% membership interest in Odyssey Holdings,
L.L.C. held by Vision Group Incorporated, a wholly owned subsidiary of Liberty
Media Corporation; and (4) shares of its Class A Common Stock to VISN
Management Corp. in exchange for the 22.5% interest in Odyssey Holdings, L.L.C.
held by VISN Management Corp. There were no underwriters, brokers or finders
employed in connection with these transactions. The sales of the above
securities were deemed to be exempt from registration under the Securities Act
of 1933 in reliance on Section 4(2) of the Securities Act of 1933, as
transactions by an issuer not involving a public offering. The Contribution
Agreement is filed as an exhibit to this Registration Statement.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
<C> <S>
1.1 -- Form of Underwriting Agreement.*
2.1 -- Contribution Agreement, dated as of January 27, 2000, by
and among Hallmark Entertainment, Inc., Crown Media,
Inc., Liberty Media Corporation, Vision Group
Incorporated, VISN Management Corp., National Interfaith
Cable Coalition, Inc., Chase Equity Associates, L.L.C.
and Crown Media Holdings, Inc.
3.1 -- Form of Registrant's Amended and Restated Certificate of
Incorporation.*
3.2 -- Form of Registrant's Amended and Restated By-Laws.*
4.1 -- Form of Specimen Certificate for Registrant's Class A
Common Stock.
5.1 -- Form of Opinion of Wachtell, Lipton, Rosen & Katz.*
10.1 -- Form of Stockholders' Agreement.
10.2 -- Securities Purchase Agreement, dated as of May 29, 1998,
by and among Hallmark Entertainment Network, Inc.,
Hallmark Entertainment Distribution Company, Hallmark
Entertainment, Inc., and Chase Equity Associates, L.P.
10.3 -- Securities Purchase Agreement, dated as of February 18,
1999, by and among Hallmark Entertainment Network, Inc.,
Hallmark Entertainment Distribution Company, Hallmark
Entertainment, Inc., and Chase Equity Associates, L.P.
10.4 -- Securities Purchase Agreement, dated as of June 17, 1999,
by and among Hallmark Entertainment Network, Inc.,
Hallmark Entertainment Distribution Company, Hallmark
Entertainment, Inc., and Chase Equity Associates, L.P.
10.5 -- Securities Purchase Agreement, dated as of February 15,
2000, by and among Crown Media, Inc., Hallmark
Entertainment, Inc., and Chase Equity Associates, L.P.
10.6 -- Program License Agreement, dated as of July 1, 1999,
between Hallmark Entertainment Distribution, LLC,
successor to Hallmark Entertainment Distribution Company
and Hallmark Entertainment Networks, Inc.
10.7 -- Form of Tax Sharing Agreement.
10.8 -- Amended and Restated Trademark License Agreement, dated
as of January 26, 2000, by and between Hallmark Cards,
Incorporated and Hallmark Entertainment Networks, Inc.
10.9 -- Amended and Restated Trademark License Agreement (UK),
dated as of January 1, 2000, by and between Hallmark
Cards, Inc. and Hallmark Entertainment Networks (UK)
Limited.
</TABLE>
II-3
<PAGE> 147
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
<C> <S>
10.10 -- Security Agreement, dated as of August 1, 1999, by and
between Hallmark Entertainment Networks, Inc. and
Hallmark Cards, Inc.
10.11 -- Amended and Restated Company Agreement of Odyssey
Holdings, L.L.C.
10.12 -- Amended and Restated Intercompany Services Agreement,
dated as of January 1, 2000, between Crown Media
Holdings, Inc. and Hallmark Cards, Incorporated.
10.13 -- Hallmark Entertainment Networks, Inc. Share Appreciation
Rights Plan.
10.14 -- Crown Media 2000 Long Term Incentive Plan.*
10.15 -- Program License Agreement, dated as of November 13, 1998,
between Hallmark Entertainment Distribution Company and
Odyssey Holdings, L.L.C.
10.16 -- Program License Agreement, dated as of November 13, 1998,
between The Jim Henson Company, Inc. and Odyssey
Holdings, L.L.C.
10.17 -- Program License Agreement, dated as of November 13, 1998,
between National Interfaith Cable Coalition, Inc. and
Odyssey Holdings, L.L.C.
10.18 -- Trademark Sublicense Agreement, dated as of May 12, 1998,
by and between Hallmark Entertainment Networks, Inc. and
H&H Programming - Asia, LLC.
10.19 -- Program License Agreement, dated as of May 12, 1998,
between Hallmark Entertainment Distribution Company and
H&H Programming - Asia, LLC.
10.20 -- Lease, dated as of June 1, 1998, by and between High
Pointe I Development Group L.L.C. and Hallmark
Entertainment Network, Inc.
10.21 -- First Amendment to Lease, dated as of March 23, 1999, by
and between High Pointe Development Group L.L.C. and
Hallmark Entertainment Network, Inc.
10.22 -- Second Amendment to Lease, dated as of August 17, 1999,
by and between High Pointe I Development Group L.L.C. and
Hallmark Entertainment Networks, Inc.
10.23 -- Guaranty of Lease Obligations, dated June 1, 1998, by
Hallmark Entertainment, Inc. for High Pointe I
Development Group L.L.C.
10.24 -- Employment Agreement, dated as of March 1, 1999, between
Hallmark Entertainment Networks, Inc, and David Evans.
10.25 -- Employment Agreement, dated as of July 27, 1998, and
Amendment to Employment Agreement, dated as of July 1,
1999, between Hallmark Entertainment Networks and Russ
Givens.
10.26 -- Employment Agreement, dated as of June 23, 1998, and
Amendment to Employment Agreement, dated as of July 1,
1999, between Hallmark Entertainment Networks and Andy
Brilliant.
10.27 -- Employment Agreement, dated as of November 28, 1998,
between Hallmark Entertainment Networks, Inc. and Jeffrey
J. Johnson.
10.28 -- Employment Agreement, dated as of January 1, 1999,
between Hallmark Entertainment Networks (UK) Limited and
Mark Grenside.
10.29 -- Separation Agreement, dated January 28, 1999, between
Hallmark Entertainment Networks and George Stein.
10.30 -- $20,000,000 Promissory Note, dated November 19, 1999, of
Crown Media, Inc. to HC Crown Corporation.
10.31 -- $10,000,000 Promissory Note, dated February 23, 2000, of
Crown Media, Inc. to HC Crown Corporation.
11.1 -- Computation of Per Share Earnings.*
21.1 -- Subsidiaries.*
</TABLE>
II-4
<PAGE> 148
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
<C> <S>
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of Arthur Andersen LLP.
23.3 -- Consent of Wachtell, Lipton, Rosen & Katz (included in
Exhibit 5.1).
24.1 -- Powers of Attorney (included in signature page hereof).
27.1 -- Financial Data Schedule.+
99.1 -- Consent of Wilford V. Bane, Jr.*
99.2 -- Consent of Arnold L. Chavkin*
99.3 -- Consent of Donald J. Hall, Jr.
99.4 -- Consent of David B. Koff
99.5 -- Consent of John P. Mascotte
99.6 -- Consent of William Haber
99.7 -- Consent of Peter A. Lund*
</TABLE>
- ------------------------------
* To be provided by amendment.
+ Previously filed as an exhibit to the initial Registration Statement.
(B) Financial Statement Schedules
Auditors' Report on Crown Media, Inc.'s Schedule
Crown Media, Inc.'s Schedule II -- Valuation and Qualifying Accounts
Auditors' Report on Odyssey Holdings, L.L.C.'s Schedule
Odyssey Holdings, L.L.C.'s Schedule II -- Valuation and Qualifying Accounts
All schedules not identified above have been omitted because they are not
required, are not applicable or the information is included in the financial
statements or the notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) That for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed
to be part of this Registration Statement as of the time it was declared
effective.
(2) That for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(3) To provide to the underwriters at the closing specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by the underwriters to permit prompt delivery to
each purchaser.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
II-5
<PAGE> 149
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of
such issue.
II-6
<PAGE> 150
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on the 10th day of March 2000.
CROWN MEDIA HOLDINGS, INC.
By: /s/ William J. Aliber
---------------------------------------
Name: William J. Aliber
Title: Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<C> <S>
* Chairman of the Board
- -----------------------------------------------------
Robert A. Halmi, Jr.
* President, Chief Executive Officer and Director
- ----------------------------------------------------- (Principal Executive Officer)
David J. Evans
/s/ William J. Aliber Chief Financial Officer and Director
- ----------------------------------------------------- (Principal Financial and Accounting Officer)
William J. Aliber
* Director
- -----------------------------------------------------
Irvine O. Hockaday, Jr.
* Director
- -----------------------------------------------------
Robert J. Druten
/s/ William J. Aliber As attorney-in-fact for the officers and/or
- ----------------------------------------------------- directors marked by an asterisk.
William J. Aliber
</TABLE>
March 10, 2000
II-7
<PAGE> 151
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Crown Media, Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Crown Media, Inc. and its subsidiaries
as of December 31, 1998 and 1999, and for the years ended December 31, 1997,
1998 and 1999 included in this Registration Statement, and have issued our
report thereon dated January 18, 2000. Our audits were made for the purpose of
forming an opinion on these financial statements taken as a whole. The
supplemental schedule included in this Registration Statement is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the financial statements. The schedule has been subjected to the auditing
procedures applied in the audits of these financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to these financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Denver, Colorado
January 18, 2000
S-1
<PAGE> 152
CROWN MEDIA, INC. AND ITS SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- --------------------------------------------------------------------------------------------------------------------
ADDITIONS
------------------------
(2)
(1) CHARGED TO
BALANCE AT CHARGED TO OTHER WRITE-OFF
BEGINNING COSTS AND ACCOUNTS -- OF ACCOUNTS BALANCE AT
DESCRIPTION OF PERIOD EXPENSES DESCRIBE RECEIVABLE END OF PERIOD
----------- ---------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
1999......................................... $70,877 $672,306 $-- $47,774 $695,409
1998......................................... 48,706 38,160 -- 15,989 70,877
1997......................................... -- 143,978 -- 95,272 48,706
</TABLE>
S-2
<PAGE> 153
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members of Odyssey Holdings, L.L.C.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Odyssey Holdings, L.L.C. and its
subsidiaries as of December 31, 1998 and 1999, and for the years ended December
31, 1997, 1998 and 1999 included in this Registration Statement, and have issued
our report thereon dated January 12, 2000. Our audits were made for the purpose
of forming an opinion on these financial statements taken as a whole. The
supplemental schedule included in this Registration Statement is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the financial statements. The schedule has been subjected to the auditing
procedures applied in the audits of these financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to these financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Los Angeles, California
January 12, 2000
S-3
<PAGE> 154
ODYSSEY HOLDINGS, LLC AND ITS SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------------------------------------------------------------------------------------------------------------------
ADDITIONS
------------------------
(2)
(1) CHARGED TO
BALANCE AT CHARGED TO OTHER WRITE-OFF
BEGINNING COSTS AND ACCOUNTS -- OF ACCOUNTS BALANCE AT
DESCRIPTION OF PERIOD EXPENSES REVENUE RECEIVABLE END OF PERIOD
----------- ---------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
1999........................................ $183,379 $655,863 $ -- $102,642 $ 736,600
1998........................................ 27,000 203,956 -- 47,577 183,379
1997........................................ 24,000 8,000 -- 5,000 27,000
Advertising deficiency reserve
1999........................................ $ -- $ -- $1,800,000 $ -- $1,800,000
1998........................................ -- -- -- -- --
1997........................................ -- -- -- -- --
</TABLE>
S-4
<PAGE> 155
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT TITLE
<C> <S>
1.1 -- Form of Underwriting Agreement.*
2.1 -- Contribution Agreement, dated as of January 27, 2000, by
and among Hallmark Entertainment, Inc., Crown Media,
Inc., Liberty Media Corporation, Vision Group
Incorporated, VISN Management Corp., National Interfaith
Cable Coalition, Inc., Chase Equity Associates, L.L.C.
and Crown Media Holdings, Inc.
3.1 -- Form of Registrant's Amended and Restated Certificate of
Incorporation.*
3.2 -- Form of Registrant's Amended and Restated By-Laws.*
4.1 -- Form of Specimen Certificate for Registrant's Class A
Common Stock.
5.1 -- Form of Opinion of Wachtell, Lipton, Rosen & Katz.*
10.1 -- Form of Stockholders' Agreement.
10.2 -- Securities Purchase Agreement, dated as of May 29, 1998,
by and among Hallmark Entertainment Network, Inc.,
Hallmark Entertainment Distribution Company, Hallmark
Entertainment, Inc., and Chase Equity Associates, L.P.
10.3 -- Securities Purchase Agreement, dated as of February 18,
1999, by and among Hallmark Entertainment Network, Inc.,
Hallmark Entertainment Distribution Company, Hallmark
Entertainment, Inc., and Chase Equity Associates, L.P.
10.4 -- Securities Purchase Agreement, dated as of June 17, 1999,
by and among Hallmark Entertainment Network, Inc.,
Hallmark Entertainment Distribution Company, Hallmark
Entertainment, Inc., and Chase Equity Associates, L.P.
10.5 -- Securities Purchase Agreement, dated as of February 15,
2000, by and among Crown Media, Inc., Hallmark
Entertainment, Inc., and Chase Equity Associates, L.P.
10.6 -- Program License Agreement, dated as of July 1, 1999,
between Hallmark Entertainment Distribution, LLC,
successor to Hallmark Entertainment Distribution Company
and Hallmark Entertainment Networks, Inc.
10.7 -- Form of Tax Sharing Agreement.
10.8 -- Amended and Restated Trademark License Agreement, dated
as of January 26, 2000, by and between Hallmark Cards,
Incorporated and Hallmark Entertainment Networks, Inc.
10.9 -- Amended and Restated Trademark License Agreement (UK),
dated as of January 1, 2000, by and between Hallmark
Cards, Inc. and Hallmark Entertainment Networks (UK)
Limited
10.10 -- Security Agreement, dated as of August 1, 1999, by and
between Hallmark Entertainment Networks, Inc. and
Hallmark Cards, Inc.
10.11 -- Amended and Restated Company Agreement of Odyssey
Holdings, L.L.C.
10.12 -- Amended and Restated Intercompany Services Agreement,
dated as of January 1, 2000, between Crown Media
Holdings, Inc. and Hallmark Cards, Incorporated.
10.13 -- Hallmark Entertainment Networks, Inc. Share Appreciation
Rights Plan.
10.14 -- Crown Media 2000 Long Term Incentive Plan.*
10.15 -- Program License Agreement, dated as of November 13, 1998,
between Hallmark Entertainment Distribution Company and
Odyssey Holdings, L.L.C.
</TABLE>
<PAGE> 156
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT TITLE
<C> <S>
10.16 -- Program License Agreement, dated as of November 13, 1998,
between The Jim Henson Company, Inc. and Odyssey
Holdings, L.L.C.
10.17 -- Program License Agreement, dated as of November 13, 1998,
between National Interfaith Cable Coalition, Inc. and
Odyssey Holdings, L.L.C.
10.18 -- Trademark Sublicense Agreement, dated as of May 12, 1998,
by and between Hallmark Entertainment Networks, Inc. and
H&H Programming - Asia, LLC.
10.19 -- Program License Agreement, dated as of May 12, 1998,
between Hallmark Entertainment Distribution Company and
H&H Programming - Asia, LLC.
10.20 -- Lease, dated as of June 1, 1998, by and between High
Pointe I Development Group L.L.C. and Hallmark
Entertainment Network, Inc.
10.21 -- First Amendment to Lease, dated as of March 23, 1999, by
and between High Pointe Development Group L.L.C. and
Hallmark Entertainment Network, Inc.
10.22 -- Second Amendment to Lease, dated as of August 17, 1999,
by and between High Pointe I Development Group L.L.C. and
Hallmark Entertainment Networks, Inc.
10.23 -- Guaranty of Lease Obligations, dated June 1, 1998, by
Hallmark Entertainment, Inc. for High Pointe I
Development Group L.L.C.
10.24 -- Employment Agreement, dated as of March 1, 1999, between
Hallmark Entertainment Networks, Inc, and David Evans.
10.25 -- Employment Agreement, dated as of July 27, 1998, and
Amendment to Employment Agreement, dated as of July 1,
1999, between Hallmark Entertainment Networks and Russ
Givens.
10.26 -- Employment Agreement, dated as of June 23, 1998, and
Amendment to Employment Agreement, dated as of July 1,
1999, between Hallmark Entertainment Networks and Andy
Brilliant.
10.27 -- Employment Agreement, dated as of November 28, 1998,
between Hallmark Entertainment Networks, Inc. and Jeffrey
J. Johnson.
10.28 -- Employment Agreement, dated as of January 1, 1999,
between Hallmark Entertainment Networks (UK) Limited and
Mark Grenside.
10.29 -- Separation Agreement, dated January 28, 1999, between
Hallmark Entertainment Networks and George Stein.
10.30 -- $20,000,000 Promissory Note, dated November 19, 1999, of
Crown Media, Inc. to HC Crown Corporation.
10.31 -- $10,000,000 Promissory Note, dated February 23, 2000, of
Crown Media, Inc. to HC Crown Corporation.
11.1 -- Computation of Per Share Earnings.*
21.1 -- Subsidiaries.*
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of Arthur Andersen LLP.
23.3 -- Consent of Wachtell, Lipton, Rosen & Katz (included in
Exhibit 5.1).
24.1 -- Powers of Attorney (included in signature page hereof).
</TABLE>
<PAGE> 157
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT TITLE
<C> <S>
27.1 -- Financial Data Schedule.+
99.1 -- Consent of Wilford V. Bane, Jr.*
99.2 -- Consent of Arnold L. Chavkin*
99.3 -- Consent of Donald J. Hall, Jr.
99.4 -- Consent of David B. Koff
99.5 -- Consent of John P. Mascotte
99.6 -- Consent of William Haber
99.7 -- Consent of Peter A. Lund*
</TABLE>
- ------------------------------
* To be provided by amendment.
+ Previously filed as an exhibit to the initial Registration Statement.
<PAGE> 1
EXHIBIT 2.1
==============================================================================
CONTRIBUTION AGREEMENT
by and among
HALLMARK ENTERTAINMENT, INC.
CROWN MEDIA, INC.
LIBERTY MEDIA CORPORATION,
VISION GROUP INCORPORATED,
VISN MANAGEMENT CORP.,
NATIONAL INTERFAITH CABLE COALITION, INC.
CHASE EQUITY ASSOCIATES, L.L.C.,
and
CROWN MEDIA HOLDINGS, INC.
dated as of
January 27, 2000
==============================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE 1 - DEFINITIONS...............................................................................................1
1.1 Definitions.........................................................................................1
ARTICLE 2 - THE CLOSING...............................................................................................6
2.1 The Closing.........................................................................................6
ARTICLE 3 - THE EXCHANGES.............................................................................................7
3.1 The Exchanges.......................................................................................7
3.2 Delivery of Share Certificates......................................................................7
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF HEI.....................................................................7
4.1 Corporate Existence.................................................................................8
4.2 Power and Authority.................................................................................8
4.3 Enforceability, etc.................................................................................8
4.4 Capitalization......................................................................................9
4.5 Consents and Approvals..............................................................................9
4.6 Financial Statements................................................................................9
4.7 Material Adverse Change............................................................................10
4.8 Events Subsequent to the Date of the Last Audited Financial Statement..............................10
4.9 Absence of Undisclosed Liabilities.................................................................10
4.10 Taxes..............................................................................................10
4.11 Litigation.........................................................................................11
4.12 Insurance..........................................................................................11
4.13 Conflicts of Interests.............................................................................12
4.14 Licenses...........................................................................................12
4.15 Intellectual Property Rights.......................................................................12
4.16 Contracts and Commitments..........................................................................12
4.17 Customers and Suppliers............................................................................14
4.18 Plans..............................................................................................15
4.19 Employee Matters...................................................................................15
4.20 Brokers, etc.......................................................................................16
4.21 Year 2000 Compliance...............................................................................16
4.22 Operations of the Company..........................................................................16
4.23 Compliance with Laws...............................................................................16
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF CEA....................................................................16
5.1 Existence; Power and Authority.....................................................................16
5.2 Enforceability, etc................................................................................17
5.3 Ownership..........................................................................................17
5.4 Consents and Approvals.............................................................................17
5.5 Purchase for Investment............................................................................17
5.6 Financial Matters..................................................................................17
5.7 Adequate Access to Personnel and Materials.........................................................18
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
5.8 Brokers, etc.......................................................................................18
5.9 Litigation.........................................................................................18
ARTICLE 6 - REPRESENTATIONS AND WARRANTIES OF THE ODYSSEY INVESTORS..................................................18
6.1 Existence; Power and Authority.....................................................................18
6.2 Enforceability, etc................................................................................19
6.3 Ownership..........................................................................................19
6.4 Consents and Approvals.............................................................................20
6.5 Purchase for Investment............................................................................20
6.6 Financial Matters..................................................................................20
6.7 Adequate Access to Personnel and Materials.........................................................20
6.8 Brokers, etc.......................................................................................20
6.9 Litigation.........................................................................................21
ARTICLE 7 - CONDUCT OF THE PARTIES PRIOR TO CLOSING DATE.............................................................21
7.1 The IPO............................................................................................21
7.2 Access for Investigation; Confidentiality..........................................................21
7.3 Conduct of Business................................................................................21
7.4 Performance of Obligations.........................................................................22
7.5 Related Documents..................................................................................23
7.6 Current Public Information.........................................................................23
7.7 Further Assurances.................................................................................23
ARTICLE 8 - CONDITIONS PRECEDENT.....................................................................................23
8.1 Conditions Precedent...............................................................................24
8.2 Conditions Precedent to Obligations of each of the Company, Crown and HEI..........................25
8.3 Conditions Precedent to Obligations of each of Liberty and VGI.....................................25
8.4 Conditions Precedent to Obligations of each of NICC and VMC........................................25
8.5 Conditions Precedent to Obligations of CEA.........................................................26
ARTICLE 9 - INDEMNIFICATION..........................................................................................26
9.1 Indemnification by the Company, HEI, Liberty, NICC and CEA.........................................26
9.2 Procedure for Indemnification......................................................................28
9.3 Time Limitations on Indemnity......................................................................28
9.4 Limitations on Indemnity...........................................................................28
ARTICLE 10 - TAX MATTERS.............................................................................................29
10.1 Indemnification....................................................................................29
10.2 Filing Responsibility..............................................................................30
10.3 Tax Sharing Agreements.............................................................................31
10.4 Coordination with Agreement........................................................................31
10.5 Tax Treatment of Exchanges.........................................................................31
10.6 Survival...........................................................................................31
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE 11 - TERMINATION.............................................................................................32
11.1 Termination by Mutual Consent......................................................................32
11.2 Termination by any of the Parties..................................................................32
11.3 Effect of Termination and Abandonment..............................................................32
ARTICLE 12 - GENERAL PROVISIONS; OTHER AGREEMENTS....................................................................32
12.1 Expenses...........................................................................................32
12.2 Governing Law......................................................................................33
12.3 Headings...........................................................................................33
12.4 Notices............................................................................................33
12.5 Parties in Interest................................................................................35
12.6 Entire Agreement...................................................................................35
12.7 Counterparts.......................................................................................35
12.8 Amendment..........................................................................................35
12.9 Gender, etc........................................................................................35
12.10 Severability.......................................................................................35
12.11 No Waiver..........................................................................................36
</TABLE>
<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
Exhibit A Company Capitalization Schedule
Exhibit B Crown Capitalization Schedule
Exhibit C VGI Capitalization Schedule
Exhibit D Form of Company Stockholders Agreement
Exhibit E Form of Tax Sharing Agreement
SCHEDULES
Schedule I Disclosure Schedule
</TABLE>
iii
<PAGE> 5
CONTRIBUTION AGREEMENT, dated January 27, 2000 (this "Agreement"), by and
among HALLMARK ENTERTAINMENT, NC., a Delaware corporation ("HEI"), CROWN MEDIA,
INC. (formerly Hallmark Entertainment Networks, Inc.), a Delaware corporation
("Crown"), LIBERTY MEDIA CORPORATION, a Delaware corporation ("Liberty"), VISION
GROUP INCORPORATED, a Colorado corporation ("VGI"), VISN MANAGEMENT CORP., a
Delaware corporation ("VMC"), NATIONAL INTERFAITH CABLE COALITION, INC., a
Maryland not-for-profit corporation, ("NICC"), CHASE EQUITY ASSOCIATES, L.L.C.,
a Delaware limited liability company ("CEA"), and Crown Media Holdings, Inc., a
Delaware corporation (the "Company").
WHEREAS, the Parties hereto desire to consummate the transactions
contemplated herein, pursuant to which (i) HEI will contribute to the Company
all of its Interests in Crown, (ii) Liberty will contribute to the Company all
of its Interests in VGI, (iii) CEA will contribute to the Company all of its
Interests in Crown and (iv) VMC will contribute to the Company all of its
Odyssey Common Interests, in each case in exchange for shares of Common Stock of
the Company; and
WHEREAS, for Federal income tax purposes, it is intended that the
contributions will qualify as transfers to a controlled corporation under the
provisions of Section 351 of the Internal Revenue Code of 1986, as amended (the
"Code"), and the Treasury Regulations thereunder;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, the Parties hereto agree as follows:
ARTICLE 1 - DEFINITIONS
1.1 Definitions. As used herein, the following terms shall have the
following meanings:
"Actions" means all complaints, actions, suits, proceedings or
investigations.
"Actually Realizes" or "Actually Realized" means, for purposes of
determining the timing of the incurrence of any Tax liability or the realization
of a Tax refund or any related Tax cost or benefit (including a Tax Benefit) by
a person in respect of a payment, transaction, occurrence or event, the time at
which the amount of Taxes paid by such person is increased above or reduced
below the amount of Taxes that such person would have been required to pay but
for such payment, transaction, occurrence or event.
"Adjustment" means an adjustment arising in a Tax Proceeding.
"Adverse Consequences" means all claims, judgments, damages, penalties,
fines, costs, losses, liabilities or other monetary obligations (including all
reasonable attorney and expert fees incurred to enforce the terms of this
Agreement) net of any recovery from any third party including, without
limitation, insurance proceeds.
"Affiliate Transactions" is defined in Section 7.3.
<PAGE> 6
"Agreement" is defined in the preamble.
"Amended and Restated Odyssey Agreement" means the Amended and Restated
Company Agreement of Odyssey effective as of November 13, 1998.
"Balance Sheet" is defined in Section 4.6.
"Blue Sky Laws" is defined in Section 4.4.
"CEA" is defined in the preamble.
"Class A Stock" means Class A Voting Common Stock of the Company, par value
$0.01 per share.
"Class B Stock" means Class B Voting Common Stock of the Company, par value
$0.01 per share.
"Closing" is defined in Section 2.1.
"Code" is defined in the Preamble.
"Closing Date" is defined in Section 2.1.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means, collectively, the Class A Stock and the Class B Stock
of the Company.
"Company" is defined in the preamble.
"Company Capitalization Schedule" is defined in Section 4.4.
"Company Indemnified Persons" is defined in Section 9.1.
"Company Stockholders Agreement" means the Stockholders Agreement to be
entered into by and among the Company and the Contributors substantially in the
form set forth in Exhibit D.
"Contributor" means any of HEI, Liberty, VMC and CEA.
"Contributor Indemnified Persons" is defined in Section 9.1.
"Crown" is defined in the preamble.
"Crown Capitalization Schedule" is defined in Section 4.4.
"Crown Class A Stock" means Class A Voting Common Stock of Crown, par value
$0.01 per share.
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"Crown Class B Stock" means Class B Non-Voting Common Stock of Crown, par
value $0.01 per share.
"Crown Programming Agreement" means the Programming Agreement, dated as of
July 1, 1999 by and between HED and Crown.
"Crown Stockholders Agreement" means the Stockholders Agreement, dated as
of May 29, 1998, among Crown, HED and CEA.
"Disclosure Schedule" means the Schedule referred to from time to time
herein and set forth as Schedule I hereto.
"Distributors" is defined in Section 4.17.
"DLJ" means Donaldson, Lufkin and Jenrette Securities Corporation.
"Encumbrance" means any security interest, mortgage, pledge,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or
otherwise), charge against or interest in property to secure payment of a debt
or performance of an obligation or other priority or preferential arrangement of
any kind or nature whatsoever, including the interest of a vendor, lessor or
licensor under any conditional sale, capitalized lease, exclusive license or
other title retention agreement.
"ERISA" is defined in Section 4.18.
"Exchanges" means the exchanges set forth in Section 3.1.
"Financial Statements" is defined in Section 4.6.
"GAAP" is defined Section 4.6.
"Governmental Entity" means any Federal, state or local government or any
court, administrative agency or commission or other governmental authority or
agency, domestic or foreign.
"Hallmark" means Hallmark Cards, Incorporated, a Missouri corporation.
"Hallmark Group" means Hallmark and each of its Subsidiaries (other than
(i) the Company, (ii) Crown and (iii) each Person that is or was at any time a
Subsidiary of or otherwise held directly or indirectly by the Company or Crown,
except, in the case of (iii), for such a Person that was never, on or after the
Closing Date, a Subsidiary of or otherwise held directly or indirectly by the
Company or Crown).
"HED" means Hallmark Entertainment Distribution, LLC, a Delaware limited
liability company.
"HEI" is defined in the preamble.
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"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
"Income Taxes" means federal, state, local or foreign Taxes measured by net
income or capital gains.
"Income Tax Return" means any Tax Return with respect to Income Taxes.
"Indemnified Party" is defined in Section 9.2.
"Indemnifying Party" is defined in Section 9.2.
"Intellectual Property" is defined in Section 4.15.
"Intercompany Services Agreement" means the Intercompany Services Agreement
dated as of January 1, 2000 by and between Hallmark and Crown.
"Interest" means any evidence of equity ownership of any Person, whether
represented by common stock, preferred stock, securities, options, warrants or
other rights to repurchase or acquire any equity ownership of such Person
(including convertible debentures, notes or other securities convertible or
exchangeable into or exercisable for the purchase or other acquisition of
capital stock), trust certificates, general or limited partnership interests or
any other type of capital stock or equity interest.
"IPO" means an initial public offering of shares of the Company's Class A
Stock.
"Law" means any law, statute, regulation, rule, ordinance, requirement or
other binding action or requirement of any governmental, regulatory or
administrative body, agency or authority or any court of judicial authority.
"Liberty" is defined in the preamble.
"Liberty Group" means Liberty and any direct or indirect majority
stockholder in Liberty and each of their respective Subsidiaries (other than (i)
the Company, (ii) Crown and (iii) each Person that is or was at any time a
Subsidiary of or otherwise held directly or indirectly by the Company or Crown,
except, in the case of (iii), for such a Person that was never, on or after the
Closing Date, a Subsidiary of or otherwise held directly or indirectly by the
Company or Crown).
"Licenses" is defined in Section 4.14.
"LMC" means LMC Capital LLC, a Delaware limited liability company.
"Material Adverse Effect" means a material adverse effect on (i) with
respect to the Company or Crown, the business, results of operation or financial
condition of Crown and Crown's Subsidiaries, taken as a whole; (ii) with respect
to any of the Contributors, the legal ability of such Contributor to consummate
the transactions contemplated by this Agreement,
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other than by reason of the inability of the other Contributors to consummate
such transactions and (iii) with respect to VGI, the business, results of
operation or financial condition of VGI.
"Material Agreements" is defined in Section 4.16.
"NICC" is defined in the preamble.
"Odyssey" means Odyssey Holdings, L.L.C., a Delaware limited liability
company.
"Odyssey Common Interests" means the outstanding common equity interests in
Odyssey.
"Odyssey Investors" means any of Liberty, VGI, NICC, VMC or LMC.
"Order" means any decree, order, judgment, writ, award, injunction,
stipulation or consent of or by any governmental, regulatory or administrative
body, agency or authority or any court or judicial authority.
"Party" means any of the Company, HEI, Crown, Liberty, VGI, NICC, VMC or
CEA.
"Person" means any individual, corporation, general or limited partnership,
joint venture, association, limited liability company, joint stock company,
trust, business trust, bank, trust company, estate (including any beneficiaries
thereof), unincorporated entity, cooperative, association, government branch,
agency or political subdivision thereof or organization of any kind.
"Post-Closing Period" means each taxable period that begins after the
Closing Date and the portion, beginning after and excluding the Closing Date, of
any taxable period which includes but does not end on the Closing Date.
"Pre-Closing Period" means each taxable period that ends on or before the
Closing Date and the portion, ending on and including the Closing Date, of any
taxable period which includes but does not end on the Closing Date.
"Prospectus" means the prospectus filed pursuant to Rule 424(b) of the
Securities Act.
"Registration Statement" means a Registration Statement on Form S-1 of the
Company, as amended at the time it was declared effective.
"Related Documents" means the Company Stockholders Agreement, the Crown
Programming Agreement, the Intercompany Services Agreement, the Amended and
Restated Odyssey Agreement and the Tax Sharing Agreement.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations issued in respect thereto.
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"Subsidiary" of any Person means any corporation or other entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the Board of Directors or other Persons performing similar functions
are at the time directly or indirectly owned or controlled by such Person or one
or more Subsidiaries of such Person.
"Tax Benefit" means the Tax effect of any item of loss, deduction or credit
or any other item or any increase in Tax basis which decreases Taxes paid,
including any interest paid in connection with a refund resulting from such item
or increase and any interest on any Tax liability that would have been payable
but for such item or increase in Tax basis.
"Tax Proceeding" means a Tax audit, contest, litigation or other proceeding
with or against a Governmental Entity.
"Tax Returns" is defined in Section 4.10.
"Tax Sharing Agreement" means the Tax Sharing Agreement to be entered into
by and among HEI, Crown, the Company and others substantially in the form set
forth in Exhibit E.
"Taxes" is defined in Section 4.10.
"Underwriting Agreement" means the Underwriting Agreement to be entered
into among the Company, HEI and certain underwriters including DLJ relating to
the IPO.
"VGI" is defined in the preamble.
"VGI Capitalization Schedule" is defined in Section 6.3.
"VGI Common Stock" means all of the outstanding shares of Common Stock of
VGI, par value $0.01 per share.
"VMC" is defined in the preamble.
"WARN" is defined in Section 4.19.
"Written Notice" is defined in Section 9.2.
ARTICLE 2 - THE CLOSING
2.1 The Closing. Subject to the terms and conditions of this Agreement, the
closing of the transactions contemplated herein (the "Closing") shall take place
at the offices of Wachtell, Lipton, Rosen & Katz, New York, New York, at 9:00
a.m., Eastern time, on the closing date of the IPO, or at such time or on such
other date as the Parties may agree (the "Closing Date").
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ARTICLE 3 - THE EXCHANGES
3.1 The Exchanges.
(a) At the Closing, the following transactions shall take place:
(i) HEI shall contribute to the Company the number of shares of
Crown Class A Stock set forth opposite HEI's name on the Crown
Capitalization Schedule together with the shares of common stock of
the Company owned by HEI on the date of this Agreement, and the
Company shall issue to HEI shares of Class B Stock representing
61.340845% of the Common Stock outstanding immediately after the
Closing before giving effect to the IPO.
(ii) Liberty shall cause LMC to contribute to the Company the VGI
Common Stock and the Company shall issue to Liberty shares of Class A
Stock representing 18.309859% of the Common Stock outstanding
immediately after the Closing before giving effect to the IPO.
(iii) VMC shall contribute to the Company all of its Odyssey
Common Interests, representing 22.5% of the outstanding Odyssey Common
Interests, and the Company shall issue to VMC shares of Class A Stock
representing 12.676056% of the Common Stock outstanding immediately
after the Closing before giving effect to the IPO.
(iv) CEA shall contribute to the Company the number of shares of
Crown Class B Stock set forth opposite CEA's name on the Crown
Capitalization Schedule and the Company shall issue to CEA shares of
Class A Stock representing 7.673240% of the Common Stock outstanding
immediately after the Closing before giving effect to the IPO.
3.2 Delivery of Share Certificates. At the Closing, each of the
Contributors will deliver to the Company share certificates or other documents,
which certificates or other documents shall be either duly endorsed in blank or
accompanied by stock powers duly executed in blank, representing their
respective Interests to be contributed to the Company pursuant to Section 3.1
and the Company will deliver to the Contributors share certificates representing
the Common Stock to be issued to the Contributors pursuant to Section 3.1.
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF HEI
HEI hereby represents and warrants as follows:
4.1 Corporate Existence. Each of the Company, HEI and Crown and each of
Crown's Subsidiaries is a corporation or limited liability company duly
incorporated or organized, validly existing and in good standing under the laws
of the jurisdiction set forth opposite the name of such corporation or limited
liability company on Item 4.1 of the Disclosure Schedule, and is duly qualified
to do business as a foreign corporation or limited liability company and is in
good standing in each jurisdiction in which the ownership or use of its assets
or properties, or the conduct or nature of its business, makes such
qualification necessary, except
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for any jurisdictions in which the failure to be so qualified could not
reasonably be expected to have a Material Adverse Effect on Crown. The Company
and Crown and each of Crown's Subsidiaries have all requisite power and
authority to conduct their business and own their properties as now conducted
and owned. HEI has previously provided to each of the Contributors true and
complete copies of the Certificate of Incorporation and By-laws of the Company
and Crown as in effect on the date hereof.
4.2 Power and Authority. Each of the Company, HEI and Crown has the
requisite power and authority, and has taken all required action necessary, to
execute, deliver and perform this Agreement and all Related Documents to which
it is a party. Except as set forth on Item 4.2 of the Disclosure Schedule, none
of the foregoing actions will (i) violate any provision of the By-laws,
Certificate of Incorporation or other organizational document of the Company,
HEI or Crown or any of Crown's Subsidiaries, (ii) result in the breach of or
constitute a default under any contract, lease, license, franchise, permit,
indenture, mortgage, deed of trust, note, agreement or other instrument to which
the Company or Crown, or any of Crown's Subsidiaries is a party or by which any
of them is bound, (iii) result in the creation or imposition of any material
lien, claim or encumbrance on any asset of Crown or any of its Subsidiaries,
(iv) to the knowledge of HEI, give any Person rights to terminate any contracts
or agreements of Crown or any of its Subsidiaries or otherwise to exercise
rights against Crown or any of its Subsidiaries or (v) violate any Law or Order
applicable to or bearing upon the Company or Crown or any of Crown's
Subsidiaries or any of their assets or businesses except, in the case of each of
clauses (ii), (iii), (iv) or (v) for such violations, breaches, defaults, rights
and impairments that could not reasonably be expected to have a Material Adverse
Effect on Crown.
4.3 Enforceability, etc. Assuming the due authorization, execution and
delivery of each other Party, this Agreement has been duly executed and
delivered by each of the Company, HEI and Crown, and constitutes, and when the
Related Documents are executed, the Related Documents will constitute, the
legal, valid and binding obligation of each of the Company, HEI and Crown, as
applicable, enforceable against them in accordance with their respective terms,
subject to (i) the effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally and (ii) general equitable principles (whether
considered in a proceeding in equity or at law).
4.4 Capitalization.
(a) Exhibit A hereto (the "Company Capitalization Schedule") sets
forth, as of the date of this Agreement, a true and complete statement of
the outstanding Interests of the Company. Exhibit B hereto (the "Crown
Capitalization Schedule") sets forth, as of the date of this Agreement, a
true and complete statement of the outstanding Interests of Crown and each
of its Subsidiaries. Except as set forth on the Company Capitalization
Schedule and the Crown Capitalization Schedule or as contemplated by this
Agreement, none of the Company, Crown and Crown's Subsidiaries has issued
any Interests, nor are any such Interests (or any rights to acquire or
purchase any such Interests) outstanding. Except for Encumbrances set forth
on Item 4.4(a) of the Disclosure Schedule, the shares of Crown Class A
Stock owned by HEI are owned free and clear of any Encumbrances.
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(b) The Class A Stock to be issued in the IPO, when issued and
delivered against payment therefor as provided in the Underwriting
Agreement, will be duly authorized, validly issued, fully paid and
non-assessable, and the Common Stock to be delivered to the Contributors,
when issued and delivered to the Contributors pursuant to this Agreement
against payment of the consideration set forth herein, will be duly
authorized, validly issued, fully paid and non-assessable and will be free
and clear of any Encumbrances, preemptive rights, escrows, options, rights
of first refusal or other agreements, arrangements, commitments,
understandings or obligations, whether written or oral, or any other
restrictions affecting rights and other incidents of record and beneficial
ownership, other than (i) as set forth herein or in the Related Documents,
(ii) restrictions on transferability imposed generally under the Securities
Act and under the securities laws of the several states and the rules and
regulations issued in respect thereto (such state laws, rules and
regulations, being, collectively, "Blue Sky Laws") and (iii) restrictions
on transferability pursuant to the terms of the Underwriting Agreement or
the agreements described in Section 7.1.
(c) The issuance and delivery of the Common Stock to the Contributors
on the terms and conditions contemplated herein are exempt from the
registration requirements of the Securities Act and the Blue Sky Laws or
will be qualified as may be necessary.
4.5 Consents and Approvals. Except as set forth on Item 4.5 of the
Disclosure Schedule, neither the execution, delivery and performance of this
Agreement or any Related Documents by the Company, HEI or Crown, as applicable,
nor the consummation by the Company, HEI or Crown of any transaction related
hereto or thereto, nor the issuance or delivery of the Common Stock will require
any consent, approval, Order or authorization of, filing, registration,
declaration or taking of any other action with, or notice to, any Person, other
than such consents, approvals, filings or actions (i) under the Federal
securities laws, the Blue Sky Laws or HSR Act, (ii) the failure of which to take
or obtain would not reasonably be expected to have a Material Adverse Effect on
the Company, HEI or Crown, as applicable or (iii) which have already been
obtained.
4.6 Financial Statements. Crown has furnished to each of the Contributors
its audited consolidated financial statements for the fiscal years ended
December 31, 1999, 1998 and 1997 consisting of the audited consolidated balance
sheets, income statements and statements of stockholders' equity for each such
fiscal year (all of the preceding financial statements being, collectively, the
"Financial Statements" and the most recent consolidated balance sheet included
within the Financial Statements being the "Balance Sheet"). The Financial
Statements have been prepared in accordance with generally accepted accounting
principles ("GAAP"), consistently applied, and fairly present in all material
respects the financial position of Crown and its Subsidiaries and the results of
its operations and cash flows for the periods covered thereby.
4.7 Material Adverse Change. Except as set forth on Item 4.7 of the
Disclosure Schedule or as contemplated by this Agreement or the Related
Documents, since December 31, 1999, the business of Crown has been conducted in
all material respects in the ordinary course and in substantially the same
manner as previously conducted and there has been no Material Adverse Effect on
Crown.
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4.8 Events Subsequent to the Date of the Last Audited Financial Statement.
Since December 31, 1999, except as contemplated by this Agreement or the Related
Documents or as set forth in the Financial Statements or on Item 4.8 of the
Disclosure Schedule or as described in the Registration Statement, neither Crown
nor any of its Subsidiaries has (i) issued any stock, bond or other security,
(ii) incurred any indebtedness except in the ordinary course of business, (iii)
declared or made any payment or distribution to stockholders or purchased or
redeemed any of its capital stock, (iv) sold, assigned, leased, mortgaged,
pledged, subjected to any Lien or otherwise conveyed or transferred any of its
assets except in the ordinary course of business, or cancelled any debt or claim
owed to Crown or any of its Subsidiaries except in the ordinary course of
business, (v) sold, assigned, transferred or granted any exclusive license with
respect to any Intellectual Property, (vi) suffered any substantial loss of
property or waived any right of substantial value other than in the ordinary
course of business or (vii) made any change in officer compensation except in
the ordinary course of business and consistent with past practice.
4.9 Absence of Undisclosed Liabilities. Since December 31, 1999, except as
contemplated by this Agreement and the Related Documents, Crown and its
Subsidiaries incurred no material liabilities or obligations of any kind,
matured or unmatured, fixed or contingent, which are not fully reflected or
provided for on the Balance Sheet, or any material loss contingency (as defined
in Statement of Financial Accounting Standards No. 5) whether or not required by
GAAP to be shown on the Financial Statements, except (i) liabilities and
contingencies incurred in the ordinary course of business consistent with past
practice or as otherwise disclosed in the Registration Statement, (ii) tax and
related liabilities which have been disclosed pursuant to Section 4.10 below and
(iii) as set forth on Item 4.9 of the Disclosure Schedule.
4.10 Taxes.
(a) Except as set forth on Item 4.10 of the Disclosure Schedule, or as
would not reasonably be expected to have a Material Adverse Effect on
Crown, Crown and each of its Subsidiaries (i) has timely filed or will
timely file (including extensions of time approved by the appropriate
taxing authority) all Tax Returns required to be filed with the Internal
Revenue Service, the State of Delaware, any other states or governmental
subdivisions, all foreign countries or any other taxing authority and all
such Tax Returns are true, complete and correct and (ii) has paid all Taxes
due and payable (except for Taxes being contested in good faith pursuant to
appropriate proceedings for which adequate accruals in the Financial
Statements have been provided). Except as would not reasonably be expected
to have a Material Adverse Effect on Crown, there are (i) no unpaid
assessments for additional Taxes for any fiscal period for Crown and (ii)
no Tax Encumbrances, whether imposed by any Federal, state, county,
municipal or foreign taxing authority, outstanding against the assets or
businesses of Crown or any of its Subsidiaries, except for Taxes not yet
due and payable. Except as set forth on Item 4.10 of the Disclosure
Schedule or as would not reasonably be expected to have a Material Adverse
Effect on Crown, neither Crown nor any of its Subsidiaries have waived any
statute of limitations with respect to Taxes. Except as set forth on Item
4.10 of the Disclosure Schedule or as would not reasonably be expected to
have a Material Adverse Effect on Crown, no Tax Returns of Crown or any of
its Subsidiaries have ever been audited and there are not pending or
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threatened in writing any audits, examinations, investigations or other
proceedings in respect of Taxes or Tax Returns of Crown.
(b) For the purposes of this Agreement, (i) the term "Tax" or "Taxes"
includes all taxes, charges, fees, levies, imposts, or other assessments
imposed by any Federal, state, local, foreign or other taxing authority,
including all income, gross receipts, gains profits, windfall profits,
gift, severance, ad valorem, capital, social security, unemployment
disability, premium, recapture, credit, excise, property, sales, use,
occupation, service, service use, leasing, leasing use, value added,
transfer, payroll, employment, withholding, estimated, license, stamp,
franchise or similar taxes, assessments, or other governmental charges of
any kind whatsoever, including interest earned thereon or penalties,
additions, or fines thereto or attributable to any failure to comply with
any requirement regarding Tax Returns and any interest in respect of such
penalties, additions or fines, provided that any interest, penalties,
additions or fines that relate to Taxes for any taxable period shall be
deemed to be Taxes for such taxable period regardless of when such items
are incurred, accrued, assessed or charged, and (ii) the term "Tax Return"
or "Tax Returns" shall mean any report, return, documents, declaration or
other information (and any supporting schedules or attachments thereto)
required to be supplied to any taxing authority or jurisdiction with
respect to Taxes (including any returns or reports filed on a consolidated,
unitary, or combined basis).
4.11 Litigation. Except as set forth on Item 4.11 of the Disclosure
Schedule, there are no actions, suits, proceedings, orders, investigations or
claims pending or, to the knowledge of HEI or Crown, threatened against or
affecting the Company, HEI or Crown or any of Crown's Subsidiaries, or their
respective assets or businesses, at law or in equity, before any court,
arbitration panel, tribunal or governmental commission, bureau, agency or
instrumentality which would reasonably be expected to have a Material Adverse
Effect on the Company or Crown or which seeks to enjoin or restrain the
consummation of the transactions contemplated by this Agreement and the Related
Documents.
4.12 Insurance. Crown and its Subsidiaries hold valid insurance policies in
full force and effect which HEI believes provides adequate coverage and limits
for the business of Crown and its Subsidiaries.
4.13 Conflicts of Interests. Since December 31, 1999, except for the
Related Documents or as set forth on Item 4.13 of the Disclosure Schedule,
neither the Company, Crown nor any of Crown's Subsidiaries has engaged in any
material transactions with HED, HEI or Hallmark, and neither the Company, Crown
nor any of its Subsidiaries is a party to or bound by any contract, lease,
purchase contract, obligation, instrument, arrangement, commitment or other
agreement (oral or written) with any director or executive officer of any such
entities which has not been entered into on an arm's-length basis.
4.14 Licenses. Set forth on Item 4.14 of the Disclosure Schedule is a true
and complete list of all material qualifications, registrations, filings,
privileges, immunities, franchises, permits, licenses and other material rights,
including, without limitation, all material governmental regulatory or
administrative authority approvals, authorizations, consents, licenses and
permits, as of the date of this Agreement, which are necessary or required for
the conduct by Crown and each of its Subsidiaries of the businesses currently
conducted by them (collectively,
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the "Licenses"). HEI knows of no basis upon which the renewal of any Licenses
would be denied in the future. Each such License has been validly issued to and
is in full force and effect, and neither Crown nor any of its Subsidiaries is in
violation of any such License except for such failure to be validly issued and
in full force and effect or such violations that could not reasonably be
expected to have a Material Adverse Effect on Crown.
4.15 Intellectual Property Rights. Set forth on Item 4.15 of the Disclosure
Schedule is a true and complete list of all material patents, trademarks,
service marks, trade names, copyrights or other similar proprietary rights,
whether registered or unregistered, or any rights or licenses to use the same,
and any and all applications therefor, presently owned or held by Crown and its
Subsidiaries as of the date of this Agreement (collectively, the "Intellectual
Property"). Except with respect to Crown's current use of the Hallmark name in
its business, such Intellectual Property constitutes all material intellectual
property and similar proprietary information necessary to permit Crown and its
Subsidiaries to conduct their businesses as currently conducted and as
contemplated to be conducted. None of Crown nor any of its Subsidiaries has
received any formal or informal claim of infringement or other complaint that
any of their operations infringe any rights under intellectual property of any
other Person, nor does Crown or any of its Subsidiaries have any reason to
believe that there is any valid basis for such claim, in either case which would
reasonably be expected to have a Material Adverse Effect on Crown. No material
royalties, honorariums or fees are or will be, as of the Closing Date, payable
by Crown or any of its Subsidiaries to any other Person by reason of the
ownership or use by any of them of any Intellectual Property. Crown or its
Subsidiaries own, or has a valid right to use, free and clear of all liens, all
of the Intellectual Property except as would not reasonably be expected to have
a Material Adverse Effect on Crown. To Crown's knowledge, except as would not
reasonably be expected to have a Material Adverse Effect on Crown, no third
party is infringing any Intellectual Property owned or used by Crown or any of
its Subsidiaries and no such claims, suits, arbitrations or other adversarial
proceedings have been brought against any third party by Crown or any of its
Subsidiaries.
4.16 Contracts and Commitments.
(a) Except as expressly contemplated by this Agreement or any Related
Documents or as set forth on Item 4.16 of the Disclosure Schedule, as of
the date of this Agreement, neither Crown nor any of its Subsidiaries is a
party to any written or oral (all items set forth thereon are referred to
as "Material Agreements"):
(i) pension, profit sharing, stock option, employee stock
purchase or other plan or arrangement providing for deferred or other
compensation to employees or any other employee benefit plan or
arrangement, or any contract with any labor union, or any severance
agreements;
(ii) contract for the employment of any officer, individual
employee or other Person on a full-time, part-time, consulting or
other basis providing annual compensation in excess of $100,000 or
contract relating to loans to officers, directors, shareholders or
Affiliates;
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(iii) contract under which it has advanced or loaned any other
Person amounts in the aggregate exceeding $100,000;
(iv) agreement or indenture relating to the borrowing of money or
the mortgaging, pledging or otherwise placing an Encumbrance on any
material asset or material group of assets;
(v) guarantee of any obligation;
(vi) lease, sublease, license or other agreement under which it
is lessee or sublessee or licensee of or holds, uses, occupies or
operates any property, real or personal, owned by any other party,
except for any such agreement relating to real or personal property
under which the aggregate annual rental payments do not exceed
$100,000;
(vii) lease, sublease, license or other agreement under which it
is lessor or sublessor or licensor of or permits any third party to
hold, use, occupy or operate any property, real or personal, owned or
controlled by it in excess of $100,000;
(viii) assignment, license or indemnification with respect to any
intangible property, (including, without limitation, any patent,
trademark, trade name, copyright, know-how, trade secret or
confidential information);
(ix) warranty agreement with respect to its services rendered or
its products sold or leased;
(x) agreement under which it has granted any Person any
registration rights or similar rights (including piggyback rights) or
co-sale or similar rights in respect of any of its securities;
(xi) sales, distribution or franchise agreements involving
amounts in excess of $100,000;
(xii) agreement with a term of more than six months which is not
terminable by it upon less than 30 days' notice without penalty
involving amounts in excess of $100,000;
(xiii) contract or agreement prohibiting it or materially
restricting it from freely engaging in any business or competing
anywhere in the world;
(xiv) contract, agreement or other arrangement, including,
without limitation, any stockholders or voting agreement, voting trust
or similar arrangement with respect to any of its Interests with any
officer, director, employee, or holder of Interests;
(xv) joint venture, partnership or similar agreement involving a
sharing of profits or expenses;
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(xvi) any other agreement which is material to its operations and
business prospects or involves a consideration in excess of $100,000
annually.
(b) True and complete copies of all written Material Agreements, and
accurate and complete summaries of the material terms of all oral Material
Agreements, have been made available to the Odyssey Investors or their
respective counsel. Except as set forth on Item 4.16 of the Disclosure
Schedule, or where the failure would not have a Material Adverse Effect on
Crown, all of the Material Agreements set forth on such Item 4.16 are in
full force and effect and are valid, binding and enforceable against Crown
and each of its Subsidiaries in accordance with their respective terms,
subject to (i) the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating to
or affecting creditors' rights generally and (ii) general equitable
principles (whether considered in a proceeding in equity or at law). Each
of Crown and each of its Subsidiaries has performed all material
obligations required to be performed by it under such Material Agreements
and neither Crown nor any of its Subsidiaries is in default under or in
breach of, nor is any of them in receipt of any claim of default or breach
under, nor does any of them have knowledge of any event which, with the
passing of time, the giving of notice, or both would constitute a breach or
default under any such Material Agreement to which it is subject which
would reasonably be expected to have a Material Adverse Effect on Crown;
neither Crown nor any of its Subsidiaries has any knowledge of any breach
or anticipated breach by the other parties to any Material Agreement to
which it is a party which would be reasonably expected to have a Material
Adverse Effect on Crown.
4.17 Customers and Suppliers. Set forth on Item 4.17 of the Disclosure
Schedule hereof is a list of the distributors ("Distributors") of Crown and its
Subsidiaries for each of the two fiscal years ending December 31, 1999, and set
forth opposite the name of each such Distributor is the percentage of
consolidated net sales and subscribers attributable to such Distributor. Such
Item 4.17 also lists any additional current Distributors which Crown and its
Subsidiaries anticipates shall be among the 25 largest Distributors for the
fiscal year ending December 31, 2000. Except as contemplated by this Agreement
or the Related Documents, to the knowledge of HEI, since the date of the Balance
Sheet, no material supplier of Crown or any of its Subsidiaries has indicated
that it shall materially change the pricing of its programming or that it shall
stop, or materially decrease the rate of, distributing programming to Crown or
any of its Subsidiaries, and no Distributor listed on the aforementioned Item
4.17 has indicated that it shall stop, or materially decrease the rate of,
purchasing, distributing or licensing rights to television programming from
Crown and its Subsidiaries.
4.18 Plans.
(a) Except as set forth on Item 4.18 of the Disclosure Schedule,
neither Crown nor any of its Subsidiaries is a party to any Plan, as
defined in the Employee Retirement Income Security Act of 1974 ("ERISA").
(b) With respect to each Plan, except as would not reasonably be
expected to have a Material Adverse Effect on Crown: (i) each Plan has been
administered in compliance with its terms, (ii) there are no proceedings by
the IRS, the Department of Labor or any Plan participant (other than
routine claims for benefits) pending or to the knowledge of
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Crown, threatened, with respect to any Plan, the assets of any trust
thereunder, or the Plan sponsor or the Plan administrator with respect to
the design or operation of any Plan, (iii) each Plan which is intended to
be qualified within the meaning of Section 401(a) of the Code has received
a favorable determination letter from the Internal Revenue Service that has
not been revoked, and to the knowledge of Crown, there are no existing
circumstances nor any events that have occurred that could adversely affect
the qualified status of any such qualified plan or the related trust, (iv)
no unsatisfied liabilities to participants, the IRS, the Department of
Labor, the Pension Benefit Guaranty Corporation or to any other Person or
Plan have been incurred under Title IV of ERISA as a result of the
termination of any Plan or any partial or complete withdrawal from a Plan
that is a "multiple employer plan" and (v) there has been no event with
respect to a Plan which would require disclosure under Sections 4062(c),
4063(a) or 4041(e) of ERISA.
(c) Neither Crown nor any of its Subsidiaries maintains or is
obligated to contribute to or, during the six-year period prior to the
Closing Date, has maintained or been obligated to contribute to a
Multiemployer Plan or any "multiple employer plan."
(d) Except as set forth on Item 4.18 of the Disclosure Schedule, and
except as would not reasonably be expected to have a Material Adverse
Effect on Crown, the consummation of the transactions contemplated by this
Agreement and the Related Documents will not, either alone or in a
combination with another event, (i) entitle any employee of Crown or any of
its Subsidiaries to severance pay or (ii) accelerate the time of payment or
vesting or increase the amount of compensation due to any such employee.
4.19 Employee Matters. Except as set forth on Item 4.19 of the Disclosure
Schedule and except for occurrences that would not have a Material Adverse
Effect on Crown, (a) to the knowledge of HEI, Crown and its Subsidiaries are in
compliance with all applicable laws respecting employment and employment
practices, terms and conditions of employment, health and safety, and wages and
hours; (b) Crown or its Subsidiaries are not party to any collective bargaining
agreement and there is no labor strike, slowdown or stoppage actually pending or
to the knowledge of HEI, threatened against or affecting Crown and its
Subsidiaries; (c) Crown or its Subsidiaries have not received notice that any
representation petition respecting the employees of Crown or its Subsidiaries
has been filed with the National Labor Relations Board, and (d) to the knowledge
of HEI, Crown or its Subsidiaries are and have been in compliance with all
notice and other requirements under the Worker Adjustment and Retaining
Notification Act ("WARN") or similar state statute.
4.20 Brokers, etc. Except for obligations to DLJ and other underwriters of
the IPO, none of HEI, the Company or Crown is obligated to pay any fee or
commission to any broker, finder or other similar Person in connection with the
Exchanges or any of the transactions contemplated by this Agreement or the
Related Documents.
4.21 Year 2000 Compliance. Except as set forth on Schedule 4.21, to the
knowledge of Crown, the software, hardware and equipment of Crown and its
Subsidiaries will continue to operate without causing serious interruption in
the business of Crown and its Subsidiaries in the year 2000 and beyond.
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4.22 Operations of the Company. The Company was formed for the purpose of
engaging in the transactions contemplated by this Agreement and has not engaged
in any material business activities or conducted any operations other than in
connection with the transactions contemplated by this Agreement or the Related
Documents.
4.23 Compliance with Laws. Crown is in compliance with, and is not in
violation of, any applicable Laws or Orders (including the Foreign Corrupt
Practices Act of 1977, any Federal "fraud and abuse legislation" or Federal
"anti-kickback laws" and any applicable building, zoning, environmental
protection, water use, occupational health and safety, employment or disability
rights, law, ordinance or regulation) affecting its properties or the operation
of its business which would reasonably be expected have a Material Adverse
Effect on Crown.
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF CEA
CEA hereby represents and warrants, as follows:
5.1 Existence; Power and Authority. CEA is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Delaware. CEA has all requisite power and authority and has taken all required
action necessary to execute and deliver and perform this Agreement, the Related
Documents and each other document or instrument related hereto or thereto to
which it is a party, and to carry out the terms hereof and thereof. None of the
foregoing actions will (i) violate any provision of the organizational documents
of CEA, (ii) result in the breach of or constitute a default under any material
contract, lease, license, franchise, permit, indenture, mortgage, deed of trust,
note, agreement or other instrument to which CEA is a party or is bound or (iii)
violate any Law or Order applicable to or bearing upon CEA or any of its assets
or business, except, in the case of (ii) and (iii), for such conflicts,
violations, breaches, rights and impairments that could not reasonably be
expected to have a Material Adverse Effect on CEA.
5.2 Enforceability, etc. Assuming the due authorization, execution and
delivery by each other Party, this Agreement has been duly executed and
delivered by CEA and constitutes, and when the Related Documents are executed,
the Related Documents will constitute, the legal, valid and binding obligation
of CEA as applicable, enforceable against it in accordance with their respective
terms, subject to (i) the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally and (ii) general equitable principles
(whether considered in a proceeding in equity or at law).
5.3 Ownership. CEA owns 130.555 shares of Crown Class B Stock. Except for
the Encumbrances set forth on Item 5.3 of the Disclosure Schedule, the shares of
Crown Class B Stock owned by CEA and will be delivered to the Company free and
clear of any Encumbrances, preemptive rights, escrows, options, rights of first
refusal or other agreements, arrangements, commitments, understandings or
obligations, whether written or oral, or any other restrictions affecting rights
and other incidents of record and beneficial ownership, other than (i)
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as set forth herein or in the Related Documents and (ii) restrictions on
transferability imposed generally under the Securities Act and under Blue Sky
Laws.
5.4 Consents and Approvals. Except as set forth on Item 5.4 of the
Disclosure Schedule, neither the execution, delivery and performance of this
Agreement or any Related Documents by CEA, nor the consummation by CEA of any
transaction related hereto or thereto will require any consent, approval, Order
or authorization of, filing, registration, declaration or taking of any other
action with, or notice to, any Person, other than such consents, approvals,
filings or actions (i) under the Federal securities laws, the Blue Sky Laws or
the HSR Act, (ii) the failure of which to take or obtain would not reasonably be
expected to have a Material Adverse Effect on CEA or (iii) have already been
obtained.
5.5 Purchase for Investment. CEA is acquiring the Class A Stock pursuant to
Section 3.1 for its own account and not as a nominee or agent for any other
Person and with no present intention to distribute such Class A Stock. CEA
understands that the Class A Stock must be held indefinitely unless it is
registered under the Securities Act or an exemption from such registration
becomes available.
5.6 Financial Matters. CEA represents and understands that the acquisition
of the Class A Stock as provided for in Section 3.1 involves substantial risk
and that CEA's financial condition and investments are such that it is in a
financial position to hold the Class A Stock for an indefinite period of time
and to bear the economic risk of, and withstand a complete loss of, such Common
Stock. CEA represents that it is an "accredited investor" as that term is
defined in Regulation D promulgated under the Securities Act, and that it is a
sophisticated investor, capable of evaluating the merits and risks of investing
in the Company given its current stage of development.
5.7 Adequate Access to Personnel and Materials. During the negotiation of
the transactions contemplated herein, CEA and its representatives have been
afforded full and free access to Crown's and the Company's corporate books,
financial statements and records, have been afforded an opportunity to ask such
questions of Crown's officers and employees concerning Crown's and the Company's
business, operations, financial condition, assets, liabilities and other
relevant matters, and have been given all such information as has been
requested, in order to evaluate the merits and risks of the prospective
investment contemplated herein.
5.8 Brokers, etc. CEA is not obligated to pay any fee or commission to any
broker, finder or other similar Person in connection with the Exchanges or any
of the transactions contemplated by this Agreement or the Related Documents.
5.9 Litigation. There are no actions, suits, proceedings, orders,
investigations or claims pending or, to the knowledge of CEA, threatened against
or affecting CEA, at law or in equity, before any court, arbitration panel,
tribunal or governmental commission, bureau, agency or instrumentality which
would reasonably be expected to have a Material Adverse Effect on CEA, or which
seeks to enjoin or restrain the consummation of, the transactions contemplated
by this Agreement or the Related Documents.
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ARTICLE 6 - REPRESENTATIONS AND WARRANTIES OF THE ODYSSEY INVESTORS
Each Odyssey Investor, severally and not jointly, represents and warrants
as to those matters pertaining to itself only (and not the other Odyssey
Investors, except that (i) Liberty represents and warrants severally and jointly
as to matters pertaining to Liberty and to matters pertaining to VGI and LMC and
(ii) NICC represents and warrants severally and jointly as to matters pertaining
to NICC and to matters pertaining to VMC) as follows:
6.1 Existence; Power and Authority.
(a) Such Odyssey Investor is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction set forth
opposite the name of such corporation on Item 6.1 of the Disclosure
Schedule. Such Odyssey Investor has all requisite power and authority and
has taken all required action necessary to execute and deliver and perform
this Agreement, the Related Documents and each other document or instrument
related hereto or thereto to which it is a party, and to carry out the
terms hereof and thereof. None of the foregoing actions will (i) violate
any provision of the organizational documents of such Odyssey Investor,
(ii) result in the breach of or constitute a default under any material
contract, lease, license, franchise, permit, indenture, mortgage, deed of
trust, note, agreement or other instrument to which such Odyssey Investor
is a party or is bound, (iii) violate any Law or Order applicable to or
bearing upon such Odyssey Investor or any of their respective assets or
business, except, in the case of (ii) and (iii), for such conflicts,
violations, breaches, rights and impairments that could not reasonably be
expected to have a Material Adverse Effect on such Odyssey Investor.
(b) Except for its Interests in Odyssey, VGI does not have any assets
or liabilities and has never conducted any business other than the
ownership of Interests in Odyssey.
6.2 Enforceability, etc. Assuming the due authorization, execution and
delivery by each other Party, this Agreement has been duly executed and
delivered by such Odyssey Investor and constitutes, and when the Related
Documents are executed, the Related Documents will constitute, the legal, valid
and binding obligation of such Odyssey Investor, enforceable against it in
accordance with their respective terms, subject to (i) the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights generally and (ii)
general equitable principles (whether considered in a proceeding in equity or at
law).
6.3 Ownership.
(a) Exhibit C hereto (the "VGI Capitalization Schedule") sets forth a
true and complete statement of the capitalization of VGI. VGI does not have
and has never had any subsidiaries. Except as set forth on the VGI
Capitalization Schedule, VGI has not issued any Interests, nor are any such
Interests (or any rights to acquire or purchase any Interests) outstanding.
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(b) The VGI Common Stock to be contributed to the Company is duly
authorized, validly issued, fully paid and non-assessable and will be
delivered to the Company free and clear of any Encumbrances, preemptive
rights, escrows, options, rights of first refusal or other agreements,
arrangements, commitments, understandings or obligations, whether written
or oral, or any other restrictions affecting rights and other incidents of
record and beneficial ownership, other than (i) as set forth herein or in
the Related Documents and (ii) restrictions on transferability imposed
generally under the Securities Act and under Blue Sky Laws.
(c) The Transfer of the VGI Common Stock on the terms and conditions
contemplated herein are exempt from the registration requirements of the
Securities Act and the Blue Sky Laws or will be qualified as may be
necessary. All of the VGI Common Stock is owned beneficially by Liberty
through LMC. Liberty is the sole member of LMC. LMC is the sole record
holder of all of the VGI Common Stock and is a "disregarded" entity within
the meaning of Treas. Reg. Sec. 301.7701-3.
(d) VGI owns 32.5% of the Odyssey Common Interests. Except for the
Encumbrances set forth on Item 6.3(d) of the Disclosure Schedule, the
Odyssey Common Interests owned by VGI are owned free and clear of any
Encumbrances. The Odyssey Common Interests owned by VGI were not issued in
violation of, and are not subject to, any applicable preemptive rights.
(e) VMC owns 22.5% of the Odyssey Common Interests. Except for the
Encumbrances set forth on Item 6.3(e) of the Disclosure Schedule and set
forth in the Amended and Restated Odyssey Agreement, the Interests in
Odyssey Common Interests owned by VMC are owned free and clear of any
Encumbrances. The Odyssey Common Interests owned by VMC were not issued in
violation of, and are not subject to, any applicable preemptive rights.
6.4 Consents and Approvals. Except as set forth on Item 6.4 of the
Disclosure Schedule, neither the execution, delivery and performance of this
Agreement or any Related Document by the such Odyssey Investor, nor the
consummation by such Odyssey Investor of any transaction related hereto or
thereto will require any consent, approval, Order or authorization of, filing,
registration, declaration or taking of any other action with, or notice to, any
Person, other than such consents, approvals, filings or actions (i) under the
Federal securities laws, the Blue Sky Laws or the HSR Act, (ii) the failure of
which to take or obtain would not reasonably be expected to have a Material
Adverse Effect on such Odyssey Investor or (iii) which have already been
obtained.
6.5 Purchase for Investment. Such Odyssey Investor, as applicable, is
acquiring the Class A Stock pursuant to Section 3.1 for its own account and not
as a nominee or agent for any other Person and with no present intention to
distribution thereof. Such Odyssey Investor understands that the Class A Stock
must be held indefinitely unless it is registered under the Securities Act or an
exemption from such registration becomes available.
6.6 Financial Matters. Such Odyssey Investor acquiring Class A Stock
pursuant to Section 3.1 represents and understands that the acquisition of the
Class A Stock involves substantial risk and that such Odyssey Investor's
financial condition and investments
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are such that it is in a financial position to hold the Class A Stock for an
indefinite period of time and to bear the economic risk of, and withstand a
complete loss of, such Class A Stock. Such Odyssey Investor that is acquiring
Class A Stock pursuant to Section 3.1 represents that it is an "accredited
investor" as that term is defined in Regulation D promulgated under the
Securities Act, and that it is a sophisticated investor, capable of evaluating
the merits and risks of investing in the Company given its current stage of
development.
6.7 Adequate Access to Personnel and Materials. During the negotiation of
the transactions contemplated herein, such Odyssey Investor and its
representatives have been afforded full and free access to Crown's and the
Company's corporate books, financial statements and records, have been afforded
an opportunity to ask such questions of Crown's officers and employees
concerning Crown's and the Company's business, operations, financial condition,
assets, liabilities and other relevant matters, and have been given all such
information as has been requested, in order to evaluate the merits and risks of
the prospective investment contemplated herein.
6.8 Brokers, etc. Such Odyssey Investor is not obligated to pay any fee or
commission to any broker, finder or other similar Person in connection with the
Exchanges or any of the transactions contemplated by this Agreement or the
Related Documents.
6.9 Litigation. There are no actions, suits, proceedings, orders,
investigations or claims pending or, to the knowledge of such Odyssey Investor,
threatened against or affecting such Odyssey Investor, at law or in equity,
before any court, arbitration panel, tribunal or governmental commission,
bureau, agency or instrumentality which would reasonably be expected to have a
Material Adverse Effect on such Odyssey Investor or which seeks to enjoin or
restrain the consummation of the transactions contemplated by this Agreement and
the Related Documents.
ARTICLE 7 - CONDUCT OF THE PARTIES PRIOR TO CLOSING DATE
7.1 The IPO. The Parties agree that DLJ shall act as the lead manager for
the IPO. Each Contributor agrees to enter into an agreement in customary form
with the underwriters for the IPO restricting the transferability of shares of
Common Stock for 180 days following the IPO.
7.2 Access for Investigation; Confidentiality.
(a) At reasonable times and places, and upon reasonable notice, Crown
shall permit each of the Odyssey Investors and CEA and their respective
accountants and counsel and other representatives to have full access to
the premises and to all the books, contracts, commitments and records
(including, but not limited to, Tax Returns filed and those in preparation)
of Crown and its Subsidiaries during customary business hours and furnish
each of the Odyssey Investors and CEA with such financial and operating
data and other information with respect to the business and properties of
Crown as they shall from time to time reasonably request.
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(b) Except as required by law, each Party will hold, and will cause
its respective officers, employees, accountants, counsel, financial
advisors and other representatives and affiliates to hold, any nonpublic
information received in connection with the transactions contemplated by
this Agreement in confidence until such time as such information becomes
publicly available (otherwise than through the wrongful act of any such
Person) and shall use its best efforts to ensure that such Persons do not
disclose such information to others without the prior written consent of
the applicable Party from whom such information was received. In the event
of the termination of this Agreement for any reason, each Party shall
promptly return or destroy all documents containing nonpublic information
so obtained from any other Party or any of its subsidiaries and any copies
made of such documents.
7.3 Conduct of Business.
(a) Except as disclosed in Item 7.3 of the Disclosure Schedule or as
contemplated by this Agreement or the Related Documents, from the date
hereof and prior to the Closing Date, without the prior written consent of
the other Parties (which consent shall not be unreasonably withheld or
delayed), Crown shall and shall cause each of its Subsidiaries to:
(i) conduct its business in the ordinary course in all material
respects, consistent with past practice or as otherwise disclosed in
the Registration Statement;
(ii) use its reasonable best efforts to maintain and preserve its
business organization, material rights, franchises and all Material
Agreements;
(iii) use its reasonable best efforts to retain the services of
its respective officers and key employees and maintain its respective
existing relationships with customers and suppliers;
(iv) not declare or pay any dividend or make any distribution of
any kind in respect of any shares of capital stock of Crown or any of
its Subsidiaries (other than dividends or distributions by Crown's
wholly owned Subsidiaries to Crown or Crown's other wholly owned
Subsidiaries);
(v) not modify or amend its organizational documents;
(vi) not enter into any material transaction with the beneficial
holder of a majority of its outstanding common stock or any of its
affiliates or any officer, director or employee of any of them
(collectively, "Affiliate Transactions") other than Affiliate
Transactions entered into on or after the date hereof that are
consistent with past practice;
(vii) not enter into any agreement to do any of the foregoing;
and
(viii) not to take, or agree to take, any action that would make
any representation of HEI inaccurate in any material respect at the
Closing Date.
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(b) Except as contemplated by this Agreement and the Related
Documents, from the date hereof and prior to the Closing Date, VGI shall
(i) not incur any liabilities or conduct any business other than holding
Odyssey Common Interests, (ii) conduct its business in the ordinary course
in all material respects, (iii) not declare or pay any dividend or make any
distribution of any kind in respect of its shares of capital stock, or (iv)
not issue, sell, pledge or dispose of any shares of its capital stock.
7.4 Performance of Obligations. Each of Crown and VGI shall perform in all
material respects all of its respective obligations and comply in all material
respects with all laws affecting the operation of its respective businesses and
pay when due (unless contested in good faith by such Party) all required Taxes,
licenses and fees and file all required Tax Returns as and when such returns are
required to be filed.
7.5 Related Documents.
(a) Each of Crown, HEI and CEA agree that the Crown Stockholders
Agreement is terminated effective upon the Closing. The Contributors and
the Company shall enter into the Company Stockholders Agreement on or prior
to the Closing Date.
(b) The Company shall enter into the Tax Sharing Agreement on or prior
to the Closing Date.
7.6 Current Public Information. At all times after the Company's
registration statement with the Securities and Exchange Commission has been
declared effective pursuant to the requirements of the Securities Act, the
Company shall file all reports required to be filed by it under the Securities
Act and the Exchange Act and the rules and regulations adopted thereunder to the
extent required to enable the Parties to sell Restricted Securities pursuant to
Rule 144 under the Securities Act (as such rule may be amended from time to
time) or any similar rule or regulation hereafter adopted by the Securities and
Exchange Commission. Upon the reasonable request of a Party, the Company shall
deliver to such Party a written statement as to whether it has complied with
such requirement.
7.7 Further Assurances. Each Party agrees to use its reasonable best
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other Parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by this Agreement
and the Related Documents to which it is a Party, including, without limitation,
(a) the obtaining of all other necessary actions or nonactions, waivers,
consents, licenses, permits, authorizations, orders and approvals from any
Governmental Entity and the making of all other necessary registrations and
filings (including, without limitation, filings required under the HSR Act), (b)
the obtaining of all consents, approvals or waivers from third parties that are
necessary to consummate the transactions contemplated by this Agreement and the
Related Documents or required to prevent a Material Adverse Effect, and (c) the
execution and delivery of any additional instruments necessary to consummate the
transactions contemplated by, and to fully carry out the purposes of, this
Agreement. Notwithstanding the foregoing, none of HEI, Crown or the Company
shall have any obligation to pursue the IPO; provided that in the event that
either HEI, Crown or the Company does not pursue the IPO, no other Party shall
be obligated to
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pursue the IPO. HEI agrees to promptly notify the other Parties if it determines
not to pursue the IPO.
ARTICLE 8 - CONDITIONS PRECEDENT
8.1 Conditions Precedent. The respective obligations of each Party to this
Agreement shall be subject to the fulfillment, at or prior to the Closing Date,
of the following conditions, or waiver by the Party to whom such obligation is
owed:
(a) Legality. At the time of the Closing, the transactions
contemplated by this Agreement shall be legally permitted by all applicable
Laws and Orders.
(b) Absence of Proceedings to Restrain Consummation of the Agreement.
No judgment, injunction or order shall have been entered restraining or
prohibiting the transactions contemplated herein.
(c) HSR Act. The waiting period (and any extension thereof) applicable
to consummation of the Exchanges under the HSR Act shall have expired or
been terminated.
(d) Consummation of IPO. (i) The Company shall have filed the
Registration Statement to register Class A Stock to be sold by the Company
in the IPO (the "Offered Shares"), plus an additional number of shares of
Class A Stock equal to 15% of the Offered Shares that may be sold by HEI in
connection with the exercise by the underwriters for the IPO of an
over-allotment option pursuant to the terms of the Underwriting Agreement,
(ii) the Registration Statement shall have become effective under the
Securities Act and (iii) Offered Shares representing no more than 25% of
the shares of Common Stock outstanding after the IPO (excluding any Class A
Stock sold upon exercise of the over-allotment option) shall have been sold
by the Company in the IPO simultaneously with the Exchanges for aggregate
net proceeds of not less than $150 million.
(e) Listing. The Class A Stock shall have been approved for listing on
the Nasdaq National Market, subject to official notice of issuance.
(f) Secretary's Certificates. Each Party shall have received
certificates from a Secretary or Assistant Secretary of each other Party
(i) certifying organizational documents of such Party and relevant board
(or partnership) resolutions authorizing the transactions contemplated by
this Agreement and any applicable Related Documents and (ii) as to the
incumbency of each person signing this Agreement and any Related Document
on behalf of such Party.
(g) Consent. The consent or approval of each third party whose consent
or approval shall be required in connection with the transactions
contemplated hereby or by the Related Documents shall have been obtained,
except for any such consents the failure of which to obtain would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Crown.
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(h) Stockholders Agreement. HEI, Liberty, VMC, CEA and the Company
shall have duly authorized, executed and delivered the Company Stockholders
Agreement.
8.2 Conditions Precedent to Obligations of each of the Company, Crown and
HEI. The respective obligations of each of the Company, Crown and HEI are
further subject to the fulfillment or waiver, at or prior to the Closing Date,
of the following conditions:
(a) Representations and Warranties. The representations and warranties
of each other Party set forth in this Agreement that are qualified as to
materiality shall be true and correct, and the representations and
warranties of each other Party set forth in this Agreement that are not so
qualified shall be true and correct in all material respects, in each case
as of the date of this Agreement and as of the Closing Date (except for
representations and warranties that speak as of a specific date).
(b) Performance of Obligations. Each other Party shall have performed
in all material respects all obligations required to be performed by it
under this Agreement and each of the Related Documents to which it is a
party at or prior to the Closing Date.
8.3 Conditions Precedent to Obligations of each of Liberty and VGI. The
respective obligations of each of Liberty and VGI are further subject to the
fulfillment or waiver, at or prior to the Closing Date, of the following
conditions:
(a) Representations and Warranties. The representations and warranties
of each other Party set forth in this Agreement that are qualified as to
materiality shall be true and correct, and the representations and
warranties of each other Party set forth in this Agreement that are not so
qualified shall be true and correct in all material respects, in each case
as of the date of this Agreement and as of the Closing Date (except for
representations and warranties that speak as of a specific date).
(b) Performance of Obligations. Each other Party shall have performed
in all material respects all obligations required to be performed by it
under this Agreement and each of the Related Documents to which it is a
party at or prior to the Closing Date.
8.4 Conditions Precedent to Obligations of each of NICC and VMC. The
respective obligations of each of NICC and VMC are further subject to the
fulfillment or waiver, at or prior to the Closing Date, of the following
conditions:
(a) Representations and Warranties. The representations and warranties
of each other Party set forth in this Agreement that are qualified as to
materiality shall be true and correct, and the representations and
warranties of each other Party set forth in this Agreement that are not so
qualified shall be true and correct in all material respects, in each case
as of the date of this Agreement and as of the Closing Date (except for
representations and warranties that speak as of a specific date).
(b) Performance of Obligations. Each other Party shall have performed
in all material respects all obligations required to be performed by it
under this
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<PAGE> 29
Agreement and each of the Related Document to which it is a party at or
prior to the Closing Date.
8.5 Conditions Precedent to Obligations of CEA. The obligations of CEA are
further subject to the fulfillment or waiver, at or prior to the Closing Date,
of the following conditions:
(a) Representations and Warranties. The representations and warranties
of each other Party set forth in this Agreement that are qualified as to
materiality shall be true and correct, and the representations and
warranties of each other Party set forth in this Agreement that are not so
qualified shall be true and correct in all material respects, in each case
as of the date of this Agreement and as of the Closing Date (except for
representations and warranties that speak as of a specific date); provided,
however, that the foregoing condition shall not apply to the
representations and warranties set forth in Section 4.6 through Section
4.19 and Section 4.21 of this Agreement.
(b) Performance of Obligations. Each other Party shall have performed
in all material respects all obligations required to be performed by it
under this Agreement and each of the Related Documents to which it is a
party at or prior to the Closing Date.
ARTICLE 9 - INDEMNIFICATION
9.1 Indemnification by the Company, HEI, Liberty, NICC and CEA.
(a) The Company and Crown agree, jointly and severally, from and after
the Closing to (i) indemnify and hold harmless the Contributors (other than
HEI), all of their respective officers, directors, affiliates, employees
and agents, and each of the successors and assigns of any of the foregoing
(the "Contributor Indemnified Persons") from and against any Adverse
Consequences (but excluding any consequential damages of the Contributor
Indemnified Persons), and (ii) defend the Contributor Indemnified Persons
against any Actions, to the extent such Adverse Consequences or Actions
arise out of or result from (A) the breach or inaccuracy of any
representation or warranty of HEI contained in Section 4.4 or the
corresponding Items of the Disclosure Schedules hereto or (B) any untrue
statement of a material fact in the Prospectus or omission of a material
fact required to be stated in the Prospectus or necessary to make the
statements in the Prospectus, in light of the circumstances under which
they were made, not misleading, provided that in no event shall the Company
be liable for the indemnification contained in Section 9.1(a)(ii)(B) unless
a claim for indemnification has been asserted in writing by such
Contributor Indemnified Person prior to the expiration of the statute of
limitations period that would apply to such a claim if made by a purchaser
of Class A Stock in the IPO. For purposes of indemnification under Section
9.1(a)(ii)(B), the Contributor Indemnified Persons shall be treated as if
they were purchasers of Class A Stock in the IPO.
(b) HEI agrees from and after the Closing to (i) indemnify and hold
harmless the Contributor Indemnified Persons from and against, and waive
any claim for contribution against the Company with respect to, any Adverse
Consequences (but excluding any consequential damages of the Contributor
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<PAGE> 30
Indemnified Persons), and (ii) defend the Contributor Indemnified Persons
against any Actions, to the extent such Adverse Consequences or Actions
arise out of or result from the breach or inaccuracy of any representation
or warranty of HEI or Crown contained in Section 4.1, 4.2, 4.3 or 4.20 or
the corresponding Items of the Disclosure Schedules hereto.
(c) Liberty agrees from and after Closing to (i) indemnify and hold
harmless the Company, all of its officers, directors, affiliates, employees
and agents, and each of the successors and assigns of any of the foregoing
(the "Company Indemnified Persons" from and against, and waive any claim
for contribution against the Company with respect to, any Adverse
Consequences (but excluding any consequential damages of the Company
Indemnified Persons), and (ii) defend the Company Indemnified Persons
against any Actions, to the extent such Adverse Consequences or Actions
arise out of or result from the breach or inaccuracy of any of its
representations or warranties contained in Section 6.1, 6.2, 6.3 or 6.8 or
the corresponding Items of the Disclosure Schedule hereto.
(d) VMC agrees from and after Closing to (i) indemnify and hold
harmless the Company Indemnified Persons from and against, and waive any
claim for contribution against the Company with respect to, any Adverse
Consequences (but excluding any consequential damages of the Company
Indemnified Persons), and (ii) defend the Company Indemnified Persons
against any Actions, to the extent such Adverse Consequences or Actions
arise out of or result from the breach or inaccuracy of any of its
representations or warranties contained in Section 6.1, 6.2, 6.3 or 6.8 or
the corresponding Items of the Disclosure Schedule.
(e) CEA agrees from and after Closing to (i) indemnify and hold
harmless the Company Indemnified Persons from and against, and waive any
claim for contribution against the Company with respect to, any Adverse
Consequences (but excluding any consequential damages of the Company
Indemnified Persons), and (ii) defend the Company Indemnified Persons
against any Actions, to the extent such Adverse Consequences or Actions
arise out of or result from the breach or inaccuracy of any of its
representations or warranties contained in Section 5.1, 5.2, 5.3 or 5.8 or
the corresponding Items of the Disclosure Schedule.
To clarify the intention of the Parties with respect to the
indemnification obligations of the Company, HEI, Liberty, VMC and CEA under
this Section 9.1, the parties acknowledge that if the indemnification of
any Indemnified Person(s) pursuant to this Section 9.1 directly or
indirectly reduces or eliminates the Adverse Consequences suffered by any
other Indemnified Person(s), the Indemnifying Party shall not be required
to indemnify such other Indemnified Person(s) to the extent that such
Adverse Consequences have been reduced or eliminated. The Contributors will
have the right to cause the Company to assert a claim for indemnification
under this Section 9.1 and will have the right to conduct and control any
resulting action against the Indemnifying Party (at such Contributor(s)'
expense subject to any indemnification obligation of the Indemnifying Party
in respect thereof).
9.2 Procedure for Indemnification. If any Person shall claim
indemnification (the "Indemnified Party") hereunder for any claim other than a
third party claim, the Indemnified Party shall promptly give written notice to
the other party from whom indemnification is sought (the "Indemnifying Party")
of the nature and amount of the claim. If an Indemnified Party shall claim
indemnification hereunder arising from any claim or demand of a third party, the
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<PAGE> 31
Indemnified Party shall promptly give written notice (a "Written Notice") to the
Indemnifying Party of the basis for such claim or demand, setting forth the
nature of the claim or demand in detail. The Indemnifying Party shall have the
right to compromise or, if appropriate, defend at its own cost and through
counsel of its own choosing (reasonably acceptable to the Indemnified Party),
any claim or demand set forth in a Written Notice giving rise to such claim for
indemnification. In the event the Indemnifying Party undertakes to compromise or
defend any such claim or demand, it shall promptly (and in any event, no later
than thirty (30) days after receipt of the Written Notice) notify the
Indemnified Party in writing of its intention to do so. If the Indemnifying
Party fails to notify the Indemnified Party of its intent to undertake the
compromise or defense of such claim or demand, then the Indemnified Party may do
so at the expense of the Indemnifying Party. The parties shall fully cooperate
in the defense or compromise of any indemnified claim or demand. After the
assumption of the defense by the Indemnifying Party, the Indemnifying Party
shall not be liable for any legal or other expenses subsequently incurred by the
Indemnified Party, in connection with such defense, but the Indemnified Party
may participate in such defense at its own expense. No settlement of a third
party claim or demand defended by the Indemnifying Party shall be made without
the written consent of the Indemnified Party, such consent not to be
unreasonably withheld. The Indemnifying Party shall not, except with written
consent of the Indemnified Party, consent to the entry of a judgment or
settlement which does not include as an unconditional term thereof, the giving
by the claimant or plaintiff to the Indemnified Party of an unconditional
release from all liability in respect of such third party claim or demand.
9.3 Time Limitations on Indemnity. Except as set forth in Section
9.1(a)(ii)(B), the representations and warranties made herein by the Parties
hereto shall not survive the Closing and no Party shall bring a claim or action
with respect to such representation or warranty at any time following the
Closing or termination of this Agreement; provided, that the representations and
warranties set forth in Sections 4.1, 4.2, 4.3, 4.4, 4.20, 5.1, 5.2, 5.3, 5.8,
6.1, 6.2, 6.3 and 6.8 and the corresponding indemnifications contained in
Section 9.1 shall survive without limitation. This Section 9.3 shall not limit
any covenant or agreement of the Parties hereto, which by its terms contemplates
performance after the Closing or after the termination of this Agreement.
9.4 Limitations on Indemnity. The sole and exclusive remedies of the
Parties with respect to breaches of this Agreement shall be pursuant to this
Article 9 or Article 10; provided, that nothing herein shall limit the rights of
any Party to seek any relief in equity or limit in any way any Party's remedies
in respect of fraud by another party in connection herewith or the transactions
contemplated hereby.
ARTICLE 10 - TAX MATTERS
10.1 Indemnification.
(a) Liberty Tax Indemnity. Liberty shall be liable for, and shall hold
the Company and its Subsidiaries and any successors thereto, harmless from
and against (i) any and all Taxes, for any Pre-Closing Period, of VGI (or
of any consolidated, combined, unitary or affiliated group of which VGI is
or has ever been a member), (ii) any Tax liability of any
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<PAGE> 32
member of the Liberty Group to which the Company or any of its Subsidiaries
may be subject due to the application of Treasury Regulation Section
1.1502-6 or any provision of applicable law that is comparable or analogous
thereto and (iii) any and all Taxes covered by Section 9.1(c).
(b) HEI Tax Indemnity. HEI shall be liable for, and shall hold the
Company and its Subsidiaries and any successors thereto, harmless from and
against (i) any and all consolidated, combined or unitary Income Taxes, for
any Pre-Closing Period, of Crown (or of any consolidated, combined, unitary
or affiliated group of which Crown is or has ever been a member) and (ii)
any Tax liability of any member of the Hallmark Group to which the Company
or any of its Subsidiaries may be subject due to the application of
Treasury Regulation Section 1.1502-6 or any provision of applicable law
that is comparable or analogous thereto.
(c) Company Tax Indemnity. Except as provided in the Tax Sharing
Agreement or in Section 10.1(a), or 10.1(b), the Company shall be liable
for, and shall hold Liberty and HEI harmless from and against, any and all
Taxes of VGI, Crown, the Company or any of their respective Subsidiaries.
(d) Payment Hereunder. Any indemnity payment required to be made
pursuant to Section 10.1(a), 10.1(b) or 10.1(c) hereof from one Party to
another (or to any Subsidiary or successor of a Party) shall be paid by the
indemnifying party to the indemnified party at least five days prior to the
date on which the Taxes giving rise to the indemnity payment are required
to be paid to the relevant taxing authority.
(e) Tax Benefits.
(i) Refunds. Any refunds or credits of consolidated, combined or
unitary Taxes of VGI (or any consolidated, combined, unitary or
affiliated group of which VGI is or has ever been a member), which
refund or credit is for any Pre-Closing Period, shall be for the
account of Liberty. If the Company or any of its Subsidiaries or
affiliates receives any refund or credit which is for the account of
Liberty pursuant to the preceding sentence, the amount of such refund
or credit shall be paid over to Liberty within five days of such
receipt. Any refunds or credits of consolidated, combined or unitary
Taxes of Crown (or any consolidated, combined, unitary or affiliated
group of which Crown is or has ever been a member), which refund or
credit is for any Pre-Closing Period, shall be for the account of HEI.
If the Company or any of its Subsidiaries or affiliates receives any
refund or credit which is for the account of HEI pursuant to the
preceding sentence, the amount of such refund or credit shall be paid
over to HEI within five days of such receipt.
(ii) Timing Differences. If, as the result of any Adjustment made
with respect to any Tax for which HEI is required to indemnify the
Company or any of its Subsidiaries pursuant to Section 10.1(b) hereof,
the Company or any of its Subsidiaries Actually Realizes a Tax Benefit
for a Post-Closing Period, the Company shall pay HEI the amount of
such Actually Realized Tax Benefit within five days of filing the Tax
Return in which such Tax Benefit is Actually Realized; provided, that
if a subsequent Adjustment reverses all or any portion of the Tax
Benefit paid over to HEI, HEI shall pay the Company the amount of such
reversal within five days of the date of the determination pursuant to
which such Tax Benefit is reversed. If, as the result of any
Adjustment made with respect to any Tax for which Liberty is
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<PAGE> 33
required to indemnify the Company or any of its Subsidiaries pursuant
to Section 10.1(a) hereof, the Company or any of its Subsidiaries
Actually Realizes a Tax Benefit for a Post-Closing Period, the Company
shall pay Liberty the amount of such Actually Realized Tax Benefit
within five days of filing the Tax Return in which such Tax Benefit is
Actually Realized; provided, that if a subsequent Adjustment reverses
all or any portion of the Tax Benefit paid over to Liberty, Liberty
shall pay the Company the amount of such reversal within five days of
the date of the determination pursuant to which such Tax Benefit is
reversed.
10.2 Filing Responsibility.
(a) Liberty shall, with the reasonable cooperation and assistance of
the Company and its Subsidiaries, prepare and file or shall cause VGI to
prepare and file, (i) all Tax Returns with respect to Taxes of VGI required
to be filed (taking into account valid extensions) prior to the Closing
Date and (ii) any consolidated, combined or unitary Tax Returns, for any
taxable period, that includes Liberty. Any Taxes required to be paid in
connection with such Tax Returns shall be paid by the applicable taxpayer
with respect to such Taxes.
(b) HEI shall, with the reasonable cooperation and assistance of the
Company and its Subsidiaries, prepare and file or shall cause Crown to
prepare and file, (i) all Tax Returns with respect to Taxes of Crown
required to be filed (taking into account valid extensions) prior to the
Closing Date and (ii) any consolidated, combined or unitary Tax Returns,
for any taxable period, that include HEI or any other member of the
Hallmark Group. Any Taxes required to be paid in connection with such Tax
Returns shall be paid by the applicable taxpayer with respect to such
Taxes.
(c) Any Income Tax Returns of Odyssey shall be filed by the Tax
matters partner in Odyssey.
(d) The Company shall file or cause to be filed all other Tax Returns
with respect to the Company, VGI, Crown or Odyssey or their respective
Subsidiaries. The Company shall cause the filing of an election specified
in Regulation Section 1.1502-21(b)(3)(ii)(B) with respect to Crown and VGI
(and any comparable election under state or local Income Tax law).
(e) The Company shall, and shall cause its Subsidiaries to, provide
the information relating to the Tax Items of the Company and its
Subsidiaries that is necessary or reasonably useful for the Hallmark Group
or the Liberty Group to satisfy its obligations with respect to any Tax
Return for 1999 or 2000.
(f) Liberty, HEI and the Company shall, and shall cause their
respective Subsidiaries (together, the "Tax Cooperative Parties"), to
cooperate with one another with respect to Tax matters. Such cooperation
shall include promptly forwarding copies of the relevant portions of
notices and forms or other communications received from or sent to any
Governmental Entity that pertain to any other Tax Cooperative Party or any
Tax that is subject to indemnification under this Article 10 to such Tax
Cooperative Party, and, upon the request of a Tax Cooperative Party, making
available knowledgeable employees to such Tax Cooperative Party and
providing information and data reasonably requested by such Tax Cooperative
Party (it
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<PAGE> 34
being agreed and understood that neither HEI nor Liberty nor any of their
Subsidiaries shall be required to provide any information or data, other
than information and data relating solely to the Company or any of its
Subsidiaries).
(g) Liberty shall be entitled to control in all respects any Tax
Proceeding regarding a consolidated, combined or unitary Tax Return, for
any taxable period, that includes Liberty or any other member of the
Liberty Group. Except as otherwise provided in the Tax Sharing Agreement,
HEI shall be entitled to control in all respects any Tax Proceeding
regarding a consolidated, combined or unitary Tax Return, for any taxable
period, that includes HEI or any other member of the Hallmark Group.
10.3 Tax Sharing Agreements. All tax sharing agreements (other than the Tax
Sharing Agreement) or similar arrangements with respect to or involving (i) the
Company or any of its Subsidiaries, on the one hand, and any member of the
Hallmark Group, on the other hand or (ii) VGI, on the one hand, and any member
of the Liberty Group, on the other hand, shall be terminated, as to the Company
and VGI and their Subsidiaries, as of the Closing Date and, after the Closing
Date, neither the Company nor VGI nor any of their respective Subsidiaries shall
be bound thereby or have any rights, obligations or liabilities thereunder.
10.4 Coordination with Agreement. To the extent that the provisions of this
Article 10 or the Tax Sharing Agreement conflict with any other provisions of
this Agreement, this Article 10 and the Tax Sharing Agreement shall exclusively
govern all matters concerning Taxes. Notwithstanding Section 9.2, Section 9.2
shall not apply to claims for indemnification under this Article 10.
10.5 Tax Treatment of Exchanges. The Parties agree that (i) the Exchanges
are intended to be treated as transfers pursuant to Section 351 of the Code,
(ii) each of them shall report the consequences of the Exchanges consistent with
such treatment and (iii) except as otherwise required by a "determination"
within the meaning of Section 1313(a) of the Code, each of them shall take no
action or position inconsistent with such treatment.
10.6 Survival. The provisions of this Article 10 shall survive until the
date that is 60 days after the expiration of the applicable statute of
limitations.
ARTICLE 11 - TERMINATION
11.1 Termination by Mutual Consent. This Agreement may be terminated and
transactions contemplated hereby may be abandoned at any time prior to the
Closing by the unanimous written consent of the Parties.
11.2 Termination by any of the Parties. This Agreement may be terminated
(upon written notice from the terminating Party to the other Parties) and the
transactions contemplated hereby may be abandoned by action of any Party, if (i)
the Closing shall not have been consummated by June 30, 2000 (provided that the
right to terminate this Agreement under this clause (i) shall not be available
to any Party whose failure to fulfill any obligation under this Agreement has
been the cause of or resulted in the failure of the Closing to occur on or
before such date), (ii) the Registration Statement shall not have been filed by
February 28, 2000 or if the
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<PAGE> 35
Registration Statement is withdrawn or (iii) any Governmental Entity shall have
issued a Law or Order permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated hereby and such Law or Order shall
have become final and nonappealable.
11.3 Effect of Termination and Abandonment. In the event of termination of
this Agreement and other transactions contemplated hereby pursuant to this
Article 11, no Party hereto (or any of its directors or officers) shall have any
liability or further obligation to any other Party to this Agreement, except (a)
both Section 7.2(b) and Article 12 shall survive termination of this Agreement
and (b) nothing herein will relieve any Party from liability for any breach of
this Agreement occurring prior to such termination.
ARTICLE 12 - GENERAL PROVISIONS; OTHER AGREEMENTS
12.1 Expenses. If the transactions contemplated hereby are not consummated,
all legal and other costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the Party
incurring such costs and expenses. If the IPO and the transactions contemplated
by this Agreement are consummated, the Company shall reimburse each of CEA and
the Odyssey Investors for their reasonable expenses (including reasonable legal
fees and expenses) incurred in connection with the transactions contemplated by
this Agreement, excluding the IPO, up to a maximum reimbursement of $150,000 per
Party, and shall reimburse HEI for its reasonable expenses (including reasonable
legal fees and expenses) incurred in connection with the transactions
contemplated by this Agreement, including the IPO, up to a maximum reimbursement
of $2 million. The Company shall pay for all of its expenses incurred in
connection with the transactions contemplated by this Agreement, including the
IPO.
12.2 Governing Law. This Agreement shall be governed by and construed in
accordance with the procedural and substantive laws of the State of New York,
including Section 5-1401 of the New York General Obligations Law.
12.3 Headings. Article and Section headings used in this Agreement are for
convenience only and shall not affect the meaning or construction of this
Agreement.
12.4 Notices. All notices, requests, demands or other communications
required by or otherwise with respect to this Agreement shall be in writing and
shall be deemed to have been duly given to any Party when delivered by hand, by
messenger or by a nationally recognized overnight delivery company, when
delivered by facsimile and confirmed by return facsimile, or when delivered by
first class mail, postage prepaid and return receipt requested, in each case to
the applicable addresses set forth below:
(a) if to the Company, HEI or Crown to:
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<PAGE> 36
Hallmark Cards, Incorporated
Department 339
2501 McGee
Kansas City, MO 64108
Attention: Judith C. Whittaker, Vice President, General Counsel
Telephone: (816) 274-5583
Facsimile: (816) 274-7171
with copies to:
Crown Media Holdings, Inc.
6430 S. Fiddlers Green Circle
Suite 500
Englewood, CO 80111
Attention: William J. Aliber, Chief Financial Officer
Telephone: (303) 220-7990
Facsimile: (303) 220-7660
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Eric S. Robinson, Esq.
Telephone: (212) 403-1000
Facsimile: (212) 403-2000
(b) if to CEA, to:
Chase Equity Associates, L.L.C.
380 Madison Avenue
New York, NY 10017
Attention: Arnold Chavkin
Telephone: (212) 622-3100
Facsimile: (212) 622-3101
with a copy to:
Mayer, Brown & Platt
1675 Broadway, Suite 1900
New York, New York 10019
Attention: Kathleen A. Walsh, Esq.
Telephone: (212) 506-2500
Facsimile: (212) 262-1910
(c) if to Liberty or VGI, to:
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<PAGE> 37
Liberty Media Corporation
9197 South Peoria Street
Englewood, Colorado 80112
Attention: David B. Koff, Senior Vice President
Telephone: (720) 875-5421
Facsimile: (720) 875-5448
with a copy to:
Liberty Media Corporation
9197 South Peoria Street
Englewood, Colorado 80112
Attention: Charles Tanabe,
Senior Vice President and General Counsel
Telephone: (720) 875-5440
Facsimile: (720) 875-5382
Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue
Los Angeles, California 90071-3144
Attention: Michael A. Woronoff, Esq.
Telephone: (213) 687-5253
Facsimile: (213) 687-5600
(d) if to NICC or VMC, to:
VISN Management Corp.
810 Twelfth Avenue South
Nashville, Tennessee 37203
Attention: Wilford V. Bane
Telephone: (615) 742-5451
Facsimile: (615) 742-5404
with a copy to:
Clifford Chance Rogers & Wells LLP
200 Park Avenue
New York, New York 10166-0153
Attention: Steven A. Hobbs, Esq.
Telephone: (212) 878-8000
Facsimile: (212) 878-8375
12.5 Parties in Interest. All the terms and provisions of this Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
Parties and their respective successors and permitted assigns; provided, that,
except as otherwise expressly set forth in this Agreement, neither the rights
nor the obligations of any Party may be assigned or delegated without the prior
written consent of each of the other Parties and any purported assignment in
violation hereof shall be null and void.
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<PAGE> 38
12.6 Entire Agreement. This Agreement, the Related Documents, and any
agreements set forth as an exhibit to this Agreement or any Related Document
constitute the entire agreement between the Parties hereto and supersede all
prior agreements and understandings, both written and oral, with respect to the
subject matter hereof.
12.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be considered an original, but all of which
together shall constitute the same instrument.
12.8 Amendment. This Agreement may be modified or amended only by an
instrument in writing signed by all of the Parties.
12.9 Gender, etc. Whenever the context may require, any pronouns used
herein shall be deemed to refer to the masculine, feminine, or neuter forms, and
the singular form of nouns, pronouns and verbs shall include the plural, and
vice versa. Whenever used herein, the terms "include," "includes" and
"including" shall mean to include without limitation.
12.10 Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provisions shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
12.11 No Waiver. No failure to exercise and no delay in exercising any
right, power or privilege granted under this Agreement shall operate as a waiver
of such right, power or privilege. No single or partial exercise of any right,
power or privilege granted under this Agreement shall preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
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<PAGE> 39
IN WITNESS WHEREOF, the Parties have duly executed this Agreement as of the
date first written above.
HALLMARK ENTERTAINMENT, INC.
By: /s/ WILLIAM J. ALIBER
-----------------------------------
Name: William J. Aliber
Title: Chief Financial Officer
CROWN MEDIA, INC.
By: /s/ WILLIAM J. ALIBER
-----------------------------------
Name: William J. Aliber
Title: Chief Financial Officer
LIBERTY MEDIA CORPORATION
By: /s/ DAVID KOFF
-----------------------------------
Name: David Koff
Title:
VISION GROUP INCORPORATED
By: /s/ DAVID KOFF
-----------------------------------
Name: David Koff
Title:
VISN MANAGEMENT CORP.
By: /s/ WILFORD V. BANE
-----------------------------------
Name: Wilford V. Bane
Title: Chair, VMC
NATIONAL INTERFAITH CABLE COALITION, INC.
By: /s/ DAVID PAUL MATTHEWS
-----------------------------------
Name: David Paul Matthews
Title: Chairman of the Board of Trustees
[SIGNATURE PAGE TO THE CONTRIBUTION AGREEMENT]
<PAGE> 40
CHASE EQUITY ASSOCIATES, L.L.C.
By: Chase Capital Partners, as Manager
By: /s/ ARNOLD CHAVKIN
-----------------------------------
Name: Arnold Chavkin
Title:
CROWN MEDIA HOLDINGS, INC.
By: /s/ WILLIAM J. ALIBER
-----------------------------------
Name: William J. Aliber
Title: Chief Financial Officer
[SIGNATURE PAGE TO THE CONTRIBUTION AGREEMENT]
<PAGE> 41
DISCLOSURE SCHEDULE
<TABLE>
<S> <C>
Item 4.1 Corporate Existence
Item 4.2 Power and Authority
Item 4.4(a) Capitalization
Item 4.5 Consents and Approvals
Item 4.10 Taxes
Item 4.14 Licenses
Item 4.15 Intellectual Property
Item 4.16 Material Agreements
Item 4.17 Distributors
Item 4.18 Plans
Item 6.1 Corporate Existence
Item 7.13 Conduct of the Business
</TABLE>
Crown Media Holdings, Inc. will supplementally file a copy of the omitted
Schedules with the Securities and Exchange Commission upon request.
<PAGE> 1
EXHIBIT 4.1
TEMPORARY CERTIFICATE - EXCHANGEABLE
FOR DEFINITIVE ENGRAVED CERTIFICATE
WHEN READY FOR DELIVERY
[NUMBER] [SHARES]
[INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE]
CROWN MEDIA HOLDINGS, INC.
See Reverse for
Certain Definitions
COMMON STOCK PAR VALUE ONE CENT ($.01) EACH
[SPECIMEN]
THIS IS TO CERTIFY THAT _______________________________ IS THE OWNER OF
______________________________________________________ fully paid and
non-assessable shares of the above Corporation transferable only on the books of
the Corporation by the holder hereof in person or by duly authorized Attorney
upon surrender of this Certificate properly endorsed.
WITNESS, the seal of the Corporation and the signatures of its duly authorized
officers.
DATED
__________________________________ [SEAL] ________________________________
SECRETARY PRESIDENT
(C) 1999 CORPEX BANKNOTE CO., BAY SHORE N.Y.
<PAGE> 2
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT........Custodian......
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors
Act........................
(State)
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
Additional abbreviations may also be used though not in the above
list
FOR VALUE RECEIVED HEREBY SELL, ASSIGN AND TRANSFER UNTO
------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF
ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------- SHARES
REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY IRREVOCABLY
CONSTITUTE AND APPOINT
- ----------------------------------------------------------------------- ATTORNEY
TO TRANSFER THE SAID SHARES ON THE BOOKS OF THE WITHIN NAMED CORPORATION WITH
FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED
-----------------------------------------
In presence of
-----------------------
- ---------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME
AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
<PAGE> 1
EXHIBIT 10.1
================================================================================
STOCKHOLDERS AGREEMENT
by and among
HALLMARK ENTERTAINMENT, INC.,
LIBERTY MEDIA CORPORATION,
VISN MANAGEMENT CORP.,
CHASE EQUITY ASSOCIATES, L.L.C.
and
CROWN MEDIA HOLDINGS, INC.
dated as of
[______], 2000
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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ARTICLE I
DEFINITIONS
<S> <C> <C>
Section 1.1 Definitions..........................................................................1
ARTICLE II
CORPORATE GOVERNANCE
Section 2.1 Composition of the Board of Directors of the Company.................................6
Section 2.2 Removal..............................................................................6
Section 2.3 Vacancies............................................................................7
Section 2.4 Board Committees.....................................................................7
Section 2.5 Termination of Rights and Obligations................................................7
Section 2.6 Limitation on Transactions with Affiliates...........................................7
Section 2.7 Directors' Indemnification...........................................................8
Section 2.8 Corporate Opportunities Policy.......................................................8
ARTICLE III
TRANSFERABILITY AND PURCHASE RIGHTS
Section 3.1 Restrictions on Transferability......................................................9
Section 3.2 Restrictive Legend...................................................................9
Section 3.3 Notice of Proposed Transfers; Securities Law Compliance.............................10
Section 3.4 Permitted Transfers.................................................................10
Section 3.5 Tag-Along Rights....................................................................10
Section 3.6 Purchase Rights.....................................................................12
ARTICLE IV
REGISTRATION RIGHTS
Section 4.1 Demand Registration.................................................................13
Section 4.2 Piggy-back Registration.............................................................15
Section 4.3 Registration Procedures.............................................................16
Section 4.4 Registration Expenses...............................................................19
Section 4.5 Indemnification and Contribution....................................................19
Section 4.6 Other Provisions....................................................................23
ARTICLE V
RIGHTS RELATING TO INVESTMENT IN ODYSSEY
Section 5.1 Actions of Odyssey Governance Committee.............................................23
Section 5.2 Restriction on Transfer of the Company's Interests in Odyssey.......................26
Section 5.3 Termination of Rights and Obligations...............................................26
Section 5.4 Covenant to make Capital Contribution...............................................26
</TABLE>
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<TABLE>
<CAPTION>
ARTICLE VI
MISCELLANEOUS
<S> <C> <C>
Section 6.1 Entire Agreement....................................................................26
Section 6.2 Amendment and Waiver................................................................26
Section 6.3 Notices.............................................................................26
Section 6.4 Assignment; Benefit.................................................................28
Section 6.5 Absence of Presumption..............................................................29
Section 6.6 Counterparts........................................................................29
Section 6.7 Headings............................................................................29
Section 6.8 Governing Law; Jurisdiction and Forum...............................................29
Section 6.9 Specific Enforcement................................................................30
Section 6.10 Severability........................................................................30
Section 6.11 After-Acquired Shares...............................................................30
</TABLE>
Exhibit A Notice of Registration Statement and Selling Securityholder
Questionnaire
Exhibit B Corporate Opportunities Policy
Exhibit C Designated Representative of NICC
-ii-
<PAGE> 4
STOCKHOLDERS AGREEMENT
This STOCKHOLDERS AGREEMENT (this "Agreement"), dated as of [ ], 2000
by and among Hallmark Entertainment, Inc., a Delaware corporation ("HEI"),
Liberty Media Corporation, a Delaware corporation ("Liberty"), VISN Management
Corp., a Delaware corporation ("VISN"), Chase Equity Associates, L.L.C., a
Delaware limited liability company ("CEA" and together with Liberty and VISN,
the "Minority Stockholders" and the Minority Stockholders together with HEI, the
"Initial Stockholders") and Crown Media Holdings, Inc., a Delaware corporation
(the "Company").
W I T N E S S E T H :
WHEREAS, the Initial Stockholders are parties to a Contribution
Agreement, dated as of [__________], 2000 (the "Contribution Agreement")
pursuant to which they are acquiring shares of Class A common stock, par value
$.01 per share ("Class A Stock") or of Class B common stock, par value $.01 per
share ("Class B Stock") in return for, among other things, the contribution of
certain assets to the Company; and
WHEREAS, the Initial Stockholders named in Appendix I attached hereto
and hereby made a part hereof, after giving effect to the transactions
contemplated by the Contribution Agreement, own the number of shares of Class A
Stock and Class B Stock set forth opposite their respective names on Appendix I;
and
WHEREAS, the parties hereto desire to enter into this Agreement to
govern certain of their rights, duties and obligations after the consummation of
the transactions contemplated by the Contribution Agreement.
NOW THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein, and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, and intending to be legally bound hereby, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions. (a) As used in this Agreement the following
defined terms shall have the following meanings:
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
(a) the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise or (b) beneficial
ownership of 10% or more of the voting securities of such Person.
"Affiliate Transaction" has the meaning set forth in Section 2.6.
<PAGE> 5
"Agreement" has the meaning set forth in the Preamble.
"Applicable Securities" means in relation to a Registration Statement
the Registrable Securities identified in the related Demand Notice or Piggy-back
Notice.
"Average Price" means a price equal to the average of the closing
prices of the shares of Class A Stock on the exchange or national market on
which the Class A Stock is traded or listed for the five trading days
immediately preceding the date of the closing of a specified transaction.
"Board" has the meaning set forth in Section 2.1.
"CEA" has the meaning set forth in the Preamble.
"Class A Stock" has the meaning set forth in the Recitals.
"Class B Stock" has the meaning set forth in the Recitals.
"Commission" means the United States Securities and Exchange
Commission.
"Company" has the meaning set forth in the Preamble.
"Company Common Stock" means Class A Stock and Class B Stock.
"Company Voting Stock" means Class A Stock and Class B Stock and all
other securities of the Company entitling the holder thereof to vote for the
election of directors to the Board.
"Contribution Agreement" has the meaning set forth in the Recitals.
"Demand" has the meaning set forth in Section 4.1(a).
"Demand Notice" has the meaning set forth in Section 4.1(a).
"Demanding Stockholder" has the meaning set forth in Section 4.1(a).
"DLJ" means Donaldson, Lufkin and Jenrette Securities Corporation.
"Effective Time" means the date on which the Commission declares a
Registration Statement effective or on which a Registration Statement otherwise
becomes effective.
"Effectiveness Period" means as to a Registration Statement the period
during which such Registration Statement is effective.
"Election" means, with respect to a Registration, that a Shareholder
has delivered a completed and signed Notice and Questionnaire to the Company in
accordance with the provisions hereof and provided such other information with
respect to such Shareholder and its Applicable Securities as may be required by
the Company to enable such Shareholder to use the related Prospectus in
connection with sales of such Applicable Securities.
"Exchange Act" means the United States Securities Exchange Act of 1934,
as amended.
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<PAGE> 6
"Exercise Notice" has the meaning set forth in Section 3.6(c).
"HEI" has the meaning set forth in the Preamble.
"Indemnified Person" has the meaning set forth in Section 4.5(a).
"Indemnitee" has the meaning set forth in Section 4.5(c).
"Indemnitor" has the meaning set forth in Section 4.5(c).
"Independent Directors" means members of the Company's Board who are
not officers, partners, employees or directors of the Stockholders, the Company
or their respective Affiliates, who have been selected in accordance with
Section 2.1(c) and who comply with the applicable definition of independent
director for purposes of the exchange or national market on which the Class A
Stock is traded or listed.
"Initial Stockholders" has the meaning set forth in the Preamble.
"Intended Offering Notice" has the meaning set forth in Section 4.2(a).
"IPO" means an initial public offering of shares of the Company's Class
A Stock.
"IPO Lock-up Period" has the meaning set forth in Section 3.1.
"Liberty" has the meaning set forth in the Preamble.
"Minority Stockholders" has the meaning set forth in the Preamble.
"NASD Rules" means the Rules of the National Association of Securities
Dealers, Inc., as amended.
"NICC" means the National Interfaith Cable Coalition, Inc., a Maryland
not-for-profit corporation.
"Notice and Questionnaire" means a Notice of Registration Statement and
Selling Securityholder Questionnaire substantially in the form of Exhibit A
hereto.
"Odyssey" means Odyssey Holdings, L.L.C., a Delaware limited liability
company.
"Odyssey Agreement" has the meaning set forth in Section 5.1.
"Parent" of a Person means any other Person which is the beneficial
owner (within the meaning of Rule 13d-3 under the Exchange Act) of a majority of
the securities ordinarily entitled to vote for the election of directors (or
persons performing similar functions) or the specified Person or directly, or
indirectly, through one or more intermediaries, controls the Person specified.
For purposes of this definition, control of a Person means the power, direct or
indirect, to direct or cause the direction of the management or policies of such
Person whether by contract or otherwise.
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<PAGE> 7
"Participating Stockholder" has the meaning set forth in Section
4.2(a).
"Person" means an individual, partnership, corporation, trust, limited
liability company or unincorporated organization, or other entity or
organization, including a government or agency or political subdivision thereof.
"Piggy-back Notice" has the meaning set forth in Section 4.2(a).
"Prospectus" means the prospectus (including, without limitation, any
preliminary prospectus, any final prospectus and any prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
Registration Statement in reliance upon Rule 430A under the Securities Act or
any successor rule thereto) included in a Registration Statement, as amended or
supplemented by any prospectus supplement with respect to the terms of the
offering of any portion of the Applicable Securities covered by a Registration
Statement and by all other amendments and supplements to such prospectus,
including all material incorporated by reference in such prospectus and all
documents filed after the date of such prospectus by the Company under the
Exchange Act and incorporated by reference therein.
"Purchase Right Notice" has the meaning set forth in Section 3.6(c).
"Registrable Securities" means (a) the shares of the applicable class
of Company Common Stock acquired by any Stockholder pursuant to the Contribution
Agreement, (b) the shares of the applicable class of Company Common Stock
acquired by any Stockholder pursuant to Section 3.4(i), (c) the shares of the
applicable class of Company Common Stock otherwise acquired by any Stockholder
up to a maximum of 5% of the outstanding shares of Company Common Stock
(calculated on a fully diluted basis) as of the date of a Demand Notice or an
Intended Offering Notice, as the case may be, and (d) any securities of the
Company issued or issuable with respect to any shares of Company Common Stock
referred to in subdivision (a), (b) or (c) upon conversion of such shares or by
way of stock dividend or stock split or in connection with a combination or
conversion of shares, recapitalization, merger, consolidation or other
reorganization or otherwise, other than in each case Unrestricted Securities.
"Registration" means a registration under the Securities Act effected
pursuant to Section 4.1 or Section 4.2.
"Registration Expenses" means all expenses incident to the Company's
performance of or compliance with any Registration of Registrable Securities
pursuant to this Agreement, including, without limitation, National Association
of Securities Dealers, Inc. fees, all fees and expenses of complying with
securities or blue sky laws, all word processing, duplicating and printing
expenses, messenger and delivery expenses, the fees and disbursements of counsel
for the Company and of its independent public accountants, including the
expenses of any special audits or "comfort" letters required by or incident to
such performance and compliance, premiums and other costs of policies of
insurance obtained by the Company against liabilities arising out of the public
offering of Registrable Securities being registered, but excluding fees and
disbursements of counsel retained by any Stockholder, premiums and other costs
of policies of insurance obtained by any Stockholder or its agents or
underwriter against liabilities arising out of the public offering of the
Registrable Securities being registered, any fees and
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<PAGE> 8
disbursements of underwriters customarily paid by sellers of securities who are
not the issuers of such securities, all underwriting discounts and commissions
and transfer taxes, if any, and registration and filing fees relating to
Registrable Securities.
"Registration Statement" means a registration statement filed under the
Securities Act by the Company pursuant to the provisions of Section 4.1 or
Section 4.2, including the Prospectus contained therein, any amendments and
supplements to such registration statement, including post-effective amendments,
all exhibits and all material incorporated by reference in such registration
statement.
"Related Documents" has the meaning set forth in the Contribution
Agreement.
"Rules and Regulations" means the published rules and regulations of
the Commission promulgated under the Securities Act or the Exchange Act, as in
effect at any relevant time.
"Sale Notice" has the meaning set forth in Section 3.5(c).
"Securities Act" means the United States Securities Act of 1933, as
amended.
"Stockholder Allotment" has the meaning set forth in Section 3.5(a).
"Stockholders" means each Person, other than the Company, who has
executed this Agreement and each Person who is required to become a party to
this Agreement in the future in accordance with the terms hereof.
"Stockholders' Shares" has the meaning set forth in Section 3.5(a).
"Tag-Along Notice" has the meaning set forth in Section 3.5(c).
"Tag-Along Sale" has the meaning set forth in Section 3.5(a).
"Tag-Along Sale Date" has the meaning set forth in Section 3.5(c).
"Transfer" means a sale, assignment, encumbrance, gift, pledge,
hypothecation or other disposition of Company Common Stock or any interest
therein; provided that a pledge of Company Common Stock to a financial
institution in a bona fide transaction shall not be deemed to be a Transfer for
the purposes of this Agreement, so long as the Stockholder retains full voting
power in such shares prior to any event of default, it being understood that in
the event of such default such transferee shall have no rights or obligations
under this Agreement.
"Transferor Stockholder" has the meaning set forth in Section 3.3.
"Underwriter" means any underwriter of Applicable Securities designated
by a Demanding Stockholder pursuant to Section 4.1(f) hereof.
"Unrestricted Securities" means any shares of Company Common Stock that
(i) have been registered under an effective registration statement under the
Securities Act and have been disposed of pursuant to such effective registration
statement, (ii) have been transferred in
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<PAGE> 9
compliance with Rule 144 or Rule 145 under the Securities Act (or in each case
any successor provision thereto) under circumstances in which any legend
relating to restrictions on transfer under the Securities Act is removed, (iii)
are transferable pursuant to paragraph (k) of Rule 144 or paragraph (d) of Rule
145 under the Securities Act (or in each case any successor provision thereto),
(iv) have otherwise been transferred and a new security not subject to transfer
restrictions under the Securities Act has been delivered upon such transfer by
or on behalf of the Company or (v) cease to be outstanding.
"VISN" has the meaning set forth in the Preamble.
"VISN Director" has the meaning set forth in Section 5.1.
(b) For the purposes hereof, (i) words in the singular shall be held to
include the plural and vice versa and words of one gender shall be held to
include the other gender as the context requires, (ii) the terms "hereof,"
"herein," and "herewith" and words of similar import shall, unless otherwise
stated, be construed to refer to this Agreement as a whole and not to any
particular provision of this Agreement, and Article, Section and paragraph
references are to the Articles, Sections and paragraphs to this Agreement unless
otherwise specified, (iii) the word "including" and words of similar import when
used in this Agreement shall mean "including, without limitation," unless the
context otherwise requires or unless otherwise specified, (iv) the word "or"
shall not be exclusive, and (v) provisions shall apply, when appropriate, to
successive events and transactions.
ARTICLE II
CORPORATE GOVERNANCE
Section 2.1. Composition of the Board of Directors of the Company.
Subject to Section 2.5, each of the Stockholders hereby agrees to take, at any
time and from time to time, all action necessary such that the Board of
Directors of the Company (the "Board") shall consist of not less than 11
directors, who shall be nominated as follows: (a) HEI shall have the right to
nominate six members of the Board; provided that one such nominee shall be the
Chief Executive Officer of the Company, (b) each Minority Stockholder shall have
the right to nominate one member of the Board and (c) at least two members of
the Board shall be Independent Directors nominated by the Board. Each
Stockholder entitled to vote for the election of directors to the Board shall
vote its shares of Company Voting Stock or execute written consents, as the case
may be, and shall take all other action necessary in order to ensure compliance
with this Section 2.1. The Company shall take such action as may be required
under applicable law to and shall otherwise use reasonable efforts to cause the
composition of the Board to be as set forth in this Section 2.1.
Section 2.2. Removal. Each Stockholder agrees that at any time that it
is then entitled to vote or execute a written consent for the removal and/or
replacement of any director of the Company, (a) it shall not vote or execute a
written consent for any of its shares of Company Voting Stock in favor of the
removal and/or replacement of any individual who shall have been nominated
pursuant to Section 2.1, unless the Stockholder entitled to nominate such
director shall have requested such removal and/or replacement in writing and (b)
it shall vote or execute a written consent for all of its shares of Company
Voting Stock in favor of and shall take all other action necessary to cause the
removal and/or replacement of an individual nominated pursuant to
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<PAGE> 10
Section 2.1 if so requested in writing by the Stockholder entitled to nominate
such individual. Subject to Section 2.5, nothing contained in this Section 2.2
shall affect the right of any Stockholder to nominate a member of the Board
pursuant to Section 2.1.
Section 2.3. Vacancies. If, as a result of the death, disability,
retirement, resignation, removal or otherwise there shall exist or occur any
vacancy on the Board, then the Stockholder entitled under Section 2.1 to
nominate such director whose death, disability, retirement, resignation or
removal resulted in such vacancy, may, subject to the provisions of Section 2.5,
designate another individual to fill such capacity and serve as a director of
the Company. Each Stockholder shall, if such Stockholder is then entitled to
vote for the election of such designee as a director of the Company, vote or
execute a written consent for its shares of Company Voting Stock in order to
ensure that such designee be elected to the Board and the Company shall use
reasonable efforts to cause such vacancy to be filled by such designee.
Section 2.4. Board Committees. The Board shall establish an Audit
Committee which shall consist of the Independent Directors.
Section 2.5. Termination of Rights and Obligations. The right of each
Stockholder to nominate or designate a member or members of the Board pursuant
to this Article II, and all related obligations of the Company and each other
Stockholder with respect thereto contained in this Article II, shall terminate
on the later of such date as such Stockholder (i) ceases to beneficially own in
the aggregate at least 5% of the shares of Company Common Stock then issued and
outstanding and (ii) ceases to beneficially own at least 75% of the Company
Common Stock set forth opposite such Stockholder's name on Appendix I
(appropriately adjusted for stock splits, dividends or combinations of shares of
Company Common Stock after the IPO); provided that the provisions of Section 4.5
shall survive the termination of this Agreement.
Section 2.6. Limitation on Transactions with Affiliates. The Company
shall not, and shall not permit any of its Subsidiaries to, directly or
indirectly, sell any of its material properties or assets to, or purchase any
material property or assets from, or enter into any material contract,
transaction, agreement, understanding, loan, advance or guaranty with, or for
the benefit of, any Affiliate of the Initial Stockholders (each of the
foregoing, an "Affiliate Transaction"), unless such Affiliate Transactions are
entered into in good faith and on commercially reasonable terms and (i) with
respect to any Affiliate Transactions that, together with all related Affiliate
Transactions, have an aggregate value of not more than $35,000,000, such
Affiliate Transactions are approved by a majority of the Independent Directors
and (ii) with respect to any Affiliate Transactions that, together with all
related Affiliate Transactions, have an aggregate value of more than
$35,000,000, such Affiliate Transactions are approved by a majority of the
members of the Board not nominated by such Initial Stockholder.
Notwithstanding the foregoing, the following shall be deemed not to be
Affiliate Transactions: (i) transactions pursuant to the Trademark License
Agreement dated as of August 1, 1999, by and between Hallmark Cards,
Incorporated and Hallmark Entertainment Networks, Inc., the Trademark License
Agreement dated as of August 23, 1999, by and between Hallmark Cards,
Incorporated and Hallmark Entertainment Networks (UK) Limited, the Security
Agreement dated as of August 1, 1999 by and between Hallmark Entertainment
Networks, Inc. and Hallmark Cards, Incorporated, the Promissory Note dated as of
November 19, 1999, by and
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<PAGE> 11
between HC Crown Corporation and Crown Media, Inc., any of the Related
Documents or any contract, agreement, understanding, loan or guaranty described
in, or filed as an exhibit to, the registration statement under which shares are
sold in the IPO as the same may be amended, modified or replaced from time to
time, so long as any such amendment, modification or replacement is not material
and no less favorable to the Company and its Subsidiaries than such contract,
agreement, understanding or loan each as in effect on the date of this
Agreement; (ii) transactions pursuant to the Contribution Agreement; (iii)
transactions in connection with the non-exclusive licensing of any service mark
or trademark of an Affiliate or Affiliates of any Initial Stockholder to the
Company that do not require payment (other than in connection with names of
movies, miniseries or series); and (iv) transactions between or among the
Company and any wholly owned Subsidiary of the Company, provided that such
Subsidiary remains a wholly owned Subsidiary of the Company.
Section 2.7. Directors' Indemnification. During the term of this
Agreement, the Company will use its reasonable best efforts to obtain directors'
and officers' liability insurance covering the full Board in a form and amount
consistent with industry practice to the extent such insurance is available on
reasonable terms.
Section 2.8. Corporate Opportunities Policy. The Board of Directors of
HEI has adopted and approved a corporate opportunities policy substantially in
the form of Exhibit B. HEI shall act in accordance with the provisions of its
corporate opportunities policy during the term of such policy unless otherwise
agreed by a majority of the members of the Board not nominated by HEI.
ARTICLE III
TRANSFERABILITY AND PURCHASE RIGHTS
Section 3.1. Restrictions on Transferability. (a) No Company Common
Stock may be Transferred except upon compliance with the provisions of the
Securities Act and this Agreement, and any attempted Transfer other than in
accordance with the terms hereof is void ab initio and transfers no right, title
or interest in or to such Company Common Stock to the purported transferee,
buyer, donee, assignee or encumbrance holder.
(b) Except as permitted by Section 3.4, the Stockholders agree that
they will not Transfer (i) any shares of Company Common Stock (except for
Transfers by HEI upon exercise of the over-allotment option by the underwriters
in the IPO) for a period of 180 days from the date of the IPO (the "IPO Lock-up
Period"), without the consent of DLJ and (ii) more than 25% of the shares of
Company Common Stock set forth opposite such Stockholder's name on Appendix I
(appropriately adjusted for stock splits, stock dividends or combinations of
shares of Company Common Stock after the IPO) prior to the second anniversary of
this Agreement, without the written consent of each other Stockholder.
Section 3.2. Restrictive Legend. (a) Each certificate representing any
portion of Company Common Stock that is held by a Stockholder shall be stamped
or otherwise imprinted with a legend in the following form (in addition to any
legend required under applicable state securities laws):
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<PAGE> 12
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"). THE SECURITIES MAY NOT BE SOLD OR OFFERED
FOR SALE OR OTHERWISE DISTRIBUTED EXCEPT IN CONJUNCTION WITH
AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
THE SECURITIES ACT, OR IN COMPLIANCE WITH RULE 144 OR PURSUANT
TO ANOTHER EXEMPTION. THE SECURITIES ARE ALSO SUBJECT TO
PROVISIONS OF A STOCKHOLDERS' AGREEMENT DATED
[__________________], AS IT MAY BE AMENDED FROM TIME TO TIME
IN ACCORDANCE WITH THE PROVISIONS THEREOF (THE "AGREEMENT"),
WHICH CONTAINS RESTRICTIONS ON TRANSFER AND TAG-ALONG
PROVISIONS. COPIES OF THE AGREEMENT MAY BE OBTAINED FROM THE
SECRETARY OF THE COMPANY."
(b) If any shares of Company Common Stock shall cease to be Registrable
Securities, the Company shall, upon the written request of the holder thereof
and such other documentation as may be reasonably requested, issue to such
holder a new certificate evidencing such shares without the legend required by
Section 3.1(a) endorsed thereon.
Section 3.3. Notice of Proposed Transfers; Securities Law Compliance.
Prior to any proposed Transfer of any Company Common Stock, unless there is in
effect a Registration Statement covering the proposed Transfer, the Stockholder
intending to Transfer such Company Common Stock (the "Transferor Stockholder")
shall give written notice to the Company of such Transferor Stockholder's
intention to effect such Transfer. Each such notice shall set forth the name of
the proposed transferee, the number of shares proposed to be transferred and the
proposed amount and form of consideration to be paid for such Company Common
Stock (other than Transfers by a Stockholder to one or more Affiliates of such
Stockholder); provided that in the event of a Transfer pursuant to Rule 144
under the Securities Act, the Transferor may satisfy the requirements of this
Section 3.3 by filing Form 144 with the Company at the time such form is filed
with the Securities and Exchange Commission.
Section 3.4. Permitted Transfers. Notwithstanding Section 3.1, but
subject to compliance with the applicable provisions of the Securities Act and
Section 3.3, the following Transfers may be made and HEI shall have no
obligation under Section 3.5 with respect thereto: (i) Transfers by a
Stockholder to one or more Affiliates of such Stockholder, or to one or more
executives of such Stockholder pursuant to a stock-based compensation plan, or
to one or more Affiliates of any other Stockholder, subject to the transferee
executing a signature page hereof and thereby becoming a party hereto (as a
Stockholder) and agreeing that it shall receive the same rights hereunder and be
bound by the same obligations hereunder, except as provided in this Section 3.4
and Section 3.5, as the Transferor Stockholder; or (ii) Transfers pursuant to a
merger, consolidation or other business combination involving all of the
outstanding Company Common Stock and a third party which, prior to entering into
an agreement with the Company with respect to such business combination, was not
an Affiliate of the Company or tender or
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<PAGE> 13
exchange offer for all of the outstanding Company Common Stock by a third party
which, prior to the commencement of such offer, was not an Affiliate of the
Company.
Section 3.5. Tag-Along Rights. (a) Except as permitted by Section 3.4
or in the case of sales pursuant to Article IV, if HEI, at any time or from time
to time, in a single transaction or series of related transactions occurring
within a six-month period, or within a longer period if pursuant to a single
agreement, proposes to Transfer 20% or more of the outstanding shares of Company
Common Stock (a "Tag-Along Sale"), then each Minority Stockholder shall have the
right, but not the obligation, to participate in such Tag-Along Sale by selling
the number of shares of Company Common Stock respectively owned by it as
calculated in the following manner. Such shares of Company Common Stock which
were acquired by the Minority Stockholders pursuant to the Contribution
Agreement and which are owned by the Minority Stockholders or their Affiliates
which are Parties to this Agreement are hereinafter referred to as the
"Stockholders' Shares;" provided, however that shares of Company Common Stock
transferred from another Stockholder to a Minority Stockholder or its Affiliates
(other than an Affiliate of such transferring Stockholder) shall not be deemed
to be Stockholders' Shares. The number of shares of Company Common Stock that
each Minority Stockholder shall be entitled to include in such Tag-Along Sale
(the "Stockholder Allotment") shall equal the product of (i) the total number of
shares of Company Common Stock proposed to be Transferred pursuant to the
Tag-Along Sale or such greater number of shares that the proposed purchaser in
the Tag-Along Sale shall agree to purchase or otherwise acquire, times (ii) a
fraction, the numerator of which shall equal the number of Stockholders' Shares
owned by such Minority Stockholder and its Affiliates which are parties to this
Agreement on the date of the Sale Notice, and the denominator of which shall
equal the sum of (A) the number of shares of Company Common Stock owned by HEI
and its Affiliates on the date of the Sale Notice plus (B) the total number of
Stockholders' Shares owned by all Minority Stockholders and their Affiliates
which are parties to this Agreement on the date of the Sale Notice.
(b) Any such sales by the Minority Stockholders shall be on the same
terms and conditions as the proposed Tag-Along Sale by HEI; provided, however
that no participating Minority Stockholder shall be required to make any
representation or warranty in connection with the Tag-Along Sale, other than as
to the enforceability of each agreement entered into in connection with such
Tag-Along Sale with respect to the Minority Stockholder and its ownership and
authority to sell, free of consent and approval requirements, liens, claims and
encumbrances, the shares of Company Common Stock proposed to be sold by it. Each
participating Minority Stockholder shall (and hereby agrees to), without
limitation as to time, indemnify and hold harmless, to the full extent permitted
by law, each of the other Stockholders against all losses, claims, damages,
liabilities, costs (including costs of preparation) and expenses (including
attorneys' fees and disbursements) arising out of or relating to any
representation or warranty made by, or covenant of, such participating Minority
Stockholder or any agent, employee, officer, or director of such participating
Minority Stockholder in connection with or relating to or under the terms of
each agreement entered into in connection with such Tag-Along Sale, except
insofar as the same are based solely upon written information furnished in
writing to such participating Minority Stockholder by such other Minority
Stockholder expressly for use therein.
(c) HEI shall promptly provide each of the Minority Stockholders with
written notice (the "Sale Notice") not less than 15 days prior to the proposed
date of the Tag-Along Sale (the
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"Tag-Along Sale Date"). In order to facilitate the prompt delivery of the Sale
Notice, the Company hereby covenants to provide HEI and the Minority
Stockholders participating in a Tag-Along Sale access to the stock record books
of the Company. Each Sale Notice shall set forth:
(i) the name of each proposed transferee or purchaser of
Company Common Stock in the Tag-Along Sale;
(ii) the number of shares of Company Common Stock proposed to
be Transferred by HEI and, if applicable, such greater number of shares
that the proposed purchaser is willing to purchase in connection with
the Tag-Along Sale;
(iii) the proposed amount and form of consideration to be paid
for such shares of Company Common Stock and the material terms and
conditions of payment offered by each proposed transferee or purchaser;
(iv) confirmation that the proposed purchaser or transferee
has been informed of the "Tag-Along Rights" provided for herein and has
agreed to purchase shares of Company Common Stock in accordance with
the terms hereof;
(v) such Minority Stockholder's Stockholder Allotment; and
(vi) the Tag-Along Sale Date.
Each Minority Stockholder who wishes to participate in the Tag-Along
Sale shall provide written notice (or oral notice confirmed immediately in
writing) (the "Tag-Along Notice") to HEI not less than seven days prior to the
Tag-Along Sale Date. The Tag-Along Notice shall set forth the number of shares
of Company Common Stock that such Minority Stockholder elects to include in the
Tag-Along Sale, which shall not exceed such Minority Stockholder's Stockholder
Allotment.
HEI shall determine the aggregate number of shares of Company Common
Stock to be sold by each participating Minority Stockholder in any given
Tag-Along Sale in accordance with the terms hereof, and the Tag-Along Notices
given by the Minority Stockholders shall constitute their binding agreements to
sell such shares at the price and on the terms and conditions applicable to such
sale.
If a Tag-Along Notice is not received by HEI participating in the
Tag-Along Sale from a Minority Stockholder prior to the seven-day period
specified above, HEI shall have the right to Transfer the number of shares of
Company Common Stock specified in the Sale Notice to the proposed purchaser or
transferee without any participation by such Minority Stockholder, but only at a
price and upon terms and conditions no more favorable to HEI than stated in such
Sale Notice and only if such sale occurs on a date within 60 days of the
Tag-Along Sale Date.
Section 3.6. Purchase Rights. (a) In the event that the Company
proposes to issue Company Common Stock in a public offering in exchange for
cash, and as a result thereof Liberty and its Affiliates which are Parties to
this Agreement would cease to own in the aggregate at least 10% of the
outstanding Company Common Stock, then Liberty shall have the right to purchase
from the Company for cash, at a price per share equal to the public offering
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price, that number of shares of Class A Stock such that it and its Affiliates
which are Parties to this Agreement own in the aggregate 10% of the outstanding
Company Common Stock immediately following such public offering.
(b) In the event that the Company proposes to issue Company Common
Stock in a private transaction in exchange for cash, and as a result thereof
Liberty and its Affiliates which are Parties to this Agreement would cease to
own in the aggregate at least 10% of the outstanding Company Common Stock, then
Liberty shall have the right to purchase from the Company for cash, at a price
per share equal to the Average Price on the closing date of such transaction,
that number of shares of Class A Stock such that it and its Affiliates which are
Parties to this Agreement own in the aggregate 10% of the outstanding Company
Common Stock immediately following such private transaction.
(c) The Company shall promptly provide Liberty with written notice (the
"Purchase Right Notice") not less than 15 days prior to the proposed date of the
issuance of Company Common Stock that is subject to Section 3.6(a) or (b). Each
Purchase Right Notice shall set forth the number of shares of Company Common
Stock proposed to be issued, the proposed date of the issuance and the number of
shares of Class A Stock which Liberty is entitled to purchase pursuant to
Section 3.6(a) and (b).
If Liberty wishes to purchase shares pursuant to Section 3.6(a) or (b),
Liberty shall provide written notice (or oral notice confirmed immediately in
writing) (the "Exercise Notice") to the Company not less than seven days prior
to the proposed issuance date. The delivery of the Exercise Notice shall
constitute Liberty's binding agreement to purchase the number of shares of Class
A Stock set forth in the Purchase Right Notice at the price and on the terms set
forth in this Section 3.6. The closing of such purchase shall be on the closing
date for the public offering under Section 3.6(a) or the private transaction
under Section 3.6(b), as the case may be.
If an Exercise Notice is not received by the Company prior to the
seven-day period specified above, Liberty's rights under this Section 3.6 shall
expire with respect to such issuance.
ARTICLE IV
REGISTRATION RIGHTS
Section 4.1. Demand Registration. (a) (i) HEI shall have the right, on
not more than four occasions in the aggregate, and no more frequently than once
during any six-month period, and (ii) the Minority Stockholders as a group shall
have the right (though such right need not be jointly exercised by the Minority
Stockholders), on not more than two occasions in the aggregate (it being
understood and agreed that two or more Minority Stockholders may make joint
Demands hereunder or any Minority Stockholder may join in a Demand made by any
other Minority Stockholder, and any such joint Demand or joining in of a Demand
shall be deemed to be a single Demand for all purposes hereof), and no more
frequently than once during any six-month period, to require the Company to
register for offer and sale under the Securities Act (a "Demand") all or a
portion of the Registrable Securities held by such Stockholder, subject to the
restrictions set forth herein; provided that no Stockholder shall be entitled to
make a Demand
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hereunder unless the Registrable Securities subject to such Demand represent at
least 7% of the aggregate shares of Company Common Stock then issued and
outstanding.
As promptly as practicable after the Company receives from a
Stockholder (the "Demanding Stockholder") a notice pursuant to this Section
4.1(a) (a "Demand Notice"), a copy of which shall have also been delivered to
each other Minority Stockholder at the same time as to the Company, demanding
that the Company register for offer and sale under the Securities Act
Registrable Securities, subject to Section 4.1(b), the Company shall (i) use all
reasonable efforts to file as promptly as reasonably practicable with the
Commission a Registration Statement relating to the offer and sale of the
Applicable Securities on such form as the Company may reasonably deem
appropriate (provided that the Company shall not, unless the Company otherwise
determines, be obligated to register any securities on a "shelf" registration
statement or otherwise to register securities for offer or sale on a continuous
or delayed basis) and, thereafter, (ii) after the filing of an initial version
of the Registration Statement, use reasonable efforts to cause such Registration
Statement to be declared effective under the Securities Act as promptly as
practicable after the date of filing of such Registration Statement; provided,
however, that no Demanding Stockholder shall be entitled to be named as a
selling securityholder in the Registration Statement or to use the Prospectus
forming a part thereof for resales of Registrable Securities unless such
Demanding Stockholder has made an Election. Subject to Section 4.1(b), the
Company shall use reasonable efforts to keep each Registration Statement
continuously effective in order to permit the Prospectus forming a part thereof
to be usable by such Demanding Stockholder for resales of Registrable Securities
for an Effectiveness Period ending on the earlier of (i) 30 days from the
Effective Time of such Registration Statement and (ii) such time as all of such
securities have been disposed of by the selling securityholders.
(b) The Company shall have the right to postpone (or, if necessary or
advisable, withdraw) the filing, or delay the effectiveness, of a Registration
Statement, or fail to keep such Registration Statement continuously effective or
not amend or supplement the Registration Statement or included Prospectus, if
the Company determines based upon the advice of counsel that it would be
advisable to disclose in the Registration Statement a planned or proposed
financing, acquisition or other corporate transaction or other material
information, and the Company shall have determined in good faith that such
disclosure is not in the best interests of the Company and its stockholders;
provided that no one such postponement shall exceed 90 days in any six-month
period and all such postponements shall not exceed 180 days in the aggregate.
The Company shall advise the Demanding Stockholder of any such determination as
promptly as practicable after such determination.
(c) In connection with an underwritten offering, if the managing
underwriter or underwriters advise the Company that in its or their opinion the
number of Applicable Securities subject to a Demand exceeds the number which can
be sold in such offering, the Company shall include in such Registration the
number of Applicable Securities that, in the opinion of such managing
underwriter or underwriters, can be sold in such offering (provided that, in the
event of a joint Demand, the Applicable Securities included shall be allocated
pro rata among the Demanding Stockholders on the basis of the relative number of
Applicable Securities each such Demanding Stockholder has requested to be
included in such Registration).
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(d) The Company may include in any registration requested pursuant to
Section 4.1(a) hereof other securities for sale for its own account or for the
account of another Person, subject to the following sentence. In connection with
an underwritten offering, if the managing underwriter or underwriters advise the
Company that in its or their opinion the number of Applicable Securities
requested by the Demanding Stockholder, together with other securities for sale
for the account of the Company or any other Person, to be registered exceeds the
number which can be sold in such offering, the Company shall include in such
Registration the number of Applicable Securities and other securities that, in
the opinion of such managing underwriter or underwriters, can be sold in such
offering as follows: (i) first, the Applicable Securities requested to be
registered by the Demanding Stockholder and (ii) second, any other securities
requested to be included in such Registration.
(e) A Demanding Stockholder shall have the right to withdraw any Demand
(i) prior to the time the Registration Statement in respect of such Demand has
been declared effective, (ii) upon the issuance by the Commission or any other
governmental agency of a stop order, injunction or other order which interferes
with such Registration, (iii) upon the Company's availing itself of Section
4.1(b), or (iv) if such Demanding Stockholder is prevented pursuant to Section
4.1(c) or (d) from selling all of the Applicable Securities it requested to be
registered. Notwithstanding such request to withdraw the Demand, the
Registration requested by such Demanding Stockholder shall nonetheless be deemed
to have been effected (and, therefore, requested) for purposes of Section 4.1(a)
hereof if such Demanding Stockholder withdraws any Demand (A) pursuant to clause
(i) of the preceding sentence after the Commission filing fee is paid with
respect thereto or (B) pursuant to clause (iv) of the preceding sentence in
circumstances where at least 50% of the Applicable Securities requested to be
included in such Registration by such Demanding Stockholder could have been
included, and in each case, (x) the Company has not availed itself of Section
4.1(b) with respect to such Registration request or (y) the Company has availed
itself of Section 4.1(b) and the withdrawal request is not made within 10 days
after the termination of the suspension period occasioned by the Company's
exercise of its rights under Section 4.1(b). If a Demanding Stockholder
withdraws a Demand but the Company nevertheless determines to complete, within
30 days after such withdrawal, the Registration so requested as to securities
other than the Applicable Securities, such Demanding Stockholder shall be
entitled to participate in such Registration pursuant to Section 4.2, but in
such case the Intended Offering Notice shall be required to be given to such
Demanding Stockholder at least five business days prior to the anticipated
filing date of the Registration Statement, or if such Registration Statement has
already been filed, within 10 business days after receipt of the request to
withdraw Demand from such Demanding Stockholder and such Demanding Stockholder
shall be required to give the Piggy-back Notice no later than 3 business days
after the Company's delivery of such Intended Offering Notice.
(f) In the event that any Registration pursuant to this Section 4.1
shall involve, in whole or in part, an underwritten offering, one co-lead
managing underwriter shall be selected by the Company and shall be reasonably
acceptable to the Demanding Stockholder, and the other co-lead underwriter shall
be selected by the Demanding Stockholder, provided that, in the event of a joint
Demand, the other co-lead underwriter shall be selected by a majority in
interest (by reference to the number of Applicable Securities requested to be
included in the Registration) of the Demanding Stockholders, and shall be
reasonably acceptable to the Company. Any additional co-managing underwriters
shall be selected by the Company.
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<PAGE> 18
Section 4.2. Piggy-back Registration. (a) If at any time the Company
intends to file on its behalf or on behalf of any of its securityholders a
registration statement under the Securities Act in connection with a public
offering of any securities of the Company on a form and in a manner that would
permit the registration for offer and sale under the Securities Act of
Registrable Securities, other than a registration statement on Form S-8 or Form
S-4, then the Company shall give written notice (an "Intended Offering Notice")
of such intention to each Stockholder then holding Registrable Securities at
least 20 business days prior to the anticipated filing date of such registration
statement. Such Intended Offering Notice shall offer to include in such
registration statement for offer to the public such number of Registrable
Securities as each Stockholder may request, subject to the conditions set forth
herein, and shall specify, to the extent then known, the number and class of
securities proposed to be registered, the proposed date of filing of such
registration statement, any proposed means of distribution of such securities,
any proposed managing underwriter or underwriters of such securities and a good
faith estimate by the Company of the proposed maximum offering price of such
securities, as such price is proposed to appear on the facing page of such
registration statement. Each Stockholder shall advise the Company in writing
(such written notice being a "Piggy-back Notice") not later than 10 business
days after the Company's delivery to such Stockholder of the Intended Offering
Notice, if such stockholder desires to participate in such offering. The
Piggy-back Notice shall set forth the number of Registrable Securities such
Stockholder desires to have included in the registration statement and offered
to the public. Upon the request of the Company, each Stockholder electing to
include Registrable Securities in the Registration Statement (a "Participating
Stockholder") shall enter into such underwriting, custody and other agreements
as are customary in connection with registered secondary offerings or necessary
or appropriate in connection with the offering. No Participating Stockholder
shall be entitled to be named as a selling securityholder in the Registration
Statement or to use the Prospectus forming a part thereof for sales of
Registrable Securities unless such Participating Stockholder has made an
Election.
(b) In connection with an underwritten offering, if the managing
underwriter or underwriters advise the Company in writing that in its or their
opinion the number of securities proposed to be registered exceeds the number
that can be sold in such offering, the Company shall include in such
Registration the number of securities that, in the opinion of such managing
underwriter or underwriters, can be sold as follows: (i) first, the securities
that the Company proposes to sell or, if the Registration is in response to a
Demand, the securities that the Demanding Stockholder proposes to sell (in the
event of a joint Demand, pro rata in proportion to the number of Applicable
Securities requested to be included by each Demanding Stockholder), (ii) second,
Applicable Securities requested to be included in such Registration by the
Participating Stockholders, and, if the Registration is in response to a Demand,
the securities that the Company proposes to sell (pro rata in proportion to the
number of Applicable Securities requested to be included by each Participating
Stockholder and, if applicable, the Company) and (iii) third, other securities
requested to be included in such Registration.
(c) The rights of each Stockholder pursuant to Section 4.1 hereof and
this Section 4.2 are cumulative, and the exercise of rights under one such
Section shall not exclude the subsequent exercise of rights under the other such
Section (except to the extent expressly provided otherwise herein).
Notwithstanding anything herein to the contrary, the Company may abandon and/or
withdraw any registration as to which any right under Section 4.2 may exist at
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any time and for any reason without liability hereunder. In such event, the
Company shall notify each Stockholder to the extent that it has delivered a
Piggy-back Notice to such Stockholder to participate therein.
Section 4.3. Registration Procedures. In connection with a Registration
Statement, the following provisions shall apply:
(a) The Company shall furnish to each Demanding Stockholder or
Participating Stockholder, prior to the Effective Time, a copy of the
Registration Statement as initially filed with the Commission, and each
amendment thereto and each amendment or supplement, if any, to the Prospectus
included therein.
(b) Subject to Section 4.1(b) and in respect of a Registration
Statement under Section 4.1, the Company shall use reasonable best efforts to
promptly take such action as may be necessary so that (i) each of the
Registration Statement and any amendment thereto and the Prospectus forming part
thereof and any amendment or supplement thereto (and each report or other
document incorporated therein by reference in each case), when it becomes
effective, complies in all material respects with the Securities Act and the
Exchange Act and the Rules and Regulations, (ii) each of the Registration
Statement and any amendment thereto does not, when it becomes effective, contain
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
and (iii) each of the Prospectus forming part of the Registration Statement, and
any amendment or supplement to such Prospectus, does not at any time during the
period during which the Company is required to keep a Registration Statement
effective under Section 4.1(a) include an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
(c) The Company shall, promptly upon learning thereof, advise each
Demanding Stockholder or Participating Stockholder, and shall confirm such
advice in writing if so requested by any Demanding Stockholder or Participating
Stockholder:
(i) when a Registration Statement and any amendment thereto
has been filed with the Commission and when the Registration Statement
or any post-effective amendment thereto has become effective;
(ii) of any request by the Commission for amendments or
supplements to the Registration Statement or the Prospectus included
therein or for additional information with respect to the Registration
Statement and Prospectus;
(iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for such purpose;
(iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the securities
included in the Registration Statement for sale in any jurisdiction or
the initiation of any proceeding for such purpose; and
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(v) following the effectiveness of any Registration Statement,
of the happening of any event or the existence of any state of facts
that requires the making of any changes in the Registration Statement
or the Prospectus included therein so that, as of such date, such
Registration Statement and Prospectus do not contain an untrue
statement of a material fact and do not omit to state a material fact
required to be stated therein or necessary to make the statements
therein (in the case of the Prospectus, in light of the circumstances
under which they were made) not misleading (which advice shall be
accompanied by an instruction to each Demanding Stockholder or
Participating Stockholder to suspend the use of the Prospectus until
the requisite changes have been made, which instruction each Demanding
Stockholder or Participating Stockholder agrees to follow).
(d) In respect of a Registration Statement under Section 4.1 (and not
Section 4.2), the Company shall use all reasonable efforts to prevent the
issuance, and if issued to obtain the withdrawal, of any order suspending the
effectiveness of the Registration Statement at the earliest possible time.
(e) The Company shall furnish to each Demanding Stockholder or
Participating Stockholder, without charge, at least one copy of the Registration
Statement and all post-effective amendments thereto, including financial
statements and schedules, and, if such holder so requests in writing, all
reports, other documents and exhibits that are filed with or incorporated by
reference in the Registration Statement.
(f) The Company shall, during the period during which the Company is
required to keep a Registration Statement continuously effective under Section
4.1(a) or elects to keep such effective under Section 4.2, deliver to each
Demanding Stockholder or Participating Stockholder, without charge, as many
copies of the Prospectus (including each preliminary Prospectus) included in the
Registration Statement and any amendment or supplement thereto as each Demanding
Stockholder or Participating Stockholder may reasonably request, and the Company
consents (except during the continuance of any event described in Section 4.1(b)
or Section 4.3(c)(v) hereof) to the use of the Prospectus, with any amendment or
supplement thereto, by each Demanding Stockholder or Participating Stockholder
in connection with the offering and sale of the Applicable Securities covered by
the Prospectus and any amendment or supplement thereto during such period.
(g) Prior to any offering of Applicable Securities pursuant to the
Registration Statement, the Company shall use reasonable efforts to (i) register
or qualify or cooperate with each Demanding Stockholder or Participating
Stockholder and its respective counsel in connection with the registration or
qualification of such Applicable Securities for offer and sale under the
securities or "blue sky" laws of such jurisdictions within the United States as
each Demanding Stockholder or Participating Stockholder may reasonably request,
(ii) keep such registrations or qualifications in effect and comply with such
laws so as to permit the continuance of offers and sales in such jurisdictions
for the period during which the Company is required to keep a Registration
Statement continuously effective under Section 4.1(a) and (iii) take any and all
other reasonable actions requested by each Demanding Stockholder or
Participating Stockholder which are necessary to enable the disposition in such
jurisdictions of such Applicable Securities; provided, however, that in no event
shall the Company be obligated
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to (1) qualify as a foreign corporation or as a dealer in securities in any
jurisdiction where it would not otherwise be required to so qualify but for this
Agreement or (2) file any general consent to service of process or subject
itself to tax in any jurisdiction where it is not so subject.
(h) The Company shall cooperate with each Demanding Stockholder or
Participating Stockholder to facilitate the timely preparation and delivery of
certificates representing Applicable Securities to be sold pursuant to the
Registration Statement, which certificates shall comply with the requirements of
any United States securities exchange upon which any Applicable Securities are
listed (provided that nothing herein shall require the Company to list any
Registrable Securities on any securities exchange on which they are not
currently listed) or the NASD Rules, as applicable, and which certificates shall
be free of any restrictive legends and in such permitted denominations and
registered in such names as each Demanding Stockholder or Participating
Stockholder may request in connection with the sale of Applicable Securities
pursuant to the Registration Statement.
(i) The Company shall use reasonable efforts to:
(i) make such reasonable representations and warranties in the
applicable underwriting agreement to the Underwriters, in form,
substance and scope as are customary;
(ii) in connection with any underwritten offering, obtain
opinions of counsel to the Company (which counsel and opinions (in
form, scope and substance) shall be reasonably satisfactory to the
Underwriters) addressed to the Underwriters, covering such matters as
are customary to the extent reasonably required by the applicable
underwriting agreement;
(iii) in connection with any underwritten offering, obtain
"cold comfort" letters and updates thereof from the independent public
accountants of the Company (and, if necessary, from the independent
public accountants 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 Demanding Stockholder or Participating
Stockholder (if such Demanding Stockholder or Participating Stockholder
has provided such letter, representations or documentation, if any,
required for such cold comfort letter to be so addressed) and the
Underwriters, in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with
secondary underwritten offerings of equity securities; and
(iv) in connection with any underwritten offering, deliver
such documents and certificates as may be reasonably requested by each
Demanding Stockholder or Participating Stockholder and the
Underwriters, if any, including, without limitation, certificates to
evidence compliance with any conditions contained in the underwriting
agreement or other agreements entered into by the Company.
(j) In respect of a Registration Statement under Section 4.1 (and not
Section 4.2), the Company shall use reasonable efforts to take all other steps
reasonably necessary to effect the
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timely registration, offering and sale of the Applicable Securities covered by
the Registration Statements contemplated hereby.
Section 4.4. Registration Expenses. The Company shall bear the
Registration Expenses in connection with the performance of its obligations
under Sections 4.1, 4.2 and 4.3. Each Demanding Stockholder or Participating
Stockholder shall bear all other expenses relating to any Registration or sale
in which such Demanding Stockholder or Participating Stockholder participates
pro rata with the other Stockholders participating therein, including all of the
fees and expenses of counsel to such Demanding Stockholder or Participating
Stockholder, any applicable underwriting discounts or commissions and
registration or filing fees with respect to the Applicable Securities.
Section 4.5. Indemnification and Contribution. (a) Upon the
effectiveness of the Registration of Applicable Securities pursuant to Section
4.1 or 4.2, the Company shall indemnify and hold harmless each Demanding
Stockholder or Participating Stockholder and each Underwriter or selling agent,
and each of their respective officers and directors and each Person who controls
such Demanding Stockholder or Participating Stockholder, Underwriter or selling
agent within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act (each such Person being sometimes referred to as an
"Indemnified Person") from and against any losses, claims, damages or
liabilities, joint or several, (or actions in respect thereof) to which such
Indemnified Person may become subject under the Securities Act, the Exchange Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement under which such Applicable Securities are registered under the
Securities Act, or any Prospectus contained therein or furnished by the Company
to any Indemnified Person, or any amendment or supplement thereto in each case
relating to the sale of Applicable Securities, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
the Company hereby agrees to reimburse such Indemnified Person for any
reasonable legal or other expenses reasonably incurred by it in connection with
investigating or defending any such loss, claim, damage or liability (or action
in respect thereof) as such expenses are incurred; provided, however, that (i)
the Company shall not be liable to any such Indemnified Person in any such case
to the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such Registration Statement or Prospectus, or amendment
or supplement, in reliance upon and in conformity with written information
furnished to the Company by or on behalf of such Indemnified Person or by or on
behalf of any Demanding Stockholder or Participating Stockholder expressly for
use therein; (ii) the Company shall not be liable to the extent that any loss,
claim, damage, liability (or action or proceeding in respect thereof) or expense
arises out of or is based upon (a) the use of any Prospectus after such time as
the obligation of the Company to keep the same effective and current has
expired, or (b) the use of any Prospectus after such time as the Company has
advised each Demanding Stockholder or Participating Stockholder in writing that
a post-effective amendment or supplement thereto is required, except such
Prospectus as so amended or supplemented; and (iii) the Company shall not be
liable to any Person who participates as an Underwriter in the offering or sale
of Registrable Securities or any other Person, if any, who controls such
Underwriter within the meaning of the Securities Act, to the extent that any
loss, claim, damage, liability (or
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action or proceeding in respect thereof) or expense arises out of the matters
described in the first proviso of this sentence or in (a) or (b) above or such
Person's failure to send or give a copy of the final prospectus or supplement to
the Persons asserting an untrue statement or alleged untrue statement or
omission or alleged omission at or prior to the written confirmation of the sale
of Registrable Securities to such Person if such statement or omission was
timely corrected in such final prospectus or supplement.
(b) Each Demanding Stockholder or Participating Stockholder agrees,
severally and not jointly, as a consequence of the inclusion of Applicable
Securities in such Registration Statement, and each Underwriter or selling agent
shall agree, as a consequence of facilitating such disposition of Applicable
Securities, severally and not jointly, to (i) indemnify and hold harmless the
Company and each other Demanding Stockholder or Participating Stockholder, their
respective directors and officers and each Person, if any, who controls the
Company or each other Demanding Stockholder or Participating Stockholder, within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act, against any losses, claims, damages or liabilities (or actions in
respect thereof) to which the Company or each other Demanding Stockholder or
Participating Stockholder, or such other Persons may become subject, under the
Securities Act, the Exchange Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in such Registration Statement or Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, unless such untrue
statement or alleged untrue statement or omission or alleged omission was
subsequently remedied in an amendment or supplement to such Registration
Statement or Prospectus and the Company failed to comply with the delivery
requirements of the Securities Act, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such indemnifying
Demanding Stockholder or Participating Stockholder, the Underwriter or selling
agent or its agent, expressly for use therein, and (ii) subject to the
limitation set forth immediately preceding this clause (ii), reimburse the
Company and each other Demanding Stockholder or Participating Stockholder, for
any legal or other expenses reasonably incurred by it in connection with
investigating or defending any such action or claim as such expenses are
incurred.
(c) Promptly after receipt by any Person entitled to indemnity (an
"Indemnitee") under Section 4.5(a) or (b) hereof of notice of the commencement
of any action or claim, such Indemnitee shall, if a claim in respect thereof is
to be made against an Indemnitor (an "Indemnitor") under this Section 4.5,
notify such Indemnitor in writing of the commencement thereof, but the omission
so to notify the Indemnitor shall not relieve it from any liability which it may
have to any Indemnitee except to the extent of any actual prejudice. In case any
such action shall be brought against any Indemnitee, it shall notify an
Indemnitor of the commencement thereof, such Indemnitor shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other Indemnitor similarly notified, to assume the defense thereof, with counsel
satisfactory to such Indemnitee, and, after notice from the Indemnitor to such
Indemnitee of its election so to assume the defense thereof, such Indemnitor
shall not be liable to such Indemnitee under this Section 4.5 for any legal
expenses of other counsel or any
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other expenses, in each case subsequently incurred by such Indemnitee, in
connection with the defense thereof. No Indemnitor shall, without the prior
written consent of the Indemnitee, effect the settlement or compromise of, or
consent to the entry of any judgment with respect to, any pending or threatened
action or claim in respect of which indemnification or contribution may be
sought hereunder (whether or not the Indemnitee is an actual or potential party
to such action or claim) unless such settlement, compromise or judgment (i)
includes an unconditional release of the Indemnitee from all liability arising
out of such action or claim and (ii) does not include a statement as to, or an
admission of, fault, culpability or a failure to act, by or on behalf of any
Indemnitee.
Notwithstanding the foregoing, an Indemnitee shall have the right to
employ separate counsel reasonably acceptable to the Company in any such
proceeding and to participate in (but not control, other than as provided in (3)
below) the defense thereof, but the fees and expenses of such counsel shall be
at the expense of such Indemnitee unless (1) the Indemnitor has agreed to pay
such fees and expenses; (2) the Indemnitor shall have failed after notice to
assume the defense of such proceeding; or (3) the named parties to any such
proceeding (including any impleaded parties) include both such Indemnitee and
the Indemnitor or any of its affiliates or controlling persons, and a conflict
of interest will exist if such counsel represents such Indemnitee and the
Indemnitor (or such affiliate or controlling person) and in the case of (3), the
Indemnitee shall have the right to control the Indemnitee's defense and in each
of the cases, if such Indemnitee notifies the Indemnitor in writing that it
elects to employ separate counsel, the reasonable fees and expenses of such
counsel shall be at the expense of the Indemnitor; it being understood, however,
that the Indemnitor shall not, in connection with any one such proceeding or
separate but substantially similar or related proceedings in the same
jurisdiction, arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys (together with appropriate local counsel) at any time for all such
Indemnitees, which firm shall be designated by the Indemnitee that had the
largest number of shares included in the applicable registration statement. An
Indemnitor shall not be liable for any settlement of an action effected without
its written consent.
(d) If the indemnification provided for in this Section 4.5 is
unavailable to or insufficient to hold harmless an Indemnitee under Section
4.5(a) or (b) hereof in respect of any losses, claims, damages or liabilities
(or actions in respect thereof) referred to therein, then each Indemnitor shall
contribute to the amount paid or payable by such Indemnitee as a result of such
losses, claims, damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect the relative fault of the Indemnitor and
the Indemnitee in connection with the statements or omissions which resulted in
such losses, claims, damages or liabilities (or actions in respect thereof), as
well as any other relevant equitable considerations. The relative fault of such
Indemnitor and Indemnitee shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information
supplied by such Indemnitor or by such Indemnitee, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The parties hereto agree that it would not be just
and equitable if contribution pursuant to this Section 4.5(d) were determined
solely by pro rata allocation (even if each Demanding Stockholder or
Participating Stockholder or any Underwriters or selling agents or all of them
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations
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<PAGE> 25
referred to in this Section 4.5(d). The amount paid or payable by an Indemnitee
as a result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above shall be deemed to include any legal or other fees or
expenses reasonably incurred by such Indemnitee in connection with investigating
or defending any such action or claim. 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 obligations of each Demanding Stockholder or
Participating Stockholder and any Underwriters or selling agents in this Section
4.5(d) to contribute shall be several in proportion to the number of Applicable
Securities registered or underwritten or sold, as the case may be, by them and
not joint.
Notwithstanding any other provision of this Section 4.5(d), any
Demanding Stockholder or Participating Stockholder shall not be required to
contribute any amount in excess of the amount by which the net proceeds received
by such Stockholder from the sale of Company Common Stock pursuant to a
Registration Statement exceeds the amount of damages which such Stockholder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission.
(e) The obligations of the Company under this Section 4.5 shall be in
addition to any liability which the Company may otherwise have to any Indemnitee
and the obligations of any Indemnified Person under this Section 4.5 shall be in
addition to any liability which such Indemnified Person may otherwise have to
the Company. The remedies provided in this Section 4.5 are not exclusive and
shall not limit any rights or remedies that may otherwise be available to an
Indemnitee at law or in equity.
Section 4.6. Other Provisions. (a) The respective indemnities,
agreements and other provisions set forth in this Article IV or made pursuant to
this Article IV shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Stockholder, any director, officer or partner of any Stockholder, any
agent or Underwriter, any director, officer or partner of such agent or
Underwriter, or any Affiliate of any of the foregoing, and shall survive the
registration, offering and sale of the Applicable Securities of each
Stockholder.
(b) Each Stockholder shall cooperate with respect to any Registration
effected under this Agreement and shall provide such information, documents, and
instruments as may be reasonably requested in connection therewith.
(c) Each Stockholder agrees, if so requested by the managing
underwriter in any underwritten offering of the Company's securities, not to
effect any public sale or distribution of Registrable Securities (other than
pursuant to such underwritten offering) during the 30 days prior to and the 90
days after any registration statement for any such underwritten offering of the
Company's securities (either for its own account or for the benefit of the
holders of any securities of the Company) has become effective (or such period
of time shorter than 90 days that is sufficient and appropriate, in the sole
opinion of the managing underwriter, in order to complete the sale and
distribution of securities included in such registration).
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(d) Each Stockholder agrees to keep confidential the fact that the
Company has exercised its rights under Section 4.1(b), any advice of the Company
pursuant to Section 4.3(c) and any other confidential information provided by
the Company in connection with this Agreement.
(e) The Company shall use reasonable best efforts to file all reports
required to be filed with respect to the Company under Section 13 or Section
15(d) of the Exchange Act during such time as there are any Registrable
Securities.
ARTICLE V
RIGHTS RELATING TO INVESTMENT IN ODYSSEY
Section 5.1. Actions of Odyssey Governance Committee. For so long as
(a) the Company or any of its Affiliates shall be entitled to a representative
on the Odyssey Governance Committee (as defined in the Amended and Restated
Company Agreement of Odyssey, effective as of November 13, 1998 (the "Odyssey
Agreement")) or is otherwise entitled to consent to the taking of the actions
set forth below pursuant to the Odyssey Agreement and (b) VISN and its
Affiliates which are Parties to this Agreement either (i) are entitled to
nominate or designate a member of the Board of Directors of the Company (the
"VISN Director") or (ii) beneficially own any Odyssey Preferred Interests (as
defined in the Odyssey Agreement), neither the Company nor any of its Affiliates
shall, without the written consent of the VISN Director or the representative of
NICC designated on Exhibit C, or otherwise designated by NICC and delivered in
writing to the Company (the "NICC Representative"), vote in favor of (or
otherwise consent to), directly or through their representatives:
(i) (A) any change in the following provisions of the Odyssey
Agreement: Section 5.7 (but solely in the case of Section 5.7.2, with
respect to the creation or issuance of any interest senior to, or pari
passu with, the Preferred Interest), Section 6.6, Section 6.7.2,
Section 6.9, Section 8.1 (but only insofar as Section 8.1 relates to
the Preferred Interest), Section 8.3 (but only insofar as Section 8.3
relates to or establishes the priority for the Preferred Interest),
Section 10.1.1, Section 10.3 (but only insofar as Section 10.3 relates
to the Preferred Interest) or Section 13.3 or (B) any of the actions
described in the following provisions of the Odyssey Agreement: Section
6.2.2.1, Section 6.2.2.4 (but solely with respect to the creation or
issuance of any interest senior to, or pari passu with, the Preferred
Interest) or clause (b) of Section 6.2.2.5 (but solely with respect to
the incurrence of debt which restricts payments made in connection with
the NICC Budget (as defined in the Odyssey Agreement));
(ii) (A) any repayment or redemption of any Odyssey interest
outstanding as of the date of the IPO junior to the Preferred Interest
or (B) any repayment or redemption of any interest junior to, or pari
passu with, the Preferred Interest created or issued after the IPO in
an amount in excess of the aggregate proceeds received from the sale or
issuance of such interests);
(iii) any sale or transfer of all or substantially all of
Odyssey's assets unless the transferee of such assets assumes all of
the obligations contained in Section 6.6, Section 6.7.2 and Section 6.9
of the Odyssey Agreement and agrees not to take the actions
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described in Section 6.2.2.1 or clause (b) of Section 6.2.2.5 (but
solely with respect to the incurrence of debt which restricts payments
made in connection with the NICC Budget) of the Odyssey Agreement
without the consent of the VISN Director or the NICC Representative, in
each case until the later of the fifth anniversary of the IPO or the
second anniversary of such sale or transfer;
(iv) any merger or other business combination involving
Odyssey where Odyssey is not the surviving entity unless at the time of
such merger or business combination (A) the surviving entity assumes
the Preferred Interest on terms no less favorable to VISN than those
set forth in the Odyssey Agreement including, but not limited to,
Section 5.7 (but solely in the case of Section 5.7.2, with respect to
the creation or issuance of any interest senior to, or pari passu with,
the Preferred Interest), Section 8.1 (but only insofar as Section 8.1
relates to the Preferred Interest), Section 8.3 (but only insofar as
Section 8.3 relates or establishes the priority for the Preferred
Interest), Section 10.1.1, Section 10.3 (but only insofar as Section
10.3 relates to the Preferred Interest) and Section 13.3, (B)
references to Odyssey in Sections 5.1(ii), (iii), (iv), (v), (vi) and
(viii) of this Agreement shall be deemed to refer to such surviving
entity and (C) the surviving entity assumes all of the obligations
contained in Section 6.6, Section 6.7.2 and Section 6.9 of the Odyssey
Agreement and agrees not to take the actions described in Section
6.2.2.1, Section 6.2.2.4 (but solely with respect to the creation or
issuance of any interest senior to, or pari passu with, the Preferred
Interest) and clause (b) of Section 6.2.2.5 (but solely with respect to
the incurrence of debt which restricts payments made in connection with
the NICC Budget) of the Odyssey Agreement until the later of the fifth
anniversary of the IPO or the second anniversary of such merger or
business combination, provided Section 6.2.2.4 shall only expire when
the Preferred Interest has been redeemed, and provided, further that
the obligations of the surviving entity under this clause (C) shall not
so expire in the case of a merger or other business combination in
which the holders of equity interests in Odyssey (not including the
Preferred Interests) immediately before such transaction own at least a
majority of the equity interests in such surviving entity (or its
Parent) (not including the Preferred Interests) in substantially the
same proportions as their ownership prior to such transaction.
(v) the dissolution of Odyssey, except in connection with a
complete liquidation of the business conducted by Odyssey because such
business is being discontinued;
(vi) (A) any sale or transfer of all or substantially all of
Odyssey's assets to, or any merger or other business combination
involving Odyssey with, the Company or any of its Affiliates or (B) any
other material transaction (with respect to Odyssey) with the Company
or any of its Affiliates that is not on an arm's length basis or on
commercially reasonable terms if such transaction results in (1) an
excessive or unfair financial benefit to the Company or any of its
Affiliates and (2) an inability of Odyssey to satisfy its obligations
under Section 6.6 of the Odyssey Agreement or with respect to the
Preferred Interests. In such event the Company agrees to apply the
amount by which its excessive or unfair financial benefit exceeds the
financial benefit that the Company would have received if the
transaction had been entered into on an arm's length basis or on
commercially reasonable terms to satisfy such Odyssey obligations;
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<PAGE> 28
(vii) any sale or transfer of all or substantially all of
Odyssey's assets, or any merger or other business combination involving
Odyssey where Odyssey is not the surviving entity, in each case prior
to the second anniversary of the IPO; or
(viii) any amendment or modification to the Odyssey Agreement,
the result of which would be that (A) none of the Company or any of its
Affiliates or their respective representatives would have the right to
consent to the taking of the actions listed in subparagraphs (i) though
(vii) above, (B) VISN would have any increased liability or additional
obligations under the Odyssey Agreement, or (C) there would occur any
adverse change to VISN's Capital Account (as defined in the Odyssey
Agreement) with respect to the Preferred Interests except to reflect
the redemption thereof pursuant to Section 5.7 of the Odyssey
Agreement.
Section 5.2. Restriction on Transfer of the Company's Interests in
Odyssey.
(a) The Company shall not Transfer any of its Odyssey Common Interests
(as defined in the Odyssey Agreement) prior to the second anniversary of the IPO
without the consent of the VISN Director or the NICC Representative.
(b) The Company shall not Transfer of any of its Odyssey Common
Interests after the second anniversary of the IPO unless such Transfer is
subject to a requirement that the transferee agree to assume the Company's
obligations under Section 5.1 hereof, provided that the transferee's obligations
under Section 5.1 hereof shall expire on the later of (i) the fifth anniversary
of the IPO, (ii) the second anniversary of such Transfer or (iii) the repayment
or redemption of VISN's Odyssey Preferred Interest, provided that
notwithstanding the foregoing, the transferee's obligations under Section 5.1
shall expire upon the dissolution of Odyssey.
Section 5.3. Termination of Rights and Obligations. The rights of VISN,
or NICC, as the case may be, under Section 5.1 and 5.2 shall terminate (if not
theretofore terminated) pursuant to the terms of Section 5.1 or 5.2 on the later
of such date as VISN and its Affiliates which are Parties to this Agreement
cease to (i) be entitled to nominate or designate a member of the Board of
Directors of the Company or (ii) beneficially own any Odyssey Preferred
Interests.
Section 5.4. Covenant to make Capital Contribution. The Company
covenants that it shall cause Crown to make the $10 million Mandatory Capital
Contribution (as defined in the Odyssey Agreement) required pursuant to Section
7.2 of the Odyssey Agreement and shall not waive The Jim Henson Company's
obligation to make its $10 million Mandatory Capital Contribution required
pursuant to Section 7.2 of the Odyssey Agreement.
ARTICLE VI
MISCELLANEOUS
Section 6.1. Entire Agreement. This Agreement contains the entire
agreement between the parties hereto with respect to the subject matter hereof
and there are no agreements, understandings, representations or warranties
between the parties hereto other than those set forth or referred to herein.
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Section 6.2. Amendment and Waiver. This Agreement, including this
Section 6.2, may be amended, and waivers or consents to departures from the
provisions hereof may be given, only by a written instrument duly executed, in
the case of an amendment, by the Company and each Stockholder, or in the case of
a waiver or consent, by the party against whom the waiver or consent, as the
case may be, is to be effective.
Section 6.3. Notices. All notices, requests and other communications to
any party hereunder shall be in writing (including facsimile transmission) and
shall be given as follows:
(a) if to the Company or HEI to:
Hallmark Cards, Incorporated
Department 339
2501 McGee
Kansas City, MO 64108
Attention: Judith C. Whittaker, Vice President,
General Counsel
Telephone: (816) 274-5111
Facsimile: (816) 274-8203
with copies to:
Hallmark Entertainment, Inc.
1325 Avenue of the Americas
New York, New York 10019
Attention: Peter von Gal
Telephone: (212) 977-9001
Facsimile: (212) 977-9049
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Eric S. Robinson, Esq.
Telephone: (212) 403-1000
Facsimile: (212) 403-2000
(b) if to CEA, to:
Chase Equity Associates, L.L.C.
380 Madison Avenue
New York, NY 10017
Attention: Arnold Chavkin
Telephone: (212) 622-3100
Facsimile: (212) 622-3101
with a copy to:
Mayer, Brown & Platt
1675 Broadway, Suite 1900
New York, New York 10019
Attention: Kathleen A. Walsh, Esq.
Telephone: (212) 506-2500
Facsimile: (212) 262-1910
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<PAGE> 30
(c) if to Liberty, to:
Liberty Media Corporation
9197 South Peoria Street
Englewood, Colorado 80112
Attention: David B. Koff, Senior Vice President
Telephone: (303) 721-5421
Facsimile: (303) 721-5448
with a copy to:
Liberty Media Corporation
9197 South Peoria Street
Englewood, Colorado 80112
Attention: Charles Tanabe, Senior Vice President and
General Counsel
Telephone: (720) 875-5440
Facsimile: (720) 875-5382
with a further copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue
Los Angeles, California 90071-3144
Attention: Michael A. Woronoff, Esq.
Telephone: (213) 687-5253
Facsimile: (213) 687-5600
(d) if to VISN, to:
VISN Management Corp.
810 Twelfth Avenue South
Nashville, Tennessee 37203
Attention: Wilford V. Bane
Telephone: (615) 742-5451
Facsimile: (615) 742-5404
with a copy to:
Clifford Chance Rogers & Wells LLP
200 Park Avenue
New York, New York 10166-0153
Attention: Steven A. Hobbs, Esq.
Telephone: (212) 878-8000
Facsimile: (212) 878-8375
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<PAGE> 31
Section 6.4. Assignment; Benefit. The terms and provisions of this
Agreement shall not be assignable or transferable and except for Indemnitees and
as otherwise expressly provided herein there shall be no third party
beneficiaries hereto; provided, however, that any Affiliate of a Stockholder
that beneficially owns Registrable Securities may exercise such Stockholder's
rights under Article III hereof. All the terms and provisions of this Agreement
shall be binding upon, shall inure to the benefit of and shall be enforceable by
the respective legal successors and permitted assigns of the parties hereto.
Section 6.5. Absence of Presumption. This Agreement shall be construed
without regard to any presumption or rule requiring construction or
interpretation against the party drafting or causing any instrument to be
drafted.
Section 6.6. 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.
Section 6.7. Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
Section 6.8. Governing Law; Jurisdiction and Forum. THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
DELAWARE, WITHOUT GIVING EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAWS.
THE PARTIES HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE COURTS OF THE
STATE OF DELAWARE SOLELY IN RESPECT OF THE INTERPRETATION AND ENFORCEMENT OF THE
PROVISIONS OF THIS AGREEMENT AND IN RESPECT OF THE TRANSACTIONS CONTEMPLATED
HEREBY, AND HEREBY WAIVE, AND AGREE NOT TO ASSERT, AS A DEFENSE IN ANY ACTION,
SUIT OR PROCEEDING FOR THE INTERPRETATION OR ENFORCEMENT HEREOF, THAT IT IS NOT
SUBJECT THERETO OR THAT SUCH ACTION, SUIT OR PROCEEDING MAY NOT BE BROUGHT OR IS
NOT MAINTAINABLE IN SAID COURTS OR THAT THE VENUE THEREOF MAY NOT BE APPROPRIATE
OR THAT THIS AGREEMENT MAY NOT BE ENFORCED IN OR BY SUCH COURTS, AND THE PARTIES
HERETO IRREVOCABLY AGREE THAT ALL CLAIMS WITH RESPECT TO SUCH ACTION OR
PROCEEDING SHALL BE HEARD AND DETERMINED IN SUCH A DELAWARE STATE COURT. THE
PARTIES HEREBY CONSENT TO AND GRANT ANY SUCH COURT JURISDICTION OVER SUCH
PARTIES AND OVER THE SUBJECT MATTER OF SUCH DISPUTE AND AGREE THAT MAILING OF
PROCESS OR OTHER PAPERS IN CONNECTION WITH ANY SUCH ACTION OR PROCEEDING IN THE
MANNER PROVIDED IN SECTION 6.3 OR IN SUCH OTHER MANNER AS MAY BE PERMITTED BY
LAW SHALL BE VALID AND SUFFICIENT SERVICE THEREOF.
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<PAGE> 32
EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (B) EACH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) EACH PARTY
MAKES THIS WAIVER VOLUNTARILY, AND (D) EACH PARTY HAS BEEN INDUCED TO ENTER INTO
THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN
THIS SECTION 6.8.
Section 6.9. Specific Enforcement. Each party hereto acknowledges that
remedies at law may be inadequate to protect any other party against any actual
or threatened breach of this Agreement by the other parties and, without
prejudice to any other rights and remedies otherwise available to any party,
each party agrees to the granting of injunctive relief in any other party's
favor without proof of actual damages. In the event of litigation relating to
this Agreement, if a court of competent jurisdiction determines that this
Agreement has been breached by a party, then such party shall reimburse the
other party for costs and expenses (including, but not limited to, reasonable
legal fees and expenses) incurred in connection with all such litigation.
Section 6.10. Severability. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any Person or entity
or any circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such original provision and (b)
the remainder of this Agreement and the application of such provision to other
Persons, entities or circumstances shall not be affected by such invalidity or
unenforceability, nor shall such invalidity or unenforceability affect the
validity or enforceability of such provision, or the application thereof, in any
other jurisdiction.
Section 6.11. After-Acquired Shares. All of the provisions of this
Agreement shall apply to and include, to the extent received in respect of
shares of Company Common Stock acquired pursuant to the Contribution Agreement,
all securities and instruments (i) received by a Stockholder as a dividend on or
other payment made to holders of Company Common Stock, or (ii) issued in
connection with a split of shares of Company Common Stock or as a result of any
exchange for or reclassification of shares of Company Common Stock or a
reorganization, recapitalization, consolidation or merger.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective authorized officers as of the day and year first
above written.
CROWN MEDIA HOLDINGS, INC.
By:
-----------------------------------------
Name:
Title:
HALLMARK ENTERTAINMENT INC.
By:
-----------------------------------------
Name:
Title:
LIBERTY MEDIA CORPORATION
By:
-----------------------------------------
Name:
Title:
VISN MANAGEMENT CORP.
By:
-----------------------------------------
Name:
Title:
CHASE EQUITY ASSOCIATES, L.L.C.
By: Chase Capital Partners,
its general partner
By:
-----------------------------------------
Name:
Title:
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<PAGE> 1
EXHIBIT 10.2
================================================================================
SECURITIES PURCHASE AGREEMENT
dated as of May 29, 1998
by and among
HALLMARK ENTERTAINMENT NETWORK, INC.,
HALLMARK ENTERTAINMENT DISTRIBUTION COMPANY,
HALLMARK ENTERTAINMENT, INC.,
and
CHASE EQUITY ASSOCIATES, L.P.
================================================================================
<PAGE> 2
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT, dated as of May 29, 1998 (as
amended or otherwise modified from time to time, this "Agreement") by and among
Hallmark Entertainment Network, Inc., a Delaware corporation (the "Company"),
Hallmark Entertainment Distribution Company, a Delaware corporation, the sole
shareholder of the Company and a direct subsidiary of HEI ("HEDC"), Hallmark
Entertainment, Inc. ("HEI"), a Delaware corporation and an indirect subsidiary
of Hallmark Cards, Incorporated, and Chase Equity Associates, L.P., a California
limited partnership (the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Company wishes to obtain equity financing through the
issuance and sale to Purchaser of (a) Class B Non-Voting Common Stock, par value
$0.01 per share ("Class B Common Stock", and together with the Class A Common
Stock, "Common Stock"), having the terms set forth in the Certificate of
Amendment to the Certificate of Incorporation (defined below) and (b) a Warrant
to purchase shares of Common Stock to protect the Purchaser's holdings of Common
Stock purchased hereunder from dilutive events (the "Dilution Warrant" and
together with the Common Stock purchased hereunder, the "Securities"); and
WHEREAS, the Purchaser is willing on the terms and conditions set forth
in this Agreement to purchase the Securities in the amount set forth on Schedule
I;
NOW, THEREFORE, based upon the mutual covenants and agreements herein
contained, and for other good and sufficient consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
DEFINED TERMS
Section 1.1. Defined Terms. When used in this Agreement, the following
terms shall have the following meanings:
"Affiliate" means, with respect to any specified Person, any other
Person which, directly or indirectly, controls, is under common control with, or
is owned or controlled by, such specified Person. For purposes of this
Agreement, (i) "control" means, with respect to any specified Person, either (x)
the beneficial ownership of 10 percent or more of any class of equity securities
or (y) the power to direct the management or policies of the specified Person
through the ownership of voting securities, by contract, voting agreement or
otherwise, (ii) the terms "controlling", "control with" and "controlled by",
etc. shall have meanings correlative to the
<PAGE> 3
foregoing and (iii) the officers, directors and shareholders of the Company
shall be deemed to be Affiliates of the Company.
"Business" means the operation and distribution of cable television
channels and programming and related programming.
"By-laws" means the by-laws of the Company in the form attached hereto
as Exhibit B, as amended from time to time in accordance with the requirements
hereof and the Related Documents.
"Certificate of Incorporation" means the Amended and Restated
Certificate of Incorporation of the Company in the form attached hereto as
Exhibit A, as amended from time to time in accordance with the requirements
hereof and the Related Documents.
"Class A Common Stock" means Class A Voting Common Stock of the
Company, par value $0.01 per share.
"Class B Common Stock" is defined in the recitals.
"Common Stock" is defined in the recitals.
"Conversion Securities" means (i) any Class B Common Stock issued or
issuable upon any conversion of the Dilution Warrant, or (ii) any Class A Common
Stock issued or issuable upon any conversion of Class B Common Stock or (iii)
any other capital stock or securities issued or issuable in respect of any
securities referred to above by way of stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization. For purposes of this Agreement, any Person who holds
the Dilution Warrant or Class B Common Stock shall be deemed to be the Holder of
the Conversion Securities obtainable upon conversion of such securities, whether
in connection with the transfer thereof or otherwise, regardless of any
restriction or limitation on the conversion of the Dilution Warrant or Class B
Common Stock.
"Credit Agreement" means the Credit and Security Agreement, dated as of
August 31, 1995 among HEI, its subsidiaries named therein, the lenders referred
to therein and Chase Manhattan Bank, as agent for the lenders, as amended,
supplemented or revised from time to time or any replacement bank agreement with
comparable terms.
"Disclosure Schedule" means the Schedule referred to from time to time
herein and set forth as Schedule III hereto.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations issued in respect thereto.
"Hallmark" means Hallmark Cards, Incorporated, a Missouri corporation.
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<PAGE> 4
"Hallmark Agreement" means the agreement, dated the Closing Date,
between Hallmark and the Purchaser in the form of Exhibit G hereto.
"HEI" is defined in the preamble.
"HEDC" is defined in the preamble.
"Holder" means, as of any time, the Purchaser or other Person (or any
of his or its permitted successors or assigns, other than the Company or any of
its Subsidiaries) who holds any Securities or Conversion Securities.
"Interests" means any evidence of equity ownership of any Person,
whether represented by common stock, preferred stock, securities, options,
warrants or the like (including convertible debentures, notes or other
securities convertible or exchangeable into or exercisable for the purchase or
other acquisition of capital stock), trust certificates, general or limited
partnership interests or any other type of capital stock or equity interest.
"Investments" means, as to any Person, (i) any direct or indirect
purchase or other acquisition by such Person of any notes, obligations,
instruments, stock, securities or other Interests of any other Person and (ii)
any contribution by such Person to any other Person.
"Lien" means any security interest, mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or otherwise),
charge against or interest in property to secure payment of a debt or
performance or an obligation or other priority or preferential arrangement of
any kind or nature whatsoever.
"Material Adverse Effect" means an effect which is materially adverse
to either (a) the business, financial condition, prospects or results of
operations of the Company and its Subsidiaries, taken as a whole, or (b) the
legal ability of a Purchaser or the Company to consummate the transactions
contemplated by this Agreement other than by reason of the inability of the
Purchaser to consummate such transactions.
"Organizational Documents" means, for any corporation, the certificate
or articles of incorporation, the bylaws, any certificate of determination or
instrument relating to the rights of preferred shareholders of such corporation,
and all applicable resolutions of the board of directors (or any committee
thereof) of such corporation.
"Person" means any individual, corporation, general or limited
partnership, joint venture, association, limited liability company, joint stock
company, trust, business trust, bank, trust company, estate (including any
beneficiaries thereof), unincorporated organization, cooperative, association or
government branch, agency or political subdivision thereof.
"Plan" means any plan regulated under ERISA.
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<PAGE> 5
"Program License Agreement" means the Memorandum Agreement, dated as
of January 1, 1996, between the Company and HEDC.
"Qualified Holder" means the Purchaser or other Holder who holds at
least 50% of the aggregate amount of the Securities.
"Related Documents" means the Stockholders Agreement, the Dilution
Warrant and the Hallmark Agreement.
"Required Consents" shall mean the consents, approvals or waivers of
each Person, whose consent or approval shall be required in connection with this
Agreement, the Related Agreements, and the transactions contemplated hereby and
thereby, except for those consents or approvals for which failure to obtain
would not, in the reasonable opinion of the Company, individually or in the
aggregate, have a Material Adverse Effect.
"Restricted Securities" means (i) the Common Stock issued hereunder,
and (ii) any Conversion Securities. As to any particular Restricted Securities,
such securities shall cease to be Restricted Securities when they have (a) been
effectively registered under the Securities Act and disposed of in accordance
with the registration statement covering them, (b) become eligible for sale
pursuant to Rule 144(k) (or any similar provision then in force) under the
Securities Act or (c) been otherwise transferred and new certificates for them
not bearing the Securities Act legend required pursuant hereto or pursuant to
any Related Document. Whenever any particular securities cease to be Restricted
Securities, the holder thereof shall be entitled to receive from the Company,
without expense, new securities of like tenor not bearing a Securities Act
legend of the character required pursuant to the Related Documents.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations issued in respect thereto.
"Stockholders Agreement" means the Stockholders Agreement, dated the
Closing Date, among the Company, HEDC and the Purchaser, substantially in the
form of Exhibit D hereto.
"Subsidiary" or "Subsidiaries" of any Person means any corporation or
other entity of which securities or other ownership interests having ordinary
voting power to elect a majority of the Board of Directors or other Persons
performing similar functions are at the time directly or indirectly owned or
controlled by such Person or one or more Subsidiaries of such Person.
Section 1.2. Additional Terms. The following terms shall have the
meanings indicated or referred to in the following Sections of this Agreement:
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<PAGE> 6
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Agreement Preamble
Annual Budget 6.3(f)
Balance Sheets 5.7
Blue Sky Laws 5.4
Capitalization Schedule 5.4
Closing 5.2
Closing Date 2.2
Company Preamble
ERISA 5.24
Financial Statements 5.7
GAAP 5.7
Indemnified Liabilities 8.2
Indemnitees 8.2
Intellectual Property 5.17
Licenses 5.16
Purchaser Preamble
Securities Preamble
</TABLE>
Section 1.3. Construction. When used herein, the masculine form of
words includes the feminine and the neuter and vice versa, and, unless the
context otherwise requires, the singular form of words includes the plural and
vice versa. The words "herein", "hereof", "hereunder" and other words of similar
import when used in this Agreement refer to this Agreement as a whole, and not
to any particular section or subsection.
ARTICLE II
PURCHASE AND SALE TERMS
Section 2.1. Purchase and Sale. Subject to the terms of this Agreement,
the Company shall authorize, issue and sell to the Purchaser, and the Purchaser
shall purchase from the Company at the Closing, the number of shares of Common
Stock and the Dilution Warrant at the aggregate purchase price set forth
opposite the Purchaser's name on Schedule I hereto.
Section 2.2. The Closing. The closing of the purchase and sale of the
Securities shall take place at the offices of Mayer, Brown & Platt located at
1675 Broadway, New York, New York 10019 or at such other location as the
Company and the Purchaser may designate (the "Closing"). The Closing shall
occur on or before the later of (a) May 29, 1998, or (b) such other date as the
Company and the Purchaser may designate (the "Closing Date").
Section 2.3. Payment and Delivery. On the Closing Date, the Purchaser
shall pay the purchase price for the Securities purchased by it in full, in
cash, by wire transfer of immediately
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<PAGE> 7
available funds to an account designated by the Company in writing not less than
five business days prior to the date for such Closing Date. The purchase price
for the Purchaser to pay on the Closing Date shall be as set forth opposite the
Purchaser's name on Schedule I hereto. Upon delivery of such funds, the Company
shall deliver to the Purchaser stock certificates evidencing the Common Stock
and the Dilution Warrant to be purchased by it, registered in the name of the
Purchaser or its nominee.
Section 2.4. Transfer Legends and Restrictions. The transfer of the
shares of Common Stock purchased hereunder as well as any Conversion Securities
will be restricted in accordance with the terms hereof and of the Related
Documents. Each certificate or other instrument evidencing the Common Stock or
any Conversion Securities, including any certificate or other instrument issued
to any transferee thereof, shall be imprinted with one or more legends in
substantially the form required pursuant to the Related Documents, and such
legends shall not be removed from such certificates or other instruments except
in accordance with the terms and provisions of the Related Documents.
Section 2.5. Use of Proceeds. The Company shall use the net cash
proceeds of its sale of the Securities for working capital purposes for the
Business; provided, however, that the Company shall be permitted to loan
$25,000,000 of the net cash proceeds of its sale of the Securities to HEI for
working capital and general corporate purposes, which shall be evidenced by an
Intercompany Line Letter and Demand Note in the form of Exhibit F hereto.
ARTICLE III
PURCHASER CLOSING CONDITIONS
The obligation of the Purchaser to purchase Securities on the Closing
Date shall be subject to satisfaction (or waiver by the Purchaser) of the
following conditions on or prior to such date (unless otherwise specified
below):
Section 3.1. Execution of This Agreement and All Related Documents. The
Company, Hallmark, HEI, HEDC and the Purchaser shall have duly authorized and
executed copies of this Agreement, each Related Document and each other
agreement, document or instrument related hereto or thereto required in
connection with the consummation of the transactions contemplated hereby. This
Agreement, each such Related Document and each other related agreement, document
or instrument shall be in full force and effect on the Closing Date.
Section 3.2. Issuance and Purchase of Common Stock and Dilution
Warrant. The Company shall have duly issued and delivered certificates to the
Purchaser for the number of shares of Class B Common Stock and Dilution Warrant
purchased by the Purchaser as provided in Article II hereof.
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<PAGE> 8
Section 3.3. Legal Opinion from Counsel for the Company. On the Closing
Date, the Purchaser shall have received the written opinion of Judith Whittaker,
counsel for the Company, Hallmark and HEI in substantially the form attached as
Exhibit E hereto.
Section 3.4. Representations and Warranties to be True and Correct;
Certificate of Officer of the Company, HEI and HEDC. The representations and
warranties contained in Article V shall be true and correct in all material
respects (except for representations and warranties qualified as to materiality
which shall be true and correct) on and as of the Closing Date with the same
effect as though such representations and warranties had been made on and as of
such date (except to the extent that any such representations and warranties
specifically apply to a prior date). Each of the Company, HEI and HEDC shall
have delivered to the Purchaser a certificate of its chief executive and chief
financial officers, or alternatives reasonably satisfactory to counsel for the
Purchaser, certifying that (i) the representations and warranties are in fact
true and correct in all material respects as set forth above in this Section and
(ii) such party has performed or complied in all material respects with all
agreements and conditions contained herein which are required to be performed or
complied with by it on or before such Closing Date.
Section 3.5. Certification of Incorporation. On or before the Closing Date,
the Certificate of Amendment to the Certificate of Incorporation shall have
been filed with the Secretary of State of Delaware in accordance with Delaware
law.
Section 3.6. All Proceedings to be Reasonably Satisfactory. All corporate
and other proceedings to be taken by each of the Company, Hallmark, HEI and HEDC
in connection with the transactions contemplated hereby and all documents
incident thereto shall be reasonably satisfactory in form and substance to the
Purchaser and its counsel, and the Purchaser and said counsel shall have
received all such counterpart originals or certified or other copies of such
documents as they may reasonably request.
Section 3.7. Supporting Documents. On or prior to the Closing Date the
Purchaser and its counsel shall have received copies of the following supporting
documents:
(i) (x) copies of the Certificate of Incorporation, certified as of a
recent date by the Secretary of State of the State of Delaware, and (y) a
certificate of said Secretary of State, dated as of a recent date, as to
the due incorporation and good standing of the Company and listing all
documents of the Company on file with said Secretary;
(ii) a certificate of the Secretary or an Assistant Secretary of the
Company, dated the Closing Date and certifying: (w) that attached thereto
is a true and complete copy of the By-laws of the Company as in effect on
the date of such certification; (x) that attached thereto is a true and
complete copy of resolutions adopted by the Board of Directors of the
Company authorizing the execution, delivery and performance of this
Agreement and each of the Related Documents, the issuance, sale and
delivery of the Securities, and that all such resolutions are still in full
force and effect and are all the resolutions adopted in connection with the
transactions contemplated by this Agreement; (y) that the Certificate of
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<PAGE> 9
Incorporation of the Company has not been amended since the date of the
last amendment referred to in the certificate delivered pursuant to clause
(i)(y) above; and (z) the incumbency and specimen signature of each officer
of the Company executing this Agreement and each of the Related Documents,
the stock certificate or certificates representing the Securities and any
certificate or instrument furnished pursuant hereto, and a certification by
another officer of the Company as to the incumbency and signature of the
officer signing the certificate referred to in this clause (ii); and
(iii) supporting documents as provided above in clauses (i) and (ii) on
behalf of Hallmark, HEI and HEDC and such additional supporting documents
and other information with respect to the operations and affairs of the
Company as the Purchaser or its counsel may reasonably request.
All such documents shall be reasonably satisfactory in form and substance
to the Purchaser and its counsel.
Section 3.8. Directors and Officers Insurance. The Company shall have
obtained as of the Closing Date or as soon as practicable thereafter, a
customary directors and officers insurance policy providing coverage for its
directors and officers. Such policy shall remain in effect until the date
occurring three years after the last day that the Purchaser has a representative
on the Company's board of directors.
Section 3.9. Director Indemnification Agreements. Director Indemnification
Agreements in the form of Exhibit C to the Stockholders Agreement shall have
been duly executed and delivered by the Company and its directors.
Section 3.10. Stockholders Agreement. The Stockholders Agreement shall have
been duly executed by HEI, HEDC, the Company and the Purchaser.
Section 3.11. Credit Agreement; Existing Indebtedness. An amendment in
connection with the Credit Agreement shall have been duly executed by the agent
and lenders thereunder to HEI and its Subsidiaries and the borrowers thereunder,
which amendment shall permit the execution, delivery and performance of this
Agreement and the Related Agreements and an intercreditor agreement shall have
been executed and delivered by the agent under the Credit Agreement and the
Purchaser substantially in the form of Exhibit I hereto.
Section 3.12. The Kermit Channel. The Company and The Jim Henson Company
shall have executed and delivered all documents related to The Kermit Channel
(for each of Asia and Latin America), which documents shall be in form and
substance reasonably satisfactory to the Purchaser.
Section 3.13. Required Consents. All Required Consents shall have been
obtained.
Section 3.14. Fees and Expenses. Subject to Section 7.19, all reasonable
fees and expenses of the Purchaser which have been invoiced and which are then
due and payable as of the Closing
-8-
<PAGE> 10
Date (including reasonable fees and expenses of counsel and other financial
advisors) up to $100,000 shall have been paid in full by the Company.
Section 3.15. Reasonable Satisfaction of Purchaser and Counsel. All
instruments applicable to the issuance and sale of the Securities and all
proceedings taken in connection with the transactions contemplated by this
Agreement shall be reasonably satisfactory to the Purchaser and its counsel.
ARTICLE IV
COMPANY CLOSING CONDITIONS
The obligation of the Company to issue Securities on the Closing Date shall
be subject to satisfaction (or waiver by the Company) of the following
conditions on or prior to such date (unless otherwise specified below):
Section 4.1. Execution of This Agreement and All Related Documents. The
Purchaser shall have duly authorized and executed copies of this Agreement, each
Related Document and each other agreement, document or instrument related hereto
or thereto required in connection with the consummation of the transactions
contemplated hereby. This Agreement, each such Related Document and each other
related agreement, document or instrument shall be in full force and effect on
the Closing Date.
Section 4.2. Representations and Warranties to be True and Correct. The
representations and warranties contained in Article VI shall be true and correct
in all material respects except for representations and warranties qualified as
to materiality which shall be true and correct on and as of the Closing Date
with the same effect as though such representations and warranties had been made
on and as of such date (except to the extent that any such representations and
warranties specifically apply to a prior date).
Section 4.3. Stockholders Agreement. The Stockholders Agreement shall have
been duly executed by the Purchaser.
Section 4.4. Required Consents. All Required Consents for the execution and
delivery of this Agreement by the Purchaser shall have been obtained.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The parties named below, represent and warrant to the Purchaser, as of the
date hereof and on the Closing Date, as follows:
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<PAGE> 11
Section 5.1. Corporate Existence. Each of HEI, HEDC, the Company and each
of its Subsidiaries is a corporation duly incorporated, validly existing and in
good standing under the laws of the jurisdiction set forth opposite the name of
such corporation on Item 5.1 of the Disclosure Schedule, and the Company is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction in which the ownership or use of its assets or properties, or
the conduct or nature of its business, makes such qualification necessary except
for any jurisdictions in which the failure to be so qualified could not
reasonably be expected to have a Material Adverse Effect. The Company and each
of its Subsidiaries has all requisite corporate power and authority to conduct
its business and own its properties as now conducted and owned. Attached as
Exhibit A hereto is a true and complete copy of the Certificate of Incorporation
of the Company and each of its Subsidiaries, as in effect as of the Closing
Date; attached as Exhibit B hereto is a true and complete copy of the By-laws of
the Company and each of its Subsidiaries, as in effect as of the Closing Date.
Section 5.2. Power and Authority. Each of HEI, HEDC, the Company and each
of its Subsidiaries has all requisite corporate power and authority, and has
taken all required corporate and other action necessary, to execute, deliver and
perform this Agreement and all Related Documents to which it is a party and, as
to the Company, to issue and sell the Securities as herein provided. Except as
set forth on Item 5.2 of the Disclosure Schedule, none of the foregoing actions
will (i) violate any provision of the By-laws or Certificate of Incorporation of
the Company or any of its Subsidiaries or any provision of the Organizational
Documents of HEI, (ii) result in the breach of or constitute a default under any
material contract, agreement or instrument to which HEI, HEDC, the Company or
any of its Subsidiaries is a party or by which it is bound, (iii) result in the
creation or imposition of any material lien, claim or encumbrance on any asset
of the Company or any of its Subsidiaries, (iv) to the knowledge of the Company,
give any Person rights to terminate any contracts or agreements of the Company
or any of its Subsidiaries or otherwise to exercise rights against the Company
or any of its Subsidiaries or (v) violate any order, writ, judgment, injunction,
decree, statute, rule or regulation of any court, tribunal or governmental
entity applicable to or bearing upon the Company or any of its Subsidiaries or
any of their assets or businesses except, in the case of each of clauses (ii),
(iii), (iv) or (v), for such violations, breaches, defaults, rights and
impairments that could not reasonably be expected to have a Material Adverse
Effect.
Section 5.3. Enforceability, etc. This Agreement and each of the Related
Documents has been duly executed and delivered by each of HEI, HEDC, the Company
and each of its Subsidiaries party thereto, and constitutes the legal, valid and
binding obligation of each of HEI, HEDC, the Company and each of its
Subsidiaries, as applicable, enforceable against them in accordance with their
respective terms, subject to (i) the effects of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally, (ii) general equitable
principles (whether considered in a proceeding in equity or at law) and (iii) an
implied covenant of good faith and fair dealing.
Section 5.4. Capitalization. After giving effect to the purchase of the
Securities hereunder, Schedule II hereto (the "Capitalization Schedule") sets
forth a true and complete statement of the capitalization of the Company as of
the Closing Date, including a list of all holders of Interests of or in the
Company and each of its Subsidiaries (and the amount and type of such
Interests). Except
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<PAGE> 12
as set forth on the Capitalization Schedule, the Company and each of its
Subsidiaries have not issued any Interests, nor are any Interests (or any rights
to acquire or purchase any Interests) outstanding. The Common Stock to be
delivered to the Purchaser will be duly authorized, validly issued, fully paid
and non-assessable and will be delivered to the Purchaser free and clear of any
liens, encumbrances, pre-emptive rights, escrows, options, rights of first
refusal or other agreements, arrangements, commitments, understandings or
obligations, whether written or oral, or any other restrictions affecting rights
and other incidents of record and beneficial ownership, other than (i) as set
forth herein or in the Related Documents and (ii) restrictions on
transferability imposed generally under the Securities Act and under the
securities laws of the several states and the rules and regulations issued in
respect thereto (such state laws, rules and regulations, being, collectively,
"Blue Sky Laws"). The issuance and delivery of the Common Stock on the terms and
conditions contemplated herein is exempt from the registration requirements of
the Securities Act and the Blue Sky Laws or has been qualified as may be
necessary.
Except as set forth on Item 5.4 of the Disclosure Schedule, the Company has
no Subsidiaries, direct or indirect, and owns no capital stock or other
securities, or rights or obligations to acquire the same, of any other Person.
Section 5.5. Consent and Approvals. Except as sot forth on Item 5.5 of the
Disclosure Schedule, neither the execution, delivery and performance of this
Agreement or any Related Documents by HEI, HEDC, the Company or any of its
Subsidiaries, as applicable, nor the consummation of any transaction related
hereto or thereto, nor the issuance, sale or delivery of the Securities, nor the
issuance or delivery of any Conversion Securities will require any consent or
approval of, filing or taking of any other action with, or notice to, any
Person, other than such Consents, approvals, filings or actions the failure of
which to take or obtain would not reasonably be expected to have a Material
Adverse Effect or have already been obtained.
Section 5.6. Pro Forma Balance Sheet. The pro forma balance sheet set forth
on Item 5.6 of the Disclosure Schedule fairly presents in all material respects
the financial condition of the Company and its Subsidiaries on a consolidated
basis as of its date, after giving effect to the consummation of the
transactions contemplated hereby.
Section 5.7. Financial Statements. HEI has furnished to the Purchaser (i)
its audited consolidated financial statements for the fiscal years ended 1997,
1996 and 1995 (including all management letters, if any, issued in connection
therewith) consisting of the audited consolidated balance sheets, income
statements and statements of stockholders' equity for each such fiscal year,
(ii) its unaudited consolidated financial statements for the months of January,
February, March and April 1998, consisting of the unaudited consolidated balance
sheets and income statements for each such month, (iii) the unaudited financial
statements of HEN for the fiscal year ended 1997 consisting of the unaudited
balance sheets, income statements and statements of stockholders' equity for
such fiscal year and (iv) the unaudited financial statements for the months of
January, February, March and April 1998, consisting of the unaudited balance
sheets and income statements for each such month (all of the preceding financial
statements being, collectively, the "Financial Statements"; the most recent
audited consolidated balance sheet included within the Financial Statements is
herein
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<PAGE> 13
referred to as the "Balance Sheet"). The Financial Statements have been prepared
in accordance with generally accepted accounting principles ("GAAP"),
consistently applied, and fairly present in all material respects the financial
position of HEI and its Subsidiaries and the results of its operations and cash
flows for the periods covered thereby, except, in the case of the unaudited
Financial Statements, for normal year-end adjustments and the omission of
certain footnote disclosures.
Section 5.8. Material Adverse Change. Except as set forth on Item 5.8 of
the Disclosure Schedule, since March 31, 1998, the business of the Company has
been conducted in the ordinary course and in substantially the same manner as
previously conducted and there has been no Material Adverse Effect.
Section 5.9. Events Subsequent to the Date of the Last Financial Statement.
Since the date of the last audited Financial Statements, except as contemplated
by this Agreement, in connection with the transactions regarding the Kermit
Channel in accordance with the documents delivered pursuant to Section 3.12, or
as set forth in the Balance Sheet or on Item 5.9 of the Disclosure Schedule,
neither the Company nor any of its Subsidiaries has (i) issued any stock, bond
or other security, (ii) borrowed any amount or incurred or become subject to any
liability (absolute, accrued or contingent), except current liabilities incurred
and liabilities under contracts entered into in the ordinary course of business,
(iii) discharged or satisfied any lien or incurred or paid any obligation or
liability (absolute, accrued or contingent) other than current liabilities shown
on the Balance Sheet and current liabilities incurred since the date of the
Balance Sheet in the ordinary course of business, (iv) declared or made any
payment or distribution to stockholders or purchased or redeemed any of its
capital stock, (v) mortgaged, pledged or subjected to any Lien any of its
assets, tangible or intangible, other than Liens of current real property taxes
not yet due and payable, (vi) sold, assigned or transferred any of its tangible
assets except in the ordinary course of business, or cancelled any debt or claim
owed to the Company or any of its Subsidiaries except in the ordinary course of
business, (vii) sold, assigned, transferred or granted any exclusive license
with respect to any Intellectual Property, (viii) suffered any substantial loss
of property or waived any right of substantial value other than in the ordinary
course of business, (ix) made any change in officer compensation except in the
ordinary course of business and consistent with past practice, (x) made any
material change in the manner of business or operations of the Company or any of
its Subsidiaries or (xi) entered into any transaction except in the ordinary
course of business or as otherwise contemplated hereby.
Section 5.10. Absence of Undisclosed Liabilities. Since the date of the
last audited Financial Statements, HEI, the Company and its Subsidiaries
incurred no material liabilities, matured or unmatured, fixed or contingent,
which are not fully reflected or provided for on the Balance Sheet, or any
material loss contingency (as defined in Statement of Financial Accounting
Standards No.5) whether or not required by GAAP to be shown on the Financial
Statements, except (i) obligations to perform under commitments incurred in the
ordinary course of business, (ii) tax and related liabilities which have been
disclosed pursuant to Section 5.11 below and (iii) as set forth on Item 5.10 of
the Disclosure Schedule.
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Section 5.11. Taxes. Except as set forth on Item 5.11 of the Disclosure
Schedule, the Company and each of its Subsidiaries has accurately completed and
filed or will file within the time prescribed by law (including extensions of
time approved by the appropriate taxing authority) all material tax returns and
reports required to be filed with the Internal Revenue Service, the State of
Delaware, any other states or governmental subdivisions and all foreign
countries and has paid all material taxes, interest, penalties, assessments or
deficiencies shown to be due (or, to the knowledge of the Company, claimed by
such authority or jurisdiction to be due unless contested in good faith pursuant
to appropriate proceedings) on or in respect of such tax returns and reports,
and has withheld taxes from employees' salaries and all other withholding taxes
and obligations required to be made with respect to the Company and its
Subsidiaries. The Company knows of (i) no unpaid assessment for additional taxes
or penalties for any fiscal period and (ii) no material tax Lien, whether
imposed by any Federal, state, county, municipal or foreign taxing authority,
outstanding against the assets or businesses of the Company or any of its
Subsidiaries, except for taxes not yet due and payable. Except as set forth on
Item 5.11 of the Disclosure Schedule, no material tax returns of the Company or
any of its Subsidiaries have ever been audited.
Section 5.12. Litigation. Except as set forth on Item 5.12 of the
Disclosure Schedule, there are no actions, suits, proceedings, orders,
investigations or claims pending or, to the knowledge of the Company, threatened
against or affecting the Company or any of its Subsidiaries, their assets or
businesses, at law or in equity, before any court, arbitration panel, tribunal
or governmental commission, bureau, agency or instrumentality which would
reasonably be expected to have a Material Adverse Effect or which seeks to
enjoin or restrain the consummation of the transactions contemplated by this
Agreement and the Related Documents.
Section 5.13. Insurance. The Company and its Subsidiaries hold valid
policies in full force and effect covering all of the insurance which the
Company believes provides adequate coverage and limits for the business of the
Company and its Subsidiaries.
Section 5.14. Conflicts of Interests. Except as set forth on Item 5.14 of
the Disclosure Schedule, neither the Company nor any of its Subsidiaries has
engaged in any transactions with HEDC, HEI or Hallmark, and neither the Company
nor any of its Subsidiaries is a party to or bound by any lease, purchase
contract or other agreement with any director or executive officer which has not
been entered into on an arm's-length basis.
Section 5.15. Licenses. Set forth on Item 5.15 hereof of the Disclosure
Schedule is a true and complete list in all material respects and summary
description of all material franchises, permits, licenses and other material
rights, including, without limitation, all material governmental approvals,
authorizations, consents, licenses and permits, which are necessary or required
for the conduct by the Company and each of its Subsidiaries of the businesses
currently conducted by them (collectively, the "Licenses"). The Company knows of
no basis upon which the renewal of any Licenses would be denied in the future.
Each such License has been validly issued to and is in full force and effect,
and neither the Company nor any of its Subsidiaries is in violation of any such
License except for such violations that could not reasonably be expected to have
a Material Adverse Effect.
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Section 5.16. Intellectual Property Rights. Set forth on Item 5.16 of the
Disclosure Schedule is a true and complete list and summary description of all
material patents, trademarks, service marks, trade names, copyrights or other
similar proprietary rights, or any rights or licenses to use the same, and any
and all applications therefor, presently owned or held by the Company and its
Subsidiaries (collectively, the "Intellectual Property"). Such Intellectual
Property constitutes all material intellectual property and similar proprietary
information necessary to permit the Company and its Subsidiaries to conduct
their businesses as currently conducted and as contemplated to be conducted.
None of the Company nor any of its Subsidiaries has received any formal or
informal notice of infringement or other complaint that any of their operations
infringe any rights under Intellectual Property of any other Person, nor does
the Company or any of its Subsidiaries have any reason to believe that there has
been any such infringement. No royalties, honorariums or fees are or will be
payable by the Company or any of its Subsidiaries to any other Person by reason
of the ownership or use by any of them of any Intellectual Property.
Section 5.17. Brokers, etc. None of the Company nor any of its Subsidiaries
has dealt with, nor are any of them obligated to pay any fee or commission in
connection with, any broker, finder or other similar Person in connection with
the offer or sale of the Securities or any of the transactions contemplated by
this Agreement.
Section 5.18. Accuracy of Information. The projections furnished to
Purchaser by the Company (the "Projections"), as of the date thereof, were based
on good faith estimates and assumptions by the management of the Company, which
the Company believes, as of the date thereof, were fair and reasonable in light
of the historical financial performance of the Company and its Subsidiaries and
current and reasonably foreseeable business conditions, it being recognized by
the Purchaser, however, that projections as to future events are not to be
viewed as fact and that actual results during the period or periods covered by
any such projections may differ from the projected results and that the
differences may be material.
Section 5.19. Contracts and Commitments.
(a) Except as expressly contemplated by this Agreement or any Related
Documents or as set forth on Item 5.19 of the Disclosure Schedule, neither
the Company nor any of its Subsidiaries is a party to any written (all
items set forth thereon are referred to as "Material Agreements"):
(i) pension, profit sharing, stock option, employee stock purchase
or other plan or arrangement providing for deferred or other
compensation to employees or any other employee benefit plan or
arrangement, or any contract with any labor union, or any severance
agreements;
(ii) contract for the employment of any officer, individual employee
or other Person on a full-time, part-time, consulting or other basis
providing annual compensation in excess of $100,000 or contract
relating to loans to officers, directors or Affiliates;
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<PAGE> 16
(iii) contract under which it has advanced or loaned any other
Person amounts in the aggregate exceeding $100,000;
(iv) agreement or indenture relating to the borrowing of money or
the mortgaging, pledging or otherwise placing a Lien on any material
asset or material group of assets;
(v) guarantee of any obligation;
(vi) lease or agreement under which it is lessee of or holds or
operates any property, real or personal, owned by any other party,
except for any lease of real or personal property under which the
aggregate annual rental payments do not exceed $100,000;
(vii) lease or agreement under which it is lessor of or permits any
third party to hold or operate any property, real or personal, owned or
controlled by it in excess of $100,000;
(viii) contract or group of related contracts with the same party or
group of affiliated parties the performance of which involves a
consideration in excess of $100,000;
(ix) assignment, license or indemnification with respect to any
intangible property, without limitation, any patent, trademark, trade
name, copyright, know-how, trade secret or confidential information);
(x) warranty agreement with respect to its services rendered or its
products sold or leased;
(xi) agreement under which it has granted any Person any
registration rights or similar rights (including piggyback rights) or
co-sale or similar rights in respect of any of its securities;
(xii) sales, distribution or franchise agreements involving amounts
in excess of $100,000;
(xiii) agreement with a term of more than six months which is not
terminable by it upon less than 30 days' notice without penalty
involving amounts in excess of $100,000;
(xiv) contract or agreement prohibiting it from freely engaging in
any business or competing anywhere in the world,
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<PAGE> 17
(xv) contract, agreement or other arrangement (including, without
limitation, any stockholders or voting agreement, voting trust or
similar arrangement with respect to any of its securities with any
officer, director, employee, holder of securities or Affiliate, or any
Affiliate of any officer, director, employee or holder of such
securities; or
(xvi) any other agreement which is material to its operations and
business prospects or involves a consideration in excess of $100,000
annually.
(b) Except as set forth on Item 5.19 of the Disclosure Schedule, all of
the Material Agreements set forth on such Item 5.19 are valid, binding and
enforceable against the Company and each of its Subsidiaries in accordance
with their respective terms, subject to (i) the effects of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights generally, (ii)
general equitable principles (whether considered in a proceeding in equity
or at law) and (iii) an implied covenant of good faith and fair dealing.
The Company and each of its Subsidiaries has performed all material
obligations required to be performed by it under such Material Agreements
and neither the Company nor any of its Subsidiaries is in default under or
in breach of, nor are any of them in receipt of any claim of default or
breach under, any such Material Agreement to which it is subject; neither
the Company nor any of its Subsidiaries has any present expectation or
intention of not fully performing all such obligations; neither the Company
nor any of its Subsidiaries has any knowledge of any breach or anticipated
breach by the other parties to any Material Agreement to which it is a
party; and neither the Company nor any of its Subsidiaries is a party to
any material contract requiring it to purchase or sell goods or services or
lease property above or below (as the case may be) prevailing market prices
and rates.
Section 5.20. Customers and Suppliers. Set forth on Item 5.20 of the
Disclosure Schedule hereof is a list of the distributors ("Distributors") of the
Company and its Subsidiaries for each of the two most recent fiscal years, and
set forth opposite the name of each such Distributor is the percentage of
consolidated net sales and subscribers attributable to such Distributor. Such
Item 5.20 also lists any additional current Distributors which the Company and
its Subsidiaries anticipates shall be among the 25 largest Distributors for the
current fiscal year. To the knowledge of the Company, since the date of the
Balance Sheet, no material supplier of the Company or any of its Subsidiaries
has indicated that it shall materially change the pricing of its programming or
that it shall stop, or materially decrease the rate of, distributing programming
to the Company or any of its Subsidiaries, including HEDC pursuant to the
Program License Agreement, and no Distributor listed on the aforementioned Item
5.20 has indicated that it shall stop, or materially decrease the rate of,
purchasing, distributing or licensing rights to television programming from the
Company and its Subsidiaries.
Section 5.21. Plans. Neither the Company nor any of its Subsidiaries is a
party to any Plan, as defined in the Employee Retirement Income Security Act of
1974 ("ERISA").
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
Purchaser represents and warrants to the Company, at and as of the Closing
Date, as follows:
Section 6.1. Existence; Power and Authority. The Purchaser is a limited
partnership duly organized, validly existing and in good standing under the laws
of the State of California. It has all requisite power and authority and has
taken all required partnership and other action necessary to execute and deliver
and perform this Agreement, the Related Documents and each other document or
instrument related hereto or thereto to which it is a party, and to carry out
the terms hereof and thereof. None of the foregoing actions will (i) violate any
provision of its organizational documents, (ii) result in the breach of or
constitute a default under any contract, agreement or instrument to which it is
a party or by which it is bound, (iii) violate any order, writ, judgment,
injunction, decree, statute, rule or regulation of any court, tribunal or
governmental entity or authority applicable to or bearing upon it or any of its
assets or business, or (iv) require any consent or approval of, filing or taking
of any other action with, or notice to, any Person, other than such Consents,
approvals, filings or actions the failure of which to take or obtain would to
reasonably be expected to have a Material Adverse Effect or have already been
obtained.
Section 6.2. Enforceability, etc. This Agreement and each of the Related
Documents has been duly executed and delivered by it and constitutes the legal,
valid and binding obligation of the Purchaser enforceable against it in
accordance with their respective terms.
Section 6.3. Purchase for Investment. It is purchasing the Securities for
its own account and not for the account of any Plan and with no present
intention to distribution thereof. Purchaser understands that the Securities and
any Conversion Securities must be held indefinitely unless it is registered
under the Securities Act or an exemption from such registration becomes
available, and that the Securities and any Conversion Securities may be
transferred only as provided in this Agreement and the Related Documents.
Section 6.4. Financial Matters. It represents and understands that the
purchase of the Securities involves substantial risk and that Purchaser's
financial condition and investments are such that it is in a financial position
to hold the Securities for an indefinite period of time and to bear the economic
risk of, and withstand a complete loss of, such Securities. Purchaser represents
that it is an "accredited investor" as that term is defined in Regulation D
promulgated under the Securities Act, and that it is a sophisticated investor,
capable of evaluating the merits and risks of investing in the Company given its
current stage of development.
Section 6.5. Adequate Access to Personnel and Materials. During the
negotiation of the transactions contemplated herein, Purchaser and its
representatives have been afforded full and free access to HEI's and the
Company's corporate books, financial statements and records, have been afforded
an opportunity to ask such questions of the Company's officers and employees
concerning the Company's business, operations, financial condition, assets,
liabilities and other relevant matters,
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<PAGE> 19
and have been given all such information as has been requested, in order to
evaluate the merits and risks of the prospective investment contemplated herein.
Section 6.6. Brokers, etc. It has not dealt with, nor is the Purchaser
obligated to pay any fee or commission in connection with, any broker, finder or
other similar Person in connection with the offer or sale of the Securities or
any of the transactions contemplated by this Agreement.
Section 6.7. Litigation. There are no actions, suits, proceedings,
orders, investigations or claims pending or, to the knowledge of the Purchaser,
threatened against or affecting the Purchaser, at law or in equity, before any
court, arbitration panel, tribunal or governmental commission, bureau, agency or
instrumentality which would reasonably be expected to have a material adverse
effect on the legal ability of the Purchaser to consummate the transactions
contemplated by this Agreement or which seeks to enjoin or restrain the
consummation of the transactions contemplated by this Agreement and the Related
Documents.
ARTICLE VII
COVENANTS OF THE COMPANY
Section 7.1. Fulfillment of Obligations. The Company shall, and shall
cause each of its Subsidiaries to, perform, observe and comply with Section 7.3
for so long as the Purchaser or any Qualified Holder holds Securities and with
all of the terms, conditions, agreements, obligations, restrictions and
covenants to be performed by it hereunder, for so long as the Purchaser or any
Qualified Holder holds Securities representing at least 50% of the shares of
Common Stock purchased by the Purchaser on the date of this Agreement or the put
price payable pursuant to Section 7.14 and 7.15 hereof remains unpaid in full in
cash.
Section 7.2. Use of Proceeds. The Company shall use the proceeds of the
sale of the Securities only for the purposes described in Section 2.5 hereof.
Section 7.3. Accounts and Reports. Each of HEI and the Company shall
furnish to Purchaser and each Qualified Holder copies of the following:
(a) As soon as available but in any event within 30 days after
the end of each monthly accounting period of the Company in each fiscal
year (or such shorter period as is provided to the Company's lenders),
unaudited consolidated statements of income and cash flows of the
Company and its Subsidiaries for such monthly period and for the period
from the beginning of the fiscal year to the end of such month, and
unaudited consolidated balance sheets of the Company and its
Subsidiaries as of the end of such monthly period, setting forth, in
each case, comparisons to the Annual Budget and to the corresponding
period in the preceding fiscal year. All such statements shall be
certified by the Company's chief financial officer.
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<PAGE> 20
(b) As soon as available but in any event within 45 days after
the end of each fiscal quarter of the Company in each fiscal year
(including the last quarter of any such fiscal year) (or such shorter
period as is provided to the Company's lenders), quarterly unaudited
consolidated statements of income and cash flows of the Company and its
Subsidiaries for such fiscal quarter, and quarterly unaudited
consolidated balance sheets of the Company and its Subsidiaries for
such fiscal quarter, setting forth, in each case, comparisons to the
Annual Budget and to the corresponding period in the preceding fiscal
year. All such statements shall be certified by the Company's chief
financial officer.
(c) As soon as available but in any event within 90 days after
the end of each fiscal year (or such shorter period as is provided to
the Company's lenders), consolidated statements of income and cash
flows of the Company and its Subsidiaries for such fiscal year, and
consolidated balance sheets of the Company and its Subsidiaries as of
the end of such fiscal year, setting forth in each case comparisons to
the Annual Budget and to the preceding fiscal year, and accompanied by
(i) with respect to the consolidated portions of such statements, an
opinion containing no exceptions or qualifications (except for
qualifications regarding specified contingent liabilities) of Arthur
Andersen LLP or another independent accounting firm of recognized
national standing, (ii) a copy of such firm's annual management letter
to the Company's Board of Directors and (iii) a management report and
discussion, prepared by the Company's chief financial officer, in
reasonable detail, of the Company's operating results for such fiscal
year.
(d) Accompanying the financial statements referred to in
clauses (a) and (b) above, a certificate of the Company's chief
financial or chief executive officer stating that no Major Corporate
Transaction has occurred without the consent of Purchaser and that the
Company has not issued and HEDC has not sold securities to a Strategic
Partner (as such terms are defined in the Stockholders Agreement) or,
if any such event has occurred, specifying the material terms thereof.
(e) Promptly upon receipt thereof, any additional reports,
management letters or other detailed information concerning significant
aspects of the operations or financial affairs of the Company and its
Subsidiaries provided by the Company's independent accountants (and not
otherwise contained in other materials provided hereunder).
(f) As soon as practicable and in any event no later than 30
days prior to the close of each fiscal year of the Company, a budget
for the immediately succeeding fiscal year, which shall be prepared in
reasonable detail and in a form reasonably satisfactory to the
Purchaser, which budget shall display (segregated on a monthly basis)
anticipated statements of income and cash flows and balance sheets for
the Company and its Subsidiaries for such immediately succeeding fiscal
year (the "Annual Budget"), and, promptly upon preparation thereof, all
other significant budgets (including strategic plans) prepared by the
Company or any of its Subsidiaries shall be delivered to the Purchaser.
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<PAGE> 21
(g) Within ten days after transmission thereof, copies of all
financial statements, proxy statements, reports and any other general
written communications which the Company or any of its Subsidiaries
sends to its stockholders and copies, if any, of all registration
statements and all regular, special or periodic reports which it files
with the Securities and Exchange Commission or with any securities
exchange on which any of its securities are then listed, and copies of
all press releases and other statements made available generally by the
Company or any of its Subsidiaries to the public concerning material
developments in the businesses of the Company or any of its
Subsidiaries.
(h) Promptly upon the occurrence of an event of default under
any indebtedness incurred pursuant to Section 7.5, written notice of
such event of default and a description of the actions being taken by
HEI in connection therewith.
(i) With reasonable promptness, such other information and
financial data concerning the Company and its Subsidiaries as any
Person entitled to receive information under this Section 7.3 may
reasonably request.
Each of the financial statements referred to in subparagraphs (a), (b) and (c)
shall be prepared in accordance with GAAP, consistently applied, and shall be
true and correct in all material respects as of the dates and for the periods
stated therein, subject in the case of the unaudited financial statements to
changes resulting from normal year-end adjustments (none of which would
reasonably be expected to have a Material Adverse Effect).
Notwithstanding the foregoing, the provisions of this Section 7.3 shall
cease to be effective so long as the Company (x) is subject to the periodic
reporting requirements of the Exchange Act and continues to comply with such
requirements and (y) promptly provides to each person otherwise entitled to
receive information pursuant to this Section 7.3 such reports and other material
filed by the Company with the Securities and Exchange Commission pursuant to
the periodic reporting requirements of the Exchange Act.
Except as otherwise required by law or judicial order or decree or by
any governmental agency or authority, each Person entitled to receive
information regarding the Company and its Subsidiaries under Sections 7.3 or 7.4
hereof shall use its best efforts to maintain the confidentiality of all
non-public information obtained by it hereunder which the Company has reasonably
designated as proprietary or confidential in nature; provided, however, that
each such Person may disclose such information in connection with the sale or
transfer of any Securities or Conversion Securities if such Person's transferee
agrees in writing to be bound by the provisions hereof. If this Agreement
terminates, each Person entitled to receive information under Sections 7.3 or
7.4 hereof, shall not use in any manner any information or material obtained
from or on behalf of Hallmark, HEI, HEDC or the Company or any of their
respective directors, officers, employees, agents or representatives, whether
prior to, on or after the date of this Agreement, other than information and
material readily ascertainable from public or published information, or trade
sources, already known by Purchaser independently of any investigation of
Hallmark, HEI, HEDC or the Company and its Subsidiaries received from a third
party not known or reasonably believed by Purchaser to be under
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<PAGE> 22
an obligation to any of Hallmark, HEI, HEDC or the Company or any of its
Subsidiaries to keep such information confidential. If this Agreement
terminates, any documents or material obtained by Purchaser from or on behalf of
Hallmark, HEI, HEDC or the Company or any of its Subsidiaries or any of their
respective directors, officers, employees, agents or representatives of such
Persons, upon written request, shall promptly be returned and any analyses,
compilations, studies or other material prepared by Purchaser or its
representatives containing, or based in whole or in part on, any information or
material so obtained from or on behalf of Hallmark, HEI, HEDC or the Company or
any of its Subsidiaries shall promptly be destroyed.
For purposes of Sections 7.3, 7.4 and 7.5 hereof, the term "Purchaser"
shall include any partner of a Purchaser who received Securities or Conversion
Securities pursuant to a distribution from or a liquidation of such Purchaser.
For purposes of this Agreement and each Related Document, all holdings
of Securities and Conversion Securities by Persons who are Affiliates of each
other shall be aggregated for purposes of meeting any threshold tests under this
Agreement and the Related Documents.
Section 7.4. Inspection of Property. The Company shall permit
representatives designated by Purchaser, upon reasonable notice and during
normal business hours, to (i) visit and inspect the properties of the Company
and its Subsidiaries, (ii) examine the corporate and financial records of the
Company and its Subsidiaries and make copies thereof or extracts therefrom and
(iii) discuss the affairs, finances and accounts of the Company and its
Subsidiaries with the directors, officers, key employees and independent
accountants thereof, provided that such access pursuant to clauses (i), (i) or
(iii) shall not interfere with normal operations of the Company and its
Subsidiaries. The presentation of an executed copy of this Agreement by
Purchaser or any Qualified Holder to the Company's independent accountants shall
constitute the Company's permission to its independent accountants to
participate in discussions with such Person.
Section 7.5. Restrictions. So long as Purchaser holds Securities
representing at least 50% of the shares of Common Stock purchased by the
Purchaser on the date of this Agreement or the put price payable pursuant to
Section 7.14 hereof remains unpaid in full in cash:
(a) HEI and the Company shall not enter into, and shall not
permit any of their respective Subsidiaries to enter into, any
agreement or instrument which by its terms would restrict the ability
of the Company or HEI to fulfill its obligations under this Agreement
or any Related Agreement, including the ability to pay the put price in
cash to Purchaser pursuant Section 7.15 hereof; and
(b) The Company shall not make any amendment to the
Certificate of Incorporation or By-Laws of the Company or any of its
Subsidiaries, containing any provisions, which would adversely affect
or otherwise impair the rights of the Purchaser under this Agreement,
the Certificate of Incorporation or By-Laws or any Related Document;
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(c) Except for borrowings (including borrowings under the
Senior Credit Agreement, from an Affiliate or otherwise) in an amount
not to exceed $325,000,000, HEI shall not create, incur, assume or
suffer to exist, or permit any Subsidiary to create, incur, assume or
suffer to exist, indebtedness which is senior to or pari passu in right
of payment to the prior payment in full (in cash) of the put price
payable to the Purchaser pursuant to this Agreement, except with the
prior written consent of the Purchaser; nor may HEI incur any
indebtedness pursuant to this clause (c) to make payments in respect of
(i) obligations which are junior in right of payment prior to the
payment in full (in cash) of the put price payable to Purchaser
pursuant to this Agreement or (ii) senior or pari passu obligations
incurred in violation of this clause (c); and
(d) Other than debt incurred in accordance with clause (c)
above, debt incurred for new business opportunities which the parties
mutually agree upon, and amounts set forth on Schedule 7.5(d), neither
HEI, HEDC, nor the Company will create, incur, assume or suffer to
exist any obligations payable to Hallmark, HEI or any of their
Affiliates, which are senior to or pari passu in right of payment to
the prior payment in full (in cash) of the put price payable to
Purchaser pursuant to this Agreement; provided that HEI, HEDC and the
Company shall be permitted to refinance indebtedness payable to
Hallmark, HEI or any of their Affiliates with indebtedness which is
junior in right of payment to the prior payment in full (in cash) of
the put price payable to Purchaser pursuant to this Agreement.
Section 7.6. Compliance with Agreements. The Company, HEI and HEDC
shall perform and observe all of their respective obligations set forth herein
and in the Related Documents.
Section 7.7. Current Public Information. At all times after the Company
has filed a registration statement with the Securities and Exchange Commission
which has been declared effective by the Securities and Exchange Commission
pursuant to the requirements of the Securities Act, the Company shall file all
reports required to be filed by it under the Securities Act and the Exchange Act
and the rules and regulations adopted by the Securities and Exchange Commission
thereunder to the extent required to enable such Holders to sell Restricted
Securities pursuant to (i) Rule 144 adopted by the Securities and Exchange
Commission under the Securities Act (as such rule may be amended from time to
time) or any similar rule or regulation hereafter adopted by the Securities and
Exchange Commission or (ii) if previously filed, a registration statement on
Form S-3, if available, or any similar registration form hereafter adopted by
the Securities and Exchange Commission; provided, however, if at any time the
Company notifies such Holders of (i) any request by the Securities and Exchange
Commission for amendments or supplements to a registration statement or related
prospectus or for additional information, (ii) the issuance by the Securities
and Exchange Commission of any stop order suspending the effectiveness of a
registration statement or the initiation of any proceedings for that purpose,
(iii) the receipt by the Company of any notification with respect to the
suspension of the qualification of any of the Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such purpose
or (iv) the happening of any event which makes any statement made in any
registration statement, the prospectus or any document incorporated therein by
reference untrue or which requires the making of any changes in any registration
statement or prospectus so that they will not contain any untrue statement of a
material
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<PAGE> 24
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, the Holders will
forthwith discontinue disposition of any Securities pursuant to the registration
statement covering such Securities until (a) such Holder's receipt of the copies
of the supplemented or amended prospectus contemplated above, or until it is
advised in writing by the Company that the use of the applicable prospectus may
be resumed and (b) until it has received copies of any additional or
supplemental filings which are incorporated by reference in such prospectus.
Upon the reasonable request of the Purchaser, the Company shall deliver to any
Holder of Restricted Securities a written statement as to whether it has
complied with such requirements.
Section 7.8. Affirmative Covenants. So long as Purchaser holds
Securities representing at least 50% of the shares of Common Stock purchased by
the Purchaser on the date of this Agreement or the put price payable pursuant to
Section 7.14 hereof remains unpaid in fall in cash, the Company shall, and shall
cause each of its Subsidiaries to:
(a) cause to be done all things necessary to maintain,
preserve and renew all material Licenses, authorizations and permits
necessary to the conduct of its business;
(b) maintain and keep its properties in good repair, working
order and condition, and from time to time make all necessary repairs,
renewals and replacements, so that its businesses may be properly
conducted at all times;
(c) pay and discharge when payable all taxes, assessments and
governmental charges imposed upon its properties or upon the income or
profits therefrom (in each case before the same becomes delinquent and
before penalties accrue thereon other than taxes, assessments or
charges the Company is contesting in good faith) and all claims for
labor, materials or supplies to the extent to which the failure to pay
or discharge such obligations would reasonably be expected to have a
Material Adverse Effect, unless and to the extent that the same are
being contested in good faith and by appropriate proceedings and
adequate reserves (as determined in accordance with GAAP, consistently
applied) have been established on its books with respect thereto;
(d) comply with all other material obligations which it incurs
pursuant to any contract or agreement as such obligations become due to
the extent to which the failure to so comply would reasonably be
expected to have a Material Adverse Effect, unless and to the extent
that the same are being contested in good faith and by appropriate
proceedings and adequate reserves (as determined in accordance with
GAAP, consistently applied) have been established on its books with
respect thereto;
(e) comply with all applicable laws, rules and regulations of
all governmental authorities, the violation of which would reasonably
be expected to have a Material Adverse Effect; and
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(f) maintain proper books of record and account which fairly
present in all material respects its financial condition and results of
operations and make provisions on its financial statements for all
such proper reserves as in each case are required in accordance with
GAAP, consistently applied.
Section 7.9. Liability Insurance. The Company shall, and shall cause
each of its Subsidiaries to, maintain in full force and effect a policy or
policies of standard comprehensive general liability insurance underwritten by a
U.S. insurance company insuring its properties and business against such losses
and risks, and in such amounts, as are adequate for its business and as are
customarily carried by entities of similar size engaged in the same or similar
business. Such policies shall include property loss insurance policies, with
extended coverage, sufficient in amount to allow the replacement of any of its
material tangible properties which might be damaged or destroyed by the risks or
perils normally covered by such policies.
Section 7.10. Transactions with Affiliates. The Company will not, and
will not permit any of its Subsidiaries to, enter into, or cause, suffer or
permit to exist any arrangement or contract with any of its Affiliates unless
such arrangement or contract is fair and equitable to the Company or such
Subsidiary and is an arrangement or contract of the kind which would be entered
into by a prudent Person in the position of the Company or such Subsidiary with
a Person which is not one of its Affiliates.
Section 7.11. Maintenance of Corporate Existence. Unless otherwise
determined by the Board of Directors of the Company, the Company, will preserve,
renew and keep in full force and effect, its corporate existence, qualification
in requisite jurisdictions and rights and privileges necessary in the normal
conduct of its business.
Section 7.12. Reserve for Conversion Securities. The Company shall at
all times reserve and keep available out of its authorized but unissued shares
of Common Stock, for the purpose of effecting the exercise of the Dilution
Warrant and the conversion of the Class B Common Stock, and otherwise complying
with the terms of this Agreement, such number of its duly authorized shares of
Common Stock as shall be sufficient to effect such exercise or conversions or
otherwise to comply with the terms of this Agreement. If at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the exercise of the Dilution Warrant and the conversion of the Class B
Common Stock into Class A Common Stock or otherwise to comply with the terms of
this Agreement, the Company will forthwith take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purposes. The Company will
obtain any authorization, consent, approval or other action by or make any
filing with any court or administrative body that my be required under
applicable state securities laws in connection with the issuance of shares of
Common Stock upon exercise of the Dilution Warrant and the conversion of the
Class B Common Stock, as the case may be.
Section 7.13. Put Rights. (a) Capitalized terms used herein and not
otherwise defined shall have the meanings set forth in the Stockholders
Agreement.
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(b) Prior to the consummation of a Qualified Public Offering,
Purchaser has the right to cause the Company to repurchase all but not
less than all of the Securities owned by Purchaser, at the put price
described below:
(i) upon December 31, 2001, at a put price equal to
the greater of: (1) Fair Market Value or (2) an amount which
provides Purchaser with the Rate of Return on its investment;
provided, that Purchaser must inform the Company in writing of
its decision to exercise its rights within one hundred twenty
(120) days after such anniversary;
(ii) after December 31, 2003, at a put price equal to
Fair Market Value;
(iii) for a period of 60 days following a Change of
Control of the Company occurring prior to December 31, 2001,
at a put price equal to the greater of: (1) Fair Market Value
or (2) an amount which provides Purchaser with the Rate of
Return on its investment;
(iv) for a period of 60 days following a Change of
Control of the Company occurring after December 31, 2001, at a
put price equal to Fair Market Value;
(v) for a period of 60 days following appointment or
removal of the Chairman of the Board of Directors for
any reason other than cause occurring prior to December 31,
2001, at a put price equal to the greater of (1) Fair Market
Value or (2) an amount which provides Purchaser with the Rate
of Return on its investment;
(vi) for a period of 60 days following the
appointment or removal of the Chairman of the Board of
Directors for any reason other than cause occurring after
December 31, 2001, at a put price equal to Fair Market Value;
and
(vii) in the event the Company, HEDC or HEI enters
into any Agreement which prohibits or restricts in any manner
the payment of the put rights contained in Sections 7.14-7.17
in cash or if the Company, HEDC or HEI amends the Company's
Certificate of Incorporation or this Agreement in any manner
which has a material adverse effect on Purchaser's rights;
(1) and such actions occur prior to December
31, 2001, for a period of 60 days after Purchaser
has received notice of the effectiveness of such
Agreement or Amendment, at a put price equal to the
greater of: (A) Fair Market Value or (B) an amount
which provides Purchaser with the Rate of Return on
its investment; and
(2) and such actions occur after December
31, 2001, for a period of 60 days after Purchaser has
received notice of the effectiveness of such
Agreement or Amendment, at a put price equal to Fair
Market Value.
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<PAGE> 27
(c) Prior to the consummation of a Qualified Public
Offering or the addition by the Company of a Strategic
Partner, Purchaser has the right to cause the Company to
repurchase all but not less than all of the Securities owned
by Purchaser at the put price described below:
(i) for a period of 60 days following the
consummation of a Major Corporate Transaction
occurring without the approval of Purchaser and prior
to December 31, 2001, at a put price equal to the
greater of: (1) Fair Market Value or (2) an amount
which provides Purchaser with the Rate of Return on
its investment; and
(ii) for a period of 60 days following the
consummation of a Major Corporate Transaction
occurring without the approval of Purchaser and after
December 31, 2001, at a put price equal to Fair
Market Value.
(d) Prior to the consummation of a Qualified Public
Offering, for a period of 60 days after any of the following
events, Purchaser has the right to cause the Company to
repurchase all but not less than all of the Securities owned
by Purchaser at a put price equal to the greater of Fair
Market Value or an amount which provides Purchaser with the
Rate of Return on its investment:
(i) the Board of Directors of HEI authorizes
the commencement of a voluntary bankruptcy petition
under the Bankruptcy Code of 1986, as amended, or any
analogous insolvency, receivership or custodian
petition under applicable state law;
(ii) HEI is in default of its payment
obligations under the Senior Bank Agreement or any
other senior indebtedness incurred pursuant to
Section 7.5(c) hereof and such default has not been
cured or waived in accordance with the Senior Bank
Agreement or agreements evidencing such other senior
indebtedness; and
(iii) an event of default with respect to
the financial covenants contained in the Senior Bank
Agreement has occurred and such event of default has
not been waived in accordance with the terms of the
Senior Bank Agreement; provided, however, in the
event that the defaults or events of default
referenced in subsections (d)(ii) and (d)(iii) are
subsequently and properly waived and written evidence
of such waiver is provided to Purchaser, the
foregoing put right shall be rendered of no further
force or effect. Nothing in this Section 7.13(d)
shall be deemed or be construed to operate as a
waiver of any put rights under any other provision of
this Agreement or of any future put rights which may
arise under this Section 7.13(d).
(e) "Fair Market Value" means:
(1) for Securities listed on a recognized
securities exchange or the NMS, the average of the
last sales prices (or, if no sale occurred on such
date, at the last "bid" price thereon) for the ten
consecutive trading days before such date;
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(2) for Securities traded over-the-counter
(other than on the NMS), the average of the last
"bid" prices for the ten consecutive trading days
before such date; and
(3) in all other situations, the amount
agreed upon by the relevant parties. If the parties
fail to agree within 15 days following delivery of
written notice from Purchaser of its intent to
exercise its put, the Fair Market Value shall be
calculated as follows: Within 10 days, HEDC and
Purchaser shall each select an independent appraiser
nationally recognized as qualified to appraise like
businesses, each of whom shall deliver its appraisal
of the Fair Market Value of Purchaser's Securities to
an independent person (to be agreed by HEDC and
Purchaser) within 20 Business Days following the
selection of such appraiser. Any calculation of Fair
Market Value shall represent that amount that an
informed and willing purchaser under no compulsion to
buy would pay for Purchaser's Securities at issue,
taking into account all facts and circumstances
prevailing, but disregarding any discount or premium
based on control and taking into account valuations
for comparable public companies and purchase and sale
transactions of such comparable companies. If the
higher appraisal is less than five percent greater
than the lower appraisal, the independent person
shall notify the parties and the Fair Market Value
shall be the arithmetic mean of the two appraisals.
If the higher appraisal is equal to or more than five
percent greater than the lower appraisal, the
independent person shall notify the parties and each
appraiser of that fact (and of the amounts). In such
a case, the two appraisers shall, within 10 Business
Days of such notification from the independent
person, agree on a third independent appraiser
nationally recognized as qualified to appraise like
businesses, which third appraiser shall deliver its
appraisal of the Fair Market Value of the Company to
the independent person within 20 Business Days of the
selection of such third appraiser. The Fair Market
Value shall then be calculated as follows: (A) if
the higher of the first two appraisals is more than
ten percent greater than the lower of the first two
appraisals, the arithmetic mean of the two closest of
the three appraisals and (B) if the higher of the
first two appraisals is not more than ten percent
greater than the lower of the first two appraisals,
then the middle appraisal. The independent person
shall promptly give written notice of the Fair Market
Value of Purchaser's Securities to each party. HEDC
and Purchaser shall each bear its own costs incurred
in connection with the appraisal procedure under this
Section and both shall share equally the costs and
expenses of the third appraiser, if applicable.
Section 7.14. Exercise of Put Option. Purchaser may exercise its put
rights by notifying the Company in writing of its intention to exercise such
rights. The Company will be obligated to pay the put price as provided in
Section 7.13 within fifteen (15) days of the exercise of the put by wire
transfer of immediately available funds. In the event the Company is unable or
not permitted to pay the put amount, for any reason, Purchaser may present
notice of its intention to exercise its put rights to HEDC, who shall thereafter
be obligated to pay the put price to Purchaser in accordance with the provisions
of this Section 7.14 and Section 7.15. Thereafter, in the event HEDC is unable
or not permitted to pay the put amount in cash, Purchaser may present notice of
its intention to exercise its put rights to HEI, who shall then be obligated to
pay the put price to Purchaser in accordance with the provisions of this Section
7.14 and Section 7.15. In the event HEI or HEDC is unable or not permitted to
pay the put amount in cash within fifteen (15) days of its receipt of the
foregoing notice
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<PAGE> 29
by wire transfer of immediately available funds, such obligation shall remain an
obligation of HEI and containing the terms specified in Section 7.15.
Notwithstanding the foregoing, in the event the obligation to pay the put amount
arises pursuant to Section 7.13(d), such obligation shall immediately become an
obligation of HEI containing the terms specified in Section 7.15, effective as
of the date of the exercise of the put if HEN and HEDC fail to make payment
pursuant to this Section 7.14. None of the Company, HEDC or HEI shall be
entitled to set-off and reduce any amounts payable to Purchaser upon the
repurchase of Common Stock pursuant to this Section 7.14 and Section 7.15 for
any obligations or liabilities of Purchaser to the Company, HEDC or HEI pursuant
to a written agreement or a final non-appealable judgment. Purchaser may assign
any of its rights under this Article VII to any Related Person.
Section 7.15. Terms of Put Obligation. In the event HEI fails to make
payment within the time period specified in Section 7.14 or the obligation to
pay the put amount arises the exercise of the put to Section 7.13(d), HEI shall
be obligated to pay interest in cash on the unpaid portion of the put amount on
a quarterly basis, on the first day of each fiscal quarter, at an interest rate
of seven percent (7%) per annum. In any event, HEI will be obligated to pay the
entire unpaid portion of the put amount, together with any accrued but unpaid
interest, on or before the date which is six months from the data on which HEI
first became obligated to pay the put amount. The foregoing debt obligation
shall be senior to all other indebtedness of HEI, except for borrowings which
were incurred in accordance with Section 7.5, and shall be evidenced by a note
in substantially the form attached hereto as Exhibit H. HEI covenants and agrees
to execute and deliver any documents reasonably requested by the Purchaser to
evidence the foregoing obligation, including the aforementioned note and to
execute and deliver Uniform Commercial Code financial statements within thirty
(30) days of the date hereof to record the lien to secure the foregoing
obligation.
Section 7.16. Call Rights. After December 31, 2004, the Company or an
Affiliate thereof my repurchase at its option, all, but not less than all, of
the Securities held by Purchaser at a "call" price equal to Fair Market Value
and Purchaser agrees to sell its Common Stock on such terms.
Section 7.17. Further Assurances. The Company and the Purchaser will
cure promptly any defects in the creation and issuance of the Securities or any
Conversion Securities, and in the execution and delivery of this Agreement. The
Company and the Purchaser will promptly execute and deliver promptly upon
request all such other and further documents, agreements and instruments in
compliance with or pursuant to the covenants and agreements herein, and will
make any recordings, file any notices, and obtain any consents as may be
necessary or appropriate in connection therewith.
Section 7.18. Efforts. (a) Subject to the terms and conditions hereof,
each party hereto shall use all reasonable efforts to consummate the
transactions contemplated hereby as promptly as practicable.
(b) The Company and Purchaser will, as promptly as practicable (i) make
the required filings with, and take all reasonable steps to obtain all other
required authorizations, approvals, consents and other actions of, governmental
authorities and (ii) take all reasonable steps (not
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<PAGE> 30
including the expenditure of money or the payment or delivery of other
consideration) to obtain all other required consents of other Persons with
respect to the transactions contemplated hereby.
ARTICLE VIII
TERMINATION
Section 8.1. Termination. This Agreement may be terminated at any time
prior to the Closing:
(a) by mutual consent of the Company and the Purchaser;
(b) by either the Company or the Purchaser if the Closing
shall not have occurred by July 31, 1998; provided, however, that the
failure to consummate the transactions contemplated hereby is not a
result of the failure by the party so electing to terminate this
Agreement to perform any of its obligations hereunder; or
(c) by the Company or the Purchaser if any court of competent
jurisdiction shall have issued an order, decree or ruling or taken any
other action enjoining or otherwise prohibiting the transactions
contemplated under this Agreement and such order, decree, ruling or
other action shall have become final and nonappealable.
Section 8.2. Effect of Termination. Except for the obligations of
Section 9.2 hereof, if this Agreement shall be terminated by written notice
pursuant to Section 8.1, all obligations, representations and warranties of the
parties hereto under this Agreement shall terminate and there shall be no
liability of any party to another party, except (i) for any breach of this
Agreement prior to such termination and (ii) that the Company with promptly (and
in any event within 30 days of receiving any statement or invoice therefor) pay
all reasonable fees, expenses and costs relating hereto of Purchaser (including
reasonable fees and expenses of counsel and other financial advisors) in
connection with the transactions contemplated hereby up to $100,000 if this
Agreement is terminated by the Purchaser due to the failure of HEI or the
Company (and not the failure of Purchaser) to perform its obligations hereunder,
including, without limitation, those described in Section 9.1 below.
ARTICLE IX
MISCELLANEOUS
Section 9.1. Expenses. Subject to Section 8.2, the Company agrees to
pay all expenses of the Purchaser for the negotiation, preparation, execution
and delivery of this Agreement and the Related Agreements, including schedules
and exhibits, including reasonable fees and expenses of
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counsel and other financial advisors, up to $100,000, if the transactions
contemplated hereby are consummated.
Section 9.2. Indemnification by the Company. Subject to the other
provisions of this Article IX, following the Closing, HEI and the Company shall
jointly and severally indemnify the Purchaser and its respective affiliates and
their officers, directors, employees, agents and representatives against, and
shall hold them harmless from any loss, liability, third-party claim, damage or
expense (including reasonable legal fees and expenses but excluding loss of
profits or other consequential damages), for or on account of or arising from or
in connection with or otherwise with respect to (i) any breach on the part of
HEI or the Company of any representation or warranty made by it contained in
Article V, (ii) any breach on the part of the Company of any covenant made by it
contained in this Agreement, and (iii) any transaction financed or to be
financed in whole or in part, directly or indirectly, with the proceeds of the
issuance of the Securities issued hereunder, except for any such liabilities
arising on account of the particular indemnitee's gross negligence or willful
misconduct.
Section 9.3. Indemnification by the Purchaser. Subject to the other
provisions of this Article IX, following the Closing, the Purchaser shall
indemnify HEI, HEDC and the Company and their affiliates and their respective
officers, directors, employees, agents and representatives against, and shall
hold them harmless from, any loss, liability, third-party claim, damage or
expense (including reasonable legal fees and expenses but excluding loss of
profits or other consequential damages) for or on account of or arising from or
in connection with or otherwise with respect to any breach on the part of the
Purchaser of any representation or warranty contained in Article VI or covenant
made by it contained in this Agreement.
Section 9.4. Indemnification Procedures for Claims. (a) All claims for
indemnification by any party (the "Indemnified Party") hereunder shall be
asserted and resolved as set forth in this Section 9.4. In the event that any
written claim or demand for which the party from whom indemnification is sought
(an "Indemnifying Party") would be liable to any Indemnified Party hereunder is
asserted against or sought to be collected from any Indemnified Party by a
third party, such Indemnified Party shall promptly and within a reasonable time
of discovery of the breach of nonperformance or of any covenant or
representation under this Agreement, notify the Indemnifying Party of such
claim or demand and the amount or the estimated amount thereof to the extent
then feasible (which estimate shall not be conclusive of the final amount of
such claim and demand) (the "Claim Notice"); provided, however, that failure to
give such notification shall not affect the indemnification provided hereunder
except to the extent the Indemnifying Party shall have been actually prejudiced
as a result of such failure. The Indemnifying Party shall have 15 days from the
personal delivery or mailing of the Claim Notice (the "Notice Period") to
notify the Indemnified Party whether or not it desires to defend the
Indemnified Party against such claim or demand.
(b) All costs and expenses incurred by the Indemnifying Party in
defending such claim or demand shall be a liability of, and shall be paid by,
the Indemnifying Party. Except as hereinafter provided, in the event that the
Indemnifying Party notifies the Indemnified Party within the Notice Period that
it desires to defend the Indemnified Party against such claim or demand, the
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<PAGE> 32
Indemnifying Party shall have the right to defend the Indemnified Party by
appropriate proceedings and shall have the sole power to direct and control such
defense.
(c) If any Indemnified Party desires to participate in any
such defense it may do so at its sole cost and expense. The Indemnified Party
shall not settle a claim or demand for which it seeks or may seek to be
indemnified by the Indemnifying Party without the written consent of the
Indemnifying Party. If the Indemnifying Party elects not to defend the
Indemnified Party against such claim or demand whether by not giving the
Indemnified Party timely notice as provided above or otherwise, then the amount
of any such claim or demand (so long as it is a claim or demand in respect of
which indemnification is available hereunder) or, if the same be contested by
the Indemnified Party, then that portion thereof as to which such defense is
unsuccessful (and the reasonable costs and expenses pertaining to such defense)
shall be the liability of the Indemnifying Party hereunder. To the extent the
Indemnifying Party shall direct, control or participate in the defense or
settlement of any third-party claim or demand or participate in the defense or
settlement of any third-party claim or demand, the Indemnified Party will give
the Indemnifying Party and its counsel access to, during normal business hours,
the relevant business records and other documents, and shall permit them to
consult with the employees and counsel of the Indemnified Party. The Indemnified
Party shall use its reasonable efforts in the defense of all such claims.
Section 9.5. Limitations Upon Indemnification. (a) The parties agree
that the remedies provided in this Article IX are the exclusive remedies for any
breach of representation, warranty or covenant, and for misrepresentation, under
this Agreement. Any claim based, in whole or in part, upon any untrue or
incorrect statement set forth in this Agreement shall be deemed to be a claim
for a breach of representation, warranty or covenant, or misrepresentation,
under this Agreement. Notwithstanding anything in this Article IX to the
contrary:
(i) Neither HEI nor the Company shall be obligated to provide
any indemnification under Section 9.2 (i) or (ii) unless and until the
aggregate amount for which it is obligated to provide such
indemnification exceeds the sum of $200,000, after which HEI and the
Company shall be obligated to pay the entire amount of any such excess
which is payable by it pursuant to the provisions of Section 9.2; and
(ii) In no event shall the aggregate liability of HEI and the
Company under Section 9.2 exceed the aggregate purchase price paid
hereunder.
(b) The representations and warranties in this Agreement and
the indemnification provisions in this Agreement in respect thereof shall
survive the Closing until [two years] after the Closing Date, at which time they
shall terminate; provided, however, that such termination shall not affect any
claim for breaches of representations or warranties if written notice thereof,
in reasonable detail, is given to the breaching party or parties prior to such
termination date or for breaches of the covenants hereunder
Section 9.6. Computation of Indemnifiable Losses. Any amount payable
pursuant to this Article IX shall be decreased to the extent of (a) any net
reduction in tax liability that is realizable
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<PAGE> 33
by the indemnified party upon the payment of an indemnifiable loss (assuming
such indemnified party is a corporate taxpayer subject to the maximum federal
income tax rate) and (b) any insurance proceeds received or receivable by the
indemnified party in respect of an indemnifiable loss.
Section 9.7. Remedies Cumulative. Except as herein provided, the
remedies provided herein shall be cumulative and shall not preclude assertion by
any party hereto of any other rights or the seeking of any other remedies
against the other party hereto, whether at law or in equity.
Section 9.8. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be prohibited
by or invalid under applicable law, such provisions shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
Section 9.9. Parties in Interest. Subject to Section 7.15, Neither this
Agreement nor any of the rights or obligations hereunder shall be assigned by
any of the parties hereto without the prior written consent of each of the other
parties. Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of and be enforceable by the parties and their respective
successors and permitted assigns.
Section 9.10. Notices. All notices, demands or other communications to
be given or delivered under or by reason of the provisions of this Agreement or
any Related Document shall be in writing and shall be deemed to have been given
when delivered personally to the recipient, sent to the recipient by reputable
express courier service (charges prepaid), mailed to the recipient by certified
or registered mail, return receipt requested and postage prepaid, or sent by
telecommunications facsimile. Such notices, demands and other communications
shall be sent to the Company and the Purchaser at the addresses (or facsimile
numbers) set forth on Schedule I hereto or to such other address (or facsimile
number) or to the attention of such other Person as the recipient party has
specified by prior written notice to the sending party.
Section 9.11. Schedules. Disclosures included in any item of any
disclosure schedule to this Agreement shall be considered to be made for
purposes of all disclosure schedules to this Agreement. Inclusion of any matter
or item in any disclosure schedule to this Agreement does not imply that such
matter or item would, under the provisions of this Agreement, have to be
included in any disclosure schedule to this Agreement or that such matter or
term is otherwise material.
Section 9.12. No Waiver. No failure to exercise and no delay in
exercising any right, power or privilege granted under this Agreement shall
operate as a waiver of such right, power or privilege. No single or partial
exercise of any right, power or privilege granted under this Agreement shall
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege.
Section 9.13. Amendments and Waivers. Except as herein provided, this
Agreement may be modified or amended only by a writing signed by the Company and
by the Holders of 51% of the outstanding Securities then outstanding.
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Section 9.14. Understanding Among the Purchasers. The determination of
the Purchaser to purchase the Securities pursuant to this Agreement has been
made by the Purchaser independent of any other purchaser and independent of any
statements or opinions as to the advisability of such purchase or as to the
properties, business, prospects or condition (financial or otherwise) of the
Company and its Subsidiaries which may have been made or given by any other
purchaser or by any agent or employee of any other purchaser. In addition, it is
acknowledged by the Purchaser that no other purchaser has acted as an agent of
the Purchaser in connection with making its investment hereunder and that no
other Person shall be acting as an agent of the Purchaser in connection with
monitoring its investment hereunder.
Section 9.15. Governing Law. The corporate law of Delaware shall govern
all issues concerning the relative rights of the Company and its shareholders.
All other issues hereunder shall be governed by and construed in accordance with
the procedural and substantive laws of the State of New York without regard for
its conflicts of laws rules.
Section 9.16. Entire Understanding. This Agreement expresses the entire
understanding of the parties and supersedes all prior and contemporaneous
agreements and undertakings, both written and oral, of the parties with respect
to the subject matter of this Agreement. It is not intended to confer upon any
Person other than the parties hereto any rights or remedies hereunder.
Section 9.17. Counterparts. This Agreements may be executed in one or
more counterparts, each of which shall be deemed to be an original but all of
which taken together shall constitute one agreement.
Section 9.18. Publicity. None of the parties hereto nor their
respective affiliates shall issue or cause the publication of any press release
or other public announcement with respect to the transactions contemplated by
this Agreement without the consent of the other parties, which consent shall not
be unreasonably withheld or withdrawn, except as may be required by law or the
regulations or policies of any securities exchange, in which case the party
required to make the release or statement shall allow the other party reasonable
time to comment on such release or statement in advance of such issuance.
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IN WITNESS WHEREOF, the Company, HEI HEDC and the Purchaser have
executed this Agreement as of the day and year first above written.
HALLMARK ENTERTAINMENT
NETWORK, INC.,
By: /s/ WILLIAM J. ALIBER
--------------------------------------
Name:
---------------------------------
Title: Vice President
--------------------------------
HALLMARK ENTERTAINMENT
DISTRIBUTION COMPANY,
By: /s/ WILLIAM J. ALIBER
--------------------------------------
Name:
---------------------------------
Title: Vice President
--------------------------------
HALLMARK ENTERTAINMENT, INC.,
By: /s/ WILLIAM J. ALIBER
--------------------------------------
Name:
---------------------------------
Title: Chief Financial Officer
--------------------------------
CHASE EQUITY ASSOCIATES, L.P.
By: Chase Capital Partner,
its general partner
By: /s/ ARNOLD L. CHAVKIN
--------------------------------------
Name: Arnold L. Chavkin
---------------------------------
Title: General Partner
--------------------------------
<PAGE> 1
EXHIBIT 10.3
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT, dated as of February 18, 1999 (as
amended or otherwise modified from time to time, this "Agreement") by and among
Hallmark Entertainment Networks, Inc., a Delaware corporation (the "Company"),
Hallmark Entertainment Distribution Company, a Delaware corporation, the sole
shareholder of the Company and a direct subsidiary of HEI ("HEDC"), Hallmark
Entertainment, Inc. ("HEI"), a Delaware corporation and an indirect subsidiary
of Hallmark Cards, Incorporated, and Chase Equity Associates, L.P., a
California limited partnership (the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Company wishes to obtain equity financing through the
issuance and sale to Purchaser of Class B Non-Voting Common Stock, par value
$0.01 per share ("Class B Common Stock", and together with the Class A Common
Stock, "Common Stock"), having the terms set forth in the Certificate of
Amendment to the Certificate of Incorporation (the shares of Common Stock
purchased hereunder are referred to herein as the "New Securities"); and
WHEREAS, the Purchaser is willing on the terms and conditions set forth
in this Agreement to purchase the New Securities in the amount set forth on
Schedule I;
NOW, THEREFORE, based upon the mutual covenants and agreements herein
contained, and for other good and sufficient consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
DEFINED TERMS
Section 1.1. Defined Terms. All capitalized terms used herein shall
have the meanings set forth in that certain Securities Purchase Agreement, dated
as of May 29, 1998, among the Purchaser, the Company and the parties named
therein (the "Original Securities Purchase Agreement").
ARTICLE II
PURCHASE AND SALE TERMS
Section 2.1. Purchase and Sale. Subject to the terms of this Agreement,
the Company shall authorize, issue and sell to the Purchaser, and the Purchaser
shall purchase from the
<PAGE> 2
Company on the date hereof, the number of shares of Common Stock at the
aggregate purchase price set forth opposite the Purchaser's name on Schedule I
hereto.
Section 2.2. Payment and Delivery. The Purchaser shall pay the purchase
price for the New Securities purchased by it in full, in cash, by wire transfer
of immediately available funds to the account designated by the Company in
writing. The purchase price for the Purchaser is as set forth opposite the
Purchaser's name on Schedule I hereto. Upon delivery of such funds, the Company
shall deliver to the Purchaser stock certificates evidencing the Common Stock to
be purchased by it, registered in the name of the Purchaser or its nominee.
Section 2.3. Transfer Legends and Restrictions. The transfer of the
shares of Common Stock purchased hereunder as well as any Conversion Securities
will be restricted in accordance with the terms hereof and of the Related
Documents. Each certificate or other instrument evidencing the Common Stock or
any Conversion Securities, including any certificate or other instrument issued
to any transferee thereof, shall be imprinted with one or more legends in
substantially the form required pursuant to the Related Documents, and such
legends shall not be removed from such certificates or other instruments except
in accordance with the terms and provisions of the Related Documents.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The parties named below, represent and warrant to the Purchaser, as of
the date hereof and on the Closing Date, as follows:
Section 3.1. Incorporation by Reference. Each of the representations
and warranties of the parties set forth in Sections 5.1 through 5.5 of the
Original Securities Purchase Agreement are incorporated herein by reference and
are made as of the date hereof except that Schedule II (Item 5.4) to the
Original Securities Purchase Agreement is updated as set forth on Schedule II
hereto.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
Purchaser represents and warrants to the Company as follows:
Section 4.1. Existence; Power and Authority. The Purchaser is a limited
partnership duly organized, validly existing and in good standing under the laws
of the State of California. It has all requisite power and authority and has
taken all required partnership and other action necessary to execute and deliver
and perform this Agreement, the Related Documents and each
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<PAGE> 3
other document or instrument related hereto or thereto to which it is a party,
and to carry out the terms hereof and thereof. None of the foregoing actions
will (i) violate any provision of its organizational documents, (ii) result in
the breach of or constitute a default under any contract, agreement or
instrument to which it is a party or by which it is bound, (iii) violate any
order, writ, judgment, injunction, decree, statute, rule or regulation of any
court, tribunal or governmental entity or authority applicable to or bearing
upon it or any of its assets or business, or (iv) require any consent or
approval of, filing or taking of any other action with, or notice to, any
Person, other than such Consents, approvals, filings or actions the failure of
which to take or obtain would to reasonably be expected to have a Material
Adverse Effect or have already been obtained.
Section 4.2. Enforceability. etc. This Agreement and each of the
Related Documents has been duly executed and delivered by it and constitutes the
legal, valid and binding obligation of the Purchaser enforceable against it in
accordance with their respective terms.
Section 4.3. Purchase for Investment. It is purchasing the New
Securities for its own account and not for the account of any Plan and with no
present intention to distribution thereof. Purchaser understands that the New
Securities and any Conversion Securities must be held indefinitely unless it is
registered under the Securities Act or an exemption from such registration
becomes available, and that the New Securities and any Conversion Securities may
be transferred only as provided in this Agreement and the Related Documents.
Section 4.4. Financial Matters. It represents and understands that the
purchase of the New Securities involves substantial risk and that Purchaser's
financial condition and investments are such that it is in a financial position
to hold the New Securities for an indefinite period of time and to bear the
economic risk of, and withstand a complete loss of, such Securities. Purchaser
represents that it is an "accredited investor" as that term is defined in
Regulation D promulgated under the Securities Act, and that it is a
sophisticated investor, capable of evaluating the merits and risks of investing
in the Company given its current stage of development.
Section 4.5. Adequate Access to Personnel and Materials. During the
negotiation of the transactions contemplated herein, Purchaser and its
representatives have been afforded full and free access to HEI's and the
Company's corporate books, financial statements and records, have been afforded
an opportunity to ask such questions of the Company's officers and employees
concerning the Company's business, operations, financial condition, assets,
liabilities and other relevant matters, and have been given all such information
as has been requested, in order to evaluate the merits and risks of the
prospective investment contemplated herein.
Section 4.6. Brokers etc. It has not dealt with, nor is the Purchaser
obligated to pay any fee or commission in connection with, any broker, finder or
other similar Person in connection with the offer or sale of the New Securities
or any of the transactions contemplated by this Agreement.
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<PAGE> 4
Section 4.7. Litigation. There are no actions, suits, proceedings,
orders, investigations or claims pending or, to the knowledge of the Purchaser,
threatened against or affecting the Purchaser, at law or in equity, before any
court, arbitration panel, tribunal or governmental commission, bureau, agency or
instrumentality which would reasonably be expected to have a material adverse
effect on the legal ability of the Purchaser to consummate the transactions
contemplated by this Agreement or which seeks to enjoin or restrain the
consummation of the transactions contemplated by this Agreement and the Related
Documents.
ARTICLE V
MISCELLANEOUS
Section 5.1. Indemnification by the Company. Subject to the other
provisions of this Article V, HEI and the Company shall jointly and severally
indemnify the Purchaser and its respective affiliates and their officers,
directors, employees, agents and representatives against, and shall hold them
harmless from, any loss, liability, third-party claim, damage or expense
(including reasonable legal fees and expenses but excluding loss of profits or
other consequential damages), for or on account of or arising from or in
connection with or otherwise with respect to any breach on the part of HEI or
the Company of any representation or warranty made by it contained in Article
III.
Section 5.2. Indemnification by the Purchaser. Subject to the other
provisions of this Article V, the Purchaser shall indemnify HEI, HEDC and the
Company and their affiliates and their respective officers, directors,
employees, agents and representatives against, and shall hold them harmless
from, any loss, liability, third-party claim, damage or expense (including
reasonable legal fees and expenses but excluding loss of profits or other
consequential damages) for or on account of or arising from or in connection
with or otherwise with respect to any breach on the part of the Purchaser of any
representation or warranty contained in Article VI or covenant made by it
contained in this Agreement.
Section 5.3. Indemnification Procedures for Claims. All claims for
indemnification by any party and all costs and expenses incurred by the
Indemnifying Party in defending such claim or demand shall be subject to the
provisions of Sections 9.4 through 9.6 of the Original Securities Purchase
Agreement.
Section 5.4. Remedies Cumulative. Except as herein provided, the
remedies provided herein shall be cumulative and shall not preclude assertion by
any party hereto of any other rights or the seeking of any other remedies
against the other party hereto, whether at law or in equity.
Section 5.5. Put Rights. The New Securities purchased hereunder shall
be deemed "Securities" as such term is used and for the purposes of Sections
7.13 through 7.16 of the Original Securities Purchase Agreement.
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<PAGE> 5
Section 5.6. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be prohibited
by or invalid under applicable law, such provisions shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
Section 5.7. Parties in Interest. Subject to Section 7.15 of the
Original Securities Purchase Agreement, neither this Agreement nor any of the
rights or obligations hereunder shall be assigned by any of the parties hereto
without the prior written consent of each of the other parties. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit of
and be enforceable by the parties and their respective successors and permitted
assigns.
Section 5.8. Notices. All notices, demands or other communications to
be given or delivered under or by reason of the provisions of this Agreement on
the Original Securities Purchase Agreement or any Related Document shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, sent to the recipient by reputable express courier service (charges
prepaid), mailed to the recipient by certified or registered mail, return
receipt requested and postage prepaid, or sent by telecommunications facsimile.
Such notices, demands and other communications shall be sent to the Company and
the Purchaser at the addresses (or facsimile numbers) set forth on Schedule III
hereto or to such other address (or facsimile number) or to the attention of
such other Person as the recipient party has specified by prior written notice
to the sending party.
Section 5.9. No Waiver. No failure to exercise and no delay in
exercising any right, power or privilege granted under this Agreement shall
operate as a waiver of such right, power or privilege. No single or partial
exercise of any right, power or privilege granted under this Agreement shall
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege.
Section 5.10. Amendments and Waivers. Except as herein provided, this
Agreement may be modified or amended only by a writing signed by the Company and
by the Holders of 51% of the outstanding Securities then outstanding.
Section 5.11. Understanding Among the Purchasers. The determination of
the Purchaser to purchase the New Securities pursuant to this Agreement has been
made by the Purchaser independent of any other purchaser and independent of any
statements or opinions as to the advisability of such purchase or as to the
properties, business, prospects or condition (financial or otherwise) of the
Company and its Subsidiaries which may have been made or given by any other
purchaser or by any agent or employee of any other purchaser. In addition, it is
acknowledged by the Purchaser that no other purchaser has acted as an agent of
the Purchaser in connection with making its investment hereunder and that no
other Person shall be acting as an agent of the Purchaser in connection with
monitoring its investment hereunder.
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<PAGE> 6
Section 5.12. Governing Law. The corporate law of Delaware shall govern
all issues concerning the relative rights of the Company and its shareholders.
All other issues hereunder shall be governed by and construed in accordance with
the procedural and substantive laws of the State of New York without regard for
its conflicts of laws rules.
Section 5.13. Entire Understanding. This Agreement expresses the entire
understanding of the parties and supersedes all prior and contemporaneous
agreements and undertakings, both written and oral, of the parties with respect
to the subject matter of this Agreement. It is not intended to confer upon any
Person other than the parties hereto any rights or remedies hereunder.
Section 5.14. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but all of
which taken together shall constitute one agreement.
Section 5.15. Publicity. None of the parties hereto nor their
respective affiliates shall issue or cause the publication of any press release
or other public announcement with respect to the transactions contemplated by
this Agreement without the consent of the other parties, which consent shall not
be unreasonably withheld or withdrawn, except as may be required by law or the
regulations or policies of any securities exchange, in which case the party
required to make the release or statement shall allow the other party reasonable
time to comment on such release or statement in advance of such issuance.
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<PAGE> 7
IN WITNESS WHEREOF, the Company, HEI, HEDC and the Purchaser have
executed this Agreement as of the day and year first above written.
HALLMARK ENTERTAINMENT NETWORKS, INC.,
By: /s/ WILLIAM J. ALIBER
-------------------------------------
Name: William J. Aliber
---------------------------------
Title: Vice President
--------------------------------
HALLMARK ENTERTAINMENT DISTRIBUTION
COMPANY,
By: /s/ WILLIAM J. ALIBER
-------------------------------------
Name: William J. Aliber
---------------------------------
Title: Vice President
--------------------------------
HALLMARK ENTERTAINMENT, INC.,
By: /s/ WILLIAM J. ALIBER
-------------------------------------
Name: William J. Aliber
---------------------------------
Title: Vice President
--------------------------------
CHASE EQUITY ASSOCIATES, L.P.
By: Chase Capital Partners,
its general partner
By: /s/ ARNOLD L. CHAVKIN
-------------------------------------
Name: Arnold L. Chavkin
Title: General Partner
<PAGE> 1
EXHIBIT 10.4
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT, dated as of June 17, 1999 (as
amended or otherwise modified from time to time, this "Agreement") by and among
Hallmark Entertainment Networks, Inc., a Delaware corporation (the "Company"),
Hallmark Entertainment Distribution Company, a Delaware corporation, the sole
shareholder of the Company and a direct subsidiary of HEI ("HEDC"), Hallmark
Entertainment, Inc. ("HEI"), a Delaware corporation and an indirect subsidiary
of Hallmark Cards, Incorporated, and Chase Equity Associates, L.P., a California
limited partnership (the "Purchaser").
WITNESSETH:
WHEREAS, the Company wishes to obtain equity financing through the
issuance and sale to Purchaser of Class B Non-Voting Common Stock, par value
$0.01 per share ("Class B Common Stock", and together with the Class A Common
Stock, "Common Stock"), having the terms set forth in the Certificate of
Amendment to the Certificate of Incorporation (the shares of Common Stock
purchased hereunder are referred to herein as the "New Securities"); and
WHEREAS, the Purchaser is willing on the terms and conditions set forth
in this Agreement to purchase the New Securities in the amount set forth on
Schedule I;
NOW, THEREFORE, based upon the mutual covenants and agreements herein
contained, and for other good and sufficient consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
DEFINED TERMS
Section 1.1. Defined Terms. All capitalized terms used herein shall
have the meanings set forth in that certain Securities Purchase Agreement, dated
as of May 29, 1998, among the Purchaser, the Company and the parties named
therein (the "Original Securities Purchase Agreement").
ARTICLE II
PURCHASE AND SALE TERMS
Section 2.1. Purchase and Sale. Subject to the terms of this Agreement,
the Company shall authorize, issue and sell to the Purchaser, and the Purchaser
shall purchase from the
<PAGE> 2
Company on the date hereof, the number of shares of Common Stock at the
aggregate purchase price set forth opposite the Purchaser's name on Schedule I
hereto.
Section 2.2. Payment and Delivery. The Purchaser shall pay the
purchase price for the New Securities purchased by it in full, in cash, by wire
transfer of immediately available funds to the account designated by the Company
in writing. The purchase price for the Purchaser is as set forth opposite the
Purchaser's name on Schedule I hereto. Upon delivery of such funds, the Company
shall deliver to the Purchaser stock certificates evidencing the Common Stock to
be purchased by it, registered in the name of the Purchaser or its nominee.
Section 2.3. Transfer Legends and Restrictions. The transfer of the
shares of Common Stock purchased hereunder as well as any Conversion Securities
will be restricted in accordance with the terms hereof and of the Related
Documents. Each certificate or other instrument evidencing the Common Stock or
any Conversion Securities, including any certificate or other instrument issued
to any transferee thereof, shall be imprinted with one or more legends in
substantially the form required pursuant to the Related Documents, and such
legends shall not be removed from such certificates or other instruments except
in accordance with the terms and provisions of the Related Documents.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The parties named below, represent and warrant to the Purchaser, as of
the date hereof and on the Closing Date, as follows:
Section 3.1. Incorporation by Reference. Each of the representations
and warranties of the parties set forth in Sections 5.1 through 5.5 of the
Original Securities Purchase Agreement are incorporated herein by reference and
are made as of the date hereof except that Schedule II (Item 5.4) to the
Original Securities Purchase Agreement is updated as set forth on Schedule II
hereto.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
Purchaser represents and warrants to the Company as follows:
Section 4.1. Existence; Power and Authority. The Purchaser is a limited
partnership duly organized, validly existing and in good standing under the laws
of the State of California. It has all requisite power and authority and has
taken all required partnership and other action necessary to execute and deliver
and perform this Agreement, the Related Documents and each
-2-
<PAGE> 3
other document or instrument related hereto or thereto to which it is a party,
and to carry out the terms hereof and thereof. None of the foregoing actions
will (i) violate any provision of its organizational documents, (ii) result in
the breach of or constitute a default under any contract, agreement or
instrument to which it is a party or by which it is bound, (iii) violate any
order, writ, judgment, injunction, decree, statute, rule or regulation of any
court, tribunal or governmental entity or authority applicable to or bearing
upon it or any of its assets or business, or (iv) require any consent or
approval of, filing or taking of any other action with, or notice to, any
Person, other than such Consents, approvals, filings or actions the failure of
which to take or obtain would to reasonably be expected to have a Material
Adverse Effect or have already been obtained.
Section 4.2. Enforceability, etc. This Agreement and each of the
Related Documents has been duly executed and delivered by it and constitutes the
legal, valid and binding obligation of the Purchaser enforceable against it in
accordance with their respective terms.
Section 4.3. Purchase for Investment. It is purchasing the New
Securities for its own account and not for the account of any Plan and with no
present intention to distribution thereof. Purchaser understands that the New
Securities and any Conversion Securities must be held indefinitely unless it is
registered under the Securities Act or an exemption from such registration
becomes available, and that the New Securities and any Conversion Securities may
be transferred only as provided in this Agreement and the Related Documents.
Section 4.4. Financial Matters. It represents and understands that the
purchase of the New Securities involves substantial risk and that Purchaser's
financial condition and investments are such that it is in a financial position
to hold the New Securities for an indefinite period of time and to bear the
economic risk of, and withstand a complete loss of, such Securities. Purchaser
represents that it is an "accredited investor" as that term is defined in
Regulation D promulgated under the Securities Act, and that it is a
sophisticated investor, capable of evaluating the merits and risks of investing
in the Company given its current stage of development.
Section 4.5. Adequate Access to Personnel and Materials. During the
negotiation of the transactions contemplated herein, Purchaser and its
representatives have been afforded full and free access to HEI's and the
Company's corporate books, financial statements and records, have been afforded
an opportunity to ask such questions of the Company's officers and employees
concerning the Company's business, operations, financial condition, assets,
liabilities and other relevant matters, and have been given all such information
as has been requested, in order to evaluate the merits and risks of the
prospective investment contemplated herein.
Section 4.6. Brokers, etc. It has not dealt with, nor is the Purchaser
obligated to pay any fee or commission in connection with, any broker, finder or
other similar Person in connection with the offer or sale of the New Securities
or any of the transactions contemplated by this Agreement.
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<PAGE> 4
Section 4.7. Litigation. There are no actions, suits, proceedings,
orders, investigations or claims pending or, to the knowledge of the Purchaser,
threatened against or affecting the Purchaser, at law or in equity, before any
court, arbitration panel, tribunal or governmental commission, bureau, agency or
instrumentality which would reasonably be expected to have a material adverse
effect on the legal ability of the Purchaser to consummate the transactions
contemplated by this Agreement or which seeks to enjoin or restrain the
consummation of the transactions contemplated by this Agreement and the Related
Documents.
ARTICLE V
MISCELLANEOUS
Section 5.1. Indemnification by the Company. Subject to the other
provisions of this Article V, HEI and the Company shall jointly and severally
indemnify the Purchaser and its respective affiliates and their officers,
directors, employees, agents and representatives against, and shall hold them
harmless from, any loss, liability, third-party claim, damage or expense
(including reasonable legal fees and expenses but excluding loss of profits or
other consequential damages), for or on account of or arising from or in
connection with or otherwise with respect to any breach on the part of HEI or
the Company of any representation or warranty made by it contained in Article
III.
Section 5.2. Indemnification by the Purchaser. Subject to the other
provisions of this Article V, the Purchaser shall indemnify HEI, HEDC and the
Company and their affiliates and their respective officers, directors,
employees, agents and representatives against, and shall hold them harmless
from, any loss, liability, third-party claim, damage or expense (including
reasonable legal fees and expenses but excluding loss of profits or other
consequential damages) for or on account of or arising from or in connection
with or otherwise with respect to any breach on the part of the Purchaser of any
representation or warranty contained in Article VI or covenant made by it
contained in this Agreement.
Section 5.3. Indemnification Procedures for Claims. All claims for
indemnification by any party and all costs and expenses incurred by the
Indemnifying Party in defending such claim or demand shall be subject to the
provisions of Sections 9.4 through 9.6 of the Original Securities Purchase
Agreement.
Section 5.4. Remedies Cumulative. Except as herein provided, the
remedies provided herein shall be cumulative and shall not preclude assertion by
any party hereto of any other rights or the seeking of any other remedies
against the other party hereto, whether at law or in equity.
Section 5.5. Put Rights. The New Securities purchased hereunder shall
be deemed "Securities" as such term is used and for the purposes of Sections
7.13 through 7.16 of the Original Securities Purchase Agreement.
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<PAGE> 5
Section 5.6. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be prohibited
by or invalid under applicable law, such provisions shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
Section 5.7. Parties in Interest. Subject to Section 7.15 of the
Original Securities Purchase Agreement, neither this Agreement nor any of the
rights or obligations hereunder shall be assigned by any of the parties hereto
without the prior written consent of each of the other parties. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit of
and be enforceable by the parties and their respective successors and permitted
assigns.
Section 5.8. All notices, demands or other communications to be given
or delivered under or by reason of the provisions of this Agreement on the
Original Securities Purchase Agreement or any Related Document shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, sent to the recipient by reputable express courier service (charges
prepaid), mailed to the recipient by certified or registered mail, return
receipt requested and postage prepaid, or sent by telecommunications facsimile.
Such notices, demands and other communications shall be sent to the Company and
the Purchaser at the addresses (or facsimile numbers) set forth on Schedule III
hereto or to such other address (or facsimile number) or to the attention of
such other Person as the recipient party has specified by prior written notice
to the sending party.
Section 5.9. No Waiver. No failure to exercise and no delay in
exercising any right, power or privilege granted under this Agreement shall
operate as a waiver of such right, power or privilege. No single or partial
exercise of any right, power or privilege granted under this Agreement shall
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege.
Section 5.10. Amendments and Waivers. Except as herein provided, this
Agreement may be modified or amended only by a writing signed by the Company and
by the Holders of 51% of the outstanding Securities then outstanding.
Section 5.11. Understanding Among the Purchasers. The determination of
the Purchaser to purchase the New Securities pursuant to this Agreement has been
made by the Purchaser independent of any other purchaser and independent of any
statements or opinions as to the advisability of such purchase or as to the
properties, business, prospects or condition (financial or otherwise) of the
Company and its Subsidiaries which may have been made or given by any other
purchaser or by any agent or employee of any other purchaser. In addition, it is
acknowledged by the Purchaser that no other purchaser has acted as an agent of
the Purchaser in connection with making its investment hereunder and that no
other Person shall be acting as an agent of the Purchaser in connection with
monitoring its investment hereunder.
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<PAGE> 6
Section 5.12. Governing Law. The corporate law of Delaware shall govern
all issues concerning the relative rights of the Company and its shareholders.
All other issues hereunder shall be governed by and construed in accordance with
the procedural and substantive laws of the State of New York without regard for
its conflicts of laws rules.
Section 5.13. Entire Understanding. This Agreement expresses the entire
understanding of the parties and supersedes all prior and contemporaneous
agreements and undertakings, both written and oral, of the parties with respect
to the subject matter of this Agreement. It is not intended to confer upon any
Person other than the parties hereto any rights or remedies hereunder.
Section 5.14. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but all of
which taken together shall constitute one agreement.
Section 5.15. Publicity. None of the parties hereto nor their
respective affiliates shall issue or cause the publication of any press release
or other public announcement with respect to the transactions contemplated by
this Agreement without the consent of the other parties, which consent shall not
be unreasonably withheld or withdrawn, except as may be required by law or the
regulations or policies of any securities exchange, in which case the party
required to make the release or statement shall allow the other party reasonable
time to comment on such release or statement in advance of such issuance.
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<PAGE> 7
IN WITNESS WHEREOF, the Company, HEI, HEDC and the Purchaser have
executed this Agreement as of the day and year first above written.
HALLMARK ENTERTAINMENT
NETWORK, INC.,
By: /s/ WILLIAM J. ALIBER
----------------------------------------
Name: William J. Aliber
-----------------------------------
Title: Vice President
----------------------------------
HALLMARK ENTERTAINMENT
DISTRIBUTION COMPANY,
By: /s/ WILLIAM J. ALIBER
----------------------------------------
Name: William J. Aliber
-----------------------------------
Title: Vice President
----------------------------------
HALLMARK ENTERTAINMENT, INC.,
By: /s/ WILLIAM J. ALIBER
----------------------------------------
Name: William J. Aliber
-----------------------------------
Title: Executive Vice President and
Chief Financial Officer
----------------------------------
CHASE EQUITY ASSOCIATES, L.P.
By: Chase Capital Partners,
its general partner
By: /s/ ARNOLD L. CHAVKIN
----------------------------------------
Name: Arnold L. Chavkin
Title: General Partner
<PAGE> 1
EXHIBIT 10.5
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT, dated as of February 15, 2000 (as
amended or otherwise modified from time to time, this "Agreement") by and among
Crown Media, Inc., a Delaware corporation (f/k/a Hallmark Entertainment Network,
Inc.) (the "Company"), a Hallmark Entertainment, Inc. ("HEI") a Delaware
corporation, a shareholder of the Company and a direct subsidiary of Hallmark
Cards, Incorporated, a Missouri corporation, and Chase Equity Associates,
L.L.C., a Delaware limited liability company (the "Purchaser").
WITNESSETH:
WHEREAS, the Company wishes to obtain equity financing through the
issuance and sale to Purchaser of Class B Non-Voting Common Stock, par value
$0.01 per share ("Class B Common Stock", and together with the Class A Common
Stock, "Common Stock"), having the terms set forth in the Certificate of
Amendment to the Certificate of Incorporation (the shares of Common Stock
purchased hereunder are referred to herein as the "New Securities"); and
WHEREAS, the Purchaser is willing on the terms and conditions set forth
in this Agreement to purchase the New Securities in the amount set forth on
Schedule I;
NOW, THEREFORE, based upon the mutual covenants and agreements herein
contained, and for other good and sufficient consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
DEFINED TERMS
Section 1.1. Defined Terms. All capitalized terms used herein shall
have the meanings set forth in that certain Securities Purchase Agreement, dated
as of May 29, 1998, among the Purchaser, the Company and the parties named
therein (the "Original Securities Purchase Agreement").
<PAGE> 2
ARTICLE II
PURCHASE AND SALE TERMS
Section 2.1. Purchase and Sale. Subject to the terms of this Agreement,
the Company shall authorize, issue and sell to the Purchaser, and the Purchaser
shall purchase from the Company on the date hereof, the number of shares of
Common Stock at the aggregate purchase price set forth opposite the Purchaser's
name on Schedule I hereto.
Section 2.2. Payment and Delivery. The Purchaser shall pay the purchase
price for the New Securities purchased by it in full, in cash, by wire transfer
of immediately available funds to the account designated by the Company in
writing. The purchase price for the Purchaser is as set forth opposite the
Purchaser's name on Schedule I hereto. Upon delivery of such funds, the Company
shall deliver to the Purchaser stock certificates evidencing the Common Stock to
be purchased by it, registered in the name of the Purchaser or its nominee.
Section 2.3. Transfer Legends and Restrictions. The transfer of the
shares of Common Stock purchased hereunder as well as any Conversion Securities
will be restricted in accordance with the terms hereof and of the Related
Documents. Each certificate or other instrument evidencing the Common Stock or
any Conversion Securities, including any certificate or other instrument issued
to any transferee thereof, shall be imprinted with one or more legends in
substantially the form required pursuant to the Related Documents, and such
legends shall not be removed from such certificates or other instruments except
in accordance with the terms and provisions of the Related Documents.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The parties named below, represent and warrant to the Purchaser, as of
the date hereof and on the Closing Date, as follows:
Section 3.1. Incorporation by Reference. Each of the representations
and warranties of the parties set forth in Section 5.1 through 5.5 of the
Original Securities Purchase Agreement are incorporated herein by reference and
are made as of the date hereof except that Schedule II (Item 5.4) to the
Original Securities Purchase Agreement is updated as set forth on Schedule II
hereto.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
Purchaser represents and warrants to the Company as follows:
Section 4.1. Existence; Power and Authority. The Purchaser is a limited
liability company duly organized, validly existing and in good standing under
the laws of the State of Delaware. It has all requisite power and authority and
has taken all required action necessary to execute and deliver and perform this
Agreement, the Related Documents and each other document or instrument related
hereto or thereto to which it is a party, and to carry out the terms hereof and
thereof. None of the foregoing actions will (i) violate any provision of its
organizational documents, (ii) result in the breach of or constitute a default
under any contract, agreement or instrument to which it is a party of by which
it is bound, (iii) violate any order, writ, judgment, injunction, decree,
statute, rule or regulation of any court, tribunal or governmental entity or
authority applicable to or bearing upon it or any of its assets or business, or
(iv) require any consent or approval of, filing or taking of any other action
with, or notice to, any Person, other than such Consents, approvals, filings or
actions the failure of which to take or obtain would to reasonably be expected
to have a Material Adverse Effect or have already been obtained.
Section 4.2. Enforceability, etc. This Agreement and each of the
Related Documents has been duly executed and delivered by it and constitutes the
legal, valid and binding obligation of the Purchaser enforceable against it in
accordance with their respective terms.
Section 4.3. Purchase for Investment. It is purchasing the New
Securities for its own account and not for the account of any Plan and with no
present intention to distribution thereof. Purchaser understands that the New
Securities and any Conversion Securities must be held indefinitely unless it is
registered under the Securities Act or an exemption from such registration
becomes available, and that the New Securities and any Conversion Securities may
be transferred only as provided in this Agreement and the Related Documents.
Section 4.4. Financial Mattes. It represents and understands that the
purchase of the New Securities involves substantial risk and that Purchaser's
financial condition and investments are such that it is in a financial position
to hold the New Securities for an indefinite period of time and to bear the
economic risk of, and withstand a complete loss of, such Securities. Purchaser
represents that it is an "accredited investor" as that term is defined in
Regulation D promulgated under the Securities Act, and that it is a
sophisticated investor, capable of evaluating the merits and risks of investing
in the Company given its current stage of development.
Section 4.5. Adequate Access to Personnel and Materials. During the
negotiation of the transactions contemplated herein, Purchaser and its
representatives have been afforded full and
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<PAGE> 4
free access to HEI's and the Company's corporate books, financial statements and
records, have been afforded an opportunity to ask such questions of the
Company's officers and employees concerning the Company's business, operations,
financial condition, assets, liabilities and other relevant matters, and have
been given all such information as has been requested, in order to evaluate the
merits and risks of the prospective investment contemplated herein.
Section 4.6. Brokers, etc. It has not dealt with, nor is the Purchaser
obligated to pay any fee or commission in connection with, any broker, finder or
other similar Person in connection with the offer or sale of the New Securities
or any of the transactions contemplated by this Agreement.
Section 4.7. Litigation. There are no actions, suits, proceedings,
orders, investigations or claims pending or, to the knowledge of the Purchaser,
threatened against or affecting the Purchaser, at law or in equity, before any
court, arbitration panel, tribunal or governmental commission, bureau, agency or
instrumentality which would reasonably be expected to have a material adverse
effect on the legal ability of the Purchaser to consummate the transactions
contemplated by this Agreement or which seeks to enjoin or restrain the
consummation of the transactions contemplated by this Agreement and the Related
Documents.
ARTICLE V
MISCELLANEOUS
Section 5.1. Indemnification by the Company. Subject to the other
provisions of this Article V, HEI and the Company shall jointly and severally
indemnify the Purchaser and its respective affiliates and their officers,
directors, employees, agents and representatives against, and shall hold them
harmless from, any loss, liability, third-party claim, damage or expense
(including reasonable legal fees and expenses but excluding loss of profits or
other consequential damages), for or on account of or arising from or in
connection with or otherwise with respect to any breach on the part of HEI or
the Company of any representation or warranty made by it contained in Article
III.
Section 5.2. Indemnification by the Purchaser. Subject to the other
provisions of this Article V, the Purchaser shall indemnify HEI and the Company
and their affiliates and their respective officers, directors, employees, agents
and representatives against, and shall hold them harmless from, any loss,
liability, third-party claim, damage or expense (including reasonable legal fees
and expenses but excluding loss of profits or other consequential damages) for
or on account of or arising from or in connection with or otherwise with respect
to any breach on the part of the Purchaser of any representation or warranty
contained in Article IV or covenant made by it contained in this Agreement.
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<PAGE> 5
Section 5.3. Indemnification Procedures for Claims. All claims for
indemnification by any party and all costs and expenses incurred by the
Indemnifying Party in defending such claim or demand shall be subject to the
provisions of Sections 9.4 through 9.6 of the Original Securities Purchase
Agreement.
Section 5.4. Remedies Cumulative. Except as herein provided, the
remedies provided herein shall be cumulative and shall not preclude assertion by
any party hereto of any other rights or the seeking of any other remedies
against the other party hereto, whether at law or in equity.
Section 5.5. Put Rights. The New Securities purchased hereunder shall
be deemed "Securities" as such term is used and for the purposes of Sections
7.13 through 7.16 of the Original Securities Purchase Agreement.
Section 5.6. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be prohibited
by or invalid under applicable law, such provisions shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
Section 5.7. Parties in Interest. Subject to Section 7.15 of the
Original Securities Purchase Agreement, neither this Agreement nor any of the
rights or obligations hereunder shall be assigned by any of the parties hereto
without the prior written consent of each of the other parties. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit of
and be enforceable by the parties and their respective successors and permitted
assigns.
Section 5.8. Notices. All notices, demands or other communications to
be given or delivered under or by reason of the provisions of this Agreement on
the Original Securities Purchase Agreement or any Related Document shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, sent to the recipient by reputable express courier service (charges
prepaid), mailed to the recipient by certified or registered mail, return
receipt requested and postage prepaid, or sent by telecommunications facsimile.
Such notices, demands and other communications shall be sent to the Company and
the Purchaser at the addresses (or facsimile numbers) set forth on Schedule III
hereto or to such other address (or facsimile number) or to the attention of
such other Person as the recipient party has specified by prior written notice
to the sending party.
Section 5.9. No Waiver. No failure to exercise and no delay in
exercising any right, power or privilege granted under this Agreement shall
operate as a waiver of such right, power or privilege. No single or partial
exercise of any right, power or privilege granted under this Agreement shall
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege.
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<PAGE> 6
Section 5.10. Amendments and Waivers. Except as herein provided, this
Agreement may be modified or amended only by a writing signed by the Company and
by the Holders of 51% of the outstanding Securities then outstanding.
Section 5.11. Understanding Among the Purchasers. The determination of
the Purchaser to purchase the New Securities pursuant to this Agreement has been
made by the Purchaser independent of any other purchaser and independent of any
statements or opinions as to the advisability of such purchase or as to the
properties, business, prospects or condition (financial or otherwise) of the
Company and its Subsidiaries which may have been made or given by any other
purchaser or by any agent or employee of any other purchaser. In addition, it is
acknowledged by the Purchaser that no other purchaser has acted as an agent of
the Purchaser in connection with making its investment hereunder and that no
other Person shall be acting as an agent of the Purchaser in connection with
monitoring its investment hereunder.
Section 5.12. Governing Law. The corporate law of Delaware shall govern
all issues concerning the relative rights of the Company and its shareholders.
All other issues hereunder shall be governed by and construed in accordance with
the procedural and substantive laws of the State of New York without regard for
its conflicts of laws rules.
Section 5.13. Entire Understanding. This Agreement expresses the entire
understanding of the parties and supersedes all prior and contemporaneous
agreements and undertakings, both written and oral, of the parties with respect
to the subject matter of this Agreement. It is not intended to confer upon any
Person other than the parties hereto any rights or remedies hereunder.
Section 5.14. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but all of
which taken together shall constitute one agreement.
Section 5.15. Publicity. None of the parties hereto nor their
respective affiliates shall issue or cause the publication of any press release
or other public announcement with respect to the transactions contemplated by
this Agreement without the consent of the other parties, which consent shall not
be unreasonably withheld or withdrawn, except as may be required by law or the
regulations or policies of any securities exchange, in which case the party
required to make the release or statement shall allow the other party reasonable
time to comment on such release or statement in advance of each issuance.
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<PAGE> 7
IN WITNESS WHEREOF, the Company, HEI and the Purchaser have executed this
Agreement as of the day and year first above written.
CROWN MEDIA, INC.,
By: /s/ William J. Aliber
-------------------------------------
Name: William J. Aliber
--------------------------------
Title: Chief Financial Officer
-------------------------------
HALLMARK ENTERTAINMENT, INC.,
By: /s/ William J. Aliber
-------------------------------------
Name: William J. Aliber
--------------------------------
Title: Chief Financial Officer
-------------------------------
CHASE EQUITY ASSOCIATES, L.L.C.
By: Chase Capital Partners,
its Manager
By:
-------------------------------------
Name: Arnold L. Chavkin
--------------------------------
Title: General Partner
-------------------------------
<PAGE> 1
EXHIBIT 10.6
PROGRAM AGREEMENT
DATED AS OF JULY 1, 1999
This Program Agreement shall serve to confirm the agreement between
Hallmark Entertainment Distribution LLC, successor to Hallmark Entertainment
Distribution Company ("Distribution") and Hallmark Entertainment Networks, Inc.
("Networks") in connection with Networks' acquiring from Distribution certain
exhibition rights to various Distribution product as follows:
1. Pictures. Product shall consist of all television motion
pictures and mini-series as defined herein (each a "Picture," collectively
"Pictures") owned and controlled by Distribution during the Term. A motion
picture shall be product with a two-hour commercial broadcast time in a U.S.
time slot. A mini-series shall be product with longer than a two-hour commercial
broadcast time in a U.S. time slot. With respect to each Networks territory, a
Picture will be deemed to be either: (a) a "Library Picture" if it completed or
will complete principal photography any time prior to the launch (as defined in
Section 3 hereof) of the Networks service in such Networks territory (as defined
in Section 3 hereof) or (b) a "New Picture" if it completed or will complete
principal photography after the launch (as defined in Section 3 hereof) of the
Networks service in such Networks territory and before expiration of the Term as
defined below.
2. Output Term. The Output Term shall commence as of the date set
forth above and expire on December 31, 2004, subject to the renewal and price
adjustment set forth in Section 12 hereof.
3. Licensed Rights. Networks agrees to license from Distribution
and Distribution agrees to license to Networks all Library Pictures and all New
Pictures for telecast on the Hallmark Entertainment Networks pay television
service (including cable and satellite but specifically excluding pay-per-view)
on a territory-by-territory basis commencing upon the later of (x) the date the
Picture is available in the relevant Networks territory as set forth on Schedule
A which has been previously provided to Networks (the "Availability Date") and
(y) the date Networks initially telecasts its service in such territory (the
"launch"). Networks shall also have the right to distribute via the Internet,
provided that such distribution is within a Networks Window, is only within the
relevant Networks territory and does not conflict with any Prior Agreement. A
"Prior Agreement" shall be any agreement that Distribution has entered into (x)
prior to the date of this Agreement or (y) prior to Networks' written
notification to Distribution pursuant to Section 4 with respect to the relevant
territory (but in any event, not more than 12 months prior to the Launch Date as
defined in Section 4). The relevant terms and restrictions of Prior Agreements
shall be made available to Networks upon request. Except in Germany, Italy and
Spain and subject to the terms and conditions of those Prior Agreements set
forth on
<PAGE> 2
Schedule B hereto, Distribution shall not renew or extend the term of any Prior
Agreement. All rights not expressly granted herein, are reserved by
Distribution.
4. Availability and Delivery.
(a) Networks shall use its best efforts to give Distribution
written notice of its intent to launch in a given territory
and its expected launch date ("Launch Date") at least six
months prior to such launch. After Networks gives such written
notice, Distribution agrees not to enter into any distribution
agreement which might conflict with Networks' rights in the
relevant territory. By the later of (x) 14 business days after
receipt of such written notice and (y) six months prior to the
scheduled launch, Distribution will provide to Networks
Availability Dates of Pictures for the launch. Schedule A
shall be amended from time to time to reflect Availability
Dates for additional New Pictures and new Networks territories
by way of an Availability Letter from Distribution to
Networks' Vice President of Programming and Vice President of
Finance or their designees. Distribution shall also provide an
updated Schedule A at least once each quarter or upon the
request of Networks.
(b) Distribution shall use best efforts to provide notice to
Networks at least 180 days prior to the Availability Date of
any Picture and to deliver the materials for such Picture to
Networks at least 90 days prior to the Availability Date.
Effective January 1, 2000, in the event that Distribution
fails to provide notice to Networks at least 90 days prior to
the Availability Date of any Picture or fails to deliver the
materials for such Picture to Networks at least 30 days prior
to the Availability Date, then Networks shall be entitled to
an Additional Period (as defined herein) at the end of that
Picture's window; provided, however, that no Additional
Periods shall be available for windows granted by Nine Network
or Beta-Taurus and such windows shall be pro-rated to reflect
the amount of time that Networks was able to telecast that
particular Picture. The Additional Period shall be equal to
the greater of (x) ninety days minus the number of days prior
to the Availability Date that notice was actually given
regarding the Availability Date and (y) thirty days minus the
number of days prior to the Availability Date that delivery of
the materials was actually made; provided, however, that in no
event shall the Additional Period exceed the amount of time
that Networks was actually delayed in telecasting that
particular Picture.
(c) In the event that Networks fails to launch in a given
territory, Networks shall be liable only for the License Fees
for the First Window of each New Picture that Distribution has
made available and that Distribution is not able to resell for
that same time period and Networks shall not be liable for
the Licensee Fees for any Library Pictures. In the event that
Networks delays a launch in a given
<PAGE> 3
territory for longer than six months after the Launch Date,
its First Window shall begin six months after the Launch Date.
5. Licensed Exhibitions. Networks will license each Picture for a
minimum of three windows in each Networks territory as set forth below and such
license shall be exclusive as to all forms of television for a period of 18
months, except for the Exceptions identified in Section 8(a) for which the
Windows shall be 12 months; provided, however, that such license and exclusivity
shall be subject to (x) the terms and conditions of Prior Agreements, and (y)
the restrictions and exceptions for those feeds servicing Italy, Germany and
Spain. Networks shall be entitled to its customary number of telecasts during
each window.
(a) The First Window shall commence upon the Availability Date
and shall expire 18 months thereafter (or 12 months for the
Exceptions). Distribution shall have the right to license such
Picture to a third party provided that such third party
license is effective no sooner than 30 days after expiration
of the First Window and expires within such length of time as
is customary in such media and territory. The day after the
date of such expiration shall be the "Second Availability
Date." If Distribution does not enter into such third party
license agreement, then the Second Availability Date shall be
three years after the expiration of the First Window, unless
Distribution, at its sole election, stipulates an earlier
date, provided that in no event shall the Second Availability
Date be earlier than one year after expiration of the First
Window.
(b) The Second Window shall commence upon the Second
Availability Date for the relevant Networks territory and
shall expire 18 months thereafter (or 12 months for the
Exceptions). Distribution shall have the right to license such
Picture to a third party thereafter, provided that such third
party license is effective after expiration of the Second
Window and expires within such length of time as is customary
in such media and territory. The day after the date of such
expiration shall be the "Third Availability Date." If
Distribution does not enter into such third party license
agreement, then the Third Availability Date shall be three
years after the expiration of the Second Window, unless
Distribution, at its sole election stipulates an earlier date,
provided that in no event shall the Third Availability Date be
earlier than one year after the expiration of the Second
Window.
(c) The Third Window shall commence upon the Third
Availability Date for the relevant Networks territory and
shall expire 18 months thereafter (or 12 months for the
Exceptions).
(d) Any subsequent windows pursuant to Section 7(c) shall
commence upon the Availability Date provided by Distribution
for the relevant Networks territory and shall expire 18 months
thereafter (or 12 months for the Exceptions).
<PAGE> 4
(e) The notice periods, delivery of materials and Additional
Period provisions of Section 4(b) shall also apply to the
Second Availability Date, Third Availability Date and any
subsequent Availability Date for each Picture.
6. New Pictures.
(a) Subject to the terms and conditions of Prior Agreements
and to subsections (b) and (c) below, all New Pictures will be
premieres (i.e. there will not be any prior exhibition in the
relevant territory except for home video) for the first
Networks Window in each Networks territory except in Germany,
Italy and, Spain. In Germany, Italy and Spain, except for
mini-series, a minimum of 50% of all New Pictures will be
premieres for the first Networks Window. Mini-series in
Germany, Italy and Spain will be premieres at the discretion
of Distribution.
(b) In the event a New Picture is a motion picture with
production costs in excess of $10 million or a mini-series
with production costs in excess of $30 million (not to exceed
three mini-series in any given year), Distribution agrees to
negotiate in good faith with Networks with respect to premiere
rights on a territory-by-territory basis. In the event that
Distribution and Networks are unable to agree on the License
Fee for the premiere rights for such a motion picture,
Distribution shall have the right to accept any offer from a
third party licensee. In the event that Distribution and
Networks are unable to agree on the License Fee for the
premiere rights for such a mini-series, then Distribution
shall have the right to accept any offer from a third party
licensee that is not less than 110% of the amount offered by
Networks. If Distribution does not accept such an offer from a
third party licensee, Distribution shall give notice to
Networks regarding such Picture's Availability Date in
accordance with Section 4(b).
(c) Distribution shall have the right to withhold on a
territory-by-territory basis, a Picture which is to be
distributed as a theatrical release for the term of the
theatrical distribution agreement.
7. Territory and Feeds. Territory shall be each country in which
Networks' service is launched (only in the dominant native language of such
country) and may be worldwide, excluding the United States and Canada. In the
event that Networks elects to restructure its territorial feed resulting in the
addition or deletion of individual countries, the conditions of this Section
shall apply.
(a) To the extent that any country is deleted from an existing
feed, Networks shall remain obligated to pay the License Fees
for the then current Window or the currently scheduled Window
in such country regardless of whether Networks exploits its
rights to such Window.
<PAGE> 5
(b) To the extent that any additional country is added to an
existing feed, License Fees will be charged for such
additional country in accordance with Section 8 below on a
pro-rata basis.
(c) The parties agree that it is their intent that all
Pictures will be licensed for a minimum of three Windows in
each country. To the extent that an elective restructuring by
Networks of countries within a territorial feed results in
Networks having exploited fewer Windows in some countries in
the feed than in other countries in the feed, then Networks
shall license additional Windows (subject to Availability
Dates) in excess of the original three Networks Windows as
necessary so that all material countries in the feed (as
determined in Distribution's judgment) have exploited a
minimum of three Windows (subject to Availability Dates). The
License Fees for any such additional Windows shall be subject
to good faith negotiation by the parties. If the parties are
unable to reach agreement on such License Fees, the issue
shall be escalated to the President of Distribution and the
President of Networks for resolution.
8. Networks License Fees.
(a) For and in consideration of the rights and licenses
granted to Networks hereunder, Networks shall pay to
Distribution such License Fee, on a country-by-country,
Picture-by-Picture basis, as is set forth in Schedule C. The
License Fee shall constitute payment for one Networks Window
and therefore shall be payable for each of the three Networks
Windows. The License Fees for Australia, the Continental
European territories, product reacquired from Beta-Taurus,
coproductions, certain feeds that are not typically 18 months
and seasonal Pictures (e.g. Christmas) (the "Exceptions")
reflect a 12 month exclusive Window and shall be prorated on a
monthly basis (rounding to the nearest whole month) for those
windows for which Networks receives less than 12 months of
exclusivity. All other License Fees set forth on Schedule C
reflect an 18 month exclusive Window and shall be prorated on
a monthly basis (rounding to the nearest whole month) for
those windows for which Networks receives less than 18 months
of exclusivity. The License Fee for mini-series shall be the
movie of the week rate per hour multiplied by the number of
hours for the mini-series. All rates for mini-series premieres
(as defined in Section 6) shall be two times the mini-series
rate set forth in Schedule C for each of the three Windows
granted.
(b) The License Fee for each Networks First Window shall be
payable in four equal installments; one installment payable at
the end of each of four consecutive calendar quarters
commencing with the calendar quarter
<PAGE> 6
during which the respective Networks Window commences.
Subsequent Windows shall be payable in six equal installments;
one installment payable at the end of each of six consecutive
calendar quarters commencing with the calendar quarter during
which the respective Networks Window commences.
(c) Commencing January 1, 2000, the amounts of such License
Fees shall increase by 5% per year on a cumulative basis and
such increase shall apply to any and all Networks Windows
commencing after such increase.
9. Hallmark Entertainment. Networks shall be permitted to utilize
the Hallmark Entertainment name in connection with the promotion and
advertisement of the Pictures, provided that all such uses are approved in
advance by the Branding Committee of Hallmark Cards, Incorporated.
10. Other Product. Distribution and Networks agree to negotiate in
good faith on a product-by-product basis with respect to Networks' licensing pay
television exhibition rights to any television product which does not fall under
this agreement (i.e., series, documentaries and specials, etc.) and for which
Distribution controls such rights during the Term. Networks acknowledges that
the project "Tenth Kingdom" is specifically excluded from this agreement.
11. Non-Transferable. The rights herein may not be assigned,
sublicensed or transferred by Networks by operation of law, change of control or
otherwise; provided, however, that Networks may sublicense select Pictures to
H&H Programming-Asia, LLC and provided further, that upon Networks' written
request, Distribution may, in its sole discretion, permit Networks to sell
select Pictures to another third party or parties. Networks shall be responsible
for the full payment of the License Fee for such Picture(s) as though such
Pictures were exhibited by Networks pursuant to this Agreement.
12. Renewal and Price Adjustment.
(a) This Agreement shall be renewable for an additional period
beginning January 1, 2005 and ending December 31, 2009 (the
"Renewal Term") at Distribution's option, provided that
Distribution agrees to renew so long as Networks is not in
default under this Agreement or any other agreement with
Distribution and that Networks does not provide written notice
to Distribution by July 1, 2004 indicating that Networks does
not wish to renew. Distribution will provide Networks with
notice of Distribution's intent to renew or not to renew by
July 1, 2004.
(b) Either party shall have the right to request a price
adjustment for the Renewal Term by providing the other party
with written notice prior to
<PAGE> 7
July 1, 2004. In the event either party delivers such notice,
the parties agree to negotiate in good faith to determine the
fair market rate for the License Fees for the Renewal Term. If
the parties fail to reach agreement with respect to License
Fees by October 1, 2004, then the parties agree to submit the
matter to an independent third party with experience in the
industry. The independent third party shall be selected by the
parties. In the event the parties fail to agree upon an
independent third party, each party shall designate a third
party and the designees shall collectively select a neutral
third party with experience in the industry, and that party
shall determine the fair market value rate for the License
Fees for the Renewal Term, provided that such fair market rate
shall not be more than 20% higher or 20% lower than the
License Fees in existence at such time. Each party shall bear
its own costs of the process and the costs of the neutral
third party shall be shared equally.
13. Entire Agreement. This Agreement and the attached Standard
Terms and Conditions contain the entire agreement between the parties and as of
the date hereof supersede any and all prior oral or written agreements including
the Agreement dated as of January 1, 1996, as amended (the "1996 Agreement"),
provided, however, that Networks Windows licensed pursuant to the 1996 Agreement
shall be counted toward the minimums required pursuant to Section 5 hereof and
that all amounts payable by Networks pursuant to the 1996 Agreement shall
remain due and payable.
IN WITNESS WHEREOF, this Agreement is executed as of the date first
written above.
HALLMARK ENTERTAINMENT HALLMARK ENTERTAINMENT
DISTRIBUTION, LLC NETWORKS, INC.
By /s/ WILLIAM J. ALIBER By /S/ DAVID EVANS
----------------------- -----------------------
Title Vice-President Title President & CEO
-------------------- ---------------------
<PAGE> 1
EXHIBIT 10.7
TAX SHARING AGREEMENT
TAX SHARING AGREEMENT (the "Agreement") dated as of [ ] by and among
Hallmark Entertainment, Inc., a Delaware corporation ("HEI"), Crown Media, Inc.,
a Delaware corporation, Crown Media Holdings, Inc., a Delaware corporation
("Newco"), the subsidiaries of Newco that are signatories hereto, the other
members of the Newco Group (as defined below) and any entities which become
parties hereto pursuant to Section 20 hereof (the "Parties"; each, a "Party").
WHEREAS, Newco and certain of its Subsidiaries may be included in the
filing of consolidated, combined or unitary income or franchise Tax Returns that
also include members of the Hallmark Group (as defined below);
WHEREAS, the Newco Group and the Hallmark Group wish to allocate and
settle amongst themselves in an equitable manner the Tax liability in connection
with such consolidated, combined or unitary income or franchise Tax Returns; and
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the Parties hereby agree as follows:
1. Definitions. For purposes of this Agreement, the following terms shall be
defined as follows:
<PAGE> 2
(a) "Affiliated Group" shall mean any affiliated, combined, consolidated or
unitary group for state, local or foreign Tax purposes that files Joint
Returns.
(b) "After-Acquired Subsidiary" shall mean any Subsidiary of Newco acquired
after the Contribution Agreement Closing Date and not as part of the
transactions contemplated by the Contribution Agreement.
(c) "Contribution Agreement" shall mean the Contribution Agreement by and
among HEI, Crown Media, Inc., Liberty Media Corporation, Vision Group
Incorporated, VISN Management Corp., National Interfaith Cable
Coalition, Inc., Chase Equity Associates, L.L.C., and Newco, dated as
of [ ].
(d) "Contribution Agreement Closing Date" shall mean the "Closing Date" as
defined in the Contribution Agreement.
(e) "Final Determination" shall mean a closing agreement with the Internal
Revenue Service or the relevant state, local of foreign Taxing
authorities, an agreement contained in Internal Revenue Service Form
870-AD or other comparable form, an agreement that constitutes a
determination under Section 1313(a)(4) of the Internal Revenue Code, a
claim for refund of Taxes which has been allowed, a Tax
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<PAGE> 3
deficiency notice with respect to which the period for filing a
petition with the Tax Court or the relevant state, local or foreign
tribunal has expired, or a decision of any court of competent
jurisdiction that is not subject to appeal or as to which the time for
appeal has expired.
(f) "Governmental Authority" shall have the meaning set forth in the
definition of "Tax".
(g) "Group" shall mean either the Hallmark Group or the Newco Group.
(h) "Hallmark" shall mean Hallmark Cards, Incorporated, a Missouri
corporation.
(i) "Hallmark Group" shall mean Hallmark and each of the other Legal
Entities that is or was at any time owned directly or indirectly by
Hallmark, other than any member of the Newco Group.
(j) "Hallmark Indemnitees" shall have the meaning set forth in Section 7.
(k) "Joint Return" shall mean any Tax Return that includes at least two
Legal Entities, of which one Legal Entity is a member of one Group and
the other Legal Entity is a member of the other Group.
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<PAGE> 4
(l) "Legal Entity" shall mean a corporation, partnership, limited liability
company or other legal entity under the corporation, partnership,
limited liability company or other organizational laws of a state or
other jurisdiction.
(m) "Losses" shall mean costs, expenses, fees, liabilities, obligations and
losses.
(n) "Newco Group" shall mean (i) Newco and (ii) each other Legal Entity
that is or was at any time owned, directly or indirectly, by Newco or
any of its Subsidiaries (in the case of (ii), other than (a) a Legal
Entity that was never owned, directly or indirectly, by Newco or any of
its Subsidiaries on or after the Contribution Agreement Closing Date
and (b) for taxable periods (or portions thereof) beginning after the
date that a Legal Entity is transferred by Newco or any of its
Subsidiaries to a member of the Hallmark Group, the transferred Legal
Entity).
(o) "Newco Indemnitees" shall have the meaning set forth in Section 7.
(p) "Party" and "Parties" shall have the meanings set forth in the recitals
hereto.
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<PAGE> 5
(q) "Person" means any individual or corporation, company, partnership,
trust, incorporated or unincorporated association, joint venture or
other entity of any kind.
(r) "Post-Closing Period" shall mean a taxable period beginning after the
Contribution Agreement Closing Date and the portion, beginning after
and excluding the Contribution Agreement Closing Date, of any taxable
period which includes but does not end on the Contribution Agreement
Closing Date.
(s) "Separate Return" shall mean any Tax Return that is not a Joint Return.
(t) "Subsidiary" means, as to any Person, any other Person of which at
least (i) 50% of the equity and (ii) 50% of the voting interests are
owned, directly or indirectly, by such first Person.
(u) "Tax" shall mean any tax, fee, levy or other like governmental
assessment or charge of any kind whatsoever, wherever created or
imposed, and whether of the United States or elsewhere, and whether
imposed by a local, municipal, governmental, state, foreign, federation
or other governmental body (a "Governmental Authority"), and, without
limiting the generality of the foregoing, shall
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include income, gross receipts, property, sales, use, license, excise,
franchise, employment, payroll, unemployment insurance, social
security, stamp, environmental, value added, alternative or added
minimum, ad valorem, trade, recording, withholding, occupation or
transfer tax, custom or duty, together with any related interest,
penalties and additions imposed by any Governmental Authority.
(v) "Tax Item" shall mean any item of income, gain, loss, deduction,
credit, recapture of credit or any other item which increases or
decreases Taxes paid or payable.
(w) "Tax Proceeding" shall mean any Tax audit, examination, controversy or
litigation by, with or against any Governmental Authority.
(x) "Tax Return" shall mean any Tax report, return or other information
(including any attached schedules or any amendments to such report,
return or other information) required to be supplied to or filed with a
Governmental Authority, including an information return, claim for
refund, amended return or declaration or estimated tax return.
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2. Filing of Joint Returns. HEI (and each member of the Hallmark Group)
may file any combined, consolidated or unitary state, local or foreign
income Tax Returns as HEI (or such member of the Hallmark Group)
determines appropriate; provided, however, that for Post-Closing
Periods, a member of the Newco Group shall join in the filing of such
Tax Return only if (i) HEI (or such other member of the Hallmark Group
as is the common parent or comparable entity of the relevant Affiliated
Group) reasonably determines that (A) including such member of the
Newco Group in the filing of such Tax Return is required under
applicable law or (B) including such member of the Newco Group in the
filing of such Tax Return will not increase the aggregate Tax liability
of the Newco Group (taking into account the effect of this Agreement)
or (ii) Newco consents to such member joining in such filing. HEI (or
such other member of the Hallmark Group as is the common parent or
comparable entity of the relevant Affiliated Group) and the Newco Group
shall execute and file such consents, elections and other documents
that HEI (or such other member) determines may be required, desirable
or appropriate for the proper filing of such Joint Returns. HEI (or
such other member of the Hallmark Group as is the common parent or
comparable entity of an Affiliated Group)
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shall determine whether any Joint Return shall be filed and the
entities to be included in a Joint Return, make or revoke any Tax
elections, adopt or change any accounting methods and determine any
other positions taken on or in respect of any Joint Return; provided,
however, that, for Post-Closing Periods, to the extent such filing,
election, revocation, adoption, change or determination, as the case
may be, is reasonably expected to affect the Newco Group, such filing,
election, revocation, adoption, change or determination shall be made
only if (i) HEI (or such other member of the Hallmark Group as is the
common parent or comparable entity of the relevant Affiliated Group)
reasonably determines that (A) such filing, election, revocation,
adoption, change or determination is required under applicable law or
(B) such filing, election, revocation, adoption, change or
determination will not increase the aggregate Tax liability of the
Newco Group (taking into account the effect of this Agreement) or (ii)
Newco consents to such filing, election, revocation, adoption, change
or determination. HEI (or such other member of the Hallmark Group as is
the common parent or comparable entity of an Affiliated Group) shall
timely pay, or cause to be paid, the amount of Tax shown as due on any
Joint Return.
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3. Tax Sharing Payments. For each Post-Closing Period in which any member
of an Affiliated Group files a Joint Return, Newco shall (i) make Tax
sharing payments to HEI (or such other member of the Hallmark Group as
is the common parent or comparable entity of the Affiliated Group)
equal to the Taxes that the Newco Group Legal Entities included in the
Joint Return would have been required to pay if they filed a Separate
Return with respect to the type of Tax and the jurisdiction of the
Joint Return for such Post-Closing Period and (ii) be entitled to Tax
sharing payments from HEI (or such other member of the Hallmark Group
as is the common parent or comparable entity of the Affiliated Group)
equal to the Tax refunds to which the Newco Group Legal Entities
included in the Joint Return would have been entitled if they had filed
a Separate Return with respect to the type of Tax and the jurisdiction
of the Joint Return for such Post-Closing Period. The Separate Return
Tax payments and refunds of such Newco Group Legal Entities shall be
based on such Legal Entities' income, gain, loss, deduction and credit
for taxable periods (or portions thereof) beginning on or after the day
following the Contribution Agreement Closing Date (or, in the case of
an After-Acquired Subsidiary, the day following the date such
Subsidiary is acquired), and (except in the case of an After-Acquired
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Subsidiary) such payments and refunds shall be calculated without
regard to any carryforward of loss, deduction or credit from a
Pre-Closing Period or utilization of loss, deduction or credit arising
in a Pre-Closing Period. The Newco Group shall not be entitled to any
payment under this Section 3 (nor shall any payment by Newco under this
Section 3 be reduced) to take account of any refund or credit of Taxes
for any taxable period (or portion thereof) ending on or prior to the
Contribution Agreement Closing Date arising from any Joint Return or to
which the Newco Group would have been entitled if it had filed a
Separate Return. The Newco Group shall not be required to make any
payment under this Section 3 for any Taxes for any taxable period (or
portion thereof) ending on or prior to the Contribution Agreement
Closing Date arising from any Joint Return. The Hallmark Group and the
Newco Group shall make any Tax sharing payments required pursuant to
this Section 3 no later than two business days prior to the due date
(including extensions) of any Joint Return of the Affiliated Group.
4. Subsidiary Payments. Each of the Subsidiaries of Newco agrees to pay to
Newco or, at Newco's discretion, to HEI (or such other member of the
Hallmark Group as is the common parent or comparable entity of the
Affiliated Group), its
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share of each of the payments for which Newco is responsible hereunder
no later than one business day prior to the date upon which the
relevant payment by Newco is required to be made hereunder.
5. Adjustments. In the event of any redetermination of the consolidated,
combined or unitary income or franchise Tax liability of the Affiliated
Group as the result of a Tax Proceeding, a claim for refund (including
a refund resulting from a carryback) or otherwise, the amounts required
to be paid pursuant to Section 3 for such taxable period and any prior
and subsequent taxable periods shall be recomputed to take into account
such redetermination, and payments pursuant to Section 3 hereof shall
be appropriately adjusted. Any payment by HEI, Newco, the Hallmark
Group, or the Newco Group required by such adjustment shall be paid
within fifteen days after the date of a Final Determination with
respect to such redetermination.
6. Separate Returns. Any Separate Return that includes only a member or
members of the Newco Group and any Taxes with respect to such Separate
Return shall be the responsibility of the Newco Group. If, pursuant to
Section 2, HEI determines to include (or not include) a member of the
Newco Group in a Joint Return for a taxable period, then Newco
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shall not, and shall cause such member not to, take a position on a Tax
Return or otherwise that is contrary to such determination to include
(or not include) such member.
7. Indemnification. From and after the Contribution Agreement Closing
Date: (a) HEI shall indemnify and hold harmless each Legal Entity that
is a member of the Newco Group and their respective directors,
officers, employees, affiliates, agents, successors and assigns (the
"Newco Indemnitees") from and against (i) any Joint Return Taxes to the
extent the Hallmark Group is required to make a payment hereunder to
the Newco Group in respect of such Taxes, (ii) any Separate Return
Taxes of a member or members of the Hallmark Group, (iii) any Taxes
imposed without the filing of any Tax Return, to the extent such Taxes
are the responsibility of, and measured by reference to, a member or
members of the Hallmark Group and (iv) any Losses incurred by any Newco
Indemnitee by reason of a breach by any member of the Hallmark Group of
its obligations or covenants hereunder (including the obligation to
pay, or cause to be paid, subject to any applicable right of
reimbursement, to the relevant Governmental Authority amounts shown as
due on any Joint Return); and
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<PAGE> 13
(b) Each Legal Entity that is a member of the Newco Group shall
indemnify and hold harmless each Legal Entity that is a member of the
Hallmark Group and their respective directors, officers, employees,
affiliates, agents, successors and assigns (the "Hallmark Indemnitees")
from and against (i) any Joint Return Taxes to the extent the Newco
Group is required to make payment hereunder to the Hallmark Group in
respect of such Taxes, (ii) any Separate Return Taxes of a member or
members of the Newco Group, (iii) any Taxes imposed without the filing
of any Tax Return, to the extent such Taxes are the responsibility of,
and measured by reference to, a member or members of the Newco Group
and (iv) any Losses incurred by any Hallmark Indemnitee by reason of a
breach by any member of the Newco Group of its obligations or covenants
hereunder.
8. Contests. HEI (or such other member of the Hallmark Group as HEI shall
designate) shall have the right to control in all respects all Tax
Proceedings with respect to any Joint Return; provided, however, that,
with respect to taxable periods ending after the Contribution Agreement
Closing Date, (A) Newco shall be entitled to participate in any such
Tax Proceeding at its expense to the extent relating solely to the Tax
liabilities of the Newco Group (including the
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Newco Group's obligation to make payments pursuant to this Agreement),
(B) HEI (or such other member) shall keep Newco updated and informed,
and shall consult with Newco, with respect to any Tax Item of the Newco
Group that is a subject of such Tax Proceeding, and (C) HEI (or such
other member) shall not enter into any settlement of any Tax Proceeding
with respect to any Tax Item of the Newco Group without Newco's prior
written consent, which shall not be unreasonably withheld.
9. Appointment of HEI as Agent. Newco and each of the Subsidiaries in the
Newco Group hereby appoint HEI (and any other member of the Hallmark
Group as HEI may designate) as their agent for the purpose of filing
any Joint Return and making any election or application or taking any
action in connection with any such Joint Return on behalf of Newco and
each Subsidiary in the Newco Group. Newco and each of the Subsidiaries
in the Newco Group hereby consent to the filing of such Joint Returns
and to the making of such elections and applications.
10. Cooperation. The Parties shall cooperate with one another in all
matters relating to the Taxes covered in this Agreement. The Newco
Group will provide the Hallmark Group with such cooperation and
information as is necessary in
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order to enable the Hallmark Group to satisfy its Tax requirements.
Such cooperation and information by the members of the Newco Group
shall include making their respective knowledgeable employees available
during normal business hours, providing the information relating to the
Tax Items of the Newco Group that is necessary or reasonably useful for
HEI (or any other member of the Hallmark Group) to satisfy its
obligations with respect to any Tax Return or to make any calculations
or determinations in connection with this Agreement, maintaining such
books and records and providing such information as may be necessary or
useful in the filing of Joint Returns, and executing any documents and
taking any actions which the Hallmark Group may reasonably request in
connection therewith. HEI shall provide Newco, upon request, with
copies of relevant parts of any Joint Returns, not later than five
business days prior to the date such Joint Returns are filed and with
copies of relevant parts of schedules and workpapers used to prepare
such Joint Returns and to determine payments pursuant to this
Agreement. Notwithstanding any other provision, none of Newco, the
Newco Group or any other Person (other than the members of the Hallmark
Group) shall have any right to receive or obtain any information
relating to, or have any rights with respect to, any consolidated,
combined or
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<PAGE> 16
unitary Taxes of HEI, Hallmark, the Hallmark Group or any member of the
Hallmark Group, other than information and rights relating solely to
Tax Items of Newco, the Newco Group or a member of the Newco Group.
11. Confidentiality. Any information obtained by any Party under this
Agreement shall be kept confidential, except as may be necessary in
connection with the filing of Tax Returns or claims for refund or in
connection with an audit, dispute, proceeding, suit or action
concerning any of the matters addressed in this Agreement, or unless a
Party is compelled to disclose information by judicial or
administrative process or, in the opinion of its counsel, by other
requirements of law. This Section 11 shall not prevent the sharing of
information by the Parties with their respective legal advisors or
accountants.
12. Calculation of Tax Sharing Payments and Disputes. Each calculation of
Tax sharing payments pursuant to this Agreement shall be made in good
faith. If the Hallmark Group or the Newco Group disputes the
administration or interpretation of, or calculation of Tax sharing
payments pursuant to, this Agreement with respect to any taxable period
covered by this Agreement (hereinafter, for purposes of this Section
12, a "Disputing Party"), it shall within
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the later of (i) one year following the close of such taxable year, or
(ii) in the event of any adjustment to Tax liability described in
Section 5 of this Agreement, within three months of receiving written
notice of such adjustment, give written notice to the other Group,
specifying the reason for such dispute. Failure by the Hallmark Group
or the Newco Group to so notify shall constitute acceptance and
approval of the application of the Agreement to such Group for such
taxable year. In the event of any such dispute between the Hallmark
Group and the Newco Group with respect to the operation or
interpretation of this Agreement, HEI and Newco shall in good faith
confer with each other to resolve amicably the dispute. If, after a
period of sixty (60) days following the date on which the Disputing
Party gave notice of any such dispute, as set forth above, such dispute
cannot be resolved in good faith by such Parties, it shall be resolved
by an independent certified public accounting firm or law firm that is
mutually reasonably satisfactory to HEI and Newco in a manner that best
conforms with the intent of the Parties reflected in this Agreement.
The judgment of the independent public accounting firm shall be (i)
based solely on the terms of this Agreement and on presentations made
by the Parties in dispute, (ii) made within thirty (30) days following
the date on which the
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dispute is submitted, (iii) set forth in a written statement delivered
to the Parties in dispute and (iv) conclusive and binding upon the
Parties, in the absence of mathematical error. All costs, fees and
expenses of the independent certified public accounting firm or law
firm that are attributable to services rendered under this Section 12
shall be borne half by the Hallmark Group and half by the Newco Group.
13. Binding Effect; Successors and Assigns. This Agreement shall be binding
upon HEI, Newco, each Subsidiary that is a signatory hereto, each other
member of the Newco Group and the Subsidiaries that become Parties
hereto pursuant to Section 20 hereof. This Agreement shall inure to the
benefit of, and be binding upon, any successors or assigns of the
Parties hereto (including, without limitation, any Subsidiary that
becomes a Party hereto pursuant to Section 20). HEI, Newco and each
other Party hereto may not assign any of the rights or obligations
under this Agreement without the prior written consent of all other
Parties.
14. Party Leaving the Affiliated Group. (a) Any Party which ceases to be a
member of an Affiliated Group shall be bound by this Agreement for all
taxable periods during which such Party was a member of the Affiliated
Group and this
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Agreement was in effect. (b) Without duplication of any amounts
otherwise payable under this Agreement, if each member of the Newco
Group ceases to be a member of an Affiliated Group on a date (the
"Departure Date") and, in connection with the filing after the
Departure Date by the Newco Group (or a member thereof) of a Separate
Return in a jurisdiction for a taxable period (or portion thereof)
ending after the Departure Date, the Newco Group would have been
entitled to utilize all or a portion of the Cumulative Loss (as defined
below), if any, on such Separate Return but for the utilization on a
Joint Return of the Cumulative Loss (or portion thereof), then HEI
shall pay Newco (within five days after the filing of such Tax Return
or, if later, within five days after notice from Newco to HEI that such
Tax Return has been filed) the Tax refund (or reduction in Tax
liability) to which the Newco Group would have been entitled but for
the utilization of the Cumulative Loss (or portion thereof) on the
Joint Return; provided, however, that if an adjustment reverses all or
any portion of the amount used to determine the payment under this
Section 14(b), then an appropriate adjusting payment shall be made.
"Cumulative Loss" shall mean the unexpired net operating loss, as of
the Departure Date, of the Newco Group Legal Entities included in Joint
Returns (such net operating loss
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to be computed in the manner set forth in Section 3, as if the Newco
Group Legal Entities included in Joint Returns had filed Separate
Returns with respect to Post-Closing Periods). Except as otherwise set
forth above in this Section 14(b), the amounts determined under this
Section 14(b) shall disregard any change (other than a change required
by law) after the Departure Date in Tax elections, Tax practices, Tax
accounting methods and Tax positions of the Newco Group that accelerate
the recognition of Newco Group's income or gain (or decelerate
recognition of its losses, deductions or credits).
15. Interpretation. This Agreement is intended to calculate and allocate
certain federal, state, local and foreign Tax liabilities of the
members of the Affiliated Group, the Hallmark Group and the Newco
Group, and any situation or circumstance concerning such calculation
and allocation that is not specifically contemplated herein or provided
for herein shall be dealt with in a manner consistent with the
underlying principles of calculation and allocation in this Agreement.
16. Legal and Accounting Fees. Unless otherwise specified herein, any fees
or expenses for legal, accounting or other professional services
rendered in connection with the
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preparation of a Joint Return or the conduct of any Tax Proceeding
shall be allocated between HEI and Newco in a manner resulting in HEI
and Newco, respectively, bearing a reasonable approximation of the
actual amount of such fees or expenses hereunder reasonably related to,
and for the benefit of, their respective Groups.
17. Effect of the Agreement. This Agreement shall determine the liability
of HEI, Newco and the members of their respective Groups to each other
as to the matters provided for herein, whether or not such
determination is effective for purposes of federal, state, local or
foreign Tax laws, or for financial reporting purposes or for any other
purposes.
18. Entire Agreement. This Agreement (together with the Contribution
Agreement) embodies the entire understanding among the Parties relating
to its subject matter. Any and all prior correspondence, conversation
and memoranda are merged herein and shall be without effect hereon. No
promises, covenants or representations of any kind, other than those
expressly stated herein, have been made to induce any Party to enter
into this Agreement. This Agreement, including this provision against
oral modification, shall not be modified or terminated except by a
writing duly signed by each of the Parties hereto, and no waiver of any
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provisions of this Agreement shall be effective unless in a writing
duly signed by the Party sought to be bound.
19. Notices. Any payment, notice or communication required or permitted to
be given under this Agreement shall be in writing (including telecopy
communication) and mailed, telecopied or delivered:
If to HEI or any member of the Hallmark Group:
Richard B. Chalker
Division Vice President - Tax & Customs
Hallmark Cards, Incorporated
2501 McGee
PO Box 419480
MD #330
Kansas City, MO 64141-6480
Copy to:
Judith C. Whittaker
[Vice President & General Counsel]
Hallmark Cards, Incorporated
2501 McGee
Kansas City, MO 64108
If to Newco or any member of the Newco Group:
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or to any other address as HEI or Newco shall furnish in writing to one
another. All such notices and communications shall be effective when
received.
20. New Members. Each of the Parties to this Agreement recognizes that from
time to time, new Subsidiaries of Newco may be added to the Newco
Group. Each of the Parties agrees that any new Subsidiary of Newco
shall, without the express written consent of the other Parties, become
a Party to this Agreement.
21. Nature of Obligations. Each of HEI and Newco acknowledges and agrees
that its respective obligations under this Agreement shall not be
affected by any impossibility, impracticability, frustration of
purpose, force majeure, act of government, bankruptcy or insolvency of
any Party to this Agreement, failure or refusal of any Party to this
Agreement to perform its obligations hereunder, dispute, setoff or
counterclaim, change in amount, composition or terms of the assets,
liabilities or equity of HEI or Newco or any other Party to this
Agreement, or any other defense or right which HEI or Newco has or may
have that might have the effect of releasing HEI or Newco, as the case
may be, from such obligations.
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22. Title and Headings. Titles and headings of sections herein are inserted
for the convenience of reference only and are not intended to be a part
or to affect the meaning or interpretation of this Agreement.
23. Legal Enforceability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof.
Any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other
jurisdiction. Without prejudice to any rights or remedies otherwise
available to any Party hereto, each Party hereto acknowledges that
damages would be an inadequate remedy for breach of the provisions of
this Agreement and agrees that the obligations of the Parties hereunder
shall be specifically enforceable.
24. Amendment. This Agreement may be amended, modified or supplemented only
by a written agreement signed by all of the Parties hereto.
25. Termination. This Agreement shall terminate upon written consent of
both HEI and Newco. Notwithstanding such termination, this Agreement
shall remain in force with
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respect to any payment or refund due for any taxable period prior to
termination during which this Agreement was in effect.
26. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the internal laws (as distinguished from
the conflict of laws provisions) of the State of Delaware.
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IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be executed
by its respective duly authorized officer as of the date first set forth above.
HALLMARK ENTERTAINMENT, INC.
By:
---------------------------------
Name:
Title:
CROWN MEDIA, INC.
By:
---------------------------------
Name:
Title:
CROWN MEDIA HOLDINGS, INC., for
itself and for each member of the
Newco Group
By:
---------------------------------
Name:
Title:
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<PAGE> 1
EXHIBIT 10.8
AMENDED AND RESTATED
TRADEMARK LICENSE AGREEMENT
This Amended and Restated Agreement is made and entered into as of
January 26, 2000, by and between HALLMARK CARDS, INCORPORATED ("Hallmark") and
CROWN MEDIA, INC. ("Crown").
WHEREAS, Hallmark Cards is the owner of or has filed trademark
applications for the trademark "Hallmark Entertainment" outside the United
States as set forth on Schedule A hereto; and
WHEREAS, Crown desires to use the trademark "Hallmark Entertainment"
(the "Licensed Mark") on the terms and subject to the conditions specified
herein; and
WHEREAS, Hallmark desires to permit Crown to use the Licensed Mark
subject to the terms and conditions herein provided, and not otherwise.
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, the parties hereto agree as follows:
1. Grant. To the extent of its present and future ownership
interest therein, and subject to the terms and conditions of this Agreement,
Hallmark hereby grants to Crown the rights below listed for the term of this
Agreement, but only for so long as Hallmark and/or its wholly owned subsidiaries
collectively beneficially own at least 51% of the voting interest and 35% of the
equity interest of Crown and designate a majority of the Board of Directors of
Crown and no event of Default has occurred hereunder:
a. The non-exclusive, royalty-free license outside the United
States and Canada to use the Licensed Mark in connection with
Crown's promotion, marketing, advertising, distribution and
sale of the Select Pictures (and not in connection with Other
HEDL Programs); and
b. The non-exclusive, royalty-free license to use the Licensed
Mark in connection with the promotion, marketing, advertising,
distribution and sale of Crown's Service (as defined herein),
in any country outside the United States and Canada, but only
for so long as the Select Pictures and Other HEDL Programs (as
defined in Section 3) constitute at least 50% of the hours
of programming per month of the Service (as defined in Section
3) in such country where the Service is distributed; provided,
however, that for the first six months after a launch in any
given country, the Select Pictures and Other HEDL Programs
need only constitute at least 20%.
2. Limitations. In no event shall Crown be permitted to use the
name "Hallmark" alone or combined with any other name besides the Licensed Mark,
or to abbreviate, shorten or otherwise alter the Licensed Mark nor shall it be
permitted to emphasize "Hallmark" in different size, format, or boldness than
the balance of the
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<PAGE> 2
Licensed Mark. Crown agrees to that it will not use the Licensed Mark in its
corporate name. Crown further agrees that it shall not enter into any
agreements with third parties committing Crown to use the Licensed Mark beyond
the term of this Agreement.
3. Select Pictures, Other HEDL Programs and the Service. "Select
Pictures" shall mean television motion pictures and mini-series produced by or
at the direction of Hallmark Entertainment Productions, LLC or its subsidiaries.
"Other HEDL Programs" shall mean all television motion pictures and mini-series
other than Select Pictures acquired by Crown pursuant to that certain Program
License Agreement dated as of July 1, 1999, as amended from time to time
thereafter by and between Crown and Hallmark Entertainment Distribution, LLC
(the "Program Agreement"). The "Service" shall mean the distribution of a
channel (or network presenting a channel) of the Select Pictures and Other HEDL
Programs and other high-quality, family oriented television programming of a
character, nature and quality consistent with the image of Hallmark ("Third
Party Programs").
4. Standards.
a. Crown acknowledges its familiarity with the high standards
of quality and guidelines maintained by Hallmark for the use
of the Licensed Mark and the name "Hallmark," and Crown agrees
to faithfully maintain these same standards in connection with
its programming of the Service, including but not limited to
complying with the broadcast standards set forth on Schedule
A, as amended by Hallmark from time to time. Furthermore,
Crown agrees to comply with any guidelines or rules for use of
the Licensed Mark as Hallmark may in its sole discretion, from
time to time, promulgate in order to protect the quality image
and reputation which the Licensed Mark and the name "Hallmark"
presently enjoy and such guidelines or rules shall be
incorporated herein as a part of this Agreement.
b. Crown acknowledges that Hallmark Cards was founded in 1910,
is a privately owned company which enjoys a stellar reputation
for excellence, quality, adherence to high ethical and moral
values, and whose brand "Hallmark" consistently rates in the
top ten brands in the U.S. for consumer recognition, consumer
trust and quality. Further, "Hallmark Hall of Fame"
productions have won 78 Emmys over the past 40 years. Crown
further acknowledges that Hallmark would not grant this
trademark license if it did not control Crown and Hallmark's
wholly owned subsidiaries, Hallmark Entertainment, Inc.,
Hallmark Entertainment Productions, LLC and Hallmark
Entertainment Distribution, LLC, which produce and distribute
the Select Pictures and Other HEDL Programs for which use of
this license is granted.
c. Crown agrees to designate an individual at Crown's expense
who will be responsible for monitoring the use of the Licensed
Mark and
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ensuring that the Licensed Mark are utilized in accordance
with this Agreement and that all required requests for
approval are properly submitted to Hallmark.
5. Approval. Crown agrees to comply with the brand identity
standards of the branding committee established by Hallmark ("Branding
Committee") which standards shall include, but not be limited to, logo, program
headers, visual/verbal standards, uses and positioning of logo, application of
logo to any marketing materials, uses by any MSOs, uses in other media such as
print advertising. Further, Crown agrees that Select Pictures, Other HEDL
Programs and Third Party Programs shall also comply with the broadcast standards
on Schedule A as amended by Hallmark from time to time. Crown shall, at the
request of Hallmark, submit to Hallmark pictures, programs, film credits, press
releases, advertising and promotional materials, and other materials utilizing
the Licensed Mark or broadcast on the Service for Hallmark's approval, which may
be withheld for any reason. Submissions shall be directed to the attention of
Jan Murley, or such other person designated by Hallmark from time to time.
6. Trademark Protection.
a. Hallmark will use its reasonable efforts to maintain
existing registrations for the Licensed Mark for use by Crown
pursuant to the terms and conditions herein contained.
b. Crown agrees to cooperate with Hallmark in obtaining and
preserving for Hallmark trademark protection for the Licensed
Mark and the name "Hallmark," to execute all documents which
in Hallmark's judgment are necessary therefor, and to give
Hallmark advance notice of all contemplated uses of the
Licensed Mark. Crown agrees to recognize Hallmark's trademark
rights in the Licensed Mark and to do nothing in derogation or
dilution thereof, either during the term of this Agreement or
at any time thereafter. Crown, for itself, its successors and
assigns, does hereby absolutely grant, convey, and assign to
Hallmark any and all legal and equitable right, title and
interest, both tangible and intangible, which it has or may
hereafter acquire in the Licensed Mark, including, but not
limited to, any goodwill hereinafter generated or created by
it or anyone acting or claiming under it.
c. Crown, upon prior written approval from Hallmark, shall
have the right to enforce, at Crown's sole expense, its rights
in the Licensed Mark granted hereunder against third parties
that are or may be infringing the Licensed Mark so as to
affect Crown's rights granted hereunder.
d. Except as expressly set forth herein, Hallmark shall have
the right to take any action without regard to the effect of
such action on the rights granted in Section 1 hereof.
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<PAGE> 4
7. Term. The term of this Agreement shall be three years from the
initial commencement date of August 1, 1999, provided that it is not terminated
sooner in accordance with the terms and conditions set forth herein. No course
of dealing, lack of notice of intent not to renew, implied consent or other
doctrine of law or equity shall be deemed to give Crown the right to continued
use of the Licensed Mark beyond the stated term of this Agreement, or to create
any duty (fiduciary or otherwise) on Hallmark to permit any such use beyond the
term of this Agreement.
8. Default. It shall be a Default hereunder in the case of the
happening and during the continuance of any of the following:
a. Crown distributes any program or picture in connection with
the Service which in Hallmark's sole discretion fails to
comply with the standards set forth in Section 4 hereof and
Crown fails to remove and stop the distribution, exhibition
and broadcast of such non-complying program or picture within
10 days of written notice from Hallmark;
b. A Default occurs pursuant to Section 8(a) hereof three or
more times in any given 12 month period, regardless of whether
Crown has removed or stopped within 10 days of written notice
from Hallmark.
c. Crown uses the Licensed Mark other than in accordance with
the terms of the grant herein or Crown fails to comply with
any term or obligation of this Agreement (other than 8(a)
above) and, if curable, fails to cure such unapproved use or
breach within 10 days of the date of written notice from
Hallmark specifying such breach.
d. An event occurs (other than that described in 8(a) above)
which with the passage of time or the giving of notice, or
both, would constitute an event of default under the Program
Agreement and, if curable, Crown fails to cure such event
within 10 days of written notice from Hallmark.
e. Crown fails to make any payment when due under any loan
agreement with any financial institution and fails to make
such payment within 5 days thereafter.
f. Auditors determine that Crown is no longer an ongoing
concern.
9. Termination.
a. This Agreement shall terminate immediately and
automatically without notice in the event that
i. Crown attempts to assign, sublicense, pledge,
transfer or otherwise convey by operation of law or
otherwise, all or any interest in, directly or
indirectly ("Transfer") its rights hereunder;
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ii. Crown is adjudicated bankrupt, becomes insolvent,
makes any assignment for the benefit of its
creditors, has its assets placed in the hands of a
receiver, files a petition in bankruptcy, has filed
against it a petition in bankruptcy which is not
discharged within 60 days after its filing, or is
dissolved or liquidated (in which case, Crown, its
receivers, representatives, trustees, agents, or
successors shall have no right to exploit or in any
way utilize the Licensed Mark).
b. This Agreement shall terminate immediately with respect to
any specific country in the event that the Select Pictures and
Other HEDL Programs, collectively comprise less than 50% of
the programming of the Service, determined in each country
based on actual hours broadcast in such country.
c. This Agreement shall terminate immediately upon the
occurrence of an event of Default pursuant to Section S
hereof.
d. Upon the termination or expiration of this Agreement, or
the Program Agreement, Crown agrees to immediately and
permanently discontinue the use of the Licensed Mark,
including any adaptations thereof except that in the case of
Section 9(b) above, such use shall cease only in such country.
e. Crown hereby acknowledges that its misuse of the Licensed
Mark or failure to cease the use of the Licensed Mark upon the
termination or expiration of such rights or this Agreement
will result in damage to Hallmark for which there is no
adequate remedy at law. Accordingly, in the event of such
misuse or failure, Hallmark shall be entitled to equitable
relief by way of temporary and permanent injunctions and such
other relief as any court of competent jurisdiction may deem
just and proper.
10. Additional Agreement. Crown hereby agrees that Hallmark and
its affiliates shall not have any liability or obligation to Crown on account of
the exercise of any of Hallmark's rights or remedies hereunder. Crown hereby
waives and releases any right to commence or pursue any legal action (whether
suit, counterclaim, cross claim or other action) against Hallmark or any of its
affiliates challenging the termination by Hallmark of the trademark license
granted herein based on a theory of breach of fiduciary obligation or conflicts
of interest of Hallmark or any of its affiliates or similar theories or premised
on the exercise of control or influence over management by Hallmark or its
affiliates.
11. Third Party Infringement. Crown shall promptly notify Hallmark
of any apparent infringement of any rights granted by Hallmark to Crown
hereunder. Hallmark shall have the exclusive right to institute legal action (at
its own expense) against the
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<PAGE> 6
infringer or to otherwise terminate such infringement. Crown shall have no right
to make any demands or claims, bring suit, effect any settlements or take any
other action with respect to such an infringement without the prior written
consent of Hallmark. Crown agrees to cooperate at its cost with Hallmark with
respect to any suits or other action taken under this paragraph and that all
recoveries for such infringements shall belong to Hallmark. Hallmark may name
Crown as a party to any suit against third party infringers if Hallmark, in its
sole opinion, determines that it is desirable to any infringement suit.
12. Nonassignability. Crown agrees that without the prior written
consent of Hallmark it may not Transfer the rights granted hereunder or permit
any third party to utilize the Licensed Mark (e.g. as a channel name) other than
third party use incidental to Crown's use described in Section 1(b) hereof and
any such Transfer shall be null and void ab initio upon such proposed Transfer.
13. Applicable Law. The validity, construction and performance of
this Agreement shall be governed by, and interpreted in accordance with, the
laws of the State of Missouri. In any dispute relating to this Agreement, the
parties hereto submit themselves to the exclusive jurisdiction of the tribunals
of the State of Missouri and the United States Courts within the State of
Missouri, expressly waiving any venue to which they may be entitled by their
present or future domiciles and any objection based on forum non conveniens.
14. No Agency. Nothing in this Agreement shall be construed to
make either party hereto the agent or representative of the other party and
neither party shall so hold itself out nor shall either party be liable or be
bound by any act or omission of the other party.
15. Waiver. Failure of either party at any time to require the
performance of any provision under this Agreement shall not affect the right of
such party to require full performance thereafter and a waiver by either party
of a breach of any provision of this Agreement shall not be taken or held to be
a waiver of any further or similar breach or as nullifying the effectiveness of
such provision.
16. Amendments. This Agreement expresses the entire understanding
of the parties hereto and replaces any prior oral or written agreements
concerning the subject matter hereof and Licensee acknowledges that it has not
executed this Agreement in reliance upon any promise, agreement, representation
or warranty not expressly set forth in this Agreement. No amendment
modification, or supplementation hereof shall be effective or binding on either
party hereto unless reduced to writing and executed by the duly authorized
representatives of both parties hereto.
17. Security Interest. Crown hereby acknowledges the difficulty of
determining the amount of any damage arising from Crown's use of the Licensed
Mark other than in accordance with the grant in this Agreement, particularly
inasmuch as no payment or royalty is required for the license granted herein.
Therefore, to secure Crown's performance pursuant to this Agreement and
compensation for any damage to
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<PAGE> 7
Hallmark's name or reputation due to a breach of this Agreement, Crown hereby
assigns and grants to Hallmark a first and prior lien and security interest in
and to all of Crown's right and interest in and to this Agreement pursuant to a
Security Agreement of even date between the parties.
IN WITNESS WHEREOF, this Agreement is executed as of the date first
written above.
HALLMARK CARDS, INCORPORATED
By: /s/ JUDITH WHITTAKER
------------------------------------
Title: Vice President - General Counsel
--------------------------------
CROWN MEDIA, INC.
By: /s/ WILLIAM J. ALIBER
------------------------------------
Title: CFO
--------------------------------
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<PAGE> 1
EXHIBIT 10.9
AMENDED AND RESTATED
TRADEMARK LICENSE AGREEMENT (UK)
This Agreement is made and entered into as of January 1, 2000, by and
between HALLMARK CARDS, INCORPORATED ("Hallmark") and HALLMARK ENTERTAINMENT
NETWORKS (UK) LIMITED ("HEN (UK)").
WHEREAS, HEN (UK) has entered into that certain Digital DTH
Distribution with British Sky Broadcasting Limited ("Distribution Agreement");
and
WHEREAS, Hallmark is the owner of or has filed trademark applications
for the trademark "Hallmark Entertainment" in the Territory (as defined herein);
and
WHEREAS, HEN (UK) desires to use the trademark "Hallmark Entertainment"
(the "Licensed Mark") in the Territory on the terms and subject to the
conditions specified herein; and
WHEREAS, Hallmark desires to permit HEN (UK) to use the Licensed Mark
in the Territory subject to the terms and conditions herein provided, and not
otherwise.
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, the parties hereto agree as follows:
1. Grant. To the extent of its present and future ownership interest
therein, and subject to the terms and conditions of this Agreement, Hallmark
hereby grants to HEN (UK) the rights below listed for the term of this
Agreement, but only for so long as Hallmark and/or its wholly owned subsidiaries
collectively beneficially own at least 51% of the voting interest and 35% of the
equity interest of Crown Media, Inc. and designate a majority of the Board of
Directors of Crown Media, Inc. and no event of Default has occurred hereunder:
a. The non-exclusive, royalty-free license in the United Kingdom
of Great Britain and Northern Ireland, the Republic of Ireland,
the Isle of Man and the Channel Isles (the "Territory") to use the
Licensed Mark in connection with HEN (UK)'s promotion, marketing,
advertising, distribution and sale of the Select Pictures (and not
in connection with Other HEDL Programs); and
b. The non-exclusive, royalty-free license to use the Licensed
Mark in connection with the promotion, marketing, advertising,
distribution and sale of HEN (UK)'s Service (as defined herein),
in the Territory, but only for so long as the Select Pictures and
Other HEDL Programs (as defined in
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<PAGE> 2
Section 3) constitute at least 50% of the hours of programming per
month of the Service (as defined in Section 3) in such country
where the Service is distributed; provided, however that for the
first six months after a launch in any given country, the Select
Pictures and Other HEDL Programs need only constitute at least
20%.
2. Limitations. In no event shall HEN (UK) be permitted to use the name
"Hallmark" alone or combined with any other name besides the Licensed Mark, or
to abbreviate, shorten or otherwise alter the Licensed Mark nor shall it be
permitted to emphasize "Hallmark" in different size, format, or boldness than
the balance of the Licensed Mark. HEN (UK) agrees to change its corporate name
by March 1, 2000 and agrees that thereafter it will not use the Licensed Mark in
its corporate name. HEN (UK) further agrees that it shall not enter into any
agreements with third parties committing HEN (UK) to use the Licensed Mark
beyond the term of this Agreement.
3. Select Pictures, Other HEDL Programs and the Service. "Select
Pictures" shall mean television or theatrical motion pictures produced by or at
the direction of Hallmark Entertainment Productions, LLC or its subsidiaries.
"Other HEDL Programs" shall mean all television or theatrical motion pictures
other than Select Pictures acquired by Crown Media, Inc. pursuant to that
certain Program License Agreement dated as of July 1, 1999, as amended from time
to time thereafter by and between Crown Media, Inc. and Hallmark Entertainment
Distribution, LLC (the "Program Agreement"). The "Service" shall mean the
distribution of a channel (or network presenting a channel) of the Select
Pictures and Other HEDL Programs and other high-quality, family oriented
television programming of a character, nature and quality consistent with the
image of Hallmark ("Third Party Programs").
4. Standards.
a. HEN (UK) acknowledges its familiarity with the high standards
of quality and guidelines maintained by Hallmark for the use of
the Licensed Mark and the name "Hallmark," and HEN (UK) agrees to
faithfully maintain these same standards in connection with its
programming of the Service, including but not limited to complying
with the broadcast standards set forth on Schedule A, as amended
by Hallmark from time to time. Furthermore, HEN (UK) agrees to
comply with any guidelines or rules for use of the Licensed Mark
as Hallmark may in its sole discretion, from time to time,
promulgate in order to protect the quality image and reputation
which the Licensed Mark and the name "Hallmark" presently enjoy
and such guidelines or rules shall be incorporated herein as a
part of this Agreement.
b. HEN (UK) acknowledges that Hallmark Cards was founded in 1910,
is a privately owned company which enjoys a stellar reputation for
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<PAGE> 3
excellence, quality, adherence to high ethical and moral values,
and whose brand "Hallmark" consistently rates in the top ten
brands in the U.S. for consumer recognition, consumer trust and
quality. Further, "Hallmark Hall of Fame" productions have won 78
Emmys over the past 40 years. HEN (UK) further acknowledges that
Hallmark would not grant this trademark license if it did not
control Crown Media, Inc., HEN (UK) and Hallmark's wholly owned
subsidiaries, Hallmark Entertainment, Inc., Hallmark Entertainment
Productions, LLC and Hallmark Entertainment Distribution, LLC,
which produce and distribute the Select Pictures and Other HEDL
Programs for which use of this license is granted.
c. HEN (UK) agrees to designate an individual at HEN (UK)'s
expense who will be responsible for monitoring the use of the
Licensed Mark and ensuring that the Licensed Mark are utilized in
accordance with this Agreement and that all required requests for
approval are properly submitted to Hallmark.
5. Approval. HEN (UK) agrees to comply with the brand identity
standards of the branding committee established by Hallmark ("Branding
Committee") which standards shall include, but not be limited to, logo, program
headers, visual/verbal standards, uses and positioning of logo, application of
logo to any marketing materials, uses by any MSOs, uses in other media such as
print advertising. Further, HEN (UK) agrees that Select Pictures, Other HEDL
Programs and Third Party Programs shall also comply with the broadcast standards
on Schedule A as amended by Hallmark from time to time. HEN (UK) shall, at the
request of Hallmark, submit to Hallmark pictures, programs, film credits, press
releases, advertising and promotional materials, and other materials utilizing
the Licensed Mark or broadcast on the Service for Hallmark's approval, which may
be withheld for any reason. Submissions shall be directed to the attention of
Jan Murley, or such other person designated by Hallmark from time to time.
6. Trademark Protection.
a. Hallmark will use its reasonable efforts to maintain existing
registrations for the Licensed Mark for use by HEN (UK) pursuant
to the terms and conditions herein contained.
b. HEN (UK) agrees to cooperate with Hallmark in obtaining and
preserving for Hallmark trademark protection for the Licensed Mark
and the name "Hallmark," to execute all documents which in
Hallmark's judgment are necessary therefor, and to give Hallmark
advance notice of all contemplated uses of the Licensed Mark. HEN
(UK) agrees to recognize Hallmark's trademark rights in the
Licensed Mark and to do nothing in derogation or dilution thereof,
either during the term of this Agreement or at any time
thereafter. HEN (UK), for itself, its successors
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<PAGE> 4
and assigns, does hereby absolutely grant, convey, and assign to
Hallmark any and all legal and equitable right, title and
interest, both tangible and intangible, which it has or may
hereafter acquire in the Licensed Mark, including, but not limited
to, any goodwill hereinafter generated or created by it or anyone
acting or claiming under it.
c. HEN (UK), upon prior written approval from Hallmark, shall have
the right to enforce, at HEN (UK)'s sole expense, its rights in
the Licensed Mark granted hereunder against third parties that are
or may be infringing the Licensed Mark so as to affect HEN (UK)'s
rights granted hereunder.
d. Except as expressly set forth herein, Hallmark shall have the
right to take any action without regard to the effect of such
action on the rights granted in Section 1 hereof.
7. Term. The term of this Agreement shall be five years from the Launch
Date as that term is defined in the Distribution Agreement, provided that
neither the Distribution Agreement nor this Agreement is terminated sooner in
accordance with the terms and conditions set forth therein or herein. No course
of dealing, lack of notice of intent not to renew, implied consent or other
doctrine of law or equity shall be deemed to give HEN (UK) the right to
continued use of the Licensed Mark beyond the stated term of this Agreement, or
to create any duty (fiduciary or otherwise) on Hallmark to permit any such use
beyond the term of this Agreement.
8. Default. It shall be a Default hereunder in the case of the
happening and during the continuance of any of the following:
a. HEN (UK) distributes any program or picture in connection with
the Service which in Hallmark's sole discretion fails to comply
with the standards set forth in Section 4 hereof and HEN (UK)
fails to remove and stop the distribution, exhibition and
broadcast of such non-complying program or picture within 10 days
of written notice from Hallmark;
b. A Default occurs pursuant to Section 8(a) hereof three or more
times in any given 12 month period, regardless of whether HEN (UK)
has removed or stopped within 10 days of written notice from
Hallmark.
c. HEN (UK) uses the Licensed Mark other than in accordance with
the terms of the grant herein or HEN (UK) fails to comply with any
term or obligation of this Agreement (other than 8(a) above) and,
if curable, fails to cure such unapproved use or breach within 10
days of the date of written notice from Hallmark specifying such
breach.
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<PAGE> 5
d. An event occurs (other than that described in 8(a) above) which
with the passage of time or the giving of notice, or both, would
constitute an event of default under the Program Agreement and, if
curable, Crown Media, Inc. fails to cure such event within 10 days
of written notice from Hallmark.
e. HEN (UK) fails to make any payment when due under any loan
agreement with any financial institution and fails to make such
payment within 5 days thereafter.
f. Auditors determine that HEN (UK) is no longer an ongoing
concern.
g. HEN (UK) is in default pursuant to the terms of the
Distribution Agreement.
h. Crown Media, Inc. is in default pursuant to the terms of its
Trademark License Agreement with Hallmark dated as of August
1,1999.
9. Termination.
a. This Agreement shall terminate immediately and automatically
without notice in the event that
i. HEN (UK) attempts to assign, sublicense, pledge, transfer
or otherwise convey by operation of law or otherwise, all or
any interest in, directly or indirectly ("Transfer") its rights
hereunder;
ii. HEN (UK) ceases to trade; has a winding up petition or
petition for the appointment of an administrator presented
against it which is not dismissed or withdrawn within 21 days;
goes into voluntary liquidation (other than for the bona fide
purposes of amalgamation or reconstruction); makes or offers to
make any composition with its creditors; has an administrator,
receiver or administrative receiver or similar officer
appointed to take over all or a substantial part of its assets
and undertaking, and such an appointment is not discharged
within 21 days (save where such appointment is pursuant to
frivolous third party claims); or stops payment of its debts as
and when they fall due or is deemed unable to pay its debts
within the meaning of Section 123 of the Insolvency Act 1986.
In any of the foregoing events, HEN (UK), its receivers,
administrators, representatives, trustees or other agents shall
have no right to exploit or in any way utilize the Licensed
Mark.
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<PAGE> 6
iii. The Distribution Agreement is terminated for any reason.
b. This Agreement shall terminate immediately with respect to any
specific country in the event that the Select Pictures and Other
HEDL Programs, collectively comprise less than 50% of the
programming of the Service, determined in each country based on
actual hours broadcast in such country.
c. This Agreement shall terminate immediately upon the occurrence
of an event of Default pursuant to Section 8 hereof.
d. Upon the termination or expiration of this Agreement, or the
Program Agreement, HEN (UK) agrees to immediately and permanently
discontinue the use of the Licensed Mark, including any
adaptations thereof except that in the case of Section 9(b) above,
such use shall cease only in such country.
e. HEN (UK) hereby acknowledges that its misuse of the Licensed
Mark or failure to cease the use of the Licensed Mark upon the
termination or expiration of such rights or this Agreement will
result in damage to Hallmark for which there is no adequate remedy
at law. Accordingly, in the event of such misuse or failure,
Hallmark shall be entitled to equitable relief by way of temporary
and permanent injunctions and such other relief as any court of
competent jurisdiction may deem just and proper.
10. Additional Agreement. HEN (UK) hereby agrees that Hallmark and its
affiliates shall not have any liability or obligation to HEN (UK) on account of
the exercise of any of Hallmark's rights or remedies hereunder. HEN (UK) hereby
waives and releases any right to commence or pursue any legal action (whether
suit, counterclaim, cross claim or other action) against Hallmark or any of its
affiliates challenging the termination by Hallmark of the trademark license
granted herein based on a theory of breach of fiduciary obligation or conflicts
of interest of Hallmark or any of its affiliates or similar theories or premised
on the exercise of control or influence over management by Hallmark or its
affiliates.
11. Third Party Infringement. HEN (UK) shall promptly notify Hallmark
of any apparent infringement of any rights granted by Hallmark to HEN (UK)
hereunder. Hallmark shall have the exclusive right to institute legal action (at
its own expense) against the infringer or to otherwise terminate such
infringement. HEN (UK) shall have no right to make any demands or claims, bring
suit, effect any settlements or take any other action with respect to such an
infringement without the prior written consent of Hallmark. HEN (UK) agrees to
cooperate at its cost with Hallmark with respect to any suits or other action
taken under this paragraph and that all recoveries for such
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<PAGE> 7
infringements shall belong to Hallmark. Hallmark may name HEN (UK) as a party to
any suit against third party infringers if Hallmark, in its sole opinion,
determines that it is desirable to any infringement suit.
12. Nonassignability. HEN (UK) agrees that without the prior written
consent of Hallmark it may not Transfer the rights granted hereunder or permit
any third party to utilize the Licensed Mark (e.g. as a channel name) other than
third party use incidental to HEN (UK)'s use described in Section 1(b) hereof
and any such Transfer shall be null and void ab initio upon such proposed
Transfer.
13. Applicable Law. The validity, construction and performance of this
Agreement shall be governed by, and interpreted in accordance with, the laws of
the State of Missouri, except for clause 9(a)(ii), which shall be governed by,
and interpreted in accordance with, the laws of England and Wales. In any
dispute relating to this Agreement, the parties hereto submit themselves to the
exclusive jurisdiction of the tribunals of the State of Missouri and the United
States Courts within the State of Missouri, expressly waiving any venue to which
they may be entitled by their present or future domiciles and any objection
based on forum non conveniens.
14. No Agency. Nothing in this Agreement shall be construed to make
either party hereto the agent or representative of the other party and neither
party shall so hold itself out nor shall either party be liable or be bound by
any act or omission of the other party.
15. Waiver. Failure of either party at any time to require the
performance of any provision under this Agreement shall not affect the right of
such party to require full performance thereafter and a waiver by either party
of a breach of any provision of this Agreement shall not be taken or held to be
a waiver of any further or similar breach or as nullifying the effectiveness of
such provision.
16. Amendments. This Agreement expresses the entire understanding of
the parties hereto and replaces any prior oral or written agreements concerning
the subject matter hereof and Licensee acknowledges that it has not executed
this Agreement in reliance upon any promise, agreement, representation or
warranty not expressly set forth in this Agreement. No amendment modification,
or supplementation hereof shall be effective or binding on either party hereto
unless reduced to writing and executed by the duly authorized representatives of
both parties hereto.
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<PAGE> 8
IN WITNESS WHEREOF, this Agreement is executed as of the date first
written above.
HALLMARK CARDS, INCORPORATED
By /s/ JUDITH WHITTAKER
-----------------------------------------------
Title Vice President - General Counsel
-------------------------------------------
HALLMARK ENTERTAINMENT NETWORKS (UK) LIMITED
By /s/ DAVID EVANS
-----------------------------------------------
Title President & CEO
-------------------------------------------
8
<PAGE> 1
EXHIBIT 10.10
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") is made and entered into as of
August 1, 1999, by and between HALLMARK ENTERTAINMENT NETWORKS, INC., a Delaware
corporation ("Debtor"), and HALLMARK CARDS, INCORPORATED ("Hallmark").
RECITALS
A. Debtor has executed a Trademark License Agreement dated as of
August 1, 1999 with Hallmark (the "Trademark Agreement").
B. For purposes of this Agreement, the term "Collateral" shall mean all
of the following: (i) the Trademark Agreement and all rights and interests
therein and thereunder; and (ii) the proceeds of any of the foregoing including,
but not limited to, accounts, contract rights, notes, drafts, investments,
general intangibles, the proceeds of insurance or other tangible or intangible
property of Debtor resulting from the sale, licensing or other disposition of
any of the foregoing, and the proceeds thereof (hereinafter collectively
referred to as "Proceeds").
C. As security for Debtor's performance pursuant to and in accordance
with the Trademark Agreement and compensation for any damage to Hallmark's name
or reputation due to a breach of the Trademark Agreement by Debtor, Debtor
desires to grant to Hallmark a security interest in and to the Collateral.
TERMS AND CONDITIONS
NOW THEREFORE, the parties hereto agree as follows:
1. Grant of Security Interest. Debtor hereby grants and specifically
assigns to Hallmark a security interest in and to all of the Collateral to
secure Debtor's performance pursuant to and in accordance with the Trademark
Agreement and compensation for any damage to Hallmark's name or reputation due
to a breach of the Trademark Agreement by Debtor.
2. Representations, Warranties and Covenants. Debtor represents,
warrants and covenants as follows:
2.1 Title to Collateral. Debtor owns all right, title and interest as
licensee in and to the Collateral, free and clear of all liens, claims,
encumbrances and rights of others.
2.2 Limitation on Further Encumbrances. The Collateral shall remain
free from all purchase money or other security interests, liens or
encumbrances, except the security interests created by this Agreement.
<PAGE> 2
2.3 Tax Obligation. Debtor shall pay when due all taxes, assessments
and governmental charges imposed on or with respect to the Collateral,
other than those being contested in good faith and by appropriate
proceedings.
2.4 Notice of Material Adverse Claims. Debtor shall present Hallmark
with a copy of any notice which Debtor receives from any party claiming any
material interest in the Collateral, or any material portion thereof, or
attempting to attach or to levy on any material portion of the Collateral.
3. Financing, Statements: Perfection of Security Interest. Concurrently
with the execution hereof, or at any time or from time to time hereafter, Debtor
shall execute any financing statements reasonably requested by Hallmark which
are necessary to perfect Hallmark's security interest in the Collateral. Debtor
shall also cooperate with Hallmark with respect to and shall execute and
acknowledge any assignments (for security purposes only) or other instruments
reasonably required in order to perfect Hallmark's security interest or to
comply with any applicable foreign, federal or state statute. Any filing or
recording fees for any financing statements, mortgages, assignments or other
similar documents shall be promptly paid by Hallmark.
4. Remedies in the Event of Default. If an Event of Default shall
occur, Hallmark shall be entitled to all remedies available, including remedies
at law or in equity and including the right to a return of the collateral.
Debtor hereby acknowledges the difficulty in determining the amount of any
damage to Hallmark's name or reputation arising from Debtor's failure to perform
in accordance with the Trademark Agreement and consequently, if an Event of
Default shall occur, Debtor agrees that Hallmark shall be entitled to receive
the Collateral and any and all rights of Debtor in and to the Collateral, free
and clear of all encumbrances in full satisfaction of any claim that Hallmark
may have against Debtor for breach of the Trademark Agreement.
5. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their successors or
assigns.
6. Applicable Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Missouri.
7. Notices. All notices hereunder shall be deemed given when personally
delivered or when sent by certified or registered mail, postage prepaid, or by
facsimile transmission, to the parties hereto at their respective addresses as
set forth below, or at such other addresses as each of the parties shall from
time to time designate in like manner to the other parties.
If to Debtor: Hallmark Entertainment Networks, Inc.
South Fiddler's Green Circle, Suite 500
Englewood, Colorado 80110
Attention: David Evans
Fax: 303-220-7660
<PAGE> 3
If to Hallmark: Hallmark Cards, Incorporated
2501 McGee Trafficway
Kansas City, Missouri 64108
Attention: General Counsel
Fax: (816) 274-7171
9. Counterparts. This Agreement may be executed simultaneously or in
one or more counterparts, each of which together shall constitute one and the
same instrument.
10. Further Assurances. The parties hereto agree to do any and all
things and to undertake to perform any and all acts reasonably necessary in
order to carry out the intent of the Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
HALLMARK ENTERTAINMENT NETWORKS, INC. HALLMARK CARDS, INCORPORATED
By /s/ DEANNE R. STEDEM By /s/ JUDITH WHITTAKER
----------------------------------- ---------------------------
Its Vice President Its Vice President
---------------------------------- --------------------------
<PAGE> 1
EXHIBIT 10.11
AMENDED AND RESTATED
COMPANY AGREEMENT
of
ODYSSEY HOLDINGS, L.L.C.,
a Delaware limited liability company
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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ARTICLE I
FORMATION ..................................1
1.1 Organization ...............................1
1.2 Name .......................................1
1.3 Effective Date .............................1
1.4 Term .......................................1
1.5 Registered Agent and Office ................1
1.6 Principal Place of Business ................2
ARTICLE II
DEFINITIONS .................................2
2.1 Acceptance Notice ..........................2
2.2 Act ........................................2
2.3 Additional Member ..........................2
2.4 Additional NICC Budget .....................2
2.5 Affiliate ..................................2
2.6 Articles ...................................2
2.7 Bank .......................................2
2.8 Bankrupt Member ............................3
2.9 Base NICC Budget ...........................3
2.10 Business Day ...............................3
2.11 Business Plan ..............................3
2.12 Budget .....................................3
2.13 Capital Account ............................3
6.14 Capital Contribution .......................3
2.15 Capital Interest ...........................3
2.16 Change of Control ..........................3
2.17 Channel ....................................4
2.18 Code .......................................4
2.19 Common Interest ............................4
2.20 Company ....................................4
2.21 Company Agreement ..........................4
2.22 Company Property ...........................4
2.23 Continuing Member ..........................4
</TABLE>
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<TABLE>
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2.24 Contribution Agreement .....................4
2.25 CPI ........................................4
2.26 Credit Facility ............................4
2.27 Default Date ...............................4
2.28 Deficit Capital Account ....................4
2.29 Depreciation ...............................5
2.30 Dissociation ...............................5
2.31 Distributable Cash .........................5
2.32 Effective Date .............................6
2.33 Fiscal Year ................................6
2.34 F&V Reserved Time ..........................6
2.35 Faith and Values Programming ...............6
2.36 Governance Committee .......................6
2.37 Gross Asset Value ..........................6
2.38 Hallmark ...................................7
2.39 Hallmark Program License Agreement .........7
2.40 Hallmark Sub ...............................7
2.41 Henson .....................................7
2.42 Henson Program License Agreement ...........7
2.43 Henson Sub .................................7
2.44 HSR ........................................8
2.45 Information ................................8
2.46 Initial Acceptance Notice ..................8
2.47 Initial Budget .............................8
2,48 Initial Business Plan ......................8
2.49 Initial Capital Contribution ...............8
2.50 Initial Members ............................8
2.51 Liberty ....................................8
2.52 Losses .....................................8
2.53 Major Decisions ............................8
2.54 Mandatory Capital Contribution .............8
2.55 Member .....................................8
2.56 Membership Interest ........................8
2.57 Mission Statement ..........................8
2.58 Money ......................................8
2.59 NDTC .......................................9
2.60 Net Profits or Net Losses ..................9
2.61 New Member .................................9
2.62 NICC.......................................10
</TABLE>
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<TABLE>
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2.63 NICC Budget ..............................10
2.64 NICC Programming .........................10
2.65 NICC Program License Agreement ...........10
2.66 NICC Reserved Time .......................10
2.67 Offered Interest .........................10
2.68 Offer Price ..............................10
2.69 Offerees .................................10
2.70 Offering Member ..........................10
2.71 Offer Notice .............................10
2.72 Organization .............................10
2.73 Permitted Transfer .......................10
2.74 Permitted Transferee .....................10
2.75 Person ...................................10
2.76 Preferred Interest .......................10
2.77 Preferred Liquidation Preference .........11
2.78 Prime Rate ...............................11
2.79 Principal Office .........................11
2.80 Proceeding ...............................11
2.81 Programming Advisory Committee ...........11
2.82 Programming Philosophy ...................11
2.83 Program Schedule .........................11
2.84 Projections ..............................11
2.85 Property .................................11
2.86 Purchase Agreement .......................11
2.87 Purchasing Members .......................12
2.88 Regulations ..............................12
2.89 Reserves .................................12
2.90 ROFO Acceptance Period ...................12
2.91 Roll-Over Budget .........................12
2.92 Second Acceptance Notice .................12
2.93 Second Offer Notice ......................12
2.94 Second ROFO Acceptance Period ............12
2.95 Service Agreements .......................12
2.96 Sharing Ratio ............................12
2.97 Standards and Practices ..................12
2.98 Substitute Member ........................12
2.99 Tax Distribution .........................12
2.100 Taxable Year .............................13
2.101 Taxing Jurisdiction.......................13
</TABLE>
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<TABLE>
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2.102 Third-Party Sale .........................11
2.103 Transaction Documents ....................13
2.104 Transfer .................................13
2.105 Transferred Assets .......................13
2.106 Transferring Member ......................13
2.107 Ultimate Beneficial Owner ................13
2.108 Unpaid Amount ............................13
2.109 VGI ......................................14
2.110 VMC ......................................14
2.111 Voting Power .............................14
2.112 Yearly Preferred Liquidation Payment .....14
ARTICLE III
NATURE OF BUSINESS .......................14
ARTICLE IV
ACCOUNTING AND RECORDS ...................14
4.1 Records to be Maintained .................14
4.2 Reports to Members........................15
ARTICLE V
MEMBERS ..................................15
5.1 Members ..................................15
5.2 Classes ..................................16
5.3 Liability of Members .....................16
5.4 Indemnification ..........................16
5.5 Representations and Warranties ...........18
5.6 Conflicts of Interest ....................19
5.7 Terms of the Preferred Interest ..........20
ARTICLE VI
MANAGEMENT AND CONTROL OF COMPANY ........21
6.1 Governance Committee .....................21
6.2 Authority to Bind the Company ............23
6.3 Appointment of Vice President of
Religious Affairs ........................25
</TABLE>
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<TABLE>
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6.4 Actions of the Governance Committee .......25
6.5 Approval of Business Plan .................25
6.6 NICC Budget ...............................26
6.7 Programming ...............................26
6.8 Programming Advisory Committee ............27
6,9 NICC and Faith and Values Programming .....28
6.10 Compensation of the Governance Committee
and Programming Advisory Committee ........28
6.11 Standard of Care ..........................29
6.12 Part-Time Subscribers .....................29
ARTICLE VII
CONTRIBUTIONS AND CAPITAL ACCOUNTS ........29
7.1 Members' Initial Capital Contribution .....29
7.2 Mandatory Capital Contributions ...........30
7.3 Capital Accounts ..........................31
7.4 Capital Account Deficit ...................32
7.5 Withdrawal or Reduction of Members'
Contributions .............................32
ARTICLE VIII
ALLOCATIONS AND DISTRIBUTIONS, ELECTIONS AND
REPORTS ...................................32
8.1 Allocations of Profits and Losses .........32
8.2 Special Allocations to Capital Accounts
and Certain Other Income Tax Allocations,
Notwithstanding Section 8.1 Hereof ........34
8.3 Distributions .............................36
8.4 Limitation Upon Distributions .............37
8.5 Accounting Principles .....................37
ARTICLE IX
TAXES .....................................38
9.1 Elections .................................38
9.2 Taxes of Taxing Jurisdictions .............38
9.3 Tax Matters Partner .......................38
</TABLE>
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<TABLE>
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ARTICLE X
TRANSFER OF MEMBERSHIP INTERESTS .........39
10.1 General ..................................39
10.2 Change of Control ........................40
10.3 Permitted Transfers ......................40
10.4 Right of First Offer .....................41
10.5 Requirements of Transfer .................43
10.6 Transfers not in Compliance with this
Article Void .............................43
ARTICLE XI
DISSOCIATION OF A MEMBER .................43
11.1 Dissociation .............................43
ARTICLE XII
ADMISSION OF ADDITIONAL MEMBERS ..........43
12.1 Admission of Substitute Members ..........44
12.2 Admission of Additional Members ..........44
ARTICLE XIII
DISSOLUTION AND WINDING UP ...............44
13.1 Dissolution ..............................44
13.2 Effect of Dissolution ....................44
13.3 Distribution of Assets on Dissolution ....44
13.4 Winding Up and Certificate of
Dissolution ..............................45
ARTICLE XIV
AMENDMENT ................................45
14.1 Company Agreement May Be Modified ........45
14.2 Amendment or Modification of Company
Agreement ................................45
ARTICLE XV
MISCELLANEOUS PROVISIONS .................45
15.1 Entire Agreement .........................45
15.2 No Partnership Intended for Nontax
Purposes .................................45
</TABLE>
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<TABLE>
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15.3 Rights of Creditors and Third Parties
under Company Agreement ..................46
15.4 Confidentiality ..........................46
15.5 Public Announcements .....................47
15.6 Agreement, Effect of Inconsistencies
with Act .................................47
15.7 Notice ...................................48
15.8 Legend ...................................48
15.9 Interpretation ...........................49
15.10 Binding Effect ...........................49
15.11 Severability .............................49
15.12 Multiple Counterparts ....................49
15.13 Remedies Cumulative ......................49
15.14 Waiver ...................................49
15.15 Acknowledgment ...........................49
</TABLE>
EXHIBITS
A Member Summary
B Mission Statement
C Programming Philosophy
D Standards and Practices
E Projections
F Intentionally Omitted
G Mandatory Capital Contributions
-vii-
<PAGE> 9
AMENDED AND RESTATED
COMPANY AGREEMENT
This Amended and Restated Company Agreement (the "COMPANY AGREEMENT") of
Odyssey Holdings, L.L.C., a limited liability company organized pursuant to the
Delaware Limited Liability Company Act (the "C0MPANY"), is entered into and
shall be effective as of the Effective Date, by and among the Company and the
persons executing this Company Agreement as Members.
NOW THEREFORE, in consideration of the mutual covenants and agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the persons executing this Company
Agreement as Members, intending to be legally bound hereby, agree as follows:
ARTICLE I
FORMATION
1.1 ORGANIZATION - The Members hereby organize the Company as a Delaware
limited liability company pursuant to the provisions of the Act.
1.2 NAME - The name of the Company is Odyssey Holdings, L.L.C., and all
business of the Company shall be conducted under that name or under any other
name, but in any case, only to the extent permitted by applicable law.
1.3 EFFECTIVE DATE - This Company Agreement shall become effective on
November 13, 1998 (the "EFFECTIVE DATE").
1.4 TERM - The term of the Company commenced on June 20, 1995, the date of
filing the Certificate of Formation, and shall continue until the Company is
dissolved and its affairs wound up in accordance with the Act and this Company
Agreement.
1.5 REGISTERED AGENT AND OFFICE - The Company's initial registered office
shall be the office of its registered agent at 32 Loockerman Square, Suite
L-100, Dover, Delaware 19904 and the name of its initial registered agent at
such address shall be The Prentice-Hall Corporation System, Inc. The Governance
Committee may, by unanimous consent, change the registered agent or office
through appropriate filings with the Secretary of State. In the event the
registered agent ceases to act as such for any reason or the registered office
shall change, the Governance Committee shall promptly designate a replacement
registered agent or file a notice of change of address as the case may be. If
the Governance Committee shall fail to designate a replacement
1
<PAGE> 10
registered agent or change of address of the registered office, any Member may
designate a replacement registered agent or file a notice of change of address
upon notice to the other Members.
1.6 PRINCIPAL PLACE OF BUSINESS - The principal place of business of the
Company shall be the City of Los Angeles (the "PRINCIPAL OFFICE"). The Company
may locate its places of business and registered office at any other place or
places as the Governance Committee may, by unanimous consent, deem advisable.
ARTICLE II
DEFINITIONS
For purposes of this Company Agreement, unless the context clearly
indicates otherwise, the following terms shall have the following meanings:
2.1 ACCEPTANCE NOTICE - has the meaning set forth in Section 10.4.1 below.
2.2 ACT - The Delaware Limited Liability Company Act, as amended from time
to time.
2.3 ADDITIONAL MEMBER - A Member other than an Initial Member or a
Substitute Member who has acquired a Membership Interest from the Company.
2.4 ADDITIONAL NICC BUDGET - has the meaning set forth in Section 6.6.
2.5 AFFILIATE - with respect to any Person, any other Person directly or
indirectly controlling, controlled by or under common control with such Person.
For purposes of this definition, the term "controls," "controlled by," or "under
common control with" shall mean the power to direct or cause the direction of
the management and policies of a person or a person or entity, whether through
the ownership of voting securities, by contract or otherwise.
2.6 ARTICLES - The Certificate of Formation of the Company as properly
adopted and amended from time to time by the Members and filed with the
Secretary of State of Delaware.
2.7 BANK - Any domestic commercial bank of recognized standing having
capital and surplus in excess of $250 million and commercial paper issued by
others rated at least A-2 or the equivalent thereof by Standard & Poor's
Corporation or at least P-2 or the equivalent thereof by Moody's Investors
Service, Inc.
2
<PAGE> 11
2.8 BANKRUPT MEMBER - A Member who: (1) institutes proceedings to be
adjudicated voluntarily bankrupt, (2) consents to the filing of a bankruptcy
proceeding against such Member, (3) files a petition, answer or consent seeking
reorganization under any bankruptcy or similar law or statute, consents to the
filing of any such petition, or to the appointment of a custodian, receiver,
liquidator, trustee, or assignee in bankruptcy or insolvency against such Member
or any substantial part of such Member's assets or property, (4) makes a general
assignment for the benefit of creditors or (5) takes any action in furtherance
of any of the foregoing.
2.9 BASE NICC BUDGET - has the meaning set forth in Section 6.6 below.
2.10 BUSINESS DAY - Any day other than Saturday, Sunday or any legal
holiday observed in the States of Colorado, California or New York.
2.11 BUSINESS PLAN - has the meaning set forth in Section 6.5 below.
2.12 BUDGET - has the meaning set forth in Section 6.5 below.
2.13 CAPITAL ACCOUNT - As of any given date, the Capital Contribution to
the Company by a Member as adjusted up to the date in question pursuant to
Article VII.
2.14 CAPITAL CONTRIBUTION - Any contribution to the capital of the
Company in cash or property by a Member whenever made.
2.15 CAPITAL INTEREST - The proportion that a Member's positive Capital
Account bears to the aggregate positive Capital Accounts of all Members whose
Capital Accounts have positive balances as may be adjusted from time to time.
2.16 CHANGE OF CONTROL - shall be deemed to occur (i) with respect to any
Member, if no Ultimate Beneficial Owner of such Member beneficially owns (as
defined in Rule 13d-3 of the Securities Exchange Act of 1934, as amended) in
the aggregate at least 50% of the voting rights or disposition rights with
respect to such Member's Membership Interests on the date hereof and (ii)
additionally, with respect to VMC, if NICC or any acquiror or successor of
NICC ceases to be a broadly-based, multi-denominational religious coalition.
Notwithstanding the foregoing, a Change of Control shall not be deemed to occur
if a Member's Ultimate Beneficial Owner Transfers a group of assets including
the Membership Interests (the "TRANSFERRED ASSETS"), which transfer may be
effected through a corporate reorganization, a sale of assets, distribution of
equity interests or otherwise, (a) if the Transferred Assets
3
<PAGE> 12
constitute a business engaged principally in the media, entertainment, cable or
telecommunications business, and (b) the fair market value of the Membership
Interests comprise no more than 15% of the fair market value of the Transferred
Assets.
2.17 CHANNEL - A 24-hour-per-day cable television channel program service
to be initially called the Odyssey Channel, the programming of which shall be
consistent with the Mission Statement and the Programming Philosophy.
2.18 CODE - The Internal Revenue Code of 1986, as amended from time to
time.
2.19 COMMON INTEREST - The rights of a Member in distributions (liquidating
or otherwise) and allocations of the profits, losses, gains, deductions and
credits of the Company as set forth in Section 5.2.2 and Article VIII.
2.20 COMPANY - has the meaning set forth in the Preamble.
2.21 COMPANY AGREEMENT - has the meaning set forth in the Preamble.
2.22 COMPANY PROPERTY - Any Property owned by the Company.
2.23 CONTINUING MEMBER - Each of VMC and VGI.
2.24 CONTRIBUTION AGREEMENT - The Contribution Agreement by and among NICC,
VMC, Liberty and VGI dated the Effective Date.
2.25 CPI - has the meaning set forth in Section 6.6.
2.26 CREDIT FACILITY - The Credit Agreement providing for a credit facility
of $30 million to be entered into by the Company and the Bank of New York
pursuant to that certain commitment letter by and between the Company and the
Bank of New York dated November 10, 1998.
2.27 DEFAULT DATE - has the meaning set forth in Section 7.2.2.
2.28 DEFICIT CAPITAL ACCOUNT - The deficit balance, if any, in a Capital
Account as of the end of the taxable year, after giving effect to the following
adjustments:
(1) credit to such Capital Account any amount that such Member is
4
<PAGE> 13
obligated to restore under section 1.704-1(b)(2)(ii)(c) of the
Regulations, as well as any addition thereto pursuant to the next to
last sentence of sections 1.704-2(g)(1) and (i)(5) of the Regulations
after taking into account thereunder any changes during such year in
partnership minimum gain (as determined in accordance with section
1.704-2(d) of the Regulations) and in the minimum gain attributable to
any partner nonrecourse debt (as determined under section 1.704-2(i)(3)
of the Regulations); and
(2) debit to such Capital Account the items described in sections
1.704-l(b)(2)(ii)(d)(4), (5) and (6) of the Regulations.
This definition of Deficit Capital Account is intended to comply with the
provision of the Regulations section 1.704-1(b)(2)(ii)(d) and 1.704-2, and
will be interpreted consistently with those provisions.
2.29 DEPRECIATION - For each Fiscal Year, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such Fiscal Year, except that if the Gross Asset Value
of an asset differs from its adjusted basis for Federal income tax purposes at
the beginning of such Fiscal Year. Depreciation with respect to such asset shall
be an amount that bears the same ratio to such beginning Gross Asset Value as
the Federal income tax depreciation, amortization, or other cost recovery
deduction with respect to such asset for such Fiscal Year bears to such
beginning adjusted tax basis; provided, however, that if the adjusted basis for
Federal income tax purposes of an asset at the beginning of such Fiscal Year
is zero, Depreciation shall be determined with reference to such beginning
Gross Asset Value using any reasonable method selected by the Governance
Committee.
2.30 DISSOCIATION - Any action which causes a Person to cease to be Member
as described in Article XI hereof
2.31 DISTRIBUTABLE CASH - All cash, revenues and funds received by the
Company, less the sum of the following to the extent paid or set aside by the
Company: (i) all principal and interest payments on indebtedness of the Company
and all other sums paid to lenders; (ii) all cash expenditures incurred incident
to the operation of the Company's business, including, but not limited to,
program acquisition, production and operation of Company's network channel
business; and (iii) such Reserves as the Governance Committee deems reasonably
necessary to the proper operation of the Company's business consistent with the
Budget and Business Plan.
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2.32 EFFECTIVE DATE - has the meaning set forth in Section 1.3 above.
2.33 FISCAL YEAR - The year beginning January 1 and ending December 31 of
that year (except as provided in Section 6.5).
2.34 F&V RESERVED TIME - has the meaning set forth in Section 6.9.1.
2.35 FAITH AND VALUES PROGRAMMING - Faith and value-based television
programming as determined by the CEO (or such other officer designated by the
CEO as the Head of Programming) in consultation with the Programming Advisory
Committee that informs, empowers and inspires at the same time it
entertains, including, but not limited to, programming focusing on parenting
skills, racism, poverty, life achievement, spirituality, healthy living,
marriage and family, religious expression, business ethics, interpersonal
relations, social issues, justice issues and peace.
2.36 GOVERNANCE COMMITTEE - has the meaning Set forth in Section 6.1.1.
2.37 GROSS ASSET VALUE - With respect to any asset, the asset's adjusted
basis for Federal income tax purposes, except as follows:
(1) The initial Gross Asset Value of any asset contributed by a Member to
the Company shall be the gross fair market value of such asset, as
agreed upon by the contributing Member and the Governance Committee,
provided, that the initial Gross Asset Values of the assets contributed
to the Company pursuant to Section 7.1 hereof shall be as set forth in
Exhibit A.
(2) The Gross Asset Values of all Company Property shall be adjusted to
equal their respective gross fair market values as determined by the
Governance Committee as of the following times: (a) the acquisition of
an additional interest by any new or existing Member in exchange for
more than a de minimis contribution of Property; (b) the distribution
by the Company to a Member of more than a de minimis amount of Property
as consideration for an interest; (c) the liquidation of the Company
within the meaning of Regulations section 1.704-1(b)(2)(ii)(g); and (d)
at such other times as the Governance Committee shall reasonably
determine is necessary or advisable in order to comply with Regulation
section 1.704-1(b) and 1.704-2; provided, however, that adjustments
pursuant to clauses (a) and (b) above shall be made only if the
Governance Committee reasonably determines that such adjustments
6
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are necessary or appropriate to reflect the relative economic interests
of the Members of the Company;
(3) The Gross Asset Value of any Company Property distributed to any Member
shall be adjusted to equal the gross fair market value of such asset on
the date of distribution, as agreed upon by the distributee and the
Governance Committee.
(4) The Gross Asset Values of Company Property shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such
assets pursuant to section 734(b) of the section 743(b) of the Code;
but only to the extent that such adjustments are taken into account in
determining Capital Accounts pursuant to Regulation section
1.704-1(b)(2)(iv)(m) and Section 7.3; provided, however, that Gross
Asset Values shall not be adjusted pursuant to this definition to the
extent the Governance Committee determines that an adjustment pursuant
to subparagraph (2) of this definition is necessary or appropriate in
connection with a transaction that would otherwise result in an
adjustment pursuant to this subparagraph (4).
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to subparagraph (1), (2) or (4) of this definition, then such
Gross Asset Value shall thereafter be adjusted by the Depreciation
taken into account with respect to such asset for purposes of computing
Net Profits and Net Losses.
2.38 HALLMARK - Hallmark Entertainment Networks, Inc., a Delaware
corporation.
2.39 HALLMARK PROGRAM LICENSE AGREEMENT - The Program License Agreement by
and between Hallmark Entertainment Distribution Company and the Company dated
the Effective Date.
2.40 HALLMARK SUB - HEN Domestic Holdings, Inc., a Delaware corporation.
2.41 HENSON - The Jim Henson Company Inc., a New York corporation.
2.42 HENSON PROGRAM LICENSE AGREEMENT - The Program License Agreement by
and between Henson and the Company dated the Effective Date.
2.43 HENSON SUB - Henson Cable Networks, Inc., a California corporation.
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2.44 HSR - The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
2.45 INFORMATION - has the meaning set forth in Section 15.4.
2.46 INITIAL ACCEPTANCE NOTICE - has the meaning set forth in Section
10.4.1.
2.47 INITIAL BUDGET - has the meaning set forth in Section 6.2.1.
2.48 INITIAL BUSINESS PLAN - has the meaning set forth in Section 6.2.1.
2.49 INITIAL CAPITAL CONTRIBUTION - The Capital Contribution agreed to be
made as of the date of this Company Agreement by the Continuing Members and New
Members as described in Article VII and as initially set forth on Exhibit A
hereto.
2.50 INITIAL MEMBERS - Those Continuing Members and New Members identified
on Exhibit A hereto and which have executed this Company Agreement.
2.51 LIBERTY - Liberty Media Corporation, a Delaware corporation.
2.52 LOSSES - has the meaning set forth in Section 5.4.1.
2.53 MAJOR DECISIONS - has the meaning set forth in Section 6.2.2.
2.54 MANDATORY CAPITAL CONTRIBUTION - has the meaning set forth in Section
7.2.1 below.
2.55 MEMBER - A Continuing Member, New Member, Substitute Member or
Additional Member.
2.56 MEMBERSHIP INTEREST - Common Interests or the Preferred Interest.
2.57 MISSION STATEMENT - The Company's Mission Statement attached hereto as
Exhibit B, as amended from time to time in accordance with Section 6.2.2.1.
2.58 MONEY - Cash or other legal tender of the United States or any
obligation that is immediately reducible to legal tender without delay or
discount. Money shall be considered to have a fair market value equal to its
face amount.
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2.59 NDTC - has the meaning set forth in Section 7.3.
2.60 NET PROFITS OR NET LOSSES - For each taxable year of the Company, an
amount equal to the Company's not taxable income or loss for such year as
determined for Federal income tax purposes (including separately stated items)
in accordance with the accounting method and rules used by the Company and in
accordance with sections 703 and 704 of the Code with the following adjustments:
(1) Any items of income, gain, loss and deduction allocated to Members
pursuant to Section 8.2 shall not be taken into account in computing
Net Profits or Net Losses under this Company Agreement;
(2) Any income of the Company that is exempt from Federal income tax and
not otherwise taken into account in computing Net Profits and Net
Losses under this Company Agreement shall be added to such taxable
income or loss;
(3) Any expenditure of the Company described or deemed described in section
705(a)(2)(B) of the Code and not otherwise taken into account in
computing Net Profits and Net Losses under this Company Agreement shall
be subtracted from such taxable income or loss;
(4) In the event the Gross Asset Value of any Company Property is adjusted
pursuant to clause (2) or (3) of the definition of Gross Asset Value,
the amount of such adjustment shall be taken into account as gain or
loss from the disposition of such asset for purposes of computing Net
Profits and Net Losses under this Company Agreement;
(5) Gain or loss resulting from any disposition of any Company asset with
respect to which gain or loss is recognized for Federal income tax
purposes shall be computed with reference to the Gross Asset Value of
the asset disposed of, notwithstanding that the adjusted tax basis of
such asset differs from its Gross Asset Value; and
(6) In lieu of the depreciation, amortization and other cost recovery
deductions taken into account in computing taxable income or loss,
there shall be taken into account Depreciation for such Fiscal Year.
2.61 NEW MEMBER - Each of Hallmark Sub and Henson Sub.
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2.62 NICC - The National Interfaith Cable Coalition, a Maryland nonprofit
corporation.
2.63 NICC BUDGET - has the meaning set forth in Section 6.6.
2.64 NICC PROGRAMMING - Television programming (i) acquired by NICC or (ii)
produced by NICC and paid for out of the NICC Budget that meets the repeat
patterns of the Channel and is of similar technical broadcast quality as the
other programming on the Channel.
2.65 NICC PROGRAM LICENSE AGREEMENT - The Program License Agreement by and
between NICC and the Company dated the Effective Date.
2.66 NICC RESERVED TIME - has the meaning set forth in Section 6.9.1.
2.67 OFFERED INTEREST - has the meaning set forth in Section 10.4.
2.68 OFFER PRICE - has the meaning set forth in Section 10.4.1.
2.69 OFFEREES - has the meaning set forth in Section 10.4.1.
2.70 OFFERING MEMBER - has the meaning set forth in Section 10.4.
2.71 OFFER NOTICE - has the meaning set forth in Section 10.4.1.
2.72 ORGANIZATION - Any corporation (both non-profit and other
corporations), partnership (both limited and general), joint venture, limited
liability company, trust, unincorporated association or other entity other
than joint tenancies and tenancies by the entirety.
2.73 PERMITTED TRANSFER - has the meaning set forth in Section 10.3.
2.74 PERMITTED TRANSFEREE - The assignee of a Membership Interest who
acquires such interest in a Permitted Transfer.
2.75 PERSON - Any natural person or Organization,
2.76 PREFERRED INTEREST - An ownership interest in the Company that is
entitled to receive the Preferred Liquidation Preference.
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2.77 PREFERRED LIQUIDATION PREFERENCE - With respect to the Preferred
interest, at the date of issuance, (a) $25,000,000 in the aggregate (the
"INITIAL LIQUIDATION PREFERENCE") and, (b) at any date of determination
thereafter (i) the Initial Liquidation Preference, minus (ii) all payments of
the Yearly Preferred Liquidation Payment and any payments pursuant to Section
5.7.3 in respect of such Preferred Interest prior to such determination date.
2.78 PRIME RATE - The rate of interest per annum publicly announced from
time to time by The Bank of New York as its prime rate in effect at its
principal office in New York City, New York; each change in the Prime Rate shall
be effective on the date such change is publicly announced as being effective.
2.79 PRINCIPAL OFFICE - has the meaning set forth in Section 1.6.
2.80 PROCEEDING - Any judicial or administrative trial, hearing or other
activity, civil, criminal or investigative, the result of which may be that a
court arbitrator or governmental agency may enter a judgment, order, decree or
other determination which, if not appealed and reversed, would be binding upon
the Company, a Member or other Person subject to the jurisdiction of such court,
arbitrator or governmental agency.
2.81 PROGRAMMING ADVISORY COMMITTEE - has the meaning set forth in Section
6.8.1.
2.82 PROGRAMMING PHILOSOPHY - The Company's Programming Philosophy,
attached hereto as Exhibit C, as amended from time to time in accordance with
Section 6.2.2.1.
2.83 PROGRAM SCHEDULE - has the meaning set forth in Section 6.7.3.
2.84 PROJECTIONS - has the meaning set forth in Section 6.2.1.
2.85 PROPERTY - Any property real or personal, tangible or intangible,
including Money and any legal or equitable interest in such property, but
excluding services and promises to perform services in the future.
2.86 PURCHASE AGREEMENT - The Purchase Agreement by and among Henson,
Henson Sub, Hallmark, Hallmark Sub, NICC, VMC, Liberty and VGI dated the
Effective Date.
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2.87 PURCHASING MEMBERS - has the meaning set forth in Section 10.4.1.
2.88 REGULATIONS - Except where the context indicates otherwise, the
permanent, proposed or temporary regulations of the Department of the Treasury
promulgated under the Code, as such regulations may be lawfully changed from
time to time.
2.89 RESERVES - With respect to any fiscal period, funds set aside or
amounts allocated during such period to reserves which shall be maintained in
amounts reasonably deemed sufficient by the Governance Committee for working
capital, anticipated capital outlays and to pay taxes, insurance, debt service,
or other costs or expenses incident to the ownership or operation of the
Company's business consistent with the Budget and Business Plan.
2.90 ROFO ACCEPTANCE PERIOD - has the meaning set forth in Section 10.4.1.
2.91 ROLL-OVER BUDGET - has the meaning set forth in Section 6.5 below.
2.92 SECOND ACCEPTANCE NOTICE - has the meaning set forth in Section
10.4.1.
2.93 SECOND OFFER NOTICE - has the meaning set forth in Section 10-4.1.
2.94 SECOND ROFO ACCEPTANCE PERIOD - has the meaning set forth in Section
10.4.1.
2.95 SERVICE AGREEMENTS - has the meaning set forth in Section 7.3.
2.96 SHARING RATIO - With respect to any Member, a fraction (expressed as a
percentage), the numerator of which is the total of the Member's Capital Account
and the denominator of which is the total of all Capital Accounts of all
Members, excluding for this purpose any portion of a Member's Capital Account
attributable to a Member's Preferred Interest.
2.97 STANDARDS AND PRACTICES - The Company's Standards and Practices,
attached hereto as Exhibit D, as amended from time to time in accordance with
Section 6.2.2.1.
2.98 SUBSTITUTE MEMBER - A Permitted Transferee of Common Interests.
2.99 TAX DISTRIBUTION - has the meaning set forth in Section 8.3.
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2.100 TAXABLE YEAR - The taxable year of the Company as determined pursuant
to Section 706 of the Code.
2.101 TAXING JURISDICTION -Any Federal, state, local or foreign government
that collects tax or any similar assessments, interest or penalties, however
designated, on any Member's share of the income or gain attributable to the
Company.
2.102 THIRD-PARTY SALE - has the meaning set forth in Section 10.4.
2.103 TRANSACTION DOCUMENTS - The Hallmark Program License Agreement, the
Henson Program License Agreement, the NICC Program License Agreement, the
Transponder License Agreement by and between VGI and Western Tele-
Communications, Inc., dated as of May 18, 1990 and the subsequent Bill of Sale
and General Assignment of such document by VGI in favor of the Company dated as
of June 30, 1995, the Affiliation Agreement by and between the Company and
Satellite Services, Inc. dated as of the Effective Date, and this Company
Agreement, the Initial Business Plan and the Initial Budget,
2.104 TRANSFER - to sell, assign, transfer, exchange, mortgage, pledge,
grant, hypothecate, gift, bequeath or otherwise transfer (including transfers by
reorganizations or operation of law).
2.105 TRANSFERRED ASSETS - has the meaning set forth in Section 2.16.
2.106 TRANSFERRING MEMBER - has the meaning set forth in Section 6.1.2.
2.107 ULTIMATE BENEFICIAL OWNER - means (i) with respect to VGI: Liberty or
Tele-Communications, Inc. ("TCI"), or any acquiror of substantially all of the
common stock or assets of Liberty or TCI, or any successor to any of them by
merger or consolidation, (ii) with respect to Hallmark Sub: Hallmark or Hallmark
Cards, Incorporated, or any acquiror of substantially all of the common stock or
assets of Hallmark or Hallmark Cards, Incorporated, or any successor to any of
them by merger or consolidation, (iii) with respect to Henson Sub: Henson, or
any acquiror of substantially all of the common stock or assets of Henson or any
successor to either Henson or any such acquiror by merger or consolidation and
(iv) with respect to VMC: NICC or any acquiror of substantially all of the
assets of NICC, or any successor to either NICC or any such acquiror by merger
or consolidation.
2.108 UNPAID AMOUNT - has the meaning set forth in Section 10.4.3.
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2.109 VGI - Vision Group Incorporated, a Colorado corporation, and a
wholly-owned subsidiary of Liberty.
2.110 VMC - VISN Management Corp., a Delaware corporation, and a
wholly owned subsidiary of NICC.
2.111 VOTING POWER - Voting or similar control rights.
2.112 YEARLY PREFERRED LIQUIDATION PAYMENT - has the meaning set forth in
Section 5.7.4.
ARTICLE III
NATURE OF BUSINESS
The Company's purpose is to develop, own and operate the Channel and, in
connection therewith, to produce, license, or otherwise acquire programming and
to exploit all of the rights in and of the Channel and in such programming in
all manners and for all purposes. The Company shall have the authority to do all
things necessary or convenient to accomplish its purposes and operate its
business as described in this Article III and to do anything incidental thereto.
The Company exists only for the purposes specified in this Article III and may
not conduct any other business without obtaining the unanimous approval of the
votes entitled to be cast by the Governance Committee representatives.
ARTICLE IV
ACCOUNTING AND RECORDS
4.1 RECORDS TO BE MAINTAINED - The Company shall maintain the following
records at the Principal Office:
4.1.1 A current list of the full name and last known business address
of each Member, former Member and other holder of a Membership Interest;
4.1.2 A copy of the Articles and all amendments thereto, together with
executed copies of any powers of attorney pursuant to which the Articles have
been executed;
4.1.3 Copies of the Company's Federal, foreign, state and local income
tax returns and reports, if any, for the six most recent years;
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4.1.4 Copies of this Company Agreement including all amendments
thereto;
4.1.5 Any financial statements of the Company for the six most recent
years;
4.1.6 The general ledger and subsidiary ledgers of the Company; and
4.1.7 Copies of the Budget for the current and past six fiscal years
and, if applicable, copies of any Roll-Over Budgets for such periods.
4.2 REPORTS TO MEMBERS:
4.2.1 The Company shall provide reports to the Members consisting of
the following:
4.2.1.1 (i) monthly financial reports within 15 days after the
end of each calendar month, (ii) quarterly financial reports within 30 days
after the end of each calendar quarter, and (iii) an annual report, within
seventy-five (75) days after the end of each of the Company's Fiscal Years,
which describes the Company's activities during the Company's most recent
Fiscal Year and which includes audited financial statements of the Company
for such period, prepared in accordance with generally accepted accounting
principles (such statements to include a balance sheet, income statement
and statement of cash flows); and
4.2.2 The Governance Committee shall provide all Members sufficiently
in advance of each Member's requirement to file its tax returns with (i) those
information returns required by the Code and the laws of any state and (ii)
information concerning the Company's income, gain, loss, deduction or credit
when relevant to reporting a Member's share of such items for Federal, state or
local tax purposes.
ARTICLE V
MEMBERS
5.1 MEMBERS - The Members of the Company shall consist of the Initial
Members and such additional persons as shall be admitted to the Company as
Members in accordance with Article XII hereof. Exhibit A shall be amended from
time to time to reflect the admission of any Member or the removal, expulsion,
retirement or death of any Member, the receipt by the Company of notice of any
change of name or address
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of a Member and any additional Capital Contributions.
5.2 CLASSES - The Company shall have two classes of Membership Interests
which are entitled to the rights and privileges set forth in this Company
Agreement.
5.2.1 The holder of a Preferred Interest shall be entitled to receive
the Yearly Preferred Liquidation Payment pursuant to Section 5.7.4 and/or the
Preferred Liquidation Preference pursuant to Section 5.7.3 or 5.7.4, as
applicable, or upon the liquidation of the Company. Except as may otherwise be
required by law, nothing contained in this Company Agreement shall confer upon
the holder of a Preferred Interest the right to vote on any matters relating to
the Company.
5.2.2 Holders of Common Interests shall be entitled:
(i) for any Fiscal Year ending on or after December 31, 2004, to
share in any distributions declared by the Company in accordance with Section
8.3 or upon a liquidation of the Company in accordance with Section 13.3
provided, however that the Company may make Tax Distributions to Members for any
Fiscal Year ending on or after the Effective Date; and
(ii) to vote on matters relating to the Company.
5.3 LIABILITY OF MEMBERS - The debts, obligations and liabilities of the
Company, whether arising in contract, tort or otherwise, shall be solely the
debts, obligations and liabilities of the Company and no Member of the Company
shall be obligated personally for any such debt, obligation or liability of
the Company solely by reason of being a Member, except as otherwise required by
law. The failure of the Company to observe any formalities or requirements
relating to the exercise of its powers or management of its business or affairs
under this Company Agreement or the Act shall not be grounds for imposing
personal liability on the Members for liabilities of the Company.
5.4 INDEMNIFICATION
5.4.1 The Company shall, to the fullest extent permitted by law,
indemnify, defend and hold harmless any Person (or the estate, heirs executor
or similar entity in respect of any Person) who was or is a party to, or is
threatened to be made a party to, a threatened, pending or completed action,
suit or proceeding, whether or not by or in the right of the Company, whether
civil, criminal, administrative, investigative or otherwise, by reason of the
fact that such Person is or was a Member or an affiliate
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of a Member, an officer, employee or agent of the Company, a Member, an
affiliate of a Member, or was serving at the request of the Company as a
manager, director, officer, employee, agent or fiduciary of another
Organization, from and against any and all claims, liabilities, losses, damages,
costs or expenses (including attorneys' fees, judgments, fines and amounts paid
in settlement) ("LOSSES"), actually and reasonably incurred by such Person in
connection with such action, suit or proceeding unless such Losses were incurred
as a direct result of such Person's breach of this Company Agreement or such
Person's gross negligence, bad faith or willful misconduct. The Company may, to
the full extent permitted by law, purchase and maintain insurance on behalf of
any such Person against any liability which may be asserted against him or her.
Any expenses covered by the foregoing indemnification shall be paid by the
Company in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of the Persons seeking
indemnification to repay such amounts if it is ultimately determined that he or
she is not entitled to be indemnified. The indemnification provided herein shall
not be deemed to limit the right of the Company to indemnify any other Person
for any such expenses to the full extent permitted by law nor shall it be
deemed exclusive of any other rights to which any Person seeking indemnification
from the Company may be entitled under any agreement, vote of disinterested
representatives to the Governance Committee or otherwise, both as to action in
his, her or its official capacity and as to action in another capacity while
service as a Member, officer, or agent. Notwithstanding anything to the contrary
herein, this Section 5.4 shall not apply to any claim for Losses incurred under
the Purchase Agreement or the Contribution Agreement and all claims for Losses
thereunder must be made pursuant to the indemnity provisions of such agreements.
5.4.2 If any Person (the "INDEMNITEE") receives notice of any claim,
assertion or other commencement of any action or proceeding or becomes aware of
any matter with respect to which the Company is obligated to provide
indemnification (the "INDEMNIFYING PARTY") pursuant to Section 5.4, the
Indemnitee shall promptly give the Indemnifying Party written notice thereof.
Failure to give such notice shall not affect a party's right to be indemnified
hereunder; provided, however, that the Indemnifying Party's liability hereunder
shall be limited to that which would have existed had prompt notice been given,
and the Indemnitee shall be solely responsible for, and shall indemnify the
Indemnifying Party from, such increased liability, if any, as shall have been
occasioned by its failure to provide the Indemnifying Party with prompt notice.
The Indemnifying Party shall defend, at such Indemnifying Party's own expense
and by such Indemnifying Party's own counsel, any such matter involving the
asserted liability of the Indemnitee. In such event, the Indemnitee, the
Indemnifying Party and the Indemnifying Party's counsel shall cooperate in the
compromise of, or defense against, any such asserted liability. The Indemnitee
may participate in the defense of such
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asserted liability at its own expense; provided, however, that if the Indemnitee
elects not to participate in such defense, the Indemnifying Party shall keep the
Indemnitee fully appraised at all times as to the status of the defense or any
settlement negotiations with respect thereto. If the Indemnifying Party does not
notify the Indemnitee within thirty (30) days, or within such shorter
response period as is required to avoid prejudice to the ability to defend
against such claim, assertion, action or proceeding, after receipt of
Indemnitee's notice of an action or proceeding that the Indemnifying Party
intends to assume the defense of such claim, action, assertion or proceeding,
then the Indemnitee may defend such claim, action, assertion or proceeding at
the Indemnifying Party's sole expense. The Indemnifying Party shall have the
right to compromise any action or suit provided that it shall not effect a
settlement of any action or claim without the prior written consent of the
Indemnitee which consent shall not be unreasonably withheld and shall include an
unconditional release of the Indemnitee for any claim, action, assertion or
proceeding. If the Indemnifying Party is defending any claim, the Indemnitee
shall make available to the Indemnifying Party any books, records or other
documents within its control that are reasonably necessary or appropriate for
such defense.
5.4.3 The officers of the Company shall be authorized, on behalf of the
Company to enter into indemnity agreements from time to time with any Person
entitled to be indemnified by the Company hereunder, upon such terms and
conditions as the Governance Committee deems appropriate in this business
judgment.
5.4.4 The Company shall have the power to purchase and maintain
insurance on behalf of any Person who is or was an agent of the Company
against any liability asserted against such Person and incurred by such Person
in any such capacity, or arising out of such Person's status as an agent,
whether or not the Company would have the power to indemnify such Person against
such liability under the provisions of Section 5.4 or under applicable law.
5.5 REPRESENTATIONS AND WARRANTIES - Each Member executing this Company
Agreement, hereby represents and warrants to the Company and each other Member
that: (a) the Member is an Organization that is duly organized, validly existing
and in good standing under the law of its state of organization and that it has
full organizational power to execute and agree to this Company Agreement and to
perform its obligations hereunder; (b) the Member is acquiring its interest in
the Company for the Member's own account as an investment and without an intent
to distribute the interest in violation of the Securities Act of 1933, as
amended, (the "ACT"); and (c) the Member acknowledges that the interests have
not been registered under the Securities Act of 1933, as amended or any state
securities laws, and may not be resold or transferred by the Member without
appropriate registration or the availability of an
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exemption from such requirements.
5.6 CONFLICTS OF INTEREST
5.6.1 Members shall not use or possess any property or benefit of the
Company, other than for a Company purpose, without obtaining the unanimous
approval of the votes entitled to be cast by the Governance Committee
representatives.
5.6.2 A Member does not violate a duty or obligation to the Company
merely because the Member's conduct furthers the Member's own interest. With the
approval of the Governance Committee in accordance with Section 6.2.2.10, a
Member may lend Money to and transact other business with the Company, but no
Member is obligated to loan any Money to, or incur any financial obligations for
the benefit of, the Company except as set forth herein. The rights and
obligations of a Member who lends Money to or transacts business with the
Company are the same as those of a person who is not a Member, subject to other
applicable law. No transaction with the Company shall be voidable solely because
a Member has a direct or indirect interest in the transaction if either the
transaction is (i) on terms no less favorable than would be available to the
Company from an unrelated third party and (ii) authorized, approved or ratified
by the Governance Committee, knowing the material facts of the transaction, in
accordance with Section 6.2.2.10 hereof
5.6.3 Notwithstanding anything to the contrary contained herein, the
Members recognize that Affiliates of the Members have and anticipate having
substantial non-broadcast video distribution facilities and operations,
substantial investments in a number of cable programming networks and cable
systems, substantial interests in video programming development projects for
cable networks and new specialized programming ventures. In addition, the
Members recognize that such Affiliates may in the future have a number of other
interests in programing and distribution. The Members recognize that many of the
interests by their very nature must compete with each other. Because of these
interests, the Members recognize and agree that such Affiliates may undertake
activities that could be deemed to be in competition with the Company, whose
planned programming activities potentially cover extensive subjects. By virtue
of their investment in the Company, the Members intend to use reasonable efforts
to facilitate the Company's creation and acquisition of programming and other
activities, although the Members recognize and agree that such effort will not
be to the exclusion of effort by their respective Affiliates to facilitate other
similar and dissimilar businesses. Nothing in this Company Agreement or
otherwise will restrict the ability of Affiliates of the Members to establish,
acquire or retain an interest in any business that may be deemed to compete with
the Company.
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Affiliates of the Members may engage in or possess interests in other businesses
or ventures of any nature or description or develop or market any products or
services without regard to whether such businesses, ventures, products or
services are or may be deemed to be competitive with the business of the
Company. In addition, Affiliates of the Members may do business with any client,
customer or supplier of the Company or employ or otherwise engage any former
officer or employee of the Company. Affiliates of the Members shall not be
obligated to present to the Company any particular investment or business
opportunity, regardless of whether such opportunity is of a character that the
Company could take advantage of if it were presented to the Company, but
instead, Affiliates of the Members will have the right to take such opportunity
for their own account. Affiliates of the Members shall not have any obligation,
or be liable to, the Company or the other Member for or arising out of the
conduct described in this Section 5.6.3, for breach of any fiduciary or other
duty to the Company or its Members by reason of such conduct or for exercising
its rights under any agreement between any of Affiliates of the Members and the
Company.
5.7 TERMS OF THE PREFERRED INTEREST.
5.7.1 Designation. Subject to any restrictions in the instruments
governing the Company's Credit Facility and any other outstanding indebtedness,
the holder of the Preferred Interest shall be entitled to receive the Preferred
Liquidation Preference, upon the terms and subject to the conditions set forth
therein and in this Section 5.7.
5.7.2 Rank. The Preferred Interest shall, with respect to
distributions (other than Tax Distributions to the extent provided herein) and
distributions upon liquidation, winding-up and dissolution of the Company, rank
(i) senior to the Common Interests and to all other ownership units or equity
interests hereafter created by the Company, unless otherwise determined by the
unanimous vote of the Governance Committee representatives pursuant to this
Agreement and (ii) junior to all indebtedness of the Company, including the
Credit Facility.
5.7.3 Optional Redemption of the Preferred Interest by the Company.
The Company shall have the right to redeem the Preferred Interest, at any time,
in whole (but not in part) for cash at 100% of the Preferred Liquidation
Preference on the date of redemption.
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5.7.4 Mandatory Redemption of the Preferred Interest
If during any Fiscal Year ending after January 1, 2005, and on or prior
to December 31, 2009, the Company has Net Profits in excess of $10 million
and the Preferred Interest has not been redeemed pursuant to Section 5.7.3,
the Company will redeem the Preferred Interest in an amount equal to the lesser
of (i) such excess, (ii) $5 million and (iii) the amount equal to the Preferred
Liquidation Preference on the date of redemption (each, a "YEARLY PREFERRED
LIQUIDATION PAYMENT") within 60 days following the end of such Fiscal Year.
Notwithstanding anything to the contrary contained herein, the Company
shall redeem the entire Preferred Interest at the Preferred Liquidation
Preference on the date of redemption by December 31, 2010. If, at such date,
funds are not legally available for the redemption of the entire Preferred
Interest, (i) the Preferred Interest will be redeemed in an amount equal to the
Preferred Liquidation Preference on the date of redemption before any other
distributions are paid to Members, as soon as funds are legally available and
(ii) until the Preferred Interest has been so redeemed in full, the Company will
not make any other distributions to its Members,
ARTICLE VI
MANAGEMENT AND CONTROL OF COMPANY
6.1 GOVERNANCE COMMITTEE
6.1.1 The ordinary and usual decisions concerning the business affairs
of the Company shall be made exclusively by a governance committee (the "GOVER-
NANCE COMMITTEE"). The Governance Committee shall be comprised of eight persons,
initially consisting of two representatives appointed by each of the Members.
The initial representatives appointed by each of the Members are listed on
Exhibit A attached hereto. Unless otherwise agreed by the Governance Committee,
the representatives appointed to the Governance Committee shall include the
ultimate decision maker of, or such other Person who has authority to make
decisions at the time of any meeting of the Governance Committee convened in
accordance with Section 6.1.3 hereof on behalf of, the Member appointing such
representative. The representatives to the Governance Committee shall serve
until such representative's resignation, death, disability or until the
respective successors are named and elected by the Member with the right to
appoint such representative. No Person may be designated as the representative
of a Member unless such Person is an officer or full-time employee of (a) such
Member or (b) an entity controlling such Member, as the term "control" is
defined in 16 C.F.R. section 801.1(b). If a Member loses its right to appoint
two representatives
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to the Governance Committee pursuant to Sections 7.2.2, 10.2 or 10.3.4, the size
of the Governance committee shall be reduced by two.
6.1.2 Each Member may at any time remove either or both of its
Governance Committee representatives and appoint substitute representatives in
their stead by delivering written notice of such substitution to the other
Members. In the event any Member transfers its Common Interest (a "TRANSFERRING
MEMBER") to a Permitted Transferee that is admitted as a Substitute Member
pursuant to the terms of this Company Agreement subject to the restrictions set
forth in Sections 7.2.2, 10.2 and 10.3.4, the Substitute Member shall thereafter
have the right to designate both of the Transferring Member's representatives to
the Governance Committee. In the event a Transferring Member transfers its
entire Common Interest to another Member pursuant to Section 10.3.3 or 10.4, the
receiving Member shall thereafter have the right to designate both of the
Transferring Member's representatives on the Governance Committee in addition to
such receiving Member's representatives. In the event a Transferring Member
transfers its Common Interest pro rata to two or more remaining Members pursuant
to Section 10.4, the Transferring Member shall no longer have the right to
designate representatives on the Governance Committee and the Programming
Advisory Committee.
6.1.3 Each Governance Committee representative shall have the authority
to act on behalf of and bind the Member that designated such representative with
regard to matters relating to the Company. The presence or participation of at
least one representative representing each Member shall constitute a quorum for
the taking of any action, provided, that all Members have received prior written
notice of such meeting in accordance with the notice requirements adopted by the
Governance Committee as provided in Section 6.1.3. The Governance Committee
representatives of each Member shall collectively have one vote in all actions
required or permitted to be taken by the Governance Committee. All actions taken
by the Governance Committee must be by the vote of the representatives of the
Governance Committee at a meeting at which a quorum of such representatives is
present. A Member shall vote only through its appointed representatives in
connection with any matter discussed and voted on at any such meeting of the
Governance Committee. No representative of the Governance Committee shall be
entitled to compensation from the Company for serving in such capacity.
6.1.4 The Governance Committee shall meet with regard to the operation
of the business and the management of the Company and shall establish
requirements and adopt rules or meeting times, dates and places and requisite
notice procedures as it deems necessary. Any Member may call a special meeting
of the
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Governance Committee for any purpose by giving the other Members at least ten
business days' notice thereof, except in the case of an emergency, in which
case, such notice as is practicable shall be sufficient. The Governance
Committee may meet by means of conference telephone call, and any representative
thereto may participate in any such meeting by conference telephone call.
6.2 AUTHORITY TO BIND THE COMPANY - Only the Governance Committee and
agents of the Company authorized by the Governance Committee shall have the
authority to bind the Company. No Member who is not acting on behalf of the
Governance Committee or otherwise authorized as an agent shall take any action
to bind the Company, and each Member shall indemnify the Company for any costs
or damages incurred by the Company as a result of the unauthorized action of
such Member.
6.2.1 Upon the approval of a majority of the votes entitled to be cast
by the Governance Committee representatives, the Governance Committee shall have
the authority to approve on behalf of the Company, or delegate decision-making
authority to qualified officers or executive committees of the Company, all
things necessary or convenient to carry out the business and affairs of the
Company other than the Major Decisions set forth in Section 6.2.2 hereof but
including, without limitation, the Business Plan (other than the Initial
Business Plan (the "INITIAL BUSINESS PLAN") which shall be approved by all
Members in accordance with Section 6.2.2 based upon the projections which are
attached hereto as Exhibit E (the "PROJECTIONS") and the Budget for the
Company's operations, (other than the Initial Budget (the "INITIAL BUDGET")
which shall be approved by all Members in accordance with Section 6.2.2 based
upon the Projections and any Roll-Over Budget in accordance with Section 6.5 of
this Company Agreement).
6.2.2 Notwithstanding anything to the contrary contained herein,
approval of all of the votes entitled to be cast by the Governance Committee
representatives is necessary for the Governance Committee to approve, on behalf
of the Company, the following decisions (the "MAJOR DECISIONS"):
6.2.2.1 Any change in the Company's purpose as set forth in
Article III hereof or adoption of or change in, the Company's Mission
Statement, Programming Philosophy or Standards and Practices;
6.2.2.2 Any change in the NICC Reserved Time;
6.2.2.3 Admitting an Additional Member as described in Article
XII or accepting any Capital Contributions other than the Mandatory
Capital Contributions;
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6.2.2.4 Creating or issuing any equity interests other than the
Common Interests or the Preferred Interest, including any interest
senior to the Preferred Interest, pursuant to Section 5.7.4 of this
Company Agreement;
6.2.2.5 Incurring debt by the Company (a) in an aggregate amount
in excess of $50 million or (b) which restricts payments made in
connection with the NICC Budget or payments made under the Hallmark
Program License Agreement or the Henson Program License Agreement;
6.2.2.6 Entering into any merger, consolidation or reorganization
with respect to the Company or any of its subsidiaries;
6.2.2.7 Transfer of all or substantially all of the assets of the
Company, or of any assets in a single transaction or series of related
transactions valued in excess of $500,000;
6.2.2.8 The appointment of the initial chief executive officer of
the Channel;
6.2.2.9 Approving any amendment or change of the Company's
governance documents including this Company Agreement;
6.2.2.10 Approving any transaction whereby a Member or its
Affiliates have a direct or indirect interest (economic or otherwise)
in the outcome (other than the Company's purchase of any programs from
any Member or Affiliate of any Member in the ordinary course of
business) provided, that, for the purposes of any approval of a
transaction where a Member or any of its Affiliates has a
direct interest, such Member's representatives on the Governance
Committee shall not vote and the unanimous approval of the votes
entitled to be cast by the remaining disinterested Members'
representatives on the Governance Committee shall be required; and
6.2.2.11 Distributing the programming through any free broadcast
or transmission medium.
6.2.2.12 The dissolution, liquidation, filing of a voluntary
petition in bankruptcy or seeking protection from the Company's
creditors under other insolvency laws.
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6.2.2.13 Approving and adopting the Initial Budget and the
Initial Business Plan.
6.3 APPOINTMENT OF VICE PRESIDENT OF RELIGIOUS AFFAIRS - Notwithstanding
anything to the contrary contained herein, VMC shall have the right to appoint,
in its sole discretion after consultation with the other Members, a Vice
President of Religious Affairs who will be treated and paid on the level of
other Vice Presidents.
6.4 ACTIONS OF THE GOVERNANCE COMMITTEE
6.4.1 The Governance Committee and its authorized agents have the
power to bind the Company as provided in this Article VI.
6.4.2 Notwithstanding anything to the contrary contained herein, for
the purpose of asserting and taking action with respect to an asserted breach
of, any proposed amendment of, or any other action on behalf of the Company
pursuant to any agreement between a Member or any Affiliate of such Member, on
the one hand, and the Company, on the other hand, such action shall be taken
solely by the unanimous approval of the votes entitled to be cast by the
disinterested Members' representatives on the Governance Committee.
Notwithstanding the foregoing, any actions brought pursuant to the Purchase
Agreement shall be governed solely by the Purchase Agreement.
6.4.3 Except as otherwise approved by the Governance Committee in
accordance with Section 6.2.2.10, any transaction between the Company and a
Member or an Affiliate of any Member, other than the Transaction Documents,
shall be on terms and conditions that are no less favorable to the Company than
it could obtain in a transaction with an unrelated party.
6.5 APPROVAL OF BUSINESS PLAN The Initial Members hereby agree on the
Initial Business Plan, covering the period from the date of this Company
Agreement until December 31, 2003, and the Initial Budget for the first Fiscal
Year. On or prior to the date which is sixty (60) days before the end of each
Fiscal Year, except that the first Fiscal Year following the Effective Date
shall be from the Effective Date to December 31, 1999, the Chief Executive
Officer of the Company shall present a revised business plan (the "BUSINESS
PLAN") for each of the four succeeding Fiscal Year and a budget (the "BUDGET")
for the following Fiscal Year. The Budget included in such revised Business Plan
for the next succeeding Fiscal Year, upon the approval of the Governance
Committee in accordance with Section 6.2 hereof, shall become the current
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Budget for such Fiscal Year for the purposes of this Company Agreement. If the
Governance Committee does not approve a Budget for any Fiscal Year prior to the
commencement of such year, then the Budget for that Fiscal Year shall be the
Budget from the prior Fiscal Year (excluding the prior Fiscal Year's
extraordinary and nonrecurring items, but including any contractually obligated
or legally required commitments or expenditures of the current year in the
Business Plan), adjusted by increasing by five percent all fixed expenses
(together with any adjustment of all variable expenses in accordance with the
projected variances in their bases and contractual commitments in accordance
with their terms) (a "ROLL-OVER BUDGET"). Notwithstanding anything to the
contrary contained herein, during the term of this Company Agreement, the
Company shall maintain an annual production budgets for the NICC Programming
pursuant to Section 6.6 below.
6.6 NICC BUDGET (a) The Company shall pay to NICC annually in equal
quarterly installments an amount equal to: the sum of (i) $3.5 million (the
"BASE NICC BUDGET") and (b) so long as VMC owns the Preferred Interest, $1.5
million multiplied by the ratio of the Preferred Liquidation Preference on the
date of Payment over $25 million (the "ADDITIONAL NICC BUDGET" and, together
with the Base NICC Budget, the "NICC BUDGET") which shall be used by NICC solely
for programming or programming related activities.
(b) Each of the Base NICC Budget and the Additional NICC Budget shall
be increased annually on each anniversary of the Effective Date by an amount
that corresponds to actual increases in the United States consumer price index
(as published by the Bureau of Labor Statistics in the United States Department
of Labor) (the "CPI") from the previous anniversary. In the event the Preferred
Interest has not been redeemed in fall after December 31, 2004, the Additional
NICC Budget shall not be increased by the CPI but shall instead be increased
annually on each anniversary of the Effective Date thereafter by the amount, if
any, by which (i) the Preferred Liquidation Amount multiplied by the Prime Rate
plus 1% exceeds (ii) the Preferred Liquidation Amount multiplied by 6%.
6.7 PROGRAMMING
6.7.1 The ordinary and usual decisions concerning the programming of
the Company shall be made by the Head of Programming under the direction of the
President and Chief Executive Officer of the Company.
6.7.2 All programming, advertising and other Channel announcements
shall comply with the Standards and Practices. All programming decisions shall
be
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guided by the best interests of the Company in achieving its purposes and goals.
The Governance Committee shall direct the CEO and Head of Programming to make
certain that no willful, systematic or repeated failure by the Company to comply
with the Programming Philosophy and the Standards and Practices exists.
6.7.3 The Programming Advisory Committee shall advise the CEO and the
Head of Programming with respect to a Program Schedule (the "PROGRAMMING
SCHEDULE") on or prior to the earlier of (a) the date which is sixty (60) days
before the end of each Fiscal Year and (b) a date which is sufficiently timely
to permit contemplation of the immediately following fall season.
6.8 PROGRAMMING ADVISORY COMMITTEE
6.8.1 The "PROGRAMMING ADVISORY COMMITTEE" shall be comprised of eight
persons, consisting of two representatives appointed by each of the Members. The
initial representatives appointed by each Member are listed on Exhibit A
attached hereto. The initial representatives of each Member are identified on
Exhibit A hereto. The representatives to the Programming Advisory Committee
shall serve until such representative's resignation, death, disability or until
the respective successors are named and elected by the Member originally
appointing such representative. If a Member loses its right to appoint two
representatives to the Programming Advisory Committee pursuant to Sections
7,2.2, 10.2.3 or 10.3.4, the size of the Programming Advisory Committee shall be
reduced by two,
6.8.2 Each Member may at any time remove either or both of its
Programming Advisory Committee representatives and appoint substitute
representatives in their stead by delivering written notice of such substitution
to the other Members. In the event a Transferring Member transfers its
Membership Interest to a Permitted Transferee that is admitted as a Substitute
Member pursuant to the terms of this Company Agreement, subject to the
restrictions set forth in Sections 7.2.2, 10.2.3 and 10.3.4, the Substitute
Member shall thereafter have the right to designate both of the Transferring
Member's representatives to the Programming Advisory Committee. No
representative of the Programming Advisory Committee shall be entitled to
compensation from the Company for serving in such capacity.
6.8.3 The Programming Advisory Committee shall meet with regard to
advising on the programming at the same regular meeting times, dates and places
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established by the Governance Committee for Governance Committee regular
meetings.
6.8.4 The Programming Advisory Committee will be responsible advising
and making recommendations to the CEO and Head of Programming with respect to
the Program Schedule and the implementation of the Company's Programming
Philosophy and the Channel's overall approach.
6.9 NICC AND FAITH AND VALUES PROGRAMMING
6.9.1 The Channel shall be obligated to broadcast (i) a minimum of 30
hours per week of NICC Programming and (ii) an additional 10 hours per week of
Faith and Values Programming. At least 60% of the NICC Programming will be
scheduled between 8:00 a.m. and 12:00 midnight Monday through Sunday (the "NICC
RESERVED TIME") in regularly scheduled time periods to be determined by the CEO
or such other officer designated by the CEO as the Head of Programming. The
Faith and Values Programming will be scheduled between 3:00 p.m. and 11:00 p.m.
Monday through Sunday (the "F&V RESERVED TIME") in regularly scheduled time
periods. Notwithstanding anything to the contrary contained herein, if NICC
cannot fill the NICC Reserved Time with NICC Programming, the CEO or such other
officer designated by the CEO as the Head of Programming shall have the right,
after consultation with the NICC, to fill such time.
6.9.2 Notwithstanding anything to the contrary contained herein, NICC
shall have sole authority over the application of the funds pursuant to the NICC
Budget in developing the NICC Programming to be licensed to the Channel pursuant
to the NICC Program License Agreement. If NICC does not use all of any year's
budget, such unused amount shall be used for programming or programming related
activities as soon as reasonably practicable and the quarterly budget payments
provided for in Section 6.6 shall continue. NICC will own the NICC Programming
and, other than pursuant to its use of the NICC Budget in accordance with
Section 6.6 of this Company Agreement, will independently finance the NICC
Programming.
6.9.3 The Company shall retain all advertising income and other
revenue derived from the exhibition on the Channel of the NICC Programming.
Notwithstanding anything to the contrary herein, any other revenues derived from
the exploitation of any rights in any programming to the extent not licensed to
the Company shall be for the account of the provider of such programming.
6.10 COMPENSATION OF THE GOVERNANCE COMMITTEE AND PROGRAMMING ADVISORY
COMMITTEE - No Member nor any of its representatives to the Governance
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Committee or the Programming Advisory Committee shall be entitled to any
compensation by reason of its performance of its duties pursuant to this Company
Agreement, unless otherwise determined by the Governance Committee. Members
shall bear the costs and expenses of such representatives incurred in connection
with the performance of their duties pursuant to this Company Agreement, unless
otherwise determined by the Governance Committee.
6.11 STANDARD OF CARE - In discharging their duties, the representatives to
the Governance Committee and the Programming Advisory Committee shall be fully
protected in relying in good faith upon the records required to be maintained
under Article IV and upon such information, opinions, reports or statements by
any of the other Members or agents, or by any other Person, as to matters such
Persons reasonably believe are within such other Person's professional or expert
competence and who has been selected with reasonable care by or on behalf of the
Company, including information, opinions, reports or statements as to the value
and amount of the assets, liabilities, profits or losses of the Company or any
other facts pertinent to the existence and amount of assets from which
distributions to members might properly be paid.
6.12 PART-TIME SUBSCRIBERS - Notwithstanding anything to the contrary
contained herein, each Member shall have the right, in its sole discretion after
consultation with the other Members, to elect to terminate the part-time
carriage of the Channel on a system operated by a Multiple System Operator
Customer if (i) the agreement with such Multiple System Operator Customer
allows such termination without penalties any more severe than those provided in
Section 4 of the Affiliation Agreement by and between the Company and Satellite
Services, Inc. dated as of the Effective Date and (ii) such Multiple System
Operator Customer also distributes programming on the same channel that (a) is
adults-only programming or has received, or had it been rated would have
received, an MPA "X" or "NC-17" rating or is, in whole or in part, obscene,
indecent or pornographic or (b) such Member reasonably believes, in the exercise
of good faith, could have an adverse effect on the reputation of the Channel or
its programming brands.
ARTICLE VII
CONTRIBUTIONS AND CAPITAL ACCOUNTS
7.1 MEMBERS' INITIAL CAPITAL CONTRIBUTION - As of the Effective Date, each
Member has contributed such assets and amounts as are set forth in Exhibit A
hereto as its share of the Initial Capital Contribution. The value of the
Capital Contributions shall be as set forth on Exhibit A. No interest shall
accrue on any Capital Contribution and no Member shall have the right to
withdraw or be repaid any Capital Contribution except as provided in this
Company Agreement.
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7.2 MANDATORY CAPITAL CONTRIBUTIONS
7.2.1 Capital Contribution Amounts - Hallmark Sub and Henson Sub shall
each be required to make additional capital contributions ("MANDATORY CAPITAL
CONTRIBUTIONS") in the amounts and on the dates set forth on Exhibit G hereto,
provided, however, that the Chief Executive Officer shall have the right to call
upon both Henson Sub and Hallmark Sub, with not less than thirty (30) days
written notice, to contribute their March 31, 2000 Mandatory Capital
Contribution to the Company if such Chief Executive Officer determines in good
faith that such monies are required by the Company, at any time after January
1, 2000. The obligation to make such Mandatory Capital Contributions is
unconditional except that each of Hallmark Sub and Henson Sub shall not be
required to make its year 2000 Mandatory Capital Contribution until each of
Hallmark Entertainment Distribution Company and Henson have received the
respective programming license fees due it pursuant to the Hallmark Program
License Agreement or Henson Program License Agreement, as the case may be.
7.2.2 Failure to Make Mandatory Capital Contributions - If either
Henson Sub or Hallmark Sub fails to make a Mandatory Capital Contribution under
this Company Agreement, after written notice and an opportunity to cure (which
opportunity to cure shall be set forth in such notice and shall provide a cure
period of not less than fourteen (14) days from the receipt of the notice (the
"DEFAULT DATE")), the Company may elect at its sole discretion, either of the
following remedies.
(a) (x) such Member shall lose its right to appoint two
representatives to the Governance Committee and the Programming Advisory
Committee, (y) the defaulting Member's Sharing Ratio shall be decreased by an
amount equal to the product of its Sharing Ratio multiplied by a fraction, the
numerator of which is the amount of the defaulted Mandatory Capital Contribution
and the denominator of which is 50 million and (z) each of the non-defaulting
Member's Sharing Ratio shall be increased by an amount equal to the product of
such Member's Sharing Ratio multiplied by an amount equal to the difference
between the defaulting Member's original Sharing Ratio and its adjusted Sharing
Ratio; or
(b) such Member shall be obligated to sell to the Company its entire
Common Interest for a purchase price equal to 75% of the lesser of (i) the fair
market value of such Member's Common Interest as determined by an appraisal
performed by an investment banking firm of recognized national standing selected
by the Company or (ii) the amount of such Member's Capital Account.
In addition, the Company shall have the right for a period of six
months
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from each Default Date to terminate the Hallmark Program License Agreement or
the Henson Program License Agreement, as applicable.
7.3 CAPITAL ACCOUNTS
7.3.1 A separate Capital Account will be maintained far each Member.
Each Member's original Capital Account shall equal the Member's Initial Capital
Contributions, as set forth in Exhibit A, disregarding any Mandatory Capital
Contributions until such contributions are actually made, provided that the
Capital Account of each of VMC and VGI shall be increased to reflect the fair
market value of the Company's assets as of the date hereof, as determined by
reference to the Initial Capital Contributions of Henson Sub and Hallmark Sub
(which, for this purpose, will include the Mandatory Capital Contributions). The
respective Capital Accounts of each Member will thereafter be increased by (1)
the amount of Money contributed by such Member to the Company; (2) the Gross
Asset Value of property contributed by such Member to the Company (net of
liabilities secured by such contributed property that the Company is considered
to assume or take subject to under section 752 of the Code); (3) allocations to
such Member of Net Profits; and (4) any items in the nature of income and gain
which are specially allocated to the Member pursuant to Sections 8.2.1, 8.2.2,
8.2.3, 8.2.4, 8.2.5 and/or 8.2.10. The Capital Account of each Member will be
decreased by (1) the amount of Money distributed to such Member by the Company;
(2) the Gross Asset Value of property distributed to such Member by the Company
(net of liabilities secured by such distributed property that such Member is
considered to assume or take subject to under section 752 of the Code); (3) any
items in the nature of deduction and loss that are specially allocated to the
Member pursuant to Sections 8.2.1, 8.2.2. 8.2.3, 8.2.4, 8.2.5 and/or 8.2.10;
and (4) allocations to the account of such Member of Net Losses.
7.3.2 In the event of a Permitted Transfer of a Membership Interest in
the Company, the Capital Account of the transferor shall become the Capital
Account of the transferee to the extent it relates to the transferred Membership
Interest in accordance with section 1.704-1(b)(2)(iv) of the Regulations.
7.3.3 The manner in which Capital Accounts are to be maintained
pursuant to this Section 7.3 is intended to comply with the requirements of
section 704(b) of the Code and the Regulations promulgated thereunder. If, in
the opinion of the Company's accountants, the manner in which Capital Accounts
are to be maintained pursuant to the preceding provisions of this Section 7.3
are required to be modified in order to comply with section 704(b) of the Code
and the Regulations thereunder, then notwithstanding anything to the contrary
contained in the preceding provisions of this
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Section 7.3, the method in which Capital Accounts are maintained shall be so
modified to the minimum extent necessary to comply with the Code and the
Regulations; provided, however, that any change in the mariner of maintaining
Capital Accounts shall not materially alter the economic agreement between or
among the Members.
7.3.4 As set forth in Exhibit A, VGI shall make an additional Capital
Contribution to the Company which shall be used to pay all amounts due and
payable to National Digital Television Center, Inc. (formerly known as Western
TeleCommunications, Inc.) ("NDTC") as of October 31, 1998 pursuant to the C-3
Satellite Transponder Service Agreement dated May 18, 1990, and the Service
Agreement dated December 21, 1990 (as amended by amendments dated as of February
19, 1991, July 29, 1991 and July 19, 1995), each by and between NDTC and the
Company (as successor in interest to VGI), as amended (the "Service
Agreements"). Any expenses attributable to the payment of amounts due to NDTC
pursuant to the Service Agreements shall be specifically allocated to VGI in
accordance with Section 8.1.4 of this Agreement.
7.4 CAPITAL ACCOUNT DEFICIT - No Member shall be required to contribute any
additional capital to the Company to restore a deficit balance in such Member's
Capital Account upon liquidation of the Company pursuant to Section 13.3 or
otherwise.
7.5 WITHDRAWAL OR REDUCTION OF MEMBERS' CONTRIBUTIONS.
7.5.1 A Member shall not receive out of the Company's Property any
part of its Capital Account until all liabilities of the Company, except
liabilities to Members on account of their Capital Accounts, have been paid or
there remains Company Property sufficient to pay them.
7.5.2 Upon withdrawal or liquidation, a Member, irrespective of the
nature of its Capital Contributions, has only the right to receive cash in
return for its Capital Account.
ARTICLE VIII
ALLOCATIONS AND DISTRIBUTIONS, ELECTIONS AND REPORTS
8.1 ALLOCATIONS OF PROFITS AND LOSSES.
8.1.1 The Net Profits of the Company for each fiscal year shall be
allocated as follows:
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First, to the Members who have Deficit Capital Accounts, in
proportions to the respective amounts required to eliminate such
Deficit Capital Accounts.
Second, the balance, if any, 32 1/2% to VG1, and 22 1/2% to each of
Hallmark Sub, Henson Sub, and VMC.
8.1.2 The Net Losses of the Company for each fiscal year shall be
allocated as follows:
First, an amount of Net Loss up to an amount equal to the respective
Capital Contributions actually made by Hallmark Sub and Henson Sub in
the following proportions: 50% to Hallmark Sub, and 50% to Henson Sub
(if one of such Member's Capital Account is reduced to zero prior to
that of the other Members, the amount otherwise allocated to such
Member shall be allocated to the Member with a remaining positive
Capital Account); and
Second, any remaining Net Losses shall be allocated 32 1/2% to VG1,
and 22 1/2% to each of Hallmark Sub, Henson Sub and VMC.
8.1.3 Notwithstanding subparagraphs 8.1.1 and 8.1.2 of this Section
8.1, upon liquidation of the Company or upon sale of all or substantially all of
the Company's assets, items of income, gain, loss and deduction shall be
allocated in the following order:
First, to VMC an amount so that the positive balance of its capital
account is at least equal to the Preferred Liquidation Preference.
Second, to VMC, VGI, Hallmark Sub, and Henson Sub amounts so that the
balances of their respective Capital Accounts (less, in the case of
VMC, the Preferred Liquidation Preference plus, in the case of each
Member, all Tax Distributions received by such Member) are in the
ratio of 32 1/2% for VGI, and 22 1/2% for each of VMC, Hallmark Sub
and Henson Sub.
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Third, the balance 32 1/2% to VGI, and 22 1/2% to each of VMC,
Hallmark Sub, and Henson Sub.
For purposes of this Article VIII, "substantially all of the Company's
assets" shall mean operating assets of the Company having a fair market value
equal to or greater than 50% of aggregate fair market value of all the assets of
Company, determined at the time of the sale of such assets.
8.1.4 Notwithstanding anything in this Company Agreement to the
contrary, any expenses attributable to the payment of amounts due and payable to
WTCI pursuant to the Service Agreements shall be specially allocated to VGI.
8.1.5 Any modifications of the allocations of the Net Profits or Net
Losses of the Company upon the admission of any Additional Member to the Company
shall be determined by the unanimous approval of the votes entitled to be cast
by the Governance Committee representatives.
8.2 SPECIAL ALLOCATIONS TO CAPITAL ACCOUNTS AND CERTAIN OTHER INCOME TAX
ALLOCATIONS, NOTWITHSTANDING SECTION 8.1 HEREOF:
8.2.1 In the event any Member unexpectedly receives any adjustments,
allocations, or distributions described in sections 1.704-1(b)(2)(ii)(d)(4),
(5), or (6) of the Regulations, which create or increase a Deficit Capital
Account of such Member, then items of Company income and gain (consisting of
a pro rata portion of each item of Company income, including gross income, and
gain for such year and, if necessary, for subsequent years) shall be specially
allocated to such Member in an amount and manner sufficient to eliminate, to the
extent required by the Regulations, the Deficit Capital Account so created as
quickly as possible. It is the intent that this Section 8.2.1 be interpreted to
comply with the alternate test for economic effect set forth in section
1.704-1(b)(2)(ii)(d) of the Regulations.
8.2.2 In the event any Member would have a Deficit Capital Account at
the end of any Company taxable year, the Capital Account of such Member shall be
specially credited with items of Membership income (including gross income) and
gain in the amount of such excess as quickly as possible.
8.2.3 Notwithstanding any other provision of this Section 8.2, if
there is a net decrease in the Company's minimum gain as defined in either
Regulation section 1.704-2(d) or Regulation section 1.704-2(i)(4) during a
taxable year of the Company, then, the Capital Accounts of each Member shall be
allocated items of income
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(including gross income) and gain for such year (and if necessary for subsequent
years) equal to that Member's share of the net decrease in Company minimum gain
as determined under Regulation section 1.704-2(g)(2). This Section 8.2.3 is
intended to comply with the minimum gain chargeback requirement of section
1.704-2(f) of the Regulations and shall be interpreted consistently therewith.
If in any taxable year that the Company has a net decrease in the Company's
minimum gain, if the minimum gain chargeback requirement would cause a
distortion in the economic arrangement among the Members and it is not expected
that the Company will have sufficient other income to correct that distortion,
the Governance Committee may in its discretion (and shall, if requested to do so
by a Member) seek to have the Internal Revenue Service waive the minimum gain
chargeback requirement in accordance with Regulation section 1.704-2(f)(4).
8.2.4 Items of Company loss, deduction and expenditures described in
section 705(a)(2)(B) of the Code which are attributable to any nonrecourse debt
of the Company and are characterized as partner (Member) nonrecourse deductions
under section 1.704-2(i) of the Regulations shall be allocated to the Members'
Capital Accounts in accordance with section 1.704-2(i) of the Regulations.
8.2.5 Beginning in the first taxable year in which there are
allocations of "nonrecourse deductions" (as described in section 1.704-2(b)
of the Regulations) such deductions shall be allocated to the Members in the
same manner as Net Profit or Net Loss is allocated for such period.
8.2.6 In accordance with section 704(c)(1)(A) of the Code and section
1.704-1(b)(2)(i)(iv) of the Regulations, if a Member contributes property with a
Gross Asset Value that differs from its adjusted basis at the time of
contribution, income, gain, loss and deductions with respect to the property
shall, solely for Federal income tax purposes (and not for Capital Account
purposes), be allocated among the Members so as to take account of any variation
between the adjusted basis of such property to the Company and its fair market
value at the time of contribution in accordance with section 1.704-3(b) of the
Regulations. In accordance with section 1.704-1(b)(2)(iv)(f) and (g) of the
Regulations, if Company Property is properly reflected on the books of the
Company at a book value that differs from the adjusted tax basis of such
Property for Federal income tax purposes, depreciation, amortization and gain
or loss, as computed for Federal income tax purposes, with respect to such
Property, including "reverse" section 704(c) allocations, shall be determined so
as to take account of the variation between the adjusted tax basis of such
property to the Company and the book value of such Property in accordance with
section 1.704-3(b) of the Regulations.
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8.2.7 Pursuant to section 704(c)(1)(B) of the Code, if any contributed
property is distributed by the Company other than to the contributing Member
within seven years of being contributed, then, except as provided in section
704(c)(2) of the Code, the contributing Member shall, solely for Federal income
tax purposes (and not for Capital Account purposes), be treated as recognizing
gain or loss from the sale of such property in an amount equal to the gain or
loss that would have been allocated to such Member under section 704(c)(1)(A) of
the Code if the property had been sold at its fair market value at the time of
the distribution.
8.2.8 All recapture of income tax deductions resulting from sale or
disposition of Company Property shall be allocated to the Member(s) to whom the
deduction that gave rise to such recapture was allocated hereunder to the extent
that such Member is allocated any gain from the sale or other disposition of
such property.
8.2.9 Notwithstanding the foregoing, if, upon the final dissolution
and termination of the Company and after taking into account all allocations
of Net Income and Net Losses (and other tax items) under this Article VIII, the
distributions to be made in accordance with the positive Capital Account
balances would result in a distribution that would be different from a
distribution under Section 8.3 below, then gross items of income and gain (and
other tax items) for the taxable year of the final dissolution and termination
(and, to the extent permitted under section 761(c) of the Code, gross items of
income and gain (and other tax items) for the immediately preceding taxable
year) shall be allocated to the Members or Permitted Transferees to increase or
decrease Capital Account balances, as the case may be, so that the final
distribution will occur in the same manner as a distribution under Section 8.3
below.
8.2.10 Any credit or charge to the Capital Accounts of the Members
pursuant to Sections 8.2.1, 8.2.2, 8.2.3, 8.2.4 and/or 8.2.5 hereof shall be
taken into account in computing subsequent allocations of Net Profits and Losses
pursuant to Section 8.1, so that the net amount of any items charged or credited
to Capital Accounts pursuant to Sections 8.1 and 8.2.1, 8.2.2, 8.2.3, 8.2.4
and/or 8.2.5 and shall to the extent possible, be equal to the net amount that
would have been allocated to the Capital Account of each Member pursuant to the
provisions of this Article VIII if the special allocations required by Sections
8.2.1, 8.2.2, 8.2.3, 8.2.4 and/or 8.2.5 hereof had not occurred.
8.3 DISTRIBUTIONS - Except as provided in Section 8.4, in the case of Tax
Distributions (as defined below) for any Fiscal Year ending on or after the
Effective Date, and in the case of all other distributions for any Fiscal Year
ending on or after December 31, 2004, all Distributable Cash shall be
distributed as of the end of the
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Company's Fiscal Year and Distributable Cash and other property may be
distributed at such other times as determined by the unanimous approval of the
votes entitled to be cast by the Governance Committee representatives. Except as
provided in Section 13.3, all distributions of Distributable Cash shall be
made to the Members in the following order of priority:
First, not later than five Business Days after the Company's
Schedule K-1 for its preceding Fiscal Year has been completed, an
amount to each Member equal to its Federal, state and local income tax
liability attributable to the net taxable income (determined on an
annual basis) allocable to such Member in the Fiscal Year for which
such Schedule K-1 is being filed, provided, however, that such
distributions shall not be made with respect to any federal, state or
local income tax liability attributable to net taxable income
allocable to such Member for the Fiscal Year in which there is a
liquidation of the Company or a sale of substantially all of the
Company's assets and, provided, further, that with respect to net
taxable income allocable to the Fiscal Year ending on or after
December 31, 2010, such distribution shall be made only after the
Preferred Liquidation Preference has been paid in full. Such liability
shall be calculated assuming that each Member is subject to tax at the
highest combined Federal, state and local income tax rates applicable
to an individual subject to tax at the highest marginal rates (a "TAX
DISTRIBUTION");
Second, to VMC the full amount of the Preferred Liquidation Preference
or alternatively, the Yearly Preferred Payment in the full amount of
$5 million per year as set forth in Section 5.7 above and, the
balance, if any, 32 1/2% to VGl, and 22 1/2% to each of Hallmark,
Henson, and VMC.
8.4 LIMITATION UPON DISTRIBUTIONS - No distribution shall be declared and
paid unless, after the distribution is made, the assets of the Company are in
excess of all liabilities of the Company, except liabilities to Members on
account of their Capital Contributions.
8.5 ACCOUNTING PRINCIPLES - The profits and losses of the Company shall be
determined in accordance with accounting principles applied on a consistent
basis using
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the accrual method of accounting.
ARTICLE IX
TAXES
9.1 ELECTIONS - The Governance Committee may make any tax elections for the
Company allowed under the Code or the tax laws of any state or other
jurisdiction having taxing jurisdiction over the Company.
9.2 TAXES OF TAXING JURISDICTIONS - All amounts withheld pursuant to the
Code or any provisions of any state or local tax law with respect to any
distribution to the Members shall be treated as amounts distributed to the
Members pursuant to Article VIII hereof for all purposes under this Company
Agreement. The Governance Committee may, where permitted by the rules of any
Taxing Jurisdiction, file a composite, combined, or aggregate tax return
reflecting the income of the Company and pay the tax, interest and penalties of
some or all of the Members on such income to the Taxing Jurisdiction, in which
case the Company shall inform the Members of the amount of such tax interest
and penalties so paid.
9.3 TAX MATTERS PARTNER - Hallmark Sub shall be designated the tax matters
partner of the Company pursuant to section 623(1)(a)(7) of the Code. If Hallmark
Sub is no longer a Member or resigns as the tax matters partner, the Governance
Committee shall designate one Member as the tax matters partner. Any Member
designated as tax matters partner shall take such action as may be necessary to
cause each other Member to become a notice partner within the meaning of section
6223) of the Code. Any Member who is designated tax matters partner may not
take any action contemplated by sections 6222 through 6232 of the Code without
the consent of the other Members. Hallmark Sub or any successor tax matters
partner shall keep the Members apprised of any tax proceedings affecting the
Company and consult with the other Members regarding the filing of any material
tax elections not expressly addressed in the provisions of this Company
Agreement. In addition, it shall provide a copy of the Company Tax Return thirty
days prior to the filing of such return to the other Members, Hallmark Sub or
the successor tax matters partner shall have discretion regarding the elections
or the filing of tax returns, provided, however, that in preparing the tax
returns of the Company, the tax matters partner will make those tax elections
(or refrain from making those elections), and will only take reporting
positions, which are in the overall best interests of the Members as a group. In
determining the overall best interests of the Members, the tax matters partner
will assume that all Members are subject to tax at the highest combined Federal.
state and local income tax rates applicable to an individual subject to tax at
the highest marginal rates. Hallmark Sub or the successor tax matters
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partner shall comply with all provisions of the Company Agreement with respect
to taxes in the performance of its duties as tax matters partner. Hallmark Sub
or the successor tax matters partner will not be liable to any other Member for
any act or omission associated with its role as tax matters partner except to
the extent that any action it takes or fails to take is in violation of this
Agreement or constitutes gross negligence, fraud or a willful violation of law.
Any reasonable cost or expense incurred by the tax matters partner in connection
with its duties, including the preparation for or pursuance of administrative
or judicial proceedings and the preparation of income tax returns, shall be paid
by the Company. Notwithstanding the above, the calculation of the increase to
the Capital Account of each of VMC and VGI to reflect the fair market value of
the Company's assets, as set forth in Section 7.3.1 of this Company Agreement,
shall be subject to the review and consent of VMC and VGI, which consent shall
not be unreasonably withheld.
ARTICLE X
TRANSFER OF MEMBERSHIP INTERESTS
10.1 GENERAL
10.1.1 PREFERRED INTEREST - Prior to the fifth anniversary of the
Effective Date, no Member may Transfer all or any part of its Preferred Interest
other than in connection with its Transfer of all of its Common Interests, by
way of a Permitted Transfer in accordance with Section 10.3; provided, however,
that (i) a Preferred Interest may be Transferred in whole (but not in part)
separate from the Common Interest upon the unanimous consent of the votes
entitled to be cast by the Governance Committee representatives, which consent
shall not be unreasonably withheld or delayed, provided that the proceeds of any
such Transfer shall be used solely to fund NICC Programming and activities
related thereto and (ii) a Member may pledge all or any part of its Preferred
Interest apart from its Common Interest without the consent of the Governance
Committee as provided in Section 10.3.4. Each Member hereby acknowledges the
reasonableness of the restrictions on the Transfer of the Preferred Interest
imposed by this Company Agreement in view of the Company's purposes and the
relationship of the Members. Accordingly, the restrictions on Transfer contained
herein shall be specially enforceable.
10.1.2 COMMON INTERESTS - Notwithstanding anything to the contrary
contained herein, except as specifically provided by this Article X, no Member
may, directly or indirectly, Transfer any part of its Common Interest other than
by way of a Permitted Transfer or any Change of Control or other Transfer of any
Ultimate Beneficial Owner. Each Member hereby acknowledges the reasonableness
of the
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restrictions on Transfer of the Common Interests imposed by this Company
Agreement in view of the Company's purposes and the relationship of the Members.
Accordingly, the restrictions on Transfer contained herein shall be specifically
enforceable.
10.2 CHANGE OF CONTROL - Upon a Change of Control of any Member, such
Member shall no longer be entitled to representation on either the Governance
Committee or the Programming Advisory Committee; provided that for the purposes
of the Hallmark Program License Agreement and the Henson Program License
Agreement, such Member shall still be deemed to own its Membership Interests,
10.3 PERMITTED TRANSFERS - Notwithstanding anything to the contrary
contained herein, the following transfers of Membership Interests shall be
permitted ("PERMITTED TRANSFERS") and the Permitted Transferee of a Membership
Interest shall have the same rights as the Transferring Member had in respect
thereof under this Company Agreement except as otherwise provided herein;
10.3.1 Transfers After Five Years - At any time after the fifth
anniversary of the Effective Date, the Members may Transfer all, but not less
than all, of their Common Interest, provided such Transfer is otherwise in
compliance with Section 10.4 of this Company Agreement.
10.3.2 Transfers to Affiliates - A Member may Transfer all or part of
its Membership Interest, directly or indirectly, to an Affiliate of such Member.
10.3.3 Transfers between Members - Each Member may Transfer all, but
not less than all, of its Membership Interests, directly or indirectly, to
another Member or to an Affiliate of another Member.
10.3.4 Pledging - A Member may Transfer, by way of a bona fide pledge,
all or any part of its Preferred Interest or Common Interests to any Bank as
collateral for a loan from such Bank, and upon foreclosure upon such loan,
without any further action of the Members, such Bank shall be deemed to be a
Substitute Member hereunder in respect of that portion of the Preferred Interest
or Common Interest foreclosed upon; provided, however, that such Bank shall not
be entitled to representation on the Governance Committee or the Programming
Advisory Committee.
10.3.5 Transfers between VMC and a NICC successor - VMC may Transfer
all, but not less than all, of its Membership Interest to any successor entity
of NICC as long as such entity is a broadly-based multi-denominational religious
coalition.
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10.4 RIGHT OF FIRST OFFER - At any time after the fifth anniversary of the
Effective Date, a Member (the "OFFERING MEMBER") may offer to Transfer to any
Person who is not an Affiliate of such Member all of the Common Interest of the
Offering Member (the "OFFERED INTEREST") in a bonafide, arm's-length sale
transaction (a "THIRD-PARTY SALE"), subject to the right of first offer set
forth in this Section 10.4;
10.4.1 Priority consummating any Third-Party Sale, an Offering Member
shall deliver to each other Member (the "OFFEREES") a written notice (an "OFFER
NOTICE") specifying (i) the aggregate amount of consideration (the "OFFER
PRICE") for which such Offering Member proposes to Transfer the Offered Interest
in such proposed Third-Party Sale, (ii) the identity of the purchaser in such
proposed-Third Party Sale, and (iii) all other material terms of such proposed
Third-Party Sale.
10.4.2 Each Offeree shall have thirty (30) days following the delivery
of the Offer Notice (the "ROFO ACCEPTANCE PERIOD") in which to accept its pro
rata share of the Offered Interest (proportionate to each Offeree's Sharing
Ratio). Such acceptance shall be by delivery of a written notice (an "INITIAL
ACCEPTANCE NOTICE") to such Offering Member. If any Offeree does not accept
its pro rata share of the Offered Interest, the Offering Member shall deliver to
the Offer who delivered Initial Acceptance Notices a written notice (a
"SECOND OFFER NOTICE") specifying the portion of the Offered Interest that was
not accepted during the ROFO Acceptance Period. Such Offerees shall have (30)
days following the delivery of the Second Offer Notice (the "SECOND ROFO
ACCEPTANCE PERIOD") in which to accept the entire Offered Interest. Such
acceptance shall be by delivery of a written notice (a "SECOND ACCEPTANCE
NOTICE" and, together with the Initial Acceptance Notice, an "ACCEPTANCE
NOTICE") to such Offering Member. If the Offerees, individually or in the
aggregate, deliver Acceptance Notices within the ROFO Acceptance Period or the
Second ROFO Acceptance Period, as applicable, accepting all (and not less than
all) of the Offered Interest, the Offering Member will Transfer the Offered
Interest to such electing Offeree(s) (the "PURCHASING MEMBERS") in their
proportionate shares in accordance with the Acceptance Notice(s) and the terms
and conditions set forth in Sections 10.4.3 and 10.4.4 below, provided, that if
two Offerees deliver Second Acceptance Notices, the pro rata share of the
non-accepting Offeree shall be allocated pro rata to each such Offeree
(proportionate to its Sharing Ratio).
10.4.3 If an Acceptance Notice is timely given, the Purchasing
Member(s) and the Offering Member shall schedule a closing to be held on or
before (i) the later of 180 calendar days after delivery of the latest
Acceptance Notice to the Offering Member, or (ii) if HSR or other regulatory
requirements are applicable to the Transaction, then within 10 calendar days
after the expiration or early termination of the
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HSR waiting period or the completion of other applicable regulatory proceedings.
The parties agree to cooperate with each other in filing all necessary notices
and related materials to comply with the provisions of HSR or other regulatory
requirements, if applicable. At such closing, the parties shall execute
appropriate documents to effectuate such sale, and the Offering Member shall
represent and warrant in writing that the Offering Member is the owner and
holder of the Offered Interest, free and clear of all claims, liens, options,
charges, encumbrances or rights of others and that the Offering Member is the
record and beneficial owner of the Offered Interest and has the full right,
power and authority to convey the Offered Interest to the Purchasing Members.
10.4.4 The Purchasing Members shall pay to the Offering Member at the
closing the price for the Offered Member's Offered Interest by delivery of
same-day funds; provided, however, that any Purchasing Member may elect to pay
up to 50% of the purchase price by delivery of common stock of such Member (or
its parent company having the largest equity market capitalization) having an
equivalent market value, but only if (a) such stock is traded on a national
securities exchange (including the NASDAQ National Market System), (b) such
stock is either registered for resale or otherwise freely transferable without
registration or has mutually agreeable registration rights and (c) the aggregate
market value of such stock held by non-affiliates of such Member is equal to or
greater than $2 billion. If a Purchasing Member elects to make a partial payment
of the purchase price by delivery or such common stock, such Member shall
arrange for the sale of the common stock as soon as reasonably practicable but
in any event within 90 days to or through an investment banking firm of
recognized national standing selected by such Member and will pay in cash to the
Offering Member out of the proceeds of such sale, the amount of the purchase
price payable by it and not previously paid in cash (the "UNPAID AMOUNT"). If
the proceeds of such sale are less than the Unpaid Amount, then such Member
shall pay to the Offering Member an amount equal to the Unpaid Amount (and any
additional cash paid to such Purchasing Member shall, for all tax purposes, be
treated as an adjustment to the purchase price). If the proceeds of such sale
are more than the Unpaid Amount, then such Member shall pay to the Offering
Member an amount equal to the Unpaid Amount plus 50% of any such excess. In
addition, the Purchasing Member shall be responsible for all costs, fees and
expenses (including without limitation commissions, charges, and fees and
expenses of any brokers, attorneys and other advisors and any transfer taxes
associated with the issuance of the common stock in lieu of cash) incurred or
suffered by such Purchasing Member or the Offering Member, in connection with
the Purchasing Member's use of common stock as payment in lieu of cash, such
that the amount received by the Offering Member shall be equal to the amount
that the Offering Member would have received (net of any taxes that would have
been applicable thereon) had
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such Purchasing Member paid the entire amount of the purchase price payable by
cash.
10.4.5 If the Offerees, individually or in the aggregate, do not
accept the total Offered Interest, then the Offering Member may transfer the
Offered Interest in a Third-Party Sale on terms and conditions no more favorable
to the unaffiliated third party purchaser than those contained in the Offer;
provided, however, that if such transfer is not consummated within 120 days of
the date on which the Offering Member first becomes entitled to effect such
transfer, then any subsequent transfer by the Offering Member shall again become
subject to the Offerees' right of first offer set forth in this Section 10.4.
10.4.6 The permitted Transfers set forth in Sections 10.3.2 through
10.3.5 of this Company Agreement shall not be subject to the right of first
offer set forth in this Section 10.4.
10.5 REQUIREMENTS OF TRANSFER - In addition to the other requirements
hereunder, no transfer of a Membership Interest in the Company shall be
effective unless and until (a) the Company and the non-Transferring Members have
received written notice (including the name and address of the proposed
transferee of donee and the date of such transfer) of such transfer; (b) the
Company has received an opinion of counsel satisfactory to the Governance
Committee that such assignment is subject to an effective registration under, or
exempt from the registration requirements of, the applicable state and Federal
securities laws; and (c) the Company has received from the transferee the
information and agreements that the Governance Committee may reasonably require,
including but not limited to any taxpayer identification number and any
agreement that may be required by any Taxing Jurisdiction.
10.6 TRANSFERS NOT IN COMPLIANCE WITH THIS ARTICLE VOID - Any attempted
Transfer of a Membership Interest, or any part thereof, not in compliance with
this Article X shall be, and is declared to be, null and void ab initio.
ARTICLE XI
DISSOCIATION OF A MEMBER
11.1 DISSOCIATION - A Person shall cease to be a Member upon the happening
of the Member's becoming a Bankrupt Member.
ARTICLE XII
ADMISSION OF ADDITIONAL MEMBERS
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12.1 ADMISSION OF SUBSTITUTE MEMBERS - Subject the provisions; of Article
X hereof, an assignee of all of the Common Interests of an Initial Member shall
be admitted as a Substitute Member and have all the rights and powers and be
subject to all the restrictions and liabilities of the Member originally holding
the Common Membership Interests.
12.2 ADMISSION OF ADDITIONAL MEMBERS - An Additional Member shall be
admitted as a Member and have all the rights and powers and be subject to all
the restrictions and liabilities pursuant to this Company Agreement upon
unanimous approval of the votes entitled to be cast by the Governance Committee
representatives pursuant to Section 6.2 hereof.
ARTICLE XIII
DISSOLUTION AND WINDING UP
13.1 DISSOLUTION - The Company shall be dissolved and its affairs wound
up upon the first to occur of the following events:
13.1.1 written document indicating the unanimous written consent of
all of the votes entitled to be cast by the Governance Committee
representatives; and
13.1.2 the entry of a decree of dissolution pursuant to Section 18-802
of the Act.
13.2 EFFECT OF DISSOLUTION - Upon dissolution, the Company shall cease
carrying on its business except insofar as may be necessary to complete the
winding up of the affairs of the Company, but its separate existence shall
continue until the Certificate of Dissolution has been issued by the Delaware
Secretary of State.
13.3 DISTRIBUTION OF ASSETS ON DISSOLUTION - Upon the winding up of the
Company, the Company Property shall be distributed as follows:
13.3.0.1 to creditors, including Members who are creditors, to the
extent permitted by law, in satisfaction of Company Liabilities; and
13.3.0.2 to VMC, the Preferred Liquidation Preference
13.3.0.3 to all Members in accordance with positive Capital Account
balances taking into account all allocations under Article VIII and Capital
Account adjustments for the Company's taxable year in which the
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liquidation occurs.
13.3.1 Liquidation proceeds shall be paid by the end of the Company's
taxable year or, if later, within 90 days after the date of liquidation. Such
distributions shall be in cash or Property or partly in both, as determined by
the Governance Committee.
13.4 WINDING UP AND CERTIFICATE OF DISSOLUTION - The winding up of the
Company shall be completed when all debts, liabilities and obligations of the
Company have been paid and discharged or reasonably adequate provision therefor
has been made and all of the remaining property and assets of the Company have
been distributed to the Members. Upon the Completion of winding up of the
Company, a certificate of dissolution shall be delivered to the Secretary of
State for filing. The certificate of dissolution shall set forth the information
required by the Act.
ARTICLE XIV
AMENDMENT
14.1 COMPANY AGREEMENT MAY BE MODIFIED - This Company Agreement may be
modified as provided in this Article XIV (as the same may, from time to time be
amended). No Member shall have any vested rights in this Company Agreement
which may not be modified through an amendment to this Company Agreement.
14.2 AMENDMENT OR MODIFICATION OF COMPANY AGREEMENT - This Company
Agreement may be amended or modified from time to time only by a written
instrument executed by the representatives of the Governance Committee
representing 100% of the votes entitled to be cast by the Governance Committee
representatives.
ARTICLE XV
MISCELLANEOUS PROVISIONS
15.1 ENTIRE AGREEMENT - This Company Agreement represents the entire
agreement among all the Members and between the Members and the Company.
15.2 NO PARTNERSHIP INTENDED FOR NONTAX PURPOSES - The Members have formed
the Company under the Act and expressly do not intend hereby to form a
partnership under either the Delaware Uniform Partnership Act nor the Delaware
Uniform Limited Partnership Act. The Members do not intend to be partners one to
another, or partners as to any third party. To the extent any Member, by word or
action, represents to another Person that any other Member is a partner or that
the Company is
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a partnership, the Member making such wrongful representation shall be liable
to any other Member who incurs personal liability by reason of such wrongful
representation.
15.3 RIGHTS OF CREDITORS AND THIRD PARTIES UNDER COMPANY AGREEMENT - This
Company Agreement is entered into among the Company and the Members for the
exclusive benefit of the Company, its Members and their successors and
assignees. This Company Agreement is expressly not intended for the benefit of
any creditor of the Company or any other Person (other than Indemnitees pursuant
to Section 5.4). Except and only to the extent provided by applicable statute,
no such creditor or third party shall have any rights under this Company
Agreement (other than Indemnitees pursuant to Section 5.4) or any agreement
between the Company and any Member with respect to any Capital Contribution or
otherwise.
15.4 CONFIDENTIALITY - Each of the Members acknowledges that, in their
capacity as such, they will have access to trade secrets and confidential
information of the Company (collectively, the "INFORMATION"), and they each
agree that such Information belongs exclusively to the Company. The Information
shall include any information which is or has been disclosed to a Member, or of
which such Member became aware as a consequence of or through its status as a
Member of the Company, which has value to the Company, is not generally known by
the public or the Membership's competitors and which is treated by the Company
as confidential, whether or not such material or information is marked
"confidential," including, but not limited to, information concerning: (a)
existing and proposed programming concepts and marketing techniques; (b)
existing or potential distributors of such programming and relationships with
the Company's advertisers and key contacts; (c) the business or operations of
the Company; or (d) the sales methodology, products, methods, price lists,
contract terms, pricing strategy, quoting procedures and financing of the
Company; provided, however, that this obligation shall not apply to any
information (and, as used in this Company Agreement, the term Information shall
not include any information) that is: (1) ascertainable from public or published
information or trade sources (provided such information has not been made public
from any act or omission of the disclosing Member), (ii) required to be
disclosed by law, rule, regulation or court order; or (iii) is already known to
such Member prior to disclosure in accordance with this Company Agreement or is
independently developed by such Member. Each Member acknowledges and agrees that
the Information is a unique asset of the Membership which is of a confidential
nature and has significant value and that the disclosure of all or any part of
the Information to third Persons may be damaging to the Company. Each Member
agrees that, during the term of the Company, it will keep confidential and not
directly or indirectly divulge, furnish or make accessible to anyone any of the
Information, unless (i) the Governance Committee determines that such disclosure
would be in the
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best interest of the Company; (ii) such disclosure is necessary in order for
such Member to enforce its rights or perform its obligations under this Company
Agreement, (iii) such disclosure is required by law, rule, regulation or court
order or by rule of any stock exchange or similar entity listing the securities
of an Affiliate of such Member, or (iv) such disclosure is to financial
representatives, counsel, accountants or business advisors of such Member or to
a prospective acquiror of such Member's or any of its parent's business or
assets, provided, that such Persons agree to be bound by a similar, appropriate
confidentiality agreement.
15.5 PUBLIC ANNOUNCEMENTS - No Members shall issue any press release or
otherwise make any public statements with respect to the Company without the
prior consent of all of the votes entitled to be cast by the Governance
Committee representatives, which consent shall not be unreasonably withheld;
provided, however, that a Member may, without such prior consent, issue such
press release or make such public statement as may be required by law or any
listing agreement to which such Member (or any parent of such Member) is a party
with a national securities exchange if such Member has used all reasonable
efforts to obtain such consent but has been unable to do so in a timely manner.
15.6 AGREEMENT, EFFECT OF INCONSISTENCIES WITH ACT - For and in
consideration of the mutual covenants herein contained and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Members executing this Company Agreement hereby agree to the
terms and conditions of this Company Agreement, as it may from time to time be
amended according to its terms. It is the express intention of the Members that
this Company Agreement shall be the sole source of agreement of the parties,
and, except to the extent a provision of this Company Agreement expressly
incorporates Federal income tax rules by reference to sections of the Code or
Regulations or is expressly prohibited or ineffective under the Act, this
Company Agreement shall govern, even when inconsistent with, or different than
the provisions of the Act or any other law or rule. To the extent any provision
of this Company Agreement is prohibited or ineffective under the Act, this
Company Agreement shall be considered amended to the smallest degree possible in
order to make the Agreement effective under the Act. In the event the Act is
subsequently amended or interpreted in such a way to make any provision of this
Company Agreement that was formerly invalid valid, such provision shall be
considered to be valid from the Effective Date of such interpretation or
amendment. The Members hereby agree that each Member shall be entitled to rely
on the provisions of this Company Agreement, and no Member shall be liable to
the Company or to any other Member for any action or refusal to act taken in
good faith reliance on the terms of this Company Agreement. The Members and the
Company hereby agree that the duties and
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obligations imposed on the Members of the Company as such shall be those set
forth in this Company Agreement, which is intended to govern the relationship
among the Company and the Members, notwithstanding any provision of the Act or
common law to the contrary.
15.7 NOTICE
15.7.1 Any notice to any Member shall be at the address of such Member
set forth in Exhibit A hereto or such other mailing address of which such Member
shall advise the Company in writing. Any notice to the Company shall be at the
Principal Office of the Company as set forth in Section 1.6 hereof or such
other address as amended by the Governance Committee, upon due notice to each
Member in accordance with this Section 15.7.
15.7.2 Any notice hereunder shall be in writing and shall be deemed to
have been duly given if personally delivered, sent by overnight courier or sent
by United States mail, or by facsimile transmission, and will be deemed
received, unless earlier received, (i) if sent by certified or registered mail,
return receipt requested, when actually received, (ii) if sent by overnight
courier, when actually received, (iii) if sent by facsimile transmission, on the
date sent, and (iv) if delivered by hand, on the date of receipt.
15.8 LEGEND Any and all membership certificates currently held or
subsequently acquired representing Membership Interests subject to the
provisions hereof will bear the following legend on each of their respective
reverse sides:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR REGISTERED NOR QUALIFIED
UNDER ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE OFFERED FOR
SALE, SOLD, DELIVERED AFTER SALE, TRANSFERRED, PLEDGED, OR HYPOTHECATED
UNLESS QUALIFIED AND REGISTERED UNDER APPLICABLE STATE AND FEDERAL
SECURITIES LAWS OR UNLESS, IN THE OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY, SUCH QUALIFICATION AND REGISTRATION IS NOT REQUIRED. ANY TRANSFER
OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS FURTHER SUBJECT TO
OTHER RESTRICTIONS, TERMS AND CONDITIONS WHICH ARE SET FORTH HEREIN."
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<PAGE> 57
15.9 INTERPRETATION. The Table of Contents and headings contained in this
Company Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Company Agreement. Whenever the words
"include," "includes," or "including" are used in this Company Agreement,
they shall be deemed to be followed by the words "without limitation".
15.10 BINDING EFFECT. Subject to the provisions of this Company Agreement
relating to transferability, this Company Agreement shall be binding upon and
inure to the benefit of the Members, and their respective successors and
assigns.
15.11 SEVERABILITY. If any provision of this Company Agreement or the
application of any such provision to any Person or circumstance shall be held
invalid, the remainder of this Company Agreement or the application of such
provision to Persons or circumstances other than those to which it is held
invalid shall not be affected thereby.
15.12 MULTIPLE COUNTERPARTS. This Company Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, with the same
effect as if signatures thereto and hereto were upon the same instrument.
15.13 REMEDIES CUMULATIVE. The remedies under this Company Agreement are
cumulative and shall not exclude any other remedies to which any Person may be
lawfully entitled.
15.14 WAIVER. Any waiver, or claimed waiver, sought to be enforced against
a Member shall not be effective unless contained in a signed writing made by
such Member.
15.15 ACKNOWLEDGMENT. The Members hereby expressly acknowledge that
payments to be made to VMC in respect of the Preferred Interest pursuant to
Section 5.7 may be made directly to any party to which VMC owes amounts pursuant
to the indemnification provisions of the Purchase Agreement or the Contribution
Agreement.
* * * * *
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CERTIFICATE
The undersigned hereby agree, acknowledge and certify that the foregoing
Company Agreement constitutes the Amended and Restated Company Agree of Odyssey
Holdings, L.L.C. adopted by the Members of the Company November 13, 1998.
MEMBERS:
VISION GROUP INCORPORATED
By: /s/ DAVID B. KOFF
--------------------------------
Name: David B. Koff
Title: Senior Vice President
VISN MANAGEMENT CORP.
By: /s/ WILFORD V. BANE, JR.
--------------------------------
Name: Wilford V. Bane, Jr.
Title: President VMC
HEN DOMESTIC HOLDINGS, INC.
By: /s/ WILLIAM J. ALIBER
--------------------------------
Name: William J. Aliber
Title: Vice President
HENSON CABLE NETWORKS, INC.
By: /s/ CHARLES RIVKIN
--------------------------------
Name: Charles Rivkin
Title: Co-President and Chief
Operating Officer
<PAGE> 1
EXHIBIT 10.12
AMENDED AND RESTATED
INTERCOMPANY SERVICES AGREEMENT
This Amended and Restated Intercompany Services Agreement (this
"Agreement") is made and entered into as of January 1, 2000, by and between
Hallmark Cards, Incorporated, a Missouri corporation with headquarters in Kansas
City, Missouri ("Hallmark"), and Crown Media, Inc., a Delaware corporation with
headquarters in Englewood, Colorado ("Crown").
1. COMMENCEMENT AND TERM OF AGREEMENT.
a. Beginning as of the date hereof (the "Effective Date"), Hallmark
shall provide to Crown in a manner consistent with past practices those
services set forth in Section 2 of this Agreement ("Corporate Services").
b. The term of this Agreement shall be three (3) years from the
Effective Date unless terminated earlier by agreement of the parties hereto
or in accordance with the terms of this Agreement.
c. Hallmark may terminate this Agreement if at any time Hallmark no
longer directly or indirectly owns 40% or more of the equity of Crown.
2. CORPORATE SERVICES.
The Corporate Services provided under this Agreement shall include the
following as more specifically described in this Agreement:
1) Tax services
2) Risk management, health, safety and environmental advice and
Insurance
3) Legal services
4) Treasury and cash management
5) Real estate consulting
3. COSTS AND FEES FOR CORPORATE SERVICES.
a. In return for Corporate Services provided hereunder, Crown shall pay
Hallmark a fee of Five Hundred Thousand Dollars ($500,000) plus out of
pocket expenses and third party fees (as set forth in 3(b)) for each year
of the Agreement. Crown shall pay these costs and fees in arrears on the
last business day of each quarter of the Agreement.
b. In some cases, the Corporate Services provided to Crown by Hallmark
will include services provided by third parties (e.g. insurance brokers
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<PAGE> 2
and carriers, accountants, actuaries, financial printers). Such third party
services shall be approved by Crown in advance and shall be billed directly
to Crown. In the event Crown denies approval of services to be provided by
any third party, Hallmark shall not be required to provide such services.
4. TAX SERVICES. Subject to the terms of that certain Contribution
Agreement and that certain Tax Sharing Agreement by and among Hallmark
Entertainment, Inc., Crown, Crown Media Holdings, Inc. and others, the Hallmark
tax department shall, except to the extent otherwise requested by Crown, provide
the tax services for Crown set forth below.
a. Tax compliance services which shall consist of the preparation and
timely filing of federal and state income tax returns (including quarterly
estimated payments) and state sales and use tax returns. Crown shall
furnish Hallmark with full and complete financial information necessary or
appropriate to prepare or timely file such returns. Crown shall promptly
reimburse Hallmark for any tax payments made by Hallmark on Crown's behalf.
Crown shall be responsible for all other tax compliance matters, including
without limitation, property tax and payroll tax.
b. Tax audit services which shall consist of the administration of each
audit agreement, representation of Crown at all administrative hearings,
and consultation with regard to any appeals through the judicial system,
including the selection of legal counsel.
c. Tax consulting services which shall consist of(1) periodic (no less
than semi-annual) reviews with Crown financial and operating personnel to
identify and implement tax savings opportunities, and (2) transactional tax
planning.
5. RISK MANAGEMENT AND INSURANCE. The Hallmark risk management department
shall provide the services set forth below.
a. Risk management services, which will include leading the process for
identifying and analyzing property and casualty risks (not business risks),
for developing loss prevention and risk control strategies, for developing
and implementing insurance programs and other loss funding programs and
for claims administration practices.
b. Advice and supervision with respect to health, safety and
environmental issues.
c. At Crown's request, Hallmark will arrange or assist in arranging for
insurance coverage for Crown ("Insurance"). Hallmark may arrange for an
insurance policy covering only Crown's risks or interests or may include
Crown in Hallmark's or Hallmark's subsidiaries' insurance coverages, at
Hallmark's
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discretion. If Hallmark arranges for an insurance policy covering only
Crown's risks or interests, Crown shall pay the costs of such policy at the
direction of Hallmark, either to Hallmark or to the insurance provider. If
Hallmark arranges for an insurance policy that covers risks or interests of
Hallmark or its subsidiaries in addition to Crown, then the following terms
and conditions shall apply:
1) Crown shall, within 30 days of its receipt of a reasonably
detailed invoice from Hallmark, pay the portion of the premiums and
other charges for the Insurance attributable to the coverage provided to
Crown. The portion of such premiums and other charges payable by Crown
shall be allocated in good faith by Hallmark in a manner to reflect the
cost to Hallmark of the insurance premiums and other charges that are
properly attributable to Crown. The Insurance provided shall be subject
to such policies of insurance or self-insurance, and such guidelines or
procedures in respect of insurance or self-insurance, as Hallmark shall
determine. In the event the terms of the Insurance materially change
from those terms in effect immediately prior to the date hereof,
Hallmark agrees (i) to the extent Hallmark is aware of a material change
prior to the effective date of the change, to provide notice to Crown of
the change prior to its effective date, or (ii) otherwise to provide
notice to Crown upon becoming aware of the change. It is expressly
agreed by Crown and Hallmark that any self-insurance, retention or
deductible shall be for the account of and be an obligation of Crown,
and that Crown's obligations in respect of such self-insurance,
retention or deductible shall survive the termination of this Agreement.
2) Either Crown or Hallmark may terminate all or any portion of the
Insurance placed in policies specific to Crown at any time on 90 days'
prior written notice to the other party hereto. Notwithstanding the
foregoing, so long as Hallmark directly or indirectly owns 50% or more
of the voting power of all then-outstanding shares of capital stock of
Crown, Crown may not, without the prior written consent of Hallmark,
terminate all or any portion of the Insurance without providing evidence
satisfactory to Hallmark in Hallmark's sole discretion that Crown has
obtained, or upon termination of such Insurance will obtain, comparable
insurance coverage. In the event all or any portion of the Insurance is
terminated, if appropriate, the charges therefor shall be adjusted
equitably to reflect such termination.
3) Notwithstanding anything herein to the contrary, the parties
hereto recognize that Hallmark is neither an insurance broker nor an
insurance carrier. At no time will Hallmark be required by this
Agreement or otherwise by Crown to act as an insurance broker or
carrier.
6. LEGAL SERVICES. Hallmark shall provide general legal services of the
type previously provided to Crown not including advice previously provided by
outside
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counsel, advice regarding securities laws, telecommunications law and other
specialized areas for which Hallmark does not have in-house expertise. It is
contemplated that Hallmark will not act as general counsel for Crown but will
coordinate or recommend services of outside counsel as appropriate.
7. TREASURY. The Hallmark finance department will provide treasury services
which shall include cash management, foreign exchange, arranging debt or letters
of credit, managing investments (both corporate and benefit plans) and assisting
in structuring financing leasing arrangements.
8. REAL ESTATE. The Hallmark real estate department shall assist Crown in
identifying and analyzing office space and negotiating leases in connection with
such space.
9. COOPERATION. Hallmark and Crown shall cooperate with each other with
respect to all provisions of this Agreement and the Corporate Services and
Insurance (if any) provided hereunder. Hallmark may agree to provide additional
Corporate Services at its discretion.
10. LIMITATION OF LIABILITY. Except as may be provided in Section 11 below,
Hallmark, its subsidiaries, affiliates, directors, officers, employees, agents
and permitted assigns (each, a "Hallmark Party") shall not be liable to Crown,
any subsidiary or any affiliate, director, officer, employee, agent or permitted
assign of Crown or any of its subsidiaries, (each, a "Crown Party") for any
liabilities, claims, damages, losses or expenses, including, but not limited to,
any special, indirect, incidental or consequential damages, of a Crown Party
arising in connection with this Agreement, the Corporate Services or the
Insurance.
11. HALLMARK INDEMNIFICATION. Hallmark shall indemnify, defend and hold
harmless each of the Crown Parties from and against all liabilities, claims,
damages, losses, settlements and expenses (including, but not limited to, court
costs and reasonable attorneys' fees) (collectively referred to as "Damages") of
any kind or nature, of any third party unrelated to any Crown Party caused by or
arising in connection with the gross negligence or willful misconduct of any
employee of Hallmark in connection with the performance of the Corporate
Services, or provision of the Insurance, except to the extent that Damages were
caused directly or indirectly by acts or omissions of any Crown Party.
Notwithstanding the foregoing, Hallmark shall not be liable for any special,
indirect, incidental, or consequential damages relating to such Damages. In the
event that Crown has actual knowledge of a claim that may be the subject of
indemnification under this Section, it shall promptly notify Hallmark of such
claim and Hallmark, in its sole discretion, may defend, settle, or otherwise
litigate such claim.
12. CROWN INDEMNIFICATION. Crown shall indemnify, defend and hold harmless
each of the Hallmark Parties, from and against all Damages of any kind or
nature, caused by or arising in connection with this Agreement, the performance
of Corporate Services, or provision of the Insurance so long as (i) Hallmark
acted in good
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faith pursuant to and within the scope of authority granted to it by this
Agreement and in a manner it believed to be in the best interest of Crown and
(ii) Crown's conduct did not constitute gross negligence or willful misconduct.
In the event that Hallmark has actual knowledge of a claim that may be the
subject of indemnification under this Section 12, it shall promptly notify Crown
of such claim and Crown, in its sole discretion, may defend, settle, or
otherwise litigate such claim.
13. INFORMATION. Subject to applicable law, each party hereto covenants and
agrees to provide the other party with all information regarding itself and
transactions under this Agreement as are required by such other party to comply
with all applicable federal, state, county and local laws, ordinances,
regulations and codes, including, but not limited to, securities laws and
regulations.
14. ASSIGNMENT. Neither party may assign or transfer any of its rights or
duties under this Agreement to any person or entity without the prior written
consent of the other party.
15. NOTICES. Any notice, instruction, direction or demand under the terms
of this Agreement required to be in writing will be duly given upon delivery, by
hand, facsimile transmission or intercompany mail, or five (5) days after
posting if sent by U.S. mail, return receipt requested to the following
addresses:
Hallmark Cards, Incorporated
2501 McGee
P.O. Box 419126
Kansas City, Missouri 64141-6126
Attn: General Counsel
Fax No.: (816) 274-7171
Crown Media, Inc.
6430 South Fiddlers Green Circle
Suite 500
Englewood, Colorado 80111
Attn: David Evans
Fax No.: (303) 220-7660
or to such other address as either party may have furnished to the other in
writing in accordance with this Section 15.
16. GOVERNING LAW. This Agreement shall be construed in accordance with and
governed by the laws of the State of Missouri except its choice of law rules and
except to the extent preempted by federal law.
17. SUSPENSION. The obligations of any party to perform any acts hereunder
may be suspended if such performance is prevented by fires, strikes, embargoes,
riot,
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invasions, governmental interference, inability to secure goods or materials, or
other circumstances outside the control of the parties.
18. SEVERABILITY. If any provision of this Agreement shall be invalid or
unenforceable, such invalidity or unenforceability shall not render the entire
Agreement invalid. Rather, the Agreement shall be construed as if not containing
the particular invalid or unenforceable provision, and the rights and
obligations of each party shall be construed and enforced accordingly.
19. RIGHTS UPON ORDERLY TERMINATION; SURVIVAL. Upon termination or
expiration of this Agreement or any of the Corporate Services or Insurance
described herein, each party shall, upon request, forthwith return to the other
party all reports, paper, materials and other information required to be
provided to the other party by this Agreement. In addition, each party shall
assist the other in the orderly termination of this Agreement or any of the
Corporate Services or Insurance described herein. Notwithstanding any
termination of this Agreement, the obligations of the parties hereto to make
payments hereunder and the provisions of Sections 10, 11 and 12 shall survive.
20. AMENDMENT. This Agreement may only be amended by a written agreement
executed by all of the parties hereto.
21. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties, and supersedes all prior agreements, representations,
negotiations, statements or proposals related to the subject matter hereof.
22. COUNTERPARTS. This Agreement may be executed in separate counterparts,
each of which deemed an original and all of which, when taken together, shall
constitute one agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their duly authorized representatives.
HALLMARK CARDS, INCORPORATED
By /s/ JUDITH WHITTAKER
-------------------------------------
Title Vice President - General Counsel
----------------------------------
CROWN MEDIA, INC.
By /s/ WILLIAM J. ALIBER
-------------------------------------
Title CFO
----------------------------------
6
<PAGE> 1
EXHIBIT 10.13
HALLMARK ENTERTAINMENT NETWORKS, INC.
SHARE APPRECIATION RIGHTS PLAN
1. PURPOSE. To provide the chief executive officer and other key
officers of the Company with incentives linked to the increase in the Company's
market value.
2. ELIGIBILITY. The chief executive officer and other key officers of
the Company as approved by the Board of the Company.
3. SHARE APPRECIATION RIGHTS. The Board of Directors has authorized
the creation of 3,000,000 phantom share appreciation rights ("SARs"). The SARs
will be subject to restrictions herein described related to their exercise and
transferability and will provide plan participants with the right to benefit
from any increase in the value of SARs for a specified number of years. The SARs
will have none of the rights associated with common shares such as voting or
dividend rights and will have no value outside the context of this Plan.
4. UNIT VALUATION. Initially, the value of an SAR (the "Unit Value")
will be an amount equal to 3% of $450 million, i.e., $13.5 million, divided by
3,000,000. Subsequently the Unit Value will be the quotient of (i) an amount
equal to 3% of the Plan Value of the Company divided by (ii) 3,000,000;
provided, however, that the aggregate distribution pursuant to this Plan shall
not exceed $15 million and provided, further, that the aggregate distribution
pursuant to this Plan to any single person shall not exceed $10 million.
A. Except as set forth in subparagraphs 4C and D and 7B below,
during any period when the Company's stock is not publicly traded, the "Plan
Value of the Company" shall be the fair market value of the common stock of
the Company, determined as set forth below. The "fair market value of the
Company" means the price which could reasonably be expected to be obtained for
the common stock of the Company within six (6) months after the valuation if it
were sold in a single arms' length transaction wherein there would be a change
of control, using valuation techniques then prevailing in the industry that
would maximize after tax earnings to Hallmark and assuming a reasonable period
for effecting such sale. The Qualified Appraisers, hereinafter defined, shall
consider, among other factors they deem relevant and customarily considered in
transactions of this nature in determining the value of the Company, whether the
business is continuing as an ongoing concern and whether the then current
management is remaining in place and for what duration or, if known, the new
management team.
B. Except as set forth in subparagraphs 4C and D and 7B below, and
unless less than 10% of the outstanding stock of the Company is publicly traded,
during any period when the Company's common stock is publicly traded, the "Plan
Value of the Company" shall be the market capitalization of the Company (i.e.,
the closing market value of a share of common stock of the Company as shown in
The Wall Street Journal on the valuation date or the next
<PAGE> 2
following date on which such trading occurred, times the number of outstanding
shares of stock of the Company).
C. In the event of the sale of all of the outstanding stock of the
Company, the Plan Value of the Company shall be the sale price of the common
stock of the Company.
D. In the event of the sale of all or substantially all of the
assets of the Company, the Plan Value of the Company shall be the sale price of
the assets, net of the amount of any debt assumed by the buyer or the amount of
any debt required to be paid by Seller.
5. SAR GRANTS. SARs shall be granted at the discretion of the Board
of Directors. At the date of a grant of SARs, the exercise price ("Base Value")
of an SAR will equal the most recently determined Unit Value. Thereafter the
Base Value of a granted SAR will be increased by an amount equal to the quotient
of 3% of (i) any equity contribution by stockholders or members to the Company
divided by (ii) 3,000,000 and decreased by an amount equal to the quotient of
(i) 3% of any capital distributions of dividends to stockholders divided by (ii)
3,000,000.
6. SAR EXERCISE.
A. Term. The term of the Plan and of each SAR will end December
31, 2002. The SARs, vested or unvested, will have no rights or value after their
term has expired except as provided in Paragraph 7A.
B. Vesting Provisions. SARs will vest in thirty-six (36) equal
installments commencing the date of grant and monthly thereafter.
C. Payment on Exercise. Upon exercise of a vested SAR the
participant will receive the Appreciation Value of the SAR. "Appreciation Value"
means an amount equal to the excess, if any, of the Unit Value determined as
herein provided over the Base Value of the SAR being exercised. Payment will be
made in cash unless the Company is prevented by law or the terms of any credit
agreement or otherwise from doing so in which event it will issue a negotiable
note in the amount due with interest at the prevailing prime rate as published
in The Wall Street Journal on the date of issuance. Payments on any such notes
will be subordinate to the payment of indebtedness of the Company for borrowed
money from external sources, to the extent that the terms of that borrowed money
prevent payment of such notes, and will be paid as soon as permitted.
7. REDEMPTIONS.
A. Any vested SARs outstanding on the day after the end of the
Plan term shall be bought by the Company at their Appreciation Value.
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<PAGE> 3
B. In the event of the sale of a controlling interest of the
Company or of all or substantially all of its assets, the Company will have the
right (but not the obligation) to buy back any or all remaining SARs at their
Appreciation Value. In the event of a sale of a controlling interest in the
Company but not the entire Company, the Appreciation Value shall be calculated
as if it were a redemption at the end of the Plan term. In such event all SARs
shall be fully vested.
8. TERMINATION. In the event of a participant's involuntary
termination without cause or a participant's termination for "good reason" from
the Company, one-half of the participant's unvested SARs shall be vested. In the
event of a participant's voluntary termination without "good reason" or
involuntary termination with cause from the Company or its affiliates, all
unvested SARs shall be forfeited. "Termination Without Cause" as used herein
shall mean what such term is defined in a participant's employment agreement or
it shall mean (if such term is not otherwise defined in a participant's
employment agreement) termination which is not reasonably justifiable by
participant's conduct, failure to perform as directed, or behavior damaging to
the reputation or image of the Company or its business or which materially
impairs the effectiveness of the participant in his/her position. Any other
involuntary termination shall be deemed to be with cause. Termination by a
participant for "good reason" shall be as defined in his employment agreement
(or if not defined in a current employment agreement, due to a substantial
breach by the Company of his written employment agreement). The good faith
determination of the Board of Directors as to whether a termination is with or
without cause or is voluntary shall be binding on the participant.
Determination of the value of the vested SARs will be made as if SARs
were exercised at the end of the year preceding the year of the participant's
termination, except that on a termination "without causes" or for "good reason,"
a participant may elect, by written notice delivered to Company within 30 days
after such termination, to have his SARs valued under paragraph 7 as if there
had been no termination.
9. RETIREMENT, DEATH, OR PERMANENT DISABILITY. In the event of a
participant's retirement, death or permanent disability:
-- Unvested SARs shall be vested.
-- Vested SARs shall be valued at an amount equaling the difference
between the Base Value of the SARs being exercised and the most
recently determined Unit Value for such SARs pursuant to 11E prior
to the date of retirement, death or permanent disability.
10. SALE OF A CONTROLLING INTEREST. In the event of the sale of
controlling interest of the Company or of all or substantially all of its assets
and the Company does not elect to mandatorily buy-back any and/or all SARs, the
Company shall require under the terms of the
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<PAGE> 4
transaction that the third party transferee be bound by any and/or all Plan
obligations of the Company.
11. MISCELLANEOUS.
A. Funding. All benefits from this Plan shall be payable solely
from the general assets of the Company and no separate or special funds shall be
established and no segregation of assets shall be made to assure the payment of
benefits from this Plan. The participant shall have no right, title, or interest
in or to any investments which the Company may make to aid in meeting its
obligations under this Plan. Nothing contained in this document, and no action
taken pursuant to its provisions, shall create or be construed to create a trust
of any kind or a fiduciary relationship between the Company and a participant or
any other person. To the extent that any person acquires a right to receive
payments from the Company pursuant to this Plan, such rights shall be not
greater than the right of an unsecured creditor of the Company.
B. Transfer. SARs may not be transferred other than to the
Company, or one of its shareholders with the consent of the Company, and by will
or the laws of descent and distribution. Each participant shall have the
revocable right to make a written designation of one or more beneficiaries and
one or more contingent beneficiaries. The designation of a beneficiary, and any
revocation and redesignation, shall be effective when received by the Company.
No participant may assign, transfer, alienate, or encumber in any manner his
interest under this Plan. No participant may borrow funds and grant a security
interest or otherwise pledge his rights under this Plan. No provision of this
Plan shall be construed to limit the right of the Company to discharge any
participant or to confer upon any participant the right to continued employment
or any other right not specifically granted in this document.
C. Taxes. The Company shall be entitled to withhold the amount of
any withholding tax or other amounts required by law or regulation to be
withheld with respect to any amount payable under this Plan.
D. Administration. This Plan shall be administered by the Board of
Directors of the Company. The Board shall have full power to construe and
interpret this Plan, to establish and amend rules for its administration, to
grant SARs under the Plan, to decide any dispute which may arise thereunder and
to correct any defect or omission or reconcile any inconsistency in this Plan
and any employment agreement. All actions taken and decisions made by the Board
pursuant to this Plan in good faith shall be binding and conclusive on all
persons interested in the Plan. No member of the Board shall be liable for any
action or determination made in good faith with respect to the Plan.
E. Determination of Plan Value of the Company. Except as set forth
in subparagraphs 4C, 4D and 7B, the Plan Value of the Company pursuant to
Sections 4 and 7 hereof, for the purpose of valuation and payment of SARs (other
than a redemption at the end of the term) shall be as agreed by the participant
(or his legal representatives in the event of his
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death) holding more than a majority of the vested SARs (the "Designated
Participant") and the Board of Directors or, failing to agree, as determined by
the independent appraiser which values Hallmark annually, based upon its most
recent appraisal but adjusted for the fair market value definition herein
including an assumed change in control and for the Equity Return and debts as
set forth in Paragraph 4A relating to Plan Value of the Company. For the purpose
of a redemption by the Company at the end of the term and except as set forth in
subparagraphs 4C, 4D and 7B, the Plan Value pursuant to Sections 4 and 7 hereof
shall be as agreed by the Designated Participant and the Board of Directors or,
failing to agree, the Board and the Designated Participant shall each designate
a Qualified Appraiser, which Qualified Appraisers shall be retained by the
Company to determine the Plan Value of the Company as of the applicable
Appraisal Date. Each Qualified Appraiser shall submit its written determination
of the Plan Value of the Company to the Company within 45 days after the date of
its retention. If the higher determination of the two Qualified Appraisers is
not greater than 110% of the lower determination, the Plan Value of the Company
shall be the average of such two determinations. If the higher determination is
greater than 110% of the lower determination then such two Qualified Appraisers
shall jointly select within ten (10) days after the date on which the later of
such two determinations was delivered a third Qualified Appraiser to be retained
by the Company. Such third Qualified Appraiser shall deliver its written
determination of the Plan Value of the Company as of the applicable Appraisal
Date within 30 days after its retention, and the Plan Value of the Company shall
be the average of the two closest determinations or, if there are not two
closest determinations, the average of all three determinations. "Qualified
Appraiser" shall mean a nationally recognized appraisal or investment banking
firm with substantial experience as of the applicable Appraisal Date in valuing
entertainment properties. The Company shall pay the expense of the appraiser
selected by it and, up to $100,000 for the second and third appraisers
collectively. The selling participant shall pay the balance of the cost of such
appraisers.
F. Amendments. This Plan may be amended by the Board of Directors
of the Company provided if any amendment would materially adversely affect the
rights of Plan participants to outstanding SARs, e.g., the issuance of
additional SARs which would dilute the value of outstanding SARs, it must be
approved by holders of 50% of the outstanding SARs.
G. Employment Agreements. The provisions hereof may be modified by
the employment agreements between a participant and the Company. In such event
the provision of the Employment Agreement shall control.
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EXHIBIT 10.15
PROGRAM LICENSE AGREEMENT
Dated as of Nov. 13, 1998
This Program License Agreement shall serve to confirm the agreement between
Hallmark Entertainment Distribution Company ("HEDC" or "Licensor") and the
Odyssey Holdings L.L.C. ("Licensee") in connection with Licensee's acquiring
from HEDC certain exhibition rights to various HEDC product as follows:
1. Licensed Programs. Licensed Programs shall consist of television movies
and mini-series (each a "Picture" and collectively "Pictures") as follows: (a)
the programs listed on Schedule A hereto ("Library Pictures"); (b) two-hour made
for television movies and mini-series in one- or two-hour segments (in the
aggregate more than two hours and less than thirteen hours) produced by HEDC and
completed after the date hereof and during the Term for premier on a free, basic
or pay television service and which becomes available thereafter to HEDC to use
or license during the Term ("New Pictures"); and (c) programming produced by or
on behalf of HEDC for Licensee pursuant to Paragraph 8 hereof ("Original
Pictures").
2. Term. The Term shall commence as of the date hereof and expire five
years from the launch date of the Odyssey Channel (as defined in the Amended and
Restated Company Agreement of Odyssey Channel L.L.C., dated as of the date
hereof (the "Company Agreement"); provided, however, that this Agreement shall
automatically renew for successive additional three-year terms subject to the
rate adjustments provided in Paragraph 6 hereof for so long as Hallmark
Entertainment, Inc. or an affiliate thereof ("HEI") owns an interest of 10% or
more in Licensee; provided that if at the time HEI ceases to own at least 10% of
Licensee the term remaining shall be less than two years, this Agreement shall
be extended to the date two years after the date HEI ceased to own said 10%
interest subject to the rate adjustment provisions in Paragraph 6. Despite
expiration of the Term hereof the provisions of Paragraphs 3, 6, 9, 10 and 11
and all rights granted pursuant to Paragraph 5 shall remain in effect during any
Picture Term or Second Picture Term as defined in Paragraph 5 below.
3. Territory. The Territory shall be the United States together with its
possessions and territories.
4. Licensed Product. Licensee agrees to license from HEDC and HEDC agrees
to license to Licensee all Library Pictures, all New Pictures and all Original
Pictures produced by or on behalf of HEDC hereunder for exhibition on all forms
of television on the Odyssey Channel, but not including pay per view television,
commencing upon the date the Picture is available as set forth on Schedule "A"
hereto (the "Availability Date"); provided, however, if any Pictures are
televised by over-the-air broadcast, Licensee shall be responsible for payment
of all residuals in connection with such broadcast and shall copy Licensor on
all residual reports and payments sent to any guild. Schedule "A" shall be
amended from time to time to add New Pictures and Original Pictures and their
respective Availability Dates.
<PAGE> 2
5. Licensed Exhibitions.
(a) Licensee will license each Picture in the Territory for a period
of five years (or such shorter period for which any Library
Picture is available as specified on Schedule A hereto or for
which any New Picture is available despite HEDC's reasonable
efforts to obtain the right to license the Program for such
five-year period) from the Availability Date ("Picture Term") and
shall be entitled to thirty exhibition days during the Picture
Term and unlimited runs per exhibition day (collectively, the
"License"). The rights granted under the License include without
limitation the following:
(i) The right to use the title of each Picture for the
purpose of promoting, publicizing and advertising the exhibition
of the Picture on Odyssey Channel;
(ii) The right to use and perform any and all music, lyrics
and musical compositions contained in each Picture and/or
recorded in the soundtrack solely as embodied in the picture and
as part of the exhibition, advertising and publicizing of such
Picture subject to paragraph 10 of the Standard Terms and
Conditions;
(iii) The right to edit the videotapes to the extent
necessary for purposes of timing and commercial insertions,
provided that Licensee will not edit out the copyright notice or
credits
(iv) The right to publicize and advertise the exhibition of
each Picture on the Odyssey Channel throughout the Territory
during the Term, including without limitation, the right in the
Territory for the purpose of advertising and publicizing the
exhibition of each Picture on the Odyssey Channel:
(A) to publish and to license and authorize others to
publish any synopses and summaries from each Picture and
from any literary or dramatic material included in such
Picture in newspapers, magazines, trade periodicals,
booklets, press books and any other periodicals and in all
other media of advertising and publicity not exceeding 1000
words in length;
(B) to broadcast by radio and television for
advertising purposes and to authorize others to so broadcast
any parts or portions of each Picture not exceeding two
minutes in length;
2
<PAGE> 3
(C) to use and authorize others to use the name,
physical likeness and voice (and any simulations or
reproduction of any thereof as embodied in the Picture) of
any party appearing in such Picture for the purpose of
advertising or publicizing the Picture, subject to HEDC's
prior approval, not to be unreasonably withheld;
(D) to use Licensee's name and trademark in all
advertising and publicity issued by Licensee in connection
with the exhibition of each Picture on the Odyssey Channel;
(E) to permit commercial messages to be exhibited
during and after the exhibition of each Picture;
(F) to cause trailers of the Pictures and prints
thereof to be manufactured, exhibited and distributed by
every means, medium, process, method and device now or
hereafter known.
Licensee's rights hereunder are not transferable except as provided in
Paragraph 9 hereof.
(b) The License shall be exclusive to Licensee during the Term
against all forms of television, including pay per view, and
linear distribution of Pictures over the Internet, in the
Territory, and HEDC may not license or otherwise authorize the
exhibition of the Pictures in any form of television during the
Term, including, but not limited to, basic cable, traditional pay
cable, pay per view or, as described, over the Internet.
(c) Licensee shall have the option of extending the Picture Term of
any Picture for an additional three-year period ("Second Picture
Term") by providing HEDC with notice at least six months prior to
expiration of the original Picture Term. Such extension shall be
at 60% of the rate set forth in Paragraph 6 hereof.
(d) HEDC shall have the option of extending the Picture Term of any
Picture for an additional three-year period ("Second Picture
Term") by providing Licensee with notice at least six months
prior to expiration of the original Picture Term. Such extension
shall be at 50% of the rate set forth in Paragraph 6 hereof.
6. License Fees.
(a) For and in consideration of the rights and licenses granted to
Licensee hereunder, Licensee shall pay to HEDC the License Fees
set forth on
3
<PAGE> 4
Schedule "B" for Library Pictures and New Pictures and the
License Fees set forth on Schedule "C" for Original Pictures.
The amounts of such License Fees shall remain in effect until
December 31, 1999, and thereafter shall be adjusted as provided
in subparagraphs (b) and (c) below. The License Fee for each
Library Picture and New Picture shall be payable in equal annual
installments over the Picture Term payable commencing on the
Availability Date and on each anniversary thereof until paid in
full. The License Fee for each Library and New Picture in the
Second Picture Term shall be paid in full at the commencement of
the Second Picture Term. The License Fee for all Original
Pictures shall be paid one-third at the start of production,
one-third on completion of production and one-third on delivery.
(b) Commencing January 1, 2000, the amounts of such License Fees
shall increase by 5% per year on a cumulative basis and such
increase shall apply to any and all Picture Terms commencing
after January 1, 2000.
(c) Commencing January 1, 2006, the amounts of such License Fees
shall increase by the greater of (x) 5% per year and (y) the
average percentage price increase paid by Licensee for third
party programming for that same year ("Third Party Increase").
The Third Party Increase shall be estimated in good faith by the
parties in determining annual payments. The actual Third Party
Increase shall be calculated and reconciled with the estimate
within forty-five days of each year end. Such increase shall be
on a cumulative basis and shall apply to any and all Picture
Terms commencing after January 1, 2006.
7. Other Product. During the Term Licensee shall have a right of first
negotiation on a product-by-product basis with respect to television exhibition
rights controlled by HEDC for any new television product produced by HEDC which
does not fall under this agreement (i.e., specials, documentaries, etc). The
parties agree to negotiate in good faith with respect to any such product for a
period of 45 days. HEDC will negotiate exclusively with Licensee during such
period. If HEDC and Licensee fail to reach an agreement within such 45-day
period, HEDC will not thereafter offer the product to a third party on terms
more favorable than those offered to HEDC by Licensee.
8. Production. The parties agree that Licensee shall order and HEDC shall
produce or cause to be produced for Licensee four two-hour television movies and
one series (twenty-six thirty-minute episodes) during each year of the Term of
this Agreement (the "Original Pictures") except that during the first two years
of the Term, Licensee shall be required to order only two movies and one series
per year from HEDC; provided, however, HEDC shall not be required to produce any
production for which good faith revenue projections indicate HEDC will not
recoup any production deficit within five years. The parties shall have mutual
creative approval with respect to the production of the Original Pictures. If
Licensee desires any additional television
4
<PAGE> 5
movies or series produced for it during the Term, it shall order them as
follows: the first two additional movies from HEDC and the third from The Jim
Henson Company; the first two additional series from The Jim Henson Company and
the third from HEDC and continue that sequence for additional pictures. All
rights in each Original Picture shall belong to HEDC subject to the licenses
granted to Licensee pursuant to this Agreement.
9. Transferability. Licensee may sublicense and transfer its rights
hereunder to the Library Pictures and New Pictures to a third party provided
that if the compensation it receives is greater than the Licensee Fee it is
obligated to pay HEDC, the excess shall be divided equally between HEDC and
Licensee.
10. Standard Terms and Conditions. The Standard Terms and Conditions
attached hereto are incorporated herein and made a part hereof. All Licensed
Programs shall also comply with the Standards and Practices and Programming
Philosophy of Licensee, attached to the Company Agreement.
11. Governing Law. This agreement shall be construed and governed in
accordance with the laws of the State of New York and any action arising out of
or in connection with this agreement shall be brought in a court having
jurisdiction of the subject matter in New York City, and the parties hereto
agree to submit themselves to the jurisdiction of any such court.
12. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
[REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK]
5
<PAGE> 6
IN WITNESS WHEREOF, this Agreement is executed as of the date first written
above.
HALLMARK ENTERTAINMENT ODYSSEY L.L.C.
DISTRIBUTION COMPANY
By: /s/ WILLIAM J. ALIBER By: /s/ MARGARET A. LOESCH
------------------------------ ---------------------------------
Title: Vice President Title: President and CEO
--------------------------- ------------------------------
6
<PAGE> 7
STANDARD TERMS AND CONDITIONS
1. DELIVERY OF PRINTS.
(a) Licensor will deliver or cause to be delivered to Licensee ( )
type videotape of each Picture licensed by this Agreement (hereinafter
collectively called "prints" and individually called "print"). Delivery of each
print to Licensee or to Licensee's agent at a location designated by Licensee
shall be deemed to be delivery by Licensor to Licensee hereunder. All costs and
charges in connection with such delivery, including without limitation shipping
charges and insurances thereon shall be borne by Licensee. HEDC will be
responsible for all costs associated with creation and manufacture of and
insurance for the videotapes.
(b) Licensee agrees to give Licensor reasonable prior written notice
of the initial scheduled date of telecast of each Licensed Program, provided
that failure by Licensee to deliver any such notice (other than repeated
failures) shall not constitute a material breach of this Agreement. Licensee
shall notify Licensor by telefax within ten (10) business days after receipt of
a print if such print is physically defective for television broadcasting by
customary industry standards. In the event any print has not reached its
destination at least fifteen (15) days in advance of the date of scheduled
telecast thereof, Licensee shall notify Licensor by telefax. If Licensee so
notifies Licensor with respect to any such physical defect of failure of
delivery, as aforesaid, Licensor shall deliver to Licensee a replacement print
of the same Picture (or another Picture of comparable quality reasonably
acceptable to Licensee) at least two (2) days prior to the scheduled telecast.
If Licensor fails to do so, such telecast shall be deemed eliminated and the
Picture withdrawn, as provided in subparagraph (b) of paragraph 11 of this
Agreement. Failure of Licensee to give Licensor such notice as aforesaid shall
be deemed Licensee's irrevocable acknowledgment that such print has been
received and is satisfactory in all respects.
2. RETURN OF PRINTS. Licensee agrees to return to Licensor, prepaid, within
forty-eight (48) hours after the last licensed telecast of each picture, the
print (which includes the container thereof), in the same form and condition as
delivered by Licensor, ordinary wear and tear from proper use excepted. Such
print shall be returned to Licensor (along with any other material furnished by
Licensor) as specified in Schedule "A" hereto, or to any other party, or places
as Licensor may from time to time designate. Additionally, Licensee agrees to
return to Licensor, prepaid, all other material that may have been furnished by
Licensor, within one (1) week following completion of the use of such material
by Licensee, but in no event later than after the last licensed telecast. If any
prints are lost, stolen, destroyed or damaged, Licensee shall pay Licensor the
cost of replacement thereof, within seven (7) days after billing by Licensor.
Such payment shall not be construed to transfer to Licensee any right, title or
interest in or to said prints. Licensor may request that Licensee have the
prints destroyed and in such event Licensee agrees to do so, and to furnish
Licensor with Certificates of Destruction.
3. ALTERATION OF PRINTS. Licensee shall telecast each picture as delivered,
in its entirety and Licensee agrees not to cut, change, alter, modify or add to
the prints of the Pictures, or any of them, without Licensor's prior written
consent. However, Licensee may insert commercial material and make such minor
cuts as are necessary to conform to time
<PAGE> 8
segment requirements but under no circumstances shall Licensee delete or
reposition the copyright notice or the credits and billings incorporated in the
pictures as delivered by Licensor. In no event may any such insertions of
commercial material or such minor cuts to conform to time segment requirements
adversely affect the artistic or pictorial quality of the picture or interfere
with its continuity.
4. USE OF PRINTS
(a) Licensor reserves the right to change the title of any Pictures(s)
covered by this Agreement if reasonably prudent because of third party claims or
threatened claims and to license to third parties film excerpts of up to five
(5) minutes in length from any picture for television exhibition in any area at
any time.
(b) In the event Licensee does not telecast any Picture hereunder the
number of times permitted hereunder, then Licensee shall, nevertheless, pay
Licensor the applicable licensing fee specified herein with respect thereto as
if such Picture had been telecast. The paragraph shall not apply, however, in
the case of a telecast which has been eliminated and the Picture withdrawn
pursuant to subparagraph (b) of paragraph 11 of this Agreement.
(c) Licensee shall not acquire any right, title or interest in or to
any Picture or print hereunder and shall not make, authorize or permit any use
of the Picture or print other than as specified herein, Additionally, Licensee
shall not duplicate, reproduce or copy same in any manner or form whatsoever.
(d) Licensee acknowledges that the title to the Pictures and prints
furnished by Licensor shall remain in Licensor and Licensee acknowledges that
with respect to each Picture and the literary, dramatic and music material
included in each and upon which each is based, Licensor hereby expressly
reserves any and all rights not herein specifically granted to Licensee,
including, but without limitation thereof, all theatrical, non-theatrical and
home video rights and all re-make rights and sequel rights, and that such
reserved rights may be exercised and exploited by Licensor concurrently with and
during the term hereof, freely and without limitation or restriction.
5. USE OF NAMES FOR ADVERTISING. HEDC will supply Licensee with all
reasonably available promotional and marketing materials for use in any medium
(including but not limited to marketing materials, on-air promos, talent
interviews, trailers, etc.). Licensee warrants and agrees that: (a) it will
abide by and comply with the advertising and billing of each licensed picture in
accordance with such advertising, billing instructions as Licensor may timely
furnish Licensee, and that such advertising shall be made by Licensee so as not
to constitute an express, implied, direct or indirect endorsement of any
product, service or sponsor; (b) it will not advertise or announce in any manner
or media the fact that any title has been changed by Licensor of any Picture or
Pictures withdrawn by Licensor; (c) it will abide by and comply with the screen
billing in the same form as it appears on the print of the Picture or Pictures;
and (d) it will indemnify Licensor against all costs, damages, and expenses,
including, but not limited to reasonable attorney's fees and expenses, incurred
or caused to Licensor by reasons of any actual or alleged breach by Licensee of
the provisions of this paragraph. No inadvertent failure to
<PAGE> 9
accord a proper credit shall be a material breach of this Agreement provided the
Network cures such failure prospectively after receipt of written notice.
6. FORCE MAJEURE. If Licensor shall fail to make timely delivery of any
print or prints hereunder, by reason of any act of God, war, fire, flood,
strike, labor dispute, public disaster, transportation or laboratory
difficulties, order or decree of governmental agency or tribunal or another
similar or dissimilar cause beyond the control of Licensor, such failure on the
part of Licensor shall not be deemed to be a breach of this Agreement; provided
that if such failure shall continue for more than 90 days, Licensee shall have
the right to terminate the License with respect to such Picture and receive
reimbursement for any advance payments made for such Picture.
7. PAYMENT. All payments by Licensee to Licensor herein shall be made in
United States dollars by wire transfer as instructed by Licensor.
8. TAXES. Licensee shall pay and hold Licensor harmless from, all taxes
(excluding Licensor's income and franchise taxes), censorship charges or any
other charges (including interest and penalties on such amounts), assessments
and other fees now or hereafter imposed or based upon or resulting from the
delivery, exhibition, possession or use hereunder to or by Licensee of the
prints and Pictures, in whole or in part, licensed hereunder. Licensee shall
promptly provide Licensor with all written documentation requested by Licensor,
substantiating such payments including official governmental receipts. Payment
by the Licensee of the foregoing shall in no way diminish the license fees due
Licensor hereunder. To the extent that payment of any of the foregoing is made
by Licensor, Licensee shall reimburse Licensor within 20 days of written notice
thereof, and upon the failure of Licensee to so reimburse Licensor, Licensor
shall have all the remedies herein for the collection of unpaid license fees, as
well as all other remedies provided by law.
9. WARRANTY AND INDEMNITY. Licensor represents and warrants that (i) it has
the right to grant this license for the telecasting of the Pictures herein
specified, including the sound tracks forming a part thereof, and that
Licensee's exercise of the rights granted hereunder will not violate the right
of others, including without limitation trademark, copyright, privacy or
publicity; (ii) each of the Pictures is, or upon delivery will be, completely
finished, fully edited and titled and fully synchronized with dialogue, sound
and music and in all respects ready and of technical quality, adequate for
commercial television exhibition; (iii) each picture consists, or upon delivery
will consist, of a continuous and connected series of scenes, telling or
presenting a story, free from any obscene material and suitable for television
exhibition; (iv) Licensor has the right and authority to grant all rights
granted to Licensee hereunder. Licensor has not sold, assigned, licensed,
granted, encumbered or utilized any Picture or any of the literary or musical
properties used in the Pictures in any way that may negatively affect or impair
the rights, licenses and privileges granted to Licensee, and Licensor will not
do so during the Term; and (v) all claims and rights of owners of copyright or
other rights appearing, used or recorded in each Picture have been, or prior to
delivery will be, fully paid and discharged. Licensor agrees to indemnify and
hold Licensee, its officers, employees, successors and assigns free and harmless
from any and all claims, damages, liabilities, costs or expenses, including
reasonable attorney's fees and expenses, incurred by Licensee by reason of the
breach of any warranty, representation
<PAGE> 10
or agreement made by Licensor hereunder, provided, however, Licensor shall not
be liable for loss of profits or consequential damages. Licensor agrees to
defend at its own expense any action or proceedings arising out of an alleged
breach of the foregoing, warranty, provided, however, that Licensee notifies
Licensor promptly of any such claim or of the commencement of any such action or
proceedings, delegates complete and sole authority to Licensor to defend or
settle same, and cooperates fully with Licensor in the defense thereof. Licensee
represents and warrants that it has the right to enter into this Agreement and
to fully perform its obligations hereunder that it will not permit the
transmission of the pictures other than as specified herein, or after the
expiring or earlier termination of this Agreement. Licensee agrees to indemnify,
defend and hold Licensor, its officers, employees, successors and assigns, free
and harmless from any and all claims, damages, liabilities, costs or expenses,
including reasonable attorney's fees and expenses arising out of or in
connection with the use by Licensee, its successors, assigns and sublicensees of
the prints or pictures hereunder, or arising out of or by reason of any breach
of any warranty, representation or agreement made by Licensee hereunder, other
than such items for which Licensor is obligated to indemnify Licensee
hereunder.
10. MUSIC PERFORMANCE RIGHTS. Licensor warrants that the small performance
rights in and to the music contained in each Picture are either (a) controlled
by and available for license from ASCAP, BMI or other similar music performance
rights society or (b) in the public domain, or (c) controlled by Licensor and
granted to Licensee to the extent necessary to permit Licensee's use of said
prints hereunder. Licensor does not represent or warrant that Licensee may
exercise the performing rights to said material without the payment of a
performing rights royalty or license fee. Licensee shall, at its sole costs and
expense, secure all small performance rights licenses necessary for the telecast
of the musical compositions contained in each print and shall hold harmless
Licensor from any liability or damage arising from Licensee's failure to do so.
11. WITHDRAWAL AND ADJUSTMENT.
(a) Licensor may, in its absolute discretion, withdraw any licensed
Picture if Licensor determines that the telecasting thereof would or might (i)
infringe upon the rights of others; (H) violate any law, court order, government
regulation or other ruling of any governmental agency; or (iii) subject
Licensor to any liability.
(b) If Licensor elects to withdraw any Picture as set forth in the
preceding subparagraph (a) of this paragraph 11, before its initial telecast, or
if the Picture is not acquired or produced by Licensor or if Licensor does not
control distribution rights, then Licensor shall have the right, in its sole
discretion, either to deliver to Licensee another picture of comparable quality
(which picture shall be deemed to replace the Picture withdrawn) or may reduce
the number of Pictures to be delivered and paid for hereunder by one and
Licensee shall be given a refund or credit, at Licensor's election, of such
license fee for such Picture. In the event Licensee has expended out of pocket
funds for advertising and/or promoting or editing or modifying such withdrawn
Picture prior to notice of withdrawal, Licensor will reimburse Licensee such
costs of advertising, promotion, editing or modifying.
<PAGE> 11
12. BANKRUPTCY AND DEFAULT. If Licensee becomes insolvent or bankrupt or
makes an assignment for benefit of creditors, or if any property of Licensee is
attached and if such attachment is not released within 10 days after the date of
attachment, or if a receiver, liquidator, or trustee is appointed for any of
Licensee's property, or if Licensee breaches any of the material terms or
provisions of this Agreement, Licensor in addition to any and all other rights
it may have under this Agreement or in law or in equity, may at its option, from
time to time during such occurrence, do any one or more of the following:
suspend delivery or telecasting by Licensee of one or more pictures hereunder
until default is ended or remedied, terminate this Agreement, or declare the
Agreement breached and declare all unpaid amounts payable to Licensor hereunder
immediately due and specifically, if Licensee shall fail to make the payments to
Licensor or payments to any guild for residuals on a timely basis as provided in
this Agreement, Licensor shall have the right but not the obligation upon 15
business days written notice to declare Licensee in default and thereby either
to suspend the rights herein granted until the default is ended or to terminate
this Agreement without foregoing any of Licensor's rights to recover damages
deriving from Licensee's default. Licensee shall immediately return all
materials to Licensor.
If Licensor becomes insolvent or bankrupt or makes an assignment for benefit of
creditors, or if any property of Licensor is attached and not released within 10
days of the attachment, or if a receiver, liquidator or trustee is appointed for
any of Licensor's property, Licensee in addition to any and all other rights it
may have under this Agreement or in law or in equity, may upon 10 days written
notice declare Licensor in default and terminate this Agreement without
foregoing any of Licensee's rights to recover damages deriving from Licensor's
default.
A default by Licensee under this Agreement shall be deemed a default under any
and all other licenses granted by Licensor to Licensee and shall entitle
Licensor to terminate any and all such other licenses and to declare any then
unpaid balance of license fees thereunder immediately due and payable.
Upon a material breach by Licensee of any of its material obligations hereunder
other than nonpayment as described above continuing after 30 days written
notice to Licensee, Licensor shall have the right to terminate this Agreement.
Upon a material breach by Licensor of any of its material obligations hereunder
continuing after 30 days written notice to Licensor, Licensee shall have the
right to terminate this Agreement. Provided, however, neither party shall have
the right to cure the same breaches occurring twice in any one-year period.
If Licensor elects or becomes obligated to make payments in place of Licensee or
if Licensor incurs any expenses for legal services, court costs, and associated
expenses because of any breach by Licensee, the sum or sums so paid by Licensor
and the amount of such fees, costs and associated expenses shall be payable
forthwith from Licensee to Licensor, together with interest thereon at the rate
of one and one-half percent (1.5%) per month. If Licensee fails to pay the
license fees herein provided at the times due in the amounts set forth herein,
the sums unpaid shall bear interest at the rate of one and one-half percent
(1.5%) per month from the due date thereof until paid. Any payment not made
within thirty (30) days after its due date shall bear interest at the rate of
one and one-half percent (1.5%) per month computed from the original due date
until paid; however, if said rate is in excess of the maximum permitted under
the laws of the
<PAGE> 12
jurisdiction where the debt accrues, then in such event the rate of interest
shall be the maximum permitted by law. Acceptance of any payment by Licensor
after its due date shall not constitute a waiver by Licensor of any of the
rights hereunder.
13. EARLY EXPIRATION OF TERM. Notwithstanding anything contained herein to
the contrary, if Licensee releases any one or more of the pictures the number of
times permitted hereunder prior to the expiration of the term specified herein,
this license shall be deemed terminated with respect to each such picture as of
the date upon which the last permitted run is made.
14. ASSIGNMENT. Licensor reserves the right to hypothecate or pledge this
Agreement and to obtain loans from a bank or other lenders by the assignment as
security. The Licensee recognizes that this Agreement may be exhibited and or
assigned to such bank or other lenders which may thereby be induced to enter
into substantial commitments in reliance thereon. The Licensee agrees that in
the event of receipt of written notice of assignment by Licensor, monies due to
Licensor shall be paid to any bona fide third party assignee in accordance with
such instructions without offset, deductions, counter-claim, or other credits
which the Licensee may have or claim to have against Licensor. Licensor may
freely assign this Agreement to its successor or successors or to any of its
associated, affiliated and subsidiary companies, provided that any such assignee
assumes all of Licensor's obligations hereunder. This Agreement may not be
assigned by Licensee, either voluntarily or by operation of law, without the
prior written consent of Licensor. Any such assignment, if consented to by
Licensor, shall not relieve Licensee of its obligations hereunder.
15. GENERAL.
(a) HEDC will obtain and maintain in full force and effect during the
term of this Agreement errors and omissions insurance with limits of at least
$1,000,000 for any single party's claim arising out of a single occurrence and
$3,000,000 for all claims in the aggregate after a deductible of $50,000 for
each claim.
(b) Licensee acknowledges that due to spillage, telecasts or releases
of the licensed Pictures originating outside the Territory may be received by
television sets located within such basic territory and Licensee agrees that
such reception shall not constitute a breach of this Agreement by Licensor.
(c) Subject to the provisions of Paragraph 14 hereof, this Agreement
and all of its terms, conditions and other provisions and all rights herein
shall inure to the benefit of and shall be binding upon the parties hereto and
to their respective successors and assigns.
(d) The titles of the paragraphs of this Agreement are for convenience
only and shall not in any way affect the interpretation of any paragraph of this
Agreement or of the Agreement itself.
(e) A waiver by either party of any of the terms or conditions of this
Agreement in any instance shall not be deemed or construed to be a waiver of
such term or
<PAGE> 13
condition for the future, or of any subsequent breach thereof. All remedies,
rights undertakings, obligations and agreements contained in this Agreement
shall be cumulative and none of them shall be in limitation to any other remedy,
right, undertaking, obligation or agreement of either party.
(f) All notices, statements, and other documents required to be given
hereunder shall be given in writing either by personal delivery, by mail, or
telefax (except as herein otherwise expressly provided) to the persons and at
the addresses set forth in Schedule "A" hereto, or to such other persons and
addresses as may be designated in writing by either party. Notice given by mail
or by telefax shall be deemed given on the date of mailing thereof or of the
sending of such telefax.
(g) This Agreement shall be deemed made in, and shall be construed and
interpreted in accordance with the laws of, the State of New York pertaining to
contracts entirely made and to be performed therein. In the event of any
disagreement between the parties which cannot be settled by mutual agreement,
the parties agree that the federal or state courts sitting in the City, State
and County of New York (and courts with appellate jurisdiction therefrom) shall
have exclusive jurisdiction over such dispute and the resolution thereof, and
the parties agree that jurisdiction and venue in such courts in appropriate,
and that any process in connection therewith may be served in the manner
provided hereinabove for notices to the parties.
(h) All rights not specifically granted herein to the Licensee are
reserved for Licensor's use and disposition without any limitations whatsoever,
regardless of the extent to which the same are competitive with Licensee or the
license granted hereunder.
(i) This Agreement constitutes the entire agreement between Licensee
and Licensor with respect to the subject matter hereof and may not be changed,
modified, amended. or terminated except by operation of law or by a writing
signed by the parties hereto.
(j) In the event of any conflict between any provision of this
Agreement and any material law, rule or regulation, this Agreement shall be
deemed modified to the minimum extent necessary to remove such conflict.
<PAGE> 1
EXHIBIT 10.16
PROGRAM LICENSE AGREEMENT
Dated as of November 13, 1998
This Program License Agreement shall serve to confirm the agreement between
The Jim Henson Company, Inc. ("JHC" or "Licensor") and the Odyssey Holdings,
L.L.C. ("Licensee") in connection with Licensee's acquiring from JHC certain
exhibition rights to various JHC programs as follows:
1. LICENSED PROGRAMS. Licensed Programs shall consist of feature films
and television series (each a "Program" and collectively "Programs")
as follows: (a) the programs listed on Schedule A hereto (each a
"Library Program," and collectively, "Library Programs"); (b) all of
JHC's childrens television series defined as series produced primarily
for viewing by children and teens (e.g., Brats of the Lost Nebula,
Mopatop's Shop, Construction Site) and those prime time or other
television series (e.g., Muppets Tonight, Home Team) which were
originally produced by JHC after the date hereof or for airing (or
other transmission) by a broadcaster other than Licensee and which,
after the date hereof, become available for JHC to designate for
license to Licensee during the Term (each, a "New Program," and
collectively, "New Programs"); and (c) programming produced by JHC for
Licensee pursuant to Paragraph 8 hereof ("Original Programs").
2. TERM. The Term shall commence as of the date hereof and shall expire
five years from the launch date of the Odyssey Channel (as defined in
the Amended and Restated Company Agreement of Odyssey Channel L.L.C.,
dated as of the hereof (the "Company Agreement")) provided, however,
that this Agreement shall automatically renew for successive
additional three-year terms subject to the rate adjustments provided
in Paragraph 6 hereof for so long as JHC or an affiliate thereof owns
an interest of 10% or more in Licensee; provided that if at the time
JHC ceases to own at least 10% of Licensee the term remaining shall be
less than two years, this Agreement shall be extended to the date that
is two years after the date JHC ceased to own said 10% interest,
subject to the rate adjustment provisions in Paragraph 6. Despite
expiration of the Term hereof, the provisions of Paragraphs 3, 6, 9,
10 and 11 hereof and all rights granted pursuant to Paragraph 5 shall
remain in effect during any Program Term or Second Program Term as
defined in Paragraph 5 below.
3. TERRITORY. The Territory shall be the United States, together with its
territories and possessions.
4. LICENSED PRODUCT. Licensee agrees to license from JHC and JHC agrees
to license to Licensee for exhibition on all forms of television
(other than so-called "pay per view"), commencing upon the date the
Program is available as set forth on Schedule "A" hereto (the
"Availability Date"), the following: (i) all Library Programs; (ii)
all New Programs; and (iii) all Original Programs. Licensee's right
hereunder to broadcast the
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Licensed Programs over the air shall be conditioned on Licensee being
responsible for the payment of all residuals payable in connection
with such broadcasts, and Licensee agrees to copy Licensor on all
residual reports and payments sent to any guild in connection
therewith. Schedule "A" shall be amended from time to time to add New
Programs or to reflect an increase in the number of available episodes
for New Programs and Original Programs, together with their respective
Availability Dates.
5. LICENSED EXHIBITIONS.
(a) Licensee will license each Program in the Territory for a period
of five years (or such shorter period for which any Library
Program is available, as specified on Schedule A hereto, or for
which any New Program is available, in each instance
notwithstanding JHC's reasonable efforts to obtain the right to
license the Program for such five year period) from the
Availability Date ("Program Term") and shall be entitled to ten
(10) exhibition days per series episode and thirty exhibition
days for each feature film during the Program Term and two runs
per exhibition day (collectively, the "License"). The rights
granted under the License include the following:
(i) The right to use the title of each Program for the purpose
of promoting, publicizing and advertising the exhibition of
the Program on Odyssey Channel;
(ii) The right to use and perform any and all music, lyrics and
musical compositions contained in each Program and/or
recorded in the soundtrack solely as embodied in the
picture and as part of the exhibition, advertising and
publicizing of such Program subject to paragraph 10 of the
Standard Terms and Conditions attached hereto;
(iii) The right to edit the videotapes to the extent necessary
for purposes of timing and commercial insertions, provided
that Licensee will not edit out any copyright notice or
credits;
(iv) The right to publicize and advertise the exhibition of each
Program on the Odyssey Channel throughout the Territory
during the Term, including without limitation, the right in
the Territory for the purpose of advertising and
publicizing the exhibition of each Program on the Odyssey
Channel to:
(A) publish and license and authorize others to publish
any synopses and summaries from each Program and from
any literary or dramatic material included in such
Program in newspapers, magazines, trade periodicals,
booklets, press books and any other periodicals and in
all other media of advertising and publicity, not
exceeding 500 words in length;
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(B) broadcast by radio and television for advertising
purposes and to authorize others to so broadcast any
parts or portions of each Program not exceeding two
minutes in length;
(C) use and authorize others to use the name, physical
likeness and voice (and any simulations or reproduction
of any thereof as embodied in the Program) of any arty
appearing in such Program for the purpose of
advertising or publicizing the Program, subject in
each instance to JHC's prior approval, not to be
unreasonably withheld;
(D) use Licensee's name in all advertising and publicity
issued by Licensee in connection with the exhibition of
each Program on the Odyssey Channel, subject in each
instance to JHC's prior approval, not to be
unreasonably withheld; and
(E) permit commercial messages to be exhibited during and
after the exhibition of each Program;
Licensee's rights hereunder are not transferable except as provided in Paragraph
9 hereof.
(b) This License shall be exclusive to Licensee during the Term
against all forms of television, including pay-per-view and the
linear distribution of any of the Licensed Programs over the
Internet, in the Territory, and JHC may not license or otherwise
authorize the exhibition of the Programs in any form of
television, during the Term, including, but not limited to, basic
cable, traditional pay cable, and pay-per-view, or in a linear
mode over the Internet.
(c) Licensee shall have the option of extending the Program Term of
any Program for an additional three-year period ("Second Program
Term") by providing JHC with notice at least six months prior to
expiration of the original Program Term. Such extension shall be
at 60% of the license fee paid for such Program during the
Program Term.
(d) JHC shall have the option of extending the Program Term of any
Program for an additional three-year period ("Second Program
Term") by providing Licensee with notice at least six months
prior to expiration of the original Program Term. Such extension
shall be at 50% of the license fee paid for such Program during
the Program Term.
6. LICENSE FEES.
(a) For and in consideration of inter alia: (i) the rights in and to
the Library Programs granted to Licensee hereunder; (ii) the
exclusivity in and to the entire library of JHC programming
contained therein; (iii) Licensee's renewal option set forth in
Paragraph 5(b) above; and (iv) the right of first negotiation
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contained in Paragraph 7 below, Licensee shall pay to JHC the
following amounts: (i) Ten Million Dollars ($10,000,000) on
January 1, 1999; (ii) Seven Million Five Hundred Thousand Dollars
($7,500,000) on January 1, 2000; (iii) Seven Million Five Hundred
Thousand Dollars ($7,500,000) on January 1, 2001; and (iv) Five
Million Dollars ($5,000,000) on January 1, 2002. In addition,
Licensee shall pay JHC the License Fees set forth on Schedule "B"
for New Programs and the License Fees set forth on Schedule "C"
for Original Programs. The amounts of such License Fees shall
remain in effect until December 31, 1999, and thereafter shall be
adjusted as provided in subparagraphs (b) and (c) below. The
License Fees for each New Program shall be paid in equal annual
installments during the first three years of the Program Term
commencing on the Availability Date and subsequently on the next
two (2) anniversary dates thereof. The License Fee for each
Library Program and New Program in the Second Program Term shall
be paid in full at the commencement of the Second Program Term.
The License Fee for all Original Programs shall be paid one-third
at the start of pre-production, one-third on commencement of
photography, one-sixth on completion of photography and one-sixth
on delivery.
(b) Commencing January 1, 2000, the amounts of all such License Fees
shall increase by 5% per year on a cumulative basis and such
increase shall apply to any and all Program Terms commencing
after January 1, 2000.
(c) Commencing January 1, 2006, the amounts of such License Fees
shall increase by the greater of (x) 5% per year and (y) the
average percentage price increase paid by Licensee for third
party programming for that same year ("Third Party Increase").
The Third Party Increase shall be estimated in good faith by the
parties in determining annual payments. The actual Third Party
Increase shall be calculated and reconciled with the estimate
within forty-five days of each year end. Such increase shall be
on a cumulative basis and shall apply to any and all Program
Terms commencing after January 1, 2006.
7. OTHER PRODUCT. During the Term, Licensee shall have a right of first
negotiation on a product-by-product basis with respect to television
exhibition rights controlled by JHC for any new television product
which is not a New Program or an Original Program which is produced by
JHC and which does not fall under this agreement (e.g., television
specials). The parties agree to negotiate in good faith with respect
to any such product for a period of 45 days. JHC will negotiate
exclusively with Licensee during such period. If JHC and Licensee fail
to reach an agreement within such 45-day period, JHC will not
thereafter offer the product to a third party on terms more favorable
to the third party than those offered to JHC by Licensee.
8. PRODUCTION. The parties agree that Licensee shall order and JHC shall
produce or cause to be produced for Licensee two (2) two-hour
television movies and two (2) episodic television series (twenty-six x
30 minute episodes) during each year of the Term of this Agreement
(the "Original Programs"), except that during each of the first
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two years of the Term, Licensee shall be required to order only two
(2) movies and one (1) series per year from JHC. If Licensee desires
any additional television movies or series produced for it during the
Term, it shall order them as follows: the first two additional movies
shall be ordered from HEDC and the third from JHC; the first two
additional series shall be ordered from JHC and the third from HEDC,
and Licensee shall continue that sequence for all additional
programming to be ordered by it. The parties shall have mutual
creative approval with respect to the production of the Original
Programs. Notwithstanding the foregoing, JHC shall not be required to
produce any production for which good faith revenue projections
indicate JHC will not recoup any production deficit within five years.
All rights in each Original Program not expressly granted to Licensee
herein shall belong exclusively to JHC.
9. TRANSFERABILITY. Licensee may sub-license and transfer its rights
hereunder to the Library Programs and New Programs to a third party
provided that if the compensation it receives is greater than the
Licensee Fee it is obligated to pay to JHC, any such excess shall be
split equally between JHC and Licensee.
10. STANDARD TERMS AND CONDITIONS. The Standard Terms and Conditions
attached hereto are incorporated herein and made a part hereof.
11. GOVERNING LAW. This agreement shall be construed and governed in
accordance with the laws of the State of New York and any action
arising out of or in connection with this agreement shall be brought
in a court having jurisdiction of the subject matter in New York City,
and the parties hereto agree to submit themselves to the jurisdiction
of any such court.
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IN WITNESS WHEREOF, this Agreement is executed as of the date first written
above.
THE JIM HENSON COMPANY, INC. ODYSSEY HOLDINGS L.L.C.
By: /s/ CHARLES A. RIVKIN By: /s/ MARGARET A. LOESCH
-------------------------- -------------------------
Title: President and Chief Title: President and Chief
Operating Officer Executive Officer
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STANDARD TERMS CONDITIONS
1. DELIVERY OF PRINTS
(a) Licensor will deliver or cause to be delivered to Licensee ( )
type ------- videotape of each Picture licensed by this Agreement (hereinafter
collectively called "prints" and individually called "print"). Delivery of each
print to Licensee or to Licensee's agent at a location designated by Licensee
shall be deemed to be delivery by Licensor to Licensee hereunder. All costs and
charges in connection with such delivery, including without limitation shipping
charges and insurances thereon shall be borne by Licensee. JHC will be
responsible for all costs associated with creation and manufacture of and
insurance for the videotapes.
(b) Licensee agrees to give Licensor reasonable prior written notice
of the initial scheduled date of telecast of each Licensed Program, provided
that failure by Licensee to deliver any such notice (other than repeated
failures) shall not constitute a material breach of this Agreement. Licensee
shall notify Licensor by telefax within ten (10) business days after receipt of
a print if such print is physically defective for television broadcasting by
customary industry standards. In the event any print has not reached its
destination at least fifteen (15) days in advance of the date of scheduled
telecast thereof, Licensee shall notify Licensor by telefax. If Licensee so
notifies Licensor with respect to any such physical defect or failure of
delivery, as aforesaid, Licensor shall deliver to Licensee a replacement print
of the same Program (or another Program of comparable quality) reasonably
acceptable to Licensee at least two (2) days prior to the scheduled telecast. If
Licensor fails to do so, such telecast shall be deemed eliminated and the
Program withdrawn, as provided in subparagraph (b) of paragraph 11 of this
Agreement. Failure of Licensee to give Licensor such notice as aforesaid shall
be deemed Licensee's irrevocable acknowledgment that such print has been
received and is satisfactory in all respects.
2. RETURN OF PRINTS. Licensee agrees to return to Licensor, prepaid, within
forty-eight (48) hours after the last licensed telecast of each picture, the
print (which includes the container thereof), in the same form and condition as
delivered by Licensor, ordinary wear and tear from proper use excepted. Such
print shall be returned to Licensor (along with any other material furnished by
Licensor) as specified by Licensor, including to any other party, or places, as
Licensor may from time to time designate. Additionally, Licensee agrees to
return to Licensor, prepaid, all other material that may have been furnished by
Licensor, within one (1) week following completion of the use of such material
by Licensee, but in no event later than after the last licensed telecast. If any
prints are lost, stolen, destroyed or damaged, Licensee shall pay Licensor the
cost of replacement thereof, within seven (7) days after billing by Licensor.
Such payment shall not be construed to transfer to Licensee any right, title or
interest in or to said prints. Licensor may request that Licensee have the
prints destroyed and in such event Licensee agrees to do so, and to furnish
Licensor with Certificates of Destruction.
3. ALTERATION OF PRINTS. Licensee shall telecast each Program as delivered,
in its entirety and Licensee agrees not to cut, change, alter, modify or add to
the prints of the Programs, or any of them, without Licensor's prior written
consent. Notwithstanding the foregoing, Licensee may insert commercial material
and make such minor cuts as are necessary to
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conform to time segment requirements but under no circumstances shall Licensee
delete or reposition the copyright notice or the credits and billings
incorporated in the Programs as delivered by Licensor. In no event may any such
insertions of commercial material or such minor cuts to conform to time segment
requirements adversely affect the artistic or pictorial quality of the Program
or interfere with its continuity.
4. USE OF PRINTS.
(a) Licensor reserves the right to change the title of any Programs(s)
covered by this Agreement if reasonably prudent because of third party claims or
threatened claims and to license to third parties film excerpts of up to five
(5) minutes in length from any Program for television exhibition in any area at
any time.
(b) In the event Licensee does not telecast any Program hereunder the
number of times permitted hereunder, then Licensee shall, nevertheless, pay
Licensor the applicable licensing fee specified herein with respect thereto as
if such Program had been telecast. The paragraph shall not apply, however, in
the case of a telecast which has been eliminated and the Program withdrawn
pursuant to subparagraph (b) of paragraph 11 of this Agreement.
(c) Licensee shall not acquire any right, title or interest in or to
any Program or print hereunder and shall not make, authorize or permit any use
of the Program or print other than as specified herein. Additionally, Licensee
shall not duplicate, reproduce or copy same in any manner or form whatsoever.
(d) Licensee acknowledges that the title to the Programs and prints
furnished by Licensor shall remain in Licensor and Licensee acknowledges that
with respect to each Program and the literary, dramatic and music material
included in each and upon which each is based, Licensor hereby expressly
reserves any and all rights not herein specifically granted to Licensee,
including, but without limitation thereof, all theatrical, non-theatrical and
home video rights and all re-make rights and sequel rights, and that such
reserved rights may be exercised and exploited by Licensor concurrently with and
during the term hereof, freely and, without limitation or restriction.
5. USE OF NAMES FOR ADVERTISING. JHC will supply Licensee with all
reasonably available existing promotional and marketing materials for use in any
medium (including but not limited to marketing materials, on-air promos, talent
interviews, trailers, etc.). Licensee warrants and agrees that: (a) it will
abide by and comply with the advertising and billing of each Licensed Program in
accordance with such advertising, billing instructions as Licensor may furnish
Licensee, and that such advertising shall be made by Licensee so as not to
constitute an express, implied, direct or indirect endorsement of any product,
service or sponsor; (b) it will not advertise or announce in any manner or media
the fact that any title has been changed by Licensor of any Program or Programs
withdrawn by Licensor; (c) it will abide by and comply with the screen billing
in the same form as it appears on the print of the Program or Programs; and (d)
it will indemnify Licensor against all costs, damages, and expenses, including,
but not limited to reasonable attorney's fees and expenses, incurred or caused
to Licensor by reasons of any actual
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or alleged breach by Licensee of the provisions of this paragraph.
6. FORCE MAJEURE. If Licensor shall fail to make timely delivery of any
print or prints hereunder, by reason of any act of God, war, fire, flood,
strike, labor dispute, public disaster, transportation or laboratory
difficulties, order or decree of governmental agency or tribunal or another
similar or dissimilar cause beyond the control of Licensor, such failure on the
part of Licensor shall not be deemed to be a breach of this Agreement; provided
that if such failure shall continue for more than 90 days, Licensee shall have
the right to terminate the License with respect to such Program and receive
reimbursement for any advance payments made for such Program.
7. PAYMENT. All payments by Licensee to Licensor herein shall be made in
United States dollars by wire transfer as instructed by Licensor.
8. TAXES. Licensee shall pay and hold Licensor harmless from, all taxes
(excluding Licensor's income and franchise taxes), censorship charges or any
other charges (including interest and penalties on such amounts), assessments
and other fees now or hereafter imposed or based upon or resulting from the
delivery, exhibition, possession or use hereunder to or by Licensee of the
prints and Programs, in whole or in part, licensed hereunder. Licensee shall
promptly provide Licensor with all written documentation requested by Licensor,
substantiating such payments including official governmental receipts. Payment
by the Licensee of the foregoing shall in no way diminish the license fees due
Licensor hereunder. To the extent that payment of any of the foregoing is made
by Licensor, Licensee shall reimburse Licensor within 10 days of written notice
thereof, and upon the failure of Licensee to so reimburse Licensor, Licensor
shall have all the remedies herein for the collection of unpaid license fees, as
well as all other remedies provided by law.
9. WARRANTY AND INDEMNITY. Licensor represents and warrants that (i) it has
the right to grant this license for the telecasting of the Programs herein
specified, including the sound tracks forming a part thereof, and that
Licensee's exercise of the rights granted hereunder will not violate the right
of others, including without limitation trademark, copyright, privacy or
publicity; (ii) each of the Programs is, or upon delivery will be, completely
finished, fully edited and titled and fully synchronized with dialogue, sound
and music and in all respects ready and of technical quality, adequate for
commercial television exhibition; (iii) each Program consists, or upon delivery
will consist, of a continuous and connected series of scenes, telling or
presenting a story, free from any obscene material and suitable for television
exhibition; (iv) Licensor has the right and authority to grant all rights
granted to Licensee hereunder. Licensor has not sold, assigned, licensed,
granted, encumbered or utilized any Program or any of the literary or musical
properties used in the Programs in any way that may negatively affect or impair
the rights, licenses and privileges granted to Licensee, and Licensor will not
do so during the Term; and (v) all claims and rights of owners of copyright or
other rights appearing, used or recorded in each Program have been, or prior to
delivery will be, fully paid and discharged. Licensor agrees to indemnify and
hold Licensee, its officers, employees, successors and assigns free and harmless
from any and all claims, damages, liabilities, costs or expenses, including
reasonable outside attorney's fees and expenses, incurred by Licensee by reason
of the breach of any warranty, representation or
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agreement made by Licensor hereunder, provided, however, Licensor shall not be
liable for loss of profits or for consequential damages. Licensor agrees to
defend at its own expense any action or proceedings arising out of an alleged
breach of the foregoing, warranty, provided, however, that Licensee notifies
Licensor promptly of any such claim or of the commencement of any such action or
proceedings, delegates complete and sole authority to Licensor to defend or
settle same, and cooperates fully with Licensor in the defense thereof. Licensee
represents and warrants that it has the right to enter into this Agreement and
to fully perform its obligations hereunder that it will not permit the
transmission of the Programs other than as specified herein, or after the
expiring or earlier termination of this Agreement. Licensee agrees to indemnify,
defend and hold Licensor, its officers, employees, successors and assigns, free
and harmless from any and all claims, damages, liabilities, costs or expenses,
including reasonable outside attorney's fees and expenses arising out of or in
connection with the use by Licensee, its successors, assigns and sub-licensees
of the prints or Programs hereunder, or arising out of or by reason of any
breach of any warranty, representation or agreement made by Licensee hereunder,
other than such items for which Licensor is obligated to indemnify Licensee
hereunder.
10. MUSIC PERFORMANCE RIGHTS. Licensor warrants that the small performance
rights in and to the music contained in each Program are either (a) controlled
by and available for license from ASCAP, BMI or other similar music performance
rights society or (b) in the public domain, or (c) controlled by Licensor and
granted to Licensee to the extent necessary to permit Licensee's use of said
prints hereunder. Licensor does not represent or warrant that Licensee may
exercise the performing rights to said material without the payment of a
performing rights royalty or license fee. Licensee shall, at its sole costs and
expense, secure all small performance rights licenses necessary for the telecast
of the musical compositions contained in each print and shall hold harmless
Licensor from any liability or damage arising from Licensee's failure to do so.
11. WITHDRAWAL AND ADJUSTMENT
(a) Licensor may, in its absolute discretion, withdraw any Licensed
Program if Licensor determines that the telecasting thereof would or might (i)
infringe upon the rights of others; (ii) violate any law, court order,
government regulation or other ruling of any governmental agency; or (iii)
subject Licensor to any liability.
(b) If Licensor elects to withdraw any Licensed Program as set forth
in the preceding subparagraph (a) of this paragraph 11, before its initial
telecast, or if the Program is not acquired or produced by Licensor or if
Licensor does not control distribution rights, then Licensor shall have the
right, in its sole discretion, either to deliver to Licensee another Program of
comparable quality (which Program shall be deemed to replace the Program
withdrawn) or may reduce the number of Programs to be delivered and paid for
hereunder by one and Licensee shall be given a refund or credit, at Licensor's
election, of such license fee for such Program. In the event Licensee has
expended out of pocket funds for advertising and/or promoting or editing or
modifying such withdrawn Program prior to receipt of Licensor's notice of
withdrawal, Licensor will reimburse Licensee for such costs of advertising,
promotion, editing or modifying.
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12. BANKRUPTCY AND DEFAULT. If Licensee becomes insolvent or bankrupt or
makes an assignment for benefit of creditors, or if any property of Licensee is
attached and if such attachment is not released within 10 days after the date of
attachment, or if a receiver, liquidator, or trustee is appointed for any of
Licensee's property, or if Licensee breaches any of the material terms or
provisions of this Agreement, Licensor in addition to any and all other rights
it may have under this Agreement or in law or in equity, may at its option, from
time to time during such occurrence, do any one or more of the following:
suspend delivery to or telecasting by Licensee of one or more Programs hereunder
until default is ended or remedied, terminate this Agreement, or declare the
Agreement breached and declare all unpaid amounts payable to Licensor hereunder
immediately due and specifically, if Licensee shall fail to make the payments to
Licensor or payments to any guild for residuals or other re-use payments due, on
a timely basis as provided in this Agreement, Licensor shall have the right but
not the obligation upon 15 working days written notice to declare Licensee in
default and thereby either to suspend the rights herein granted until the
default is ended or to terminate this Agreement without foregoing any of
Licensor's rights to recover damages deriving from Licensee's default. Licensee
shall immediately return all materials to Licensor.
If Licensor becomes insolvent or bankrupt or makes an assignment for the benefit
of creditors, or if any property of Licensor is attached and not released within
10 days of the attachment, or if a receiver, liquidator or trustee is appointed
for any of Licensor's property, Licensee in addition to any and all other rights
it may have under this Agreement or in law or in equity, may upon 10 days
written notice declare Licensor in default and terminate this Agreement without
foregoing any of Licensee's rights to recover damages deriving from Licensor's
default.
A default by Licensee under this Agreement shall be deemed a default under any
and all other licenses granted by Licensor to Licensee and shall entitle
Licensor to terminate any and all such other licenses and to declare any then
unpaid balance of license fees thereunder immediately due and payable.
Upon a material breach by Licensee of any of its material obligations hereunder
other than nonpayment as described above continuing after 30 days written notice
to Licensee, Licensor shall have the right to terminate this Agreement. Upon a
material breach by Licensor of any of its material obligations hereunder
continuing after 30 days written notice to Licensor, Licensee shall have the
right to terminate this Agreement. Provided, however, neither party shall have
the right to cure the same breaches occurring twice in any one-year period.
If Licensor elects or becomes obligated to make payments in place of Licensee or
if Licensor incurs any expenses for legal services, court costs, and associated
expenses because of any breach by Licensee, the sum or sums so paid by Licensor
and the amount of such fees, costs and associated expenses shall be payable
forthwith from Licensee to Licensor, together with interest thereon at the rate
of one and one-half percent (1.5%) per month. If Licensee fails to pay the
license fees herein provided at the times due in the amounts set forth herein,
the sums unpaid shall bear interest at the rate of one and one-half percent
(1.5%) per month from the due date thereof until paid. Any payment not made
within thirty (30) days after its due date shall bear interest at the rate of
one and one-half percent (1.5%) per month computed from the original due date
until
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paid; however, if said rate is in excess of the maximum permitted under the
laws of the jurisdiction where the debt accrues, then in such event the rate of
interest shall be the maximum permitted by law. Acceptance of any payment by
Licensor after its due date shall not constitute a waiver by Licensor of any of
the rights hereunder.
13. EARLY EXPIRATION OF TERM. Notwithstanding anything contained herein to
the contrary, if Licensee releases any one or more of the Programs the number of
times permitted hereunder prior to the expiration of the term specified herein,
this license shall be deemed terminated with respect to each such Program as of
the date upon which the last permitted run is made.
14. ASSIGNMENT. Licensor reserves the right to hypothecate or pledge this
Agreement and to obtain loans from a bank or other lenders by the assignment as
security. The Licensee recognizes that this Agreement may be exhibited and or
assigned to such bank or other lenders which may thereby be induced to enter
into substantial commitments in reliance thereon. The Licensee agrees that in
the event of receipt of written notice of assignment by Licensor, monies due to
Licensor shall be paid to any bona fide third party assignee in accordance with
such instructions without offset, deductions, counter-claim, or other credits
which the Licensee may have or claim to have against Licensor. Licensor may
freely assign this Agreement to its successor or successors or to any of its
associated, affiliated and subsidiary companies, provided that any such assignee
assumes all of Licensor's obligations hereunder. This Agreement may not be
assigned by Licensee, either voluntarily or by operation of law, without the
prior written consent of Licensor. Any such assignment, if consented to by
Licensor, shall not relieve Licensee of its obligations hereunder.
15. GENERAL.
(a) JHC will obtain and maintain in full force and effect during the
term of this Agreement errors and omissions insurance with limits of at least
$1,000,000 for any single party's claim arising out of a single occurrence and
$3,000,000 for all claims in the aggregate after a deductible of $50,000 for
each claim.
(b) Licensee acknowledges that, due to "spillage" across borders,
telecasts or releases of the Licensed Programs originating outside the Territory
may be received by television sets located within such basic territory and
Licensee agrees that such reception shall not constitute a breach of this
Agreement by Licensor.
(c) Subject to the provisions of Paragraph 14 hereof, this Agreement
and all of its terms, conditions and other provisions and all rights herein
shall inure to the benefit of and shall be binding upon the parties hereto and
to their respective successors and assigns.
(d) The titles of the paragraphs of this Agreement are for convenience
only and shall not in any way affect the interpretation of any paragraph of this
Agreement or of the Agreement itself.
6
<PAGE> 13
(e) A waiver by either party of any of the terms or conditions of this
Agreement in any instance shall not be deemed or construed to be a waiver of
such term or condition for the future, or of any subsequent breach thereof. All
remedies, rights undertakings, obligations and agreements contained in this
Agreement shall be cumulative and none of them shall be in limitation to any
other remedy, right, undertaking, obligation or agreement of either party.
(f) All notices, statements, and other documents required to be given
hereunder shall be given in writing either by personal delivery, by mail, or
telefax (except as herein otherwise expressly provided) to the persons and at
the addresses set forth in Schedule "A" hereto, or to such other persons and
addresses as may be designated in writing by either party. Notice given by mail
or by telefax shall be deemed given on the date of mailing thereof or of the
sending of such telefax.
(g) This Agreement shall be deemed made in, and shall be construed and
interpreted in accordance with the laws of, the State of New York pertaining to
contracts entirely made and to be performed therein. In the event of any
disagreement between the parties which cannot be settled by mutual agreement,
the parties agree that the federal or state courts sitting in the City and
County of New York (and courts with appellate jurisdiction therefrom) shall have
exclusive jurisdiction over such dispute and the resolution thereof, and the
parties agree that jurisdiction and venue in such courts in appropriate, and
that any process in connection therewith may be served in the manner provided
herein above for notices to the parties.
(h) All rights not specifically granted herein to the Licensee are
reserved for Licensor's use and disposition without any limitations whatsoever,
regardless of the extent to which the same are competitive with Licensee or the
license granted hereunder.
(i) This Agreement constitutes the entire agreement between Licensee
and Licensor with respect to the subject matter hereof and may not be changed,
modified, amended, or terminated except by operation of law or by a writing
signed by the parties hereto.
(j) In the event of any conflict between any provision of this
Agreement and any material law, rule or regulation, this Agreement shall be
deemed modified to the minimum extent necessary to remove such conflict.
END OF
- STANDARD TERMS -
AND CONDITIONS
7
<PAGE> 1
EXHIBIT 10.17
PROGRAM LICENSE AGREEMENT
THIS PROGRAM LICENSE AGREEMENT dated as of November 13, 1998 between
NATIONAL INTERFAITH CABLE COALITION, INC., a Maryland not-for-profit corporation
("NICC") whose address is 74 Trinity Place, New York, New York 10006, and
ODYSSEY HOLDINGS, L.L.C., a Delaware limited liability company ("Licensee"),
whose address is 74 Trinity Place, 9th Floor, New York, New York 10006.
The parties hereby agree as follows:
1. In consideration of the sum of ten ($10) dollars paid to NICC and
for other good and valuable consideration, as more fully set forth pursuant to
an agreement between the parties dated as of the date hereof (the "Company
Agreement"), NICC hereby grants to Licensee the rights in the United States, its
territories and possessions to exhibit by means of traditional cable or digital
transmission or by any other means or method of television transmission now or
hereafter known, including over-the-air broadcast, (to the extent NICC possesses
such rights pursuant to the rights agreements with owners of programs furnished
to NICC), the programming set forth in Schedule A annexed hereto and made a part
hereof, (the "Programs") on THE ODYSSEY CHANNEL (or successor thereto) in
accordance with the terms hereinbelow set forth. As used herein "Programs" shall
have the same meaning as "NICC Programming" in the Company Agreement. With
respect to over-the-air programming, Licensee will pay any required residual or
step-up payments for such over-the-air use. Schedule A shall be amended from
time to time by adding additional programs, their respective terms of license,
and their license fees, if
<PAGE> 2
any. License fees for programs in addition to the minimum number of hours of
programming to be delivered by NICC for the annual program license fee, if any,
may be funded in whole or in part by Licensee for license fees to be agreed
upon.
The rights granted under the License include, without limitation, the
following:
(i) The right to use the title or titles by which each Program
is or may be known or identified.
(ii) The right to use and perform any and all music, lyrics,
and musical compositions contained in each Program and/or recorded in
the soundtrack thereof in connection with the distribution,
exhibitions, advertising, publicizing and exploitation of such Program.
(iii) The right to edit the videotapes of the Programs but
only to the extent necessary for purposes of timing and commercial
insertions, provided that Licensee will not edit out the copyright
notice or credits.
(iv) The right to publicize and advertise each Program
throughout the Territory during the Term, including without limitation,
the right in the Territory for the purpose of advertising, publicizing
and exploiting each Program to:
(A) Literary Material: Publish and to license and authorize
others to publish any synopses, summaries, adaptations, and excerpts
from each Program and from any literary or dramatic material included
in such Program in newspapers, magazines, trade periodicals, booklets,
press books and any other
2
<PAGE> 3
periodicals and in all other media of advertising and publicity not
exceeding 2,500 words in length.
(B) Radio and Television: Broadcast by radio and television
for advertising purposes and to license and authorize others to so
broadcast any parts or portions of each Program not exceeding five (5)
minutes in length (unless otherwise notified by NICC) and any literary
or dramatic material included in the Program or upon which the Program
was based alone or in conjunction with other literary, dramatic or
musical material.
(C) Names and Likenesses: Use and license and authorize others
to use the name, physical likeness and voice (and any simulations or
reproduction thereof) of any party rendering services in connection
with each Program for the purpose of advertising, publicizing or
exploiting the Program, subject to NICC's prior approval, not to be
unreasonably withheld.
(D) Use of Name and Trademarks: To use Licensee's name and
trademark on the positive prints of the Program and in trailers
thereof, and in all advertising and publicity relating thereto, in such
a manner, position, form and substance as Licensee may elect.
(E) Commercials: To permit commercial messages to be exhibited
during and after the exhibition of each Program.
3
<PAGE> 4
(F) Trailers: To cause trailers for the Programs and prints
thereof to be manufactured, exhibited and distributed by every means,
medium, process, method and device now or hereafter known.
The License shall be exclusive to Licensee during the Term against all
forms of exhibition and distribution in the Territory through any medium, means
or instrumentalities now or hereafter known, including, but not limited to,
cable, pay-per-view, over-the-air broadcast and super-stations.
Notwithstanding the foregoing, the parties recognize that some of the
Programs furnished pursuant to this Agreement may be furnished without cost to
NICC or may be substantially subsidized by faith groups. In this regard, it is
agreed that with respect to programs provided by the faith groups without cost
to NICC, or for which NICC pays less than one-third of the production costs of
such programs, the rights to such free or heavily subsidized programs so
obtained by NICC may be non-exclusive if NICC's rights to such programs are
non-exclusive.
The Term of this Agreement shall commence on the Effective Date hereof
and shall terminate when the Company Agreement is terminated.
Pursuant to the terms of the Company Agreement, Licensee will advance
to NICC an annual program license fee of $5 million dollars, which amount will
be adjusted each year according to the terms of the Company Agreement. The
program license fee shall be payable to NICC in equal quarterly installments on
the first day of each contract or calendar quarterly period as mutually agreed,
commencing on the date of execution of this Agreement or January 1, 1999. The
advance will be treated as an advance payment against Programs undertaken to be
produced
4
<PAGE> 5
or acquired by NICC and licensed to Licensee after the closing of the Company
Agreement. NICC shall not use the advance or any portion thereof for any
purpose other than to produce and/or acquire Programs and any activities
directly or indirectly related thereto (e.g., obtaining E&O insurance and
developing new programs). NICC shall furnish no less than two hundred (200)
hours of programming per year in consideration of license fees paid by Licensor
pursuant to the Company Agreement. Programming shall comply with Licensee's
technical standards and quality requirements for programs of comparable genre
and budget. Such programming shall be selected by NICC in consultation with
Licensee, a sufficient number of days prior to the calendar quarter in which
such programming is to be exhibited as mutually determined by the parties. In
the event NICC fails to deliver any programming in accordance with the terms of
this Agreement (e.g., fails to deliver any or sufficient programming, fails to
deliver the programming in a timely manner, such programming does not meet
Licensee's technical standards or the delivery or use of such programming
violates the rights of a third party) then, in addition to all of Licensee's
rights and remedies under this Agreement, Licensee shall have the right to
substitute for such NICC programming any programming it chooses in its sole
discretion.
2. NICC represents that it has the right and authority to grant the
rights granted to Licensee hereunder, and the license to televise all of the
Programs with the right to sublicense those rights to Licensee as herein
provided. NICC further represents and warrants that (i) Licensee's exercise of
its rights hereunder will not violate or infringe any right of any third party,
(ii) each of the Programs is, or upon delivery will be, completely finished,
fully edited and titled and fully synchronized with dialogue, sound and music
and in all respects ready and of a
5
<PAGE> 6
quality, both artistic and technical, adequate for commercial public exhibition;
and (iii) all claims and rights of owners of copyright or other rights
appearing, used or recorded in each Program have been, or prior to delivery will
be, fully paid and discharged.
3. The respective terms (unless earlier terminated as provided in
Paragraph 9 below) of the licenses for the Programs are set forth with respect
to each such Program on Schedule A. Upon the expiration of the term for a
particular Program, the license herein shall terminate with respect to that
Program.
4. For each Program delivered by NICC to Licensee hereunder, NICC shall
furnish the Program materials specified in Schedule B, appended hereto and made
a part hereof at least thirty (30) days prior to the initial scheduled date of
telecast; provided Licensee has notified NICC of such date. Such materials, if
broadcast or duplicating materials, will be of network quality and in a format
designated in Schedule B. Licensee will examine the materials, and if they are
technically defective, Licensee will return the materials to NICC at NICC's
cost, and NICC will furnish acceptable replacement materials. NICC will be
responsible for all costs associated with the creation and manufacture of the
Program materials.
5. To the extent there are any conflicts between the terms and
conditions of this Program License Agreement and the terms and conditions of the
Company Agreement, the terms and conditions of the Company Agreement will
prevail.
6. All rights in and to the Programs not herein specifically licensed
to Licensee, are reserved to NICC for its use and disposition.
6
<PAGE> 7
7. A. Licensee agrees to indemnify, defend and hold harmless NICC and
its officers, directors, employees, agents, licensees, successors and assigns,
from and against any losses, judgments, settlements, damages, costs and expenses
(including reasonable attorney's fees), resulting from any claim relating solely
to Licensee's exercise of rights in the Programs or any claims by the owners of
the Programs, other than with respect to any matter for which NICC has agreed to
indemnify Licensee hereunder.
B. NICC agrees to indemnify and hold harmless Licensee and its
officers, directors, employees, agents, licensees, successors and assigns from
and against any losses, judgements, settlements, damages, costs and expenses
(including reasonable attorney's fees), resulting from any breach of a material
representation, warranty or obligation of NICC.
8. NICC at its own expense, shall procure and maintain in full force
and effect at all times during the term of this agreement, with a responsible
insurance carrier acceptable to Licensee, an errors and omissions liability
insurance policy with respect to Licensee's cablecasting or other transmission
services with a limit of liability of not less than one million/three million
dollars insuring against (without limitation) any claims that may arise with
respect to its cablecasting of the Programs. Such insurance policy shall be
written for the benefit of Licensee and NICC and shall provide for at least 30
days' prior written notice to the parties of the cancellation or substantial
modification thereof. NICC shall deliver a certificate of such insurance to
Licensee promptly upon issuance of said insurance policy, and from time to time
upon reasonable request by Licensee, promptly shall furnish to Licensee evidence
of the maintenance of said insurance policy.
7
<PAGE> 8
9. A. NICC shall have the right to terminate this License Agreement in
the event that any of the following shall occur:
(i) Licensee or its successors or assigns shall discontinue or
substantially discontinue its cable television operations.
(ii) Licensee files a petition in bankruptcy, is adjudicated a
bankrupt, becomes insolvent, makes an assignment for the benefit of
creditors, or if a receiver, liquidator, or trustee is appointed for
its business or assets, or Licensee otherwise takes advantage of any
insolvency law or similar law for the protection of debtors, or suffers
a petition of bankruptcy to be filed against it.
(iii) Licensee defaults in any of its obligations hereunder
and does not cure same within thirty (30) days after receiving written
notice from NICC specifying the default. Any termination pursuant to
this subparagraph shall be without prejudice to NICC's rights to
pursue other remedies, including the right to recover damages and to
obtain injunctive relief.
B. Licensee may not terminate this License Agreement and Licensee's
remedies, in the event of any breach by NICC, shall be limited to an action at
law for monetary damages except upon liquidation of the assets of Licensee.
11. This Agreement shall not be modified or waived, in whole or in
part, except in a writing signed by both parties. A waiver by either party of
any breach or default by the other party shall not be construed as an ongoing
waiver or waiver of any other breach or default. All notices required or
permitted to be given pursuant to this agreement shall be deemed
8
<PAGE> 9
sufficiently given when delivered personally during a business day to the
address first above written (or such other address as to which notice is given
pursuant to these provisions), or three days after the posting thereof by
first-class mail (postage prepaid), or on the first business day following the
sending of a telefax, or on the day of receipt of overnight courier service.
This agreement shall be governed by and construed in accordance with the law of
the State of New York applicable to contracts made and wholly to be performed
therein, constitutes the entire understanding of the parties with respect to the
subject matter hereof, and supersedes any prior oral or written understandings
or agreements with respect thereto. This agreement does not constitute a
partnership, joint venture, or agency between the parties, nor shall either
party be bound or become liable because of any representation, action, or
omission of the other.
IN WITNESS WHEREOF, the parties have caused this Program License
Agreement to be executed by their respective duly authorized officers as of the
date first above written.
NATIONAL INTERFAITH CABLE
COALITION, INC.
By: /s/ DAVID P. MATTHEWS
-----------------------
Its
ODYSSEY HOLDINGS, L.L.C.
By: /s/ MARGARET A. LOESCH
-----------------------
Its President and CEO
9
<PAGE> 1
EXHIBIT 10.18
TRADEMARK SUBLICENSE AGREEMENT
This Agreement is made and entered into as of May 12, 1998, by and between
HALLMARK ENTERTAINMENT NETWORK, INC. ("HEN") and H&H PROGRAMMING-ASIA, LLC (the
"Network").
WHEREAS, Hallmark Licensing, Inc. ("Hallmark Licensing") is the owner of
the trademark "Hallmark Entertainment" in the United States; and
WHEREAS, Hallmark Cards, Incorporated ("Hallmark") has filed and is
contemplating filing trademark applications for "Hallmark Entertainment" in
various other countries; and
WHEREAS, HEN is a licensee of Hallmark and Hallmark Licensing to use the
trademark "Hallmark Entertainment" (the "Licensed Mark") in connection with the
production, promotion, marketing, advertising, distribution and sale of its
programming; and
WHEREAS, HEN desires to permit the Partnership to use the Licensed Mark as
herein provided and Hallmark and Hallmark Licensing hereby consent to such use.
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, the parties hereto agree as follows:
1. Grant. To the extent of its present or future interest therein, HEN
hereby grants to the Partnership a non-exclusive license to use the Licensed
Mark in connection with the production, promotion, marketing, advertising,
distribution and sale of the Partnership's Service (as defined herein) in Asia.
The "Service" shall mean high-quality, family oriented television programming
channel distributed as the "Kermit Channel." Hen represents that it is not a
party to any agreement granting to any third party rights that conflict with
the rights granted hereunder.
2. Limitations. In no event shall the Network be permitted to use the
name "Hallmark" alone or to abbreviate, shorten or otherwise alter the Licensed
Mark. Furthermore, the Network acknowledges and agrees that it may not assign
or sublicense the rights granted hereunder or permit any third party to utilize
the Licensed Mark other than third party use incidental to licensees' use
described in paragraph 1 hereof.
3. Standards and Approval. The Network acknowledges its familiarity with
the standards of quality and guidelines maintained by HEN and its licensors for
the use of the Licensed Mark and the name "Hallmark," and Network agrees to
faithfully maintain these same standards, including but not limited to
complying with the broadcast standards set forth on Exhibit A. Furthermore,
Network agrees to comply with any guidelines or rules for use of the Licensed
Mark as HEN or its licensors may, from time to time, promulgate in order to
protect the quality image and reputation which the Licensed Mark and name
"Hallmark" presently enjoy and such guidelines or rules shall be incorporated
herein as a part of this Agreement. Network shall, at the request of HEN or
Hallmark, submit pictures, film credits, advertising and promotional materials,
<PAGE> 2
and other materials making use of the Licensed Marks to HEN or Hallmark, as
applicable for review to ensure the Licensed Marks are, in such party's
judgement, being used properly.
4. Trademark Protection. Network agrees to cooperate with HEN and its
licensors in obtaining and preserving for Hallmark and Hallmark Licensing
trademark protection for the Licensed Mark and the name "Hallmark," to execute
all documents which in HEN's or its licensors' judgment are necessary therefor.
Network does hereby absolutely grant, convey, and assign to Hallmark and
Hallmark Licensing any and all legal and equitable right, title and interest,
both tangible and intangible, which it has or may hereafter acquire in the
Licensed Mark, including, but not limited to, any goodwill hereinafter
generated or created by it or anyone acting or claiming under it.
5. Representations. HEN represents and warrants that, to the best of its
knowledge, Hallmark Cards, Incorporated owns all rights sublicensed to Network
hereunder in the Licensed Mark and that HEN has the right, ability and authority
to enter into this Agreement and to carry out the terms hereof.
6. Term. The term of this Agreement shall commence effective as of the date
first written above and may be terminated by any party at any time upon thirty
(30) days written notice to the other.
7. Governing Law. The validity, construction, and performance of this
Agreement shall be governed by and interpreted in accordance with the laws of
the State of Missouri.
2
<PAGE> 3
IN WITNESS WHEREOF, this Agreement is executed as of the date first
written above.
HALLMARK ENTERTAINMENT H&H PROGRAMMING-ASIA, LLC
NETWORK, INC.
By /s/ WILLIAM J. ALIBER By /s/ WILLIAM J. ALIBER
----------------------------- -------------------------------
Title VP Title VP
-------------------------- ----------------------------
Consented and Agreed by:
HALLMARK CARDS, INCORPORATED HALLMARK LICENSING, INC.
By /s/ JUDITH WHITTAKER By /s/ JUDITH WHITTAKER
---------------------------- -------------------------------
Title Vice President Title Vice President
------------------------- ----------------------------
<PAGE> 1
EXHIBIT 10.19
PROGRAM LICENSE AGREEMENT
Dated As Of May 12, 1998
This Program License Agreement shall serve to confirm the agreement
between Hallmark Entertainment Distribution Company ("HEDC") and H&H
Programming - Asia, LLC ("Licensee") in connection with Licensee acquiring from
HEDC certain exhibition rights to various HEDC product as follows:
1. Licensed Product. Licensee agrees to license from HEDC and HEDC
agrees to license to Licensee each program set forth in Schedule "A" hereto
(each, a "Picture") for exhibition on The Kermit Channel television service
(the "Service") in the Territory. HEDC shall be responsible for dubbing and/or
subtitling each Picture, as appropriate, in the language(s) in which the
Service will be telecast in the Territory.
2. Territory. The licensed territory shall consist, on any given date of
the "Territory" as defined in the Operating Agreement dated as of the date
hereof between The Jim Henson Company and Hallmark Entertainment Network,
Inc. relating to the Licensee.
3. Licensed Exhibitions. Licensee will license each Picture for broadcast
on the Service for three windows in the Territory as set forth below and
Licensee shall be entitled to its customary number of telecasts during each
window. HEDC shall not license any television rights (standard or nonstandard)
for any Picture to any third party during Licensee's three windows for such
Picture. Licensee shall have the exclusive standard and nonstandard television
rights during each of its three windows. Additionally, Licensee shall be
permitted to utilize and exhibit excerpts of up to 3 minutes in length from any
Picture to advertise and promote the Pictures and The Kermit Channel.
(a) With respect to each Picture, the first transmission window,
(the "First Window") shall commence upon the date such Picture is
available in the Territory as set forth on Schedule "A" hereto
(the "Availability Date") and shall expire 18 months after
Licensee's initial transmission of such Picture in the
Territory, provided, however, that such initial transmission
shall occur or be deemed to have occurred prior to the one year
anniversary of Availability Date (the "First Window Expiration
Date"). Following the First Window Expiration Date, HEDC shall
have the right to license such Picture to a third party provided
that such third party license is effective within 12 months after
the First Window Expiration Date and expires within such length
of time as is customary in such media and territory. The date of
such expiration shall be the "Second Availability Date." If HEDC
does not enter into such third party license agreement prior to
the one year anniversary of the First Window Expiration Date,
then the Second Availability Date shall be two years after the
First Window Expiration Date or such earlier date as either
party, at its sole election, stipulates.
<PAGE> 2
(b) The Second Window shall commence upon the Second Availability
Date and shall expire 18 months thereafter (the "Second Window
Expiration Date"). Following the Second Window Expiration Date,
HEDC shall have the right to license such Picture to a third
party thereafter, provided that such third party license is
effective within 12 months after the Second Window Expiration
Date and expires within such length of time as is customary in
such media and territory. The date of such expiration shall be
the "Third Availability Date." If HEDC does not enter into such
third party license agreement prior to the one year anniversary
of the Second Window Expiration Date, then the Third Availability
Date shall be two years after the expiration of the Second Window
Expiration Date, or such earlier date as either party, at its
sole election stipulates.
(c) The Third Window shall commence upon the Third Availability Date
and shall expire 18 months thereafter.
4. License Fees. For and in consideration of the rights and licenses
granted to Licensee hereunder, Licensee shall pay to HEDC such License Fees, on
a Picture-by-Picture basis, as are specifically set forth in Schedule "B". The
License Fee shall constitute payment for one window and therefore shall be
payable for each of the three windows. The License Fee for each window shall be
payable in six equal installments; one installment payable at the end of each of
six consecutive calendar quarters commencing with the calendar quarter during
which the respective window commences. The amounts of such License Fees shall
remain in effect until December 31, 1999. Commencing January 1, 2000, the
amounts of such License Fees shall increase by 5% per year on a cumulative basis
and such increase shall apply to any and all windows commencing after such
increase.
5. Other Product. Licensee shall have a right of first negotiation
with respect to acquiring for broadcast on the Service any television product
which is not covered by this Agreement for which HEDC, Hallmark Entertainment,
Inc. or any subsidiary of Hallmark Entertainment, Inc. controls the rights in
the Territory during the Term, whether produced prior to or after the date of
this Agreement, subject to those existing output distribution arrangements
identified on Schedule "C" attached hereto.
6. Standard Terms & Conditions. The Standard Terms and Conditions
attached hereto as Exhibit I are incorporated by reference and shall constitute
firm and binding terms and conditions of the Agreement as if recited herein.
In the event of any inconsistency between such Standard Terms and Conditions
and those set forth above, the latter shall prevail.
In Witness Whereof, the parties hereto have executed this agreement as of
the date set forth above.
HALLMARK ENTERTAINMENT H & H PROGRAMMING-ASIA, LLC
DISTRIBUTION COMPANY
By /s/ WILLIAM J. ALIBER By /s/ CHARLES A. RIVKIN
---------------------------- ------------------------------
Title VP Title President & COO
------------------------- ----------------------------
<PAGE> 3
EXHIBIT I
STANDARD TERMS AND CONDITIONS
1. DELIVERY OF PRINTS.
(a) Licensor will deliver or cause to be delivered to Licensee ( ) type
_______ videotape of each Picture licensed by this Agreement (hereinafter
collectively called "prints" and individually called "print"). Delivery of each
print to Licensee or to Licensee's agent shall be deemed to be delivery by
Licensor to Licensee hereunder. All costs and charges in connection with such
delivery, including without limitation shipping charges and insurances thereon
shall be borne by Licensee.
(b) Licensee agrees to give Licensor not less than sixty (60) days prior
written notice of the scheduled date of each telecast. Licensee shall notify
Licensor by telegram within seventy-two (72) hours after such receipts if such
print is physically defective for television broadcasting by customary industry
standards. In the event any print has not reached its destination at least
fifteen (15) days in advance of the date of scheduled telecast thereof, Licensee
shall notify Licensor by telegram of telefax. If Licensee so notifies Licensor
with respect to any such physical defect of failure of delivery, as aforesaid,
and Licensor does not deliver to Licensee a replacement print of the same
picture (or another picture of comparable quality) in time for the scheduled
telecast, such telecast shall be deemed eliminated and the picture withdrawn, as
provided in subparagraph (b) of paragraph 11 of this Agreement. Failure of
Licensee to give Licensor such notice as aforesaid shall be deemed Licensee's
irrevocable acknowledgement that such print has been received and is
satisfactory in all respects.
2. RETURN OF PRINTS. Licensee agrees to return to Licensor, prepaid, within
forty-eight (48) hours after the last licensed telecast of each picture, the
print (which includes the container thereof), in the same form and condition as
delivered by Licensor, ordinary wear and tear from proper use excepted. Such
print shall be returned to Licensor (along with any other material furnished by
Licensor) as specified in Schedule "A" hereto, or to any other party, or places
as Licensor may from time to time designate. Additionally, Licensee agrees to
return to Licensor, prepaid, all other material that may have been furnished by
Licensor, within one (1) week following completion of the use of such material
by Licensee, but in no event later than after the last licensed telecast. If any
prints are lost, stolen, destroyed or damaged, Licensee shall pay Licensor the
cost of replacement thereof, within seven (7) days after billing by Licensor.
Such payment shall not be construed to transfer to Licensee any right, title or
interest in or to said prints. Licensor may request that Licensee have the
prints destroyed and in such event Licensee agrees to do so, and to furnish
Licensor with Certificates of Destruction.
3. ALTERATION OF PRINTS. Licensee shall telecast each picture as delivered,
in its entirety and Licensee agrees not to cut, change, alter, modify or add to
the prints of the pictures, or any of them, without Licensor's prior written
consent. However, Licensee may insert commercial material and make such minor
cuts as are necessary to conform to time segment requirements but under no
circumstances shall Licensee delete or reposition the copyright notice or the
credits and billings incorporated in the pictures as delivered by Licensor. In
no event may
<PAGE> 4
any such insertions of commercial material or minor cuts to conform to time
segment requirements adversely affect the artistic or pictorial quality of the
picture or interfere with its continuity.
4. USE OF PRINTS
(a) Licensee shall telecast said pictures only from the originating
transmitter(s) and antenna of the station(s) specified herein, or, if none is
specified, to transmitters within the Territory. Licensee shall not, make,
authorize or permit any telecast hereof to be amplified, re-transmitted or
relayed on the same or on any other frequency by any translator or booster
station, community antenna system, or any other device or method not
specifically authorized herein.
(b) Licensor reserves the right to change the title of any
picture(s) covered by this Agreement and to license to third parties film
excerpts of up to five (5) minutes in length from any picture for television
exhibition in any area at any time.
(c) In the event Licensee does not telecast any picture hereunder
the number of times permitted hereunder, the Licensee shall, nevertheless, pay
Licensor the applicable licensing fee specified herein with respect thereto as
if such picture had been telecast. The paragraph shall not apply, however, in
the case of a telecast which has been eliminated and the picture withdrawn
pursuant to subparagraph (b) of paragraph 11 of this Agreement.
(d) Licensee shall not acquire any right, title or interest in or to
any picture or print hereunder and shall not make, authorize or permit any use
of the picture or print other than as specified herein. Additionally, Licensee
shall not duplicate, reproduce or copy same in any manner or form whatsoever.
(e) Licensee acknowledges that the title to the pictures and prints
shall remain in Licensor and Licensee acknowledges that with respect to each
picture and the literary, dramatic and music material included in each and upon
which each is based, Licensor hereby expressly reserves any and all rights not
herein specifically granted to Licensee, including, but without limitation
thereof, all theatrical, non-theatrical and home video rights and all remake
rights and sequel rights, and that such reserved rights may be exercised and
exploited by Licensor concurrently with and during the term hereof, freely and
without limitation or restriction.
5. USE OF NAMES FOR ADVERTISING. Licensee warrants and agrees that (a)
it will abide by and comply with the advertising and billing of each licensed
picture in accordance with such advertising, billing instructions as Licensor
may furnish Licensee, and that such advertising shall be made by Licensee so as
not to constitute an express, implied, direct or indirect endorsement of any
product, service or sponsor; (b) it will not advertise or announce in any
manner or media any title changed by Licensor of any picture or pictures
withdrawn by
2
<PAGE> 5
Licensor; (c) it will abide by and comply with the screen billing in the same
form as it appears on the print of the picture or pictures; and (d) it will
indemnify Licensor against all costs, damages, and expenses, including, but not
limited to reasonable attorney's fees and expenses, incurred or caused to
Licensor by reasons of any actual or alleged breach by Licensee of the
provisions of this paragraph.
6. FORCE MAJEURE. If Licensor shall fail to make timely delivery of any
print or prints hereunder, by reason of any act of God, war, fire, flood,
strike, labor dispute, public disaster, transportation or laboratory
difficulties, order or decree of governmental agency or tribunal or another
similar or dissimilar cause beyond the control of Licensor, such failure on the
part of Licensor shall not be deemed to be a breach of this Agreement.
7. PAYMENT. All payments by Licensee to Licensor herein shall be made in
United States dollars by wire transfer as instructed by Licensor. Licensee shall
obtain at its expense all necessary permits from governmental authorities to
make all payments to Licensor required hereunder.
If any payment is prohibited to be made in the stipulated currency and a license
for payment in the stipulated currency cannot be obtained, Licensor may demand
payment in local currency at the rate of exchange in effect on the due date or
on the date of actual payment, whichever results in the greater amount in local
currency or terminate the agreement with respect to such territory. Licensee
shall pay Licensor for any and all costs, including reasonable attorney's fees
and expenses, incurred by Licensor in collecting any sums due under this
Agreement.
8. TAXES. Licensee shall pay and hold Licensor harmless from all taxes
(excluding Licensor's income and franchise taxes), censorship charges or any
other charges (including interest and penalties on such amounts), assessments
and other fees now or hereafter imposed or based upon or resulting from the
delivery, exhibition, possession or use hereunder to or by the Licensee of the
prints and pictures, in whole or in part, licensed hereunder. Licensee shall
immediately provide Licensor with all written documentation requested by
Licensor, substantiating such payments including official governmental receipts.
Payment by the Licensee of the foregoing shall in no way diminish the license
fees due Licensor hereunder. To the extent that payment of any of the foregoing
is made by Licensor, Licensee shall reimburse Licensor on demand, and upon the
failure of Licensee to so reimburse Licensor, Licensor shall have all the
remedies herein for the collection of unpaid license fees, as well as all other
remedies provided by law.
9. WARRANTY AND INDEMNITY. Licensor represents and warrants that it has the
right to grant this license for the telecasting of the pictures herein
specified, including the sound tracks forming a part thereof, and that such use
of by Licensee will not violate the right of others. Licensor agrees to
indemnify and hold Licensee, its officers, employees, successors and assigns
free and harmless from any and all claims, damages, liabilities, costs or
expenses, including reasonable attorney's fees and expenses, incurred by
Licensee by reason of the breach
3
<PAGE> 6
of the foregoing warranty, provided, however, Licensor shall not be liable for
loss of profits or consequential damages. Licensor agrees to defend at its own
expense any action or proceedings arising out of an alleged breach of the
foregoing, warranty, provided, however, that Licensee notifies Licensor
promptly of any such claim or of the commencement of any such action or
proceedings, delegates complete and sole authority to Licensor to defend or
settle same, and cooperates fully with Licensor in the defense thereof.
Licensee represents and warrants that it has the right to enter into this
Agreement and to fully perform its obligations hereunder that it will not
permit the transmission of the pictures other than as specified herein, or
after the expiring or earlier termination of this Agreement. Licensee agrees to
indemnify, defend and hold Licensor, its officers, employees, successors and
assigns, free and harmless from any all claims, damages, liabilities, costs or
expenses, including reasonable attorney's fees and expenses arising out of or
in connection with the use by Licensee, its successors, assigns and
sublicensees of the prints or pictures hereunder, or arising out of or by
reason of any breach of warranty, undertaking, representation or agreement made
or entered into herein or Licensee's part.
10. MUSIC PERFORMANCE RIGHTS. Licensor warrants that the small
performance rights in and to the music contained in each Picture are either (a)
controlled by and available for license from ASCAP, BMI or other similar music
performance rights society or (b) in the public domain, or (c) controlled by
Licensor and granted to Licensee solely to the extent necessary to permit
Licensee's use of said prints hereunder. Licensor does not represent or warrant
that Licensee may exercise the performing rights to said material without the
payment of a performing rights royalty or license fee. Licensee shall, at it
sole cost and expense, secure all small performance rights licenses necessary
for the telecast of the musical compositions contained in each print and shall
hold harmless Licensor from any liability or damage arising from Licensee's
failure to do so.
11. WITHDRAWAL AND ADJUSTMENT.
(a) Licensor may, in its absolute discretion,withdraw any licensed
picture if Licensor determines that the telecasting thereof would or might (i)
infringe upon the rights of others; (ii) violate any law, court order,
government regulation or other ruling of any governmental agency; (iii)
interfere with the actual or contemplated use of the licensed picture or the
material, or rights contained therein for any purpose other than the telecasting
of the picture in Licensee's basic area; or (iv) subject Licensor to any
liability.
(b) If Licensor elects to withdraw any picture as set forth in the
preceding subparagraph (a) of this paragraph 11, before its initial telecast, or
if the Picture is not acquired or produced by Licensor or if Licensor does not
control distribution rights, then Licensor shall have the right,in its sole
discretion, either to deliver to Licensee another picture of comparable quality
(which picture shall be deemed to replace the picture withdrawn) or may reduce
the number of pictures to be delivered and paid for hereunder by one and
Licensee shall be given a refund or credit, at Licensor's election, of such
license fee for such picture.
4
<PAGE> 7
12. BANKRUPTCY AND DEFAULT. If Licensee becomes insolvent or bankrupt or
makes an assignment for benefit of creditors, or if any property of Licensee
is attached and if such attachment is not released within ten (10) days after
the date of attachment, or if a receiver, liquidator, or trustee is appointed
for any of Licensee's property, or if Licensee breaches any of the material
terms or provisions of this Agreement, Licensor in addition to any and all
other rights it may have under this Agreement or in law or in equity, may at
its option, from time to time during such occurrence, do any one or more of the
following: suspend delivery or telecasting by Licensee of one or more pictures
hereunder until default is ended or remedied, terminate this Agreement, or
declare the Agreement breached and declare all unpaid amounts payable to
Licensor hereunder immediately due and specifically, if Licensee shall fail to
make the payments to Licensor on a timely basis as provided in this Agreement,
Licensor shall have the right but not the obligation to declare Licensee in
default and thereby either to suspend the rights herein granted until the
default is ended or to terminate this Agreement without foregoing any of
Licensor's rights to recover damages deriving from Licensee's default. Licensee
shall immediately return all materials to Licensor.
A default by Licensee under this Agreement shall be deemed a default under any
and all other licenses granted by Licensor to Licensee and shall entitle
Licensor to terminate any and all such other licenses and to declare any then
unpaid balance of license fees thereunder immediately due and payable.
License acknowledges that the terms hereof and the industry custom of licensing
pictures substantially in advance of the scheduled telecast dates have the
effect of rendering the pictures hereunder unmarketable in the area covered by
this Agreement during any period which includes the period of this license or
any part thereof. Licensee also acknowledges that, by reason of the foregoing,
no method exists for accurate measurement of damages for any breach of
Licensee's agreement to pay Licensor as provided in this Agreement. It is
therefore agreed that, in addition to all other remedies available at law, in
equity, or under the other provisions of this Agreement, Licensor shall be
entitled (upon breach by Licensee of such agreement to pay Licensor) to recover
from Licensee, as liquidated damages, the total unpaid license fees for all
telecasts authorized hereunder, whether or not such telecasts actually occur,
and in addition, reasonable attorney's fees and expenses or collection agency
fees and expenses of any attorney or collection agency is retained by Licensor
at any time to enforce the provisions hereof, plus such other amounts as may be
due hereunder.
If Licensor elects or becomes obligated to make payments in place of Licensee of
if Licensor incurs any expenses for legal services, court costs, and associated
expenses because of any breach by Licensee, the sum or sums so paid by Licensor
and the amount of such fees, costs and associated expenses shall be payable
forthwith from Licensee to Licensor, together with interest thereon at the rate
of one and one-half percent (1.5%) per month. If Licensee fails to pay the
license fees herein provided at the times due in the amounts set forth herein,
the sums unpaid shall bear interest at the rate of one and one-half percent
(1.5%) per month from the due date thereof until paid. Any payment not made
within thirty (30) days after its due date shall bear interest at the rate of
one and one-half percent (1.5%) per month computed from the original due
5
<PAGE> 8
date until paid; however, if said rate is in excess of the maximum permitted
under the laws of the jurisdiction where the debt accrues, then in such event
the rate of interest shall be the maximum permitted by law. Acceptance of any
payment by Licensor after its due date shall not constitute a waiver by
Licensor of any of the rights hereunder.
13. EARLY EXPIRATION OF TERM. Notwithstanding anything contained herein
to the contrary, if Licensee releases any one or more of the pictures the number
of times permitted hereunder prior to the expiration of the term specified
herein, this license shall be deemed terminated with respect to each such
picture as of the date upon which the last permitted run is made.
14. ASSIGNMENT. Licensor reserves the right to hypothecate pledge or
discount this Agreement and to obtain loans from a bank or other lenders by the
assignment as security. The Licensee recognizes that this Agreement may be
exhibited and or assigned to such bank or other lenders which may thereby be
induced to enter into substantial commitments in reliance thereon. The Licensee
agrees that in the event of receipt of written notice of assignment by
Licensor, monies due to Licensor shall be paid to any bona fide third party
assignee in accordance with such instructions without offset, deductions,
counter-claim, or other credits which the Licensee may have or claim to have
against Licensor. Licensor may freely assign this Agreement to its successor or
successors or to any of its associated, affiliated and subsidiary companies.
This Agreement may not be assigned by Licensee, either voluntarily or by
operation of law, without the prior written consent of Licensor. Any such
assignment, if consented to by Licensor, shall not relieve Licensee of its
obligations hereunder.
15. GENERAL.
(a) Licensee acknowledges that telecasts or releases of the
licensed pictures originating outside its basic territory may be received by
television sets located within such basic territory and Licensee agrees that
such reception shall not constitute a breach of this Agreement by Licensor.
(b) Subject to the provisions of Paragraph 14 hereof, this
Agreement and all of its terms, conditions and other provisions and all rights
herein shall inure to the benefit of and shall be binding upon the parties
hereto and to their respective successors and assigns.
(c) The titles of the paragraphs of this Agreement are for
convenience only and shall not in any way affect the interpretation of any
paragraph of this Agreement or of the Agreement itself.
(d) Time is of the essence in the performances by Licensee of
its obligations for payment hereunder.
(e) A waiver by either party of any of the terms or
conditions of this Agreement in any instance shall not be deemed or construed
to be a waiver of such term or
6
<PAGE> 9
condition for the future, or of any subsequent breach thereof. All remedies,
rights undertakings, obligations and agreements contained in this Agreement
shall be cumulative and none of them shall be in limitation to any other
remedy, right, undertaking, obligation or agreement of either party.
(f) All notices, statements, and other documents required to
be given hereunder shall be given in writing either by personal delivery, by
mail, or telegraph (except as herein otherwise expressly provided) to the
persons and at the addresses set forth in Schedule "A" hereto, or to such other
persons and addresses as may be designated in writing by either party. Notice
given by mail or by telegraph shall be deemed given on the date of mailing
thereof or of delivery of such telegram to a telegraph office, charges prepaid
or to be billed.
(g) This Agreement shall be deemed made in, and shall be
construed and interpreted in accordance with the laws of, the State of New York
pertaining to contracts entirely made and to be performed therein. In the event
of any disagreement between the parties which cannot be settled by mutual
agreement, the parties agree that the federal or state courts sitting in the
City, State and County of New York (and courts with appellate jurisdiction
therefrom) shall have exclusive jurisdiction over such dispute and the
resolution thereof, and the parties agree that jurisdiction and venue in such
courts in appropriate, and that any process in connection therewith may be
served in the manner provided hereinabove for notices to the parties.
(h) All rights not specifically granted herein to the
Licensee are reserved for Licensor's use and disposition without any
limitations whatsoever, regardless of the extent to which the same are
competitive with Licensee or the license granted hereunder.
(i) This Agreement constitutes the entire agreement between
Licensee and Licensor with respect to the subject matter hereof and may not be
changed, modified, amended, or terminated except by operation of law or by a
writing signed by the parties hereto.
(j) In the event of any conflict between any provision of
this Agreement and any material law, rule or regulation, this Agreement shall
be deemed modified to the minimum extent necessary to remove such conflict.
7
<PAGE> 1
EXHIBIT 10.20
--------------------------
HIGH POINTE AT GREENWOOD I
--------------------------
LEASE
BY AND BETWEEN
HIGH POINTE I DEVELOPMENT GROUP LLC,
A COLORADO LIMITED LIABILITY COMPANY
AS "LANDLORD"
AND
HALLMARK ENTERTAINMENT NETWORK, INC.
A DELAWARE CORPORATION
AS "TENANT"
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. TERMS AND DEFINITIONS; SCHEDULES ............................ 1
1.1 TERMS AND DEFINITIONS ................................. 1
1.2 SCHEDULES ............................................. 2
2. PREMISES .................................................... 2
2.1 LEASE OF PREMISES ..................................... 2
2.2 PRIOR OCCUPANCY ....................................... 2
3. PAYMENT OF RENT AND OPERATING COSTS ......................... 2
3.1 LEASE TERM RENT ....................................... 2
3.2 BASE RENT ADJUSTMENT .................................. 3
3.3 [INTENTIONALLY OMITTED.] .............................. 3
3.4 EXCESS OPERATING COSTS ................................ 3
3.5 TAXES ................................................. 4
4. IMPROVEMENTS BY LANDLORD; POSSESSION ........................ 4
4.1 CONSTRUCTION CONDITIONS ............................... 4
4.2 COMMENCEMENT OF POSSESSION ............................ 4
5. PROJECT SERVICES ............................................ 4
6. COVENANTS ................................................... 5
6.1 USE OF LEASED PREMISES ................................ 5
6.2 INSURANCE ............................................. 6
6.3 REPAIRS ............................................... 7
6.4 ASSIGNMENT AND SUBLETTING ............................. 7
6.5 ESTOPPEL CERTIFICATE .................................. 7
6.6 BROKERAGE COMMISSIONS ................................. 8
6.7 REGULATIONS ........................................... 8
6.8 HAZARDOUS MATERIALS REGULATIONS ....................... 8
7. LANDLORD'S RESERVED RIGHTS .................................. 8
7.1 ADDITIONAL RIGHTS RESERVED TO LANDLORD ................ 8
8. CASUALTY AND UNTENANTABILITY ................................ 9
8.1 TERMINATION BY LANDLORD OR TENANT ..................... 9
8.2 REPAIR AND RESTORATION ................................ 9
8.3 RESTORATION OF LEASED PREMISES ........................ 9
8.4 RENT; PRORATIONS ...................................... 9
9. CONDEMNATION ................................................ 9
9.1 RENT ABATEMENT ........................................ 9
9.2 LEASE TERMINATION ..................................... 9
10. INDEMNITY, SUBROGATION AND WAIVER ............................ 10
10.1 INDEMNITY ............................................. 10
10.2 WAIVER OF SUBROGATION ................................. 10
10.3 LIMITATION OF LANDLORD'S LIABILITY .................... 10
11. TENANT'S DEFAULT AND LANDLORD'S REMEDIES ..................... 10
11.1 TENANT'S DEFAULT ...................................... 10
11.2 REMEDIES ON DEFAULT ................................... 11
12. TERMINATION .................................................. 11
12.1 SURRENDER OF LEASED PREMISES .......................... 11
12.2 HOLDOVER TENANCY ...................................... 12
13. MISCELLANEOUS ................................................ 12
13.1 QUIET ENJOYMENT ....................................... 12
13.2 ACCORD AND SATISFACTION ............................... 12
13.3 SEVERABILITY .......................................... 12
13.4 SUBORDINATION AND ATTORNMENT .......................... 12
13.5 APPLICABLE LAW/CONSTRUCTION ........................... 12
13.6 BINDING EFFECT ........................................ 13
13.7 TIME .................................................. 13
13.8 ENTIRE AGREEMENT ...................................... 13
13.9 NOTICES ............................................... 13
13.10 FORCE MAJEURE ......................................... 13
13.11 ATTORNEYS' FEES; PREJUDGMENT INTEREST ................. 13
13.12 AUTHORITY ............................................. 13
</TABLE>
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<PAGE> 3
LEASE
This Lease is made this 1st day of June, 1998, by and between HIGH
POINTE I DEVELOPMENT GROUP LIC, a Colorado Limited Liability Company
("Landlord"), and HALLMARK ENTERTAINMENT NETWORK, INC., a Delaware corporation
("Tenant") on the terms, covenants and conditions sot forth below.
1. TERMS AND DEFINITIONS; SCHEDULES.
1.1 TERMS AND DEFINITIONS.
1.1.1 LEASED PREMISES shall mean Suites 400 and 500 as
described in Schedule 1 attached. [SUBJECT TO PARAGRAPHS 1 AND 2 OF SCHEDULE 9
ATTACHED HERETO.]
1.1.2 BUILDING shall mean the office building located at
6430 South Fiddlers Green Circle, Englewood, Colorado, which is a part of the
Project.
1.1.3 PROJECT shall mean the land, Building, parking
structure and parking areas at 6430 South Fiddlers Green Circle, Englewood,
Colorado, known as High Pointe at Greenwood I, which land is more particularly
described as Lot 1, Greenwood Plaza South, Filing No. 4, County of Arapahoe,
State of Colorado.
1.1.4 TENANT'S SQUARE FOOTAGE shall mean the fourth and
fifth floors of the Building consisting of 48,868 Rentable Square Feet including
Tenant's pro rata share of the Common Areas (as defined in Schedule 1 attached
hereto), or 1,810 square feet (reflecting an add-on factor of three and
eighty-five one hundredths percent (3.85%). The actual Rentable and Usable Area
has been calculated by Landlord's representative using the method for
determining Rentable Area as set forth in the Methods for Measuring Floor Area
in Office Buildings, published by the Building Owners and Managers Association
International copyright 1996. [SUBJECT TO PARAGRAPHS 1 AND 2 OF SCHEDULE 9
ATTACHED HERETO.]
1.1.5 LEASE COMMENCEMENT DATE shall mean three (3)
business days after Substantial Completion has been achieved pursuant to
Schedule 5 attached hereto, which Lease Commencement Date the parties anticipate
to be on or before August 17, 1998. "Lease Expiration Date" shall mean one
hundred twenty (120) months after Lease Commencement Date, or approximately
August 16, 2009. "Lease Term" shall mean the one hundred twenty (120) month
period between Lease Commencement Date and Lease Expiration Date. [SUBJECT TO
PARAGRAPH 1 OF SCHEDULE 9 ATTACHED HERETO.]
1.1.6 [INTENTIONALLY OMITTED.]
1.1.7 BASE RENT shall refer to the basic rental payments
payable by Tenant to Landlord pursuant to Schedule 7 attached hereto (which
payments include the Operating Cost Stop and covered parking costs pursuant to
Schedule 8 attached hereto), and initially shall mean Twenty-Two Dollars and
Sixty-Four Cents ($22.64) per square foot of Tenant's Square Footage per year or
One Million One Hundred Six Thousand One Hundred Seventy-Six Dollars
($1,106,176.00) annually and Ninety-Two Thousand One Hundred Eighty-One Dollars
and Thirty-Three Cents ($92,181.33) monthly, and shall be adjusted as set forth
on Schedule 7 attached hereto. An "Adjustment Date" is a date on which Base Rent
shall be adjusted as provided in Schedule 7.
1.1.8 TENANT'S PRO RATA SHARE shall mean the ratio that
Tenant's Square Footage bears to the Total Rentable Square Footage of the
Building of one hundred twenty thousand fourteen (120,014) square feet, or
approximately forty-one percent (41%), which may be adjusted pursuant to
paragraph 7.1(c), below. [SUBJECT TO PARAGRAPHS 1 AND 2 OF SCHEDULE 9 ATTACHED
HERETO.]
1.1.9 OPERATING COST STOP shall mean the cost per square
foot of Total Rentable Square Footage of the Building per year, which shall be
the actual per square foot Operating Costs for the calendar year 1999, assuming
a ninety-five percent (95%) occupancy of the Total Rentable Square Feet of the
Building. Notwithstanding the foregoing, for purposes of determining the
Operating Cost Stop, "real estate taxes and assessments" shall mean the lessor
of the actual real estate taxes and assessments for the calendar year 1999, or
Two Dollars and Fifty Cents ($2.50) per Rentable Square Foot of the Building.
1.1.10 EXCESS OPERATING COSTS shall mean the difference
between Landlord's annual Operating Costs (as defined in paragraph 3.4 below)
and the Operating Cost Stop.
1.1.11 PERMITTED PURPOSE means that Tenant may use the
Leased Premises for general office uses and any lawful purposes incidental
thereto.
1.1.12 PERMITTED PARKING shall mean the parking spaces
provided to Tenant, as set forth on Schedule 8.
-1-
<PAGE> 4
1.1.13 MANAGING AGENT shall mean Lankford & Associates,
Inc. or any other agent specified in writing by Landlord pursuant to the
provisions for Notice in this Lease.
1.1.14 LANDLORD'S MAILING ADDRESS shall mean:
High Pointe I Development Group LLC
c/o Lankford & Associates, Inc.
4275 Executive Square, Suite 328
La Jolla, California 92037
Attn: Mr. Robert V. Lankford
1.1.15 TENANT'S MAILING ADDRESS shall mean:
Duplicate originals to: 1325 Avenue of the Americas, Suite 2100
New York, New York 10019,
Attn: Chief Financial Officer
and
2405 Grand Avenue, Suite 200
Kansas City, Missouri 64108
Attn: Corporate Real Estate Director
with a copy to: Suite 400
6430 South Fiddlers Green Circle
Englewood, Colorado 80111
1.2 SCHEDULES. The Schedules listed below are incorporated
into this Lease by reference unless lined out. The terms of schedules, exhibits
and typewritten addenda, if any, attached or added hereto shall control over any
inconsistent provisions in the paragraphs of this Lease.
(a) Schedule 1: Description of Leased Premises and Floor
Plan
(b) Schedule 2: Rules and Regulations
(c) Schedule 3: Utility Services
(d) Schedule 4: Maintenance Services
(e) Schedule 5: Work Letter Agreement
(i) Schedule 5-A: Construction Schedule
(g) Schedule 6: Certificate of Acceptance
(h) Schedule 7: Base Rent
(i) Schedule 8: Parking
[(j) Schedule 9: Addendum to Lease]
2. PREMISES.
2.1 LEASE OF PREMISES. In consideration of the Rent (as
such term is defined in paragraph 3.1 hereof) and the provisions of this Lease,
Landlord leases to Tenant and Tenant accepts from Landlord the Leased Premises,
subject to the terms and conditions set forth herein.
2.2 PRIOR OCCUPANCY. Tenant shall not occupy the Leased
Premises prior to the Lease Commencement Date except with the express prior
written consent of Landlord, and subject to Schedule 5 hereof. If Tenant
occupies the Leased Premises (to conduct Tenant's business as opposed to
occupying or entering to perform work required to make the Leased Premises ready
for occupancy pursuant to Schedule 5 hereof) prior to the Lease Commencement
Date with Landlord's consent, Tenant shall pay Landlord for the period from the
first (1st) day of such occupancy to the Lease Commencement Date, Base Rent in
the amount of the first installment of Base Rent due and payable by Tenant. A
prorated monthly installment shall be paid for the fraction of the month if
Tenant's occupancy of the Leased Premises commences on any day other than the
first (1st) day of the month. If Tenant shall occupy the Leased Premises prior
to the Lease Commencement Date whether or not Base Rent is payable for such
occupancy, all other covenants and conditions of this Lease shall be binding on
the parties commencing upon the date of such prior occupancy.
3. PAYMENT OF RENT AND OPERATING COSTS.
3.1 LEASE TERM RENT.
3.1.1 BASE RENT. Each monthly installment of Base Rent in
the amount set forth in Schedule 7 shall be payable no later than the first
(1st) business day of each month, together with each monthly installment of
Tenant's Pro Rata Share of Excess Operating Costs. Monthly installments for any
fractional calendar month, at the beginning or end of the Lease Term or any
Renewal Term, shall be prorated based on the number of days in such month. Base
Rent and Tenant's Pro Rata Share of Excess Operating Costs, together with all
other amounts payable by Tenant to Landlord under this Lease, shall be
sometimes referred to collectively as "Rent." Tenant shall pay all Rent, without
deduction or set off, to Landlord or Managing Agent at such place as may be
specified
-2-
<PAGE> 5
by Landlord from time to time. Upon executing this Lease, Tenant shall pay the
first full month's Base Rent owing hereunder.
3.1.2 LATE PAYMENT. Rent not paid when due shall be
subject to a late charge until paid equal to one and one-half percent (1 1/2%)
of the Rent due per month from the date when due, until paid. Such charges shall
be payable regardless of whether or not a notice of default or notice of
termination has been given by Landlord. Tenant acknowledges that late payment of
Rent will cause Landlord to incur costs not contemplated by this Lease, the
exact amount of which is extremely difficult and impracticable to ascertain at
this time. Accordingly, the parties agree that the foregoing late charges
represent a reasonable estimate of the loss and expense to be suffered by
Landlord by reason of Tenant's late payment.
3.2 BASE RENT ADJUSTMENT. Base Rent shall be subject to
adjustment as provided on Schedule 7 attached hereto. [SUBJECT TO PARAGRAPH 6 OF
SCHEDULE 9 ATTACHED HERETO.]
3.3 [INTENTIONALLY OMITTED.]
3.4 EXCESS OPERATING COSTS. Tenant shall pay Tenant's Pro Rata
Share of any Excess Operating Costs as follows:
3.4.1 DEFINITION. "Operating Costs" shall mean all
expenses relating to the Leased Premises, the Building or the Project,
including, but not limited to: real estate taxes and assessments (including debt
service payments on amortizing bonds); gross rents, sales, use, business,
corporation, building materials or other taxes (except net income taxes other
than taxes levied or assessed in substitution for any other tax constituting an
Operating Cost); assessments imposed by any ownership association or agency
thereof of which the Building or the Project is a part; any fees or charges (for
example, traffic, parking or air quality mitigation, child care, low income
housing, or other such fees) imposed by governmental authorities having
jurisdiction over the Project; utilities not separately paid by tenants;
insurance premiums and (to the extent used) deductibles for all insurance being
carried by Landlord against the Project or its operation; maintenance, repairs,
replacements, and decorations; refurbishing and repainting; cleaning, janitorial
and other services, and all wage, salary and labor costs (including all
reasonable bonuses, benefits, social security and payroll taxes and insurance),
equipment, tools, materials and supplies and the cost of uniforms, work clothes
and dry cleaning; air conditioning, heating and elevator service; commercially
reasonable property management fees; security; resurfacing and re-striping of
walks, drives and parking areas; professional fees and expenses, including
legal, accounting, architectural and engineering fees; signs, directories and
markers; landscaping; and snow and rubbish removal. Operating Costs shall not
include expenses for real estate brokerage and leasing commissions, legal fees
and costs of enforcing other tenants' obligations, Landlord's net income taxes,
income tax accounting, interest, depreciation, general corporate overhead, or
capital improvements to the Building or Project except for capital improvements
constituting life-safety systems or installed for the purpose of reducing or
controlling expenses, or required by any governmental or other authority having
jurisdiction over the Project or by any insurance carrier for the Project, which
shall be amortized by Landlord in accordance with Generally Accepted Accounting
Principles. In computing Excess Operating Costs for purposes of Paragraph 3.4.2
below, Landlord's estimate of Operating Costs shall be used, and for purposes of
paragraph 3.4.3 below, Landlord's actual Operating Costs for any calendar year
shall he used. Tenant, on notice to Landlord not more often than once per year,
at Tenant's expense may audit Landlord's Operating Costs and shall have access
to Landlord's books and records pertaining to the operation of the Project for
such purpose.
3.4.2 PAYMENT OF EXCESS OPERATING COSTS. Tenant shall pay,
in equal monthly installments, beginning on the first (1st) day of 2000,
Tenant's Pro Rata Share of any Excess Operating Costs for each calendar year
which falls (in whole or in part) during the Lease Term (prorated for any
partial calendar year at the beginning or end of the Lease Term). Annually, or
from time to time, based on actual and projected Operating Costs data, Landlord
may adjust its estimate of Operating Costs upward or downward. All monthly
installments of Excess Operating Costs payable after notice to Tenant of a
revised estimate of Operating Costs shall be paid in equal monthly amounts
sufficient to pay in full the unpaid balance of Tenant's Pro Rata Share of any
Excess Operating Costs by the end of the calendar year in which such adjustment
is made, and thereafter Excess Operating Costs shall be paid in equal monthly
amounts sufficient to pay in full Tenant's Pro Rata Share of any Excess
Operating Costs by the end of each succeeding calendar year. In the event that
the Building is not fully leased during any calendar year, Landlord shall make
appropriate adjustments to the Operating Costs to adjust such expenses to a
ninety-five percent (95%) leased basis, and such adjusted expenses shall be used
for purposes of paragraphs 3.4.1, 3.4.2 and 3.4.3.
3.4.3 ACTUAL OPERATING COST ADJUSTMENT. As soon as
possible each year, Landlord shall compute the actual Operating Costs for the
prior calendar year, and shall give notice thereof to Tenant. Within thirty (30)
days after receipt of such notice, Tenant shall pay any deficiency in Tenant's
Pro Rata Share of any Excess Operating Costs for the prior calendar year
(prorated for any partial calendar year prior to or at the beginning or end of
the Lease or Renewal Term). In the event of overpayment by Tenant, Landlord, at
Landlord's election, shall either refund to Tenant such excess together with
such notice or apply the excess to the next successive installments of Rent.
[SUBJECT TO PARAGRAPH 4 of SCHEDULE 9 ATTACHED HERETO.]
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3.5 TAXES. In addition to the Base Rent and other sums to be
paid by Tenant hereunder, Tenant shall reimburse Landlord, as additional rent,
upon demand, any and all taxes payable (a) upon, measured by or reasonably
attributable to the cost or value of Tenant's equipment, fixtures and other
personal property located in the Leased Premises or by the cost or value of any
leasehold improvements made in or to the Leased Premises by Tenant, regardless
of whether title to such improvements is in Tenant or Landlord, and Tenant shall
reimburse Landlord as additional rent upon demand any and all such taxes paid by
Landlord; (b) upon or measured by the monthly Rent payable hereunder, including,
without limitation, any gross receipts tax or excise tax; (c) upon or with
respect to the possession, leasing, operating, management, maintenance,
alteration, repair, use or occupancy by Tenant of the Leased Premises or any
portion thereof; and (d) upon this transaction or any document to which Tenant
is a party creating, encumbering or transferring an interest or an estate in the
Leased Premises.
4. IMPROVEMENTS BY LANDLORD; POSSESSION.
4.1 CONSTRUCTION CONDITIONS. Landlord shall construct the
improvements described in the Work Letter Agreement attached hereto as Schedule
5 (the "Leasehold Improvements"). The expenses to be incurred as between
Landlord and Tenant for construction of the Leasehold Improvements are specified
in Schedule 5.
4.2 COMMENCEMENT OF POSSESSION. If the Leased Premises are not
Substantially Complete (as defined in Schedule 5 attached), by the scheduled
Lease Commencement Date, subject only to items which do not materially affect
the use thereof, then the Lease Commencement Date shall be extended to the date
three (3) business days after Landlord shall notify Tenant that the Leased
Premises are Substantially Complete. If Landlord fails, except because of Tenant
delay or force majeure, to cause the Leased Premises to be Substantially
Complete at the time of the scheduled Lease Commencement Date, (a) neither
Landlord nor Landlord's agents, officers, employees or contractors shall be
liable for any damage, loss, liability or expense caused thereby, (b) nor shall
this Lease become void or voidable unless such failure continues for more than
one hundred twenty (120) days after such scheduled Lease Commencement Date, in
which case, Tenant, as its sole remedy, shall have the right to terminate this
Lease upon ten (10) days' prior written notice to Landlord; provided that the
time for Landlord to perform shall be extended by any delay caused by and/or
attributable to Tenant and force majeure events. Prior to occupying the Leased
Premises, Tenant shall execute and deliver to Landlord a letter in the form
attached as Schedule 6, acknowledging the Lease Commencement Date and certifying
that the Leasehold Improvements are Substantially Complete and that Tenant has
examined and accepted the Leased Premises, subject to latent defects not known
to Tenant, which are discovered and disclosed to Landlord by Tenant within one
hundred twenty (120) days after the Lease Commencement Date, and items noted by
Tenant on Schedule 6 attached hereto. Tenant hereby authorizes a Vice President
or President of Tenant who receives the keys to the Leased Premises on behalf of
Tenant to execute and deliver such letter in Tenant's name. If Tenant fails to
deliver such letter, Tenant shall conclusively be deemed to have made such
acknowledgment and certification by accepting the keys to the Leased Premises.
5. PROJECT SERVICES.
5.1 PROJECT SERVICES. Landlord shall furnish:
5.1.1 UTILITY SERVICES. The utility services listed on
Schedule 3 ("Utility Services"). Should Tenant, in Landlord's reasonable
judgment, use additional, unusual or excessive Utility Services at times other
than those specified in Schedule 3 attached hereto, Landlord reserves the right
to charge for such additional, unusual or excess services at commercially
reasonable rates established by Landlord, from time to time, for such services.
5.1.2 MAINTENANCE AND JANITORIAL SERVICES. Proper
maintenance and repair of all exterior areas, including lighting, landscaping,
cleaning, painting, maintenance and repair of the exterior of the Project, its
structural members, roof, floor, latent defects and Common Areas including all
of the services listed on Schedule 4, and the janitorial services for the
Leased Premises in the manner set forth on Schedule 4.
5.1.3 PROJECT SERVICES. Utility Services and Maintenance
Services, described above, shall be collectively referred to as "Project
Services." The costs of Project Services shall be part of Operating Costs.
5.2 INTERRUPTION OF SERVICES. Landlord does not warrant that
any of the Project Services will be free from interruption to the extent that
such interruption is beyond the reasonable control of Landlord, or the result of
an emergency. Any Project Service may be suspended or limited by reason of
accident or (upon reasonable advance notice to Tenant, except in the case of an
emergency) of necessary repairs, alterations or improvements, or by strikes or
lockouts, or by reason of operation of law, or causes beyond the reasonable
control of Landlord. Subject to possible Rent abatement as may be provided
pursuant to the conditions described in paragraph 8, and except as hereinafter
specifically provided in this paragraph 5.2, any such interruption or
discontinuance of such Project Services shall not be deemed a disturbance of
Tenant's use and possession of the Leased Premises, or render Landlord liable to
Tenant for damages, abatement of Rent or otherwise, or relieve
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Tenant from performance of Tenant's obligations under this Lease. However,
Landlord shall use its best efforts to maintain the Project Services and cause
the Project Services to be restored promptly when interrupted. If any Project
Service under the direct control of Landlord is suspended or limited for more
than three (3) consecutive business days, other than as a result of a Tenant
caused suspension or limitation, Base Rent shall be subject to abatement as
provided in paragraph 8 of this Lease until such Project Service has been
restored.
6. COVENANTS.
6.1 USE OF LEASED PREMISES. Tenant agrees to:
6.1.1 PERMITTED USAGE. Use the Leased Premises for the
Permitted Purpose only and for no other purposes.
6.1.2 COMPLIANCE WITH LAWS. Comply with the provisions of
all current and future recorded covenants, conditions and restrictions and all
current and future building, zoning, fire and other governmental laws,
ordinances, rules or regulations applicable to the Leased Premises and all
current and future requirements of the carriers of insurance covering the
Project. Landlord shall provide Tenant with a copy of any notice it receives
from an insurance carrier pertaining to the Leased Premises insofar as such
notice sets forth an alleged failure to meet the carrier's requirements, and
Tenant shall have ten (10) days thereafter to remedy any failure to so comply;
provided, however, that such compliance shall not increase Tenant's insurance
requirements hereunder or interfere with Tenant's use of the Leased Premises
pursuant to the Permitted Purpose.
6.1.3 NUISANCES OR WASTE.
(a) Not do or permit anything to be done in or about
the Leased Premises, or bring or keep anything in the Leased Premises that may
increase Landlord's fire and extended coverage insurance premium or cause a risk
of termination of coverage, damage the Building or the Project, constitute
waste, constitute an immoral purpose, or be a nuisance, public or private, or
menace or other disturbance to tenants of adjoining premises or anyone else, or
use or store any toxic chemicals, wastes, elements or substances in the Leased
Premises, except limited quantities of such toxic chemicals, waste, elements or
substances which are used or stored in full compliance with all applicable
local, state or federal laws, ordinances, rules and regulations presently in
effect or hereafter enacted pertaining to such use or storage and then only if
(i) used or stored in connection with Tenant's ordinary and usual business
operations (that is, for example, white-out correction fluid and photocopy
toner) and (ii) such use or storage does not expose all or any part of the
Project, the Leased Premises, or any property adjacent to the Project to any
meaningful risk of contamination or damage or expose Landlord and Mortgagee of
Landlord to any liability therefor. This paragraph 6.1.3 is in addition to those
provisions set forth, in paragraph 13.3 below.
(b) Tenant further agrees to defend, indemnify and
hold harmless Landlord and any managers, member, partner, officer or director of
Landlord and any Mortgagee of Landlord, against any and all claims, demands,
liabilities, costs and expenses (including without limitation reasonable
attorneys' fees and expenses, expert witness fees and post-judgment collection
costs) which Landlord may sustain at any time as a result of, arising out of, or
in any way connected with a breach of paragraph 6.1.3(a). Additionally, Tenant
agrees to cease the activity which amounts to such breach immediately upon
receipt of written notice from Landlord or any regulatory or governmental agency
that, such activity is in violation of any governmental laws, ordinances,
regulations or rules. Tenant shall give notice to Landlord of any hazardous
substances that come to be located on the Leased Premises.
6.1.4 ALTERATIONS AND IMPROVEMENTS. Make no alterations or
improvements to the Leased Premises without the prior written approval of
Landlord, which approval shall not be unreasonably withheld. Any such
alterations or improvements by Tenant shall be done in a good and workmanlike
manner, at Tenant's expense, by a licensed contractor reasonably approved by
Landlord in conformity with plans and specifications, which shall be reviewed by
Landlord within ten (10) business days after delivery thereof by Tenant to
Landlord. Tenant shall obtain all necessary governmental approvals and permits.
At Landlord's option, Tenant shall contract with Landlord for the construction
of such alterations or improvements, but only if Landlord's price for such work
is competitive.
6.1.5 LIENS. Keep the Leased Premises, the Building and
the Project free from liens arising out of any work performed, materials
furnished or obligations incurred by or for Tenant. If requested by Landlord,
Tenant shall post a bond or other security reasonably satisfactory to Landlord
to protect Landlord and the Project against such liens. If, at any time, a lien
or encumbrance is filed against the Leased Premises, the Building or the Project
as a result of Tenant's work, materials or obligations, Tenant shall promptly
discharge such lien or encumbrance. If such lien or encumbrance has not been
removed within thirty (30) days from the date it is filed, Tenant agrees to post
a bond in at least the amount prescribed by applicable Colorado statute then in
effect as security for the lien being discharged. Landlord shall have the right
to post or keep posted on the Leased Premised, or in the immediate vicinity
thereof, notices of non-responsibility for any construction, alteration or
repair of the Leased Premises by Tenant.
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6.1.6 RULES AND REGULATIONS. Observe, perform and abide by
all the rules and regulations promulgated by Landlord on a reasonable and
non-discriminatory basis, from time to time for the benefit of the Project and
its tenants. Schedule 2 sets forth Landlord's Rules and Regulations in effect on
the date hereof.
6.1.7 SIGNAGE. Obtain the prior approval of the Landlord
before placing any sign or symbol in, or visible from, doors or windows or
elsewhere in or about the Leased Premises, or upon any other part of the
Building or Project, including building directories. Any signs or symbols which
have been placed without Landlord's approval may be removed by Landlord at
Tenant's expense. Upon expiration or termination of this Lease, all signs
installed by Tenant shall be removed at Tenant's expense and any damage
resulting therefrom shall be promptly repaired by Tenant, or such removal and
repair may be done by Landlord and the cost charged to Tenant as Rent. [SUBJECT
TO PARAGRAPH 7 OF SCHEDULE 9 ATTACHED HERETO.]
6.2 INSURANCE.
6.2.1 INSURANCE OBTAINED BY TENANT. Tenant shall, at its
own expense, procure and maintain during the Lease Term commercial general
liability insurance with respect to the Leased Premises, and Tenant's activities
in the Leased Premises and in the Building and the Project, providing bodily
injury, broad form property damage with a maximum One Thousand Dollar
($1,000.00) deductible, unless otherwise approved by Landlord, as follows:
(a) Five Million Dollars ($5,000,000) combined single
limit with respect to bodily injury or property damage arising out of any one
(1) occurrence.
(b) Fire and extended casualty insurance covering
Tenant's trade fixtures, merchandise and other personal property in an amount
not less than one hundred percent (100%) of their actual replacement cost or
highest insurable value; and
(c) Workers, compensation insurance in at least the
statutory amounts.
(d) [Intentionally omitted.]
6.2.2 COVERAGE INCREASE. Not more frequently than each
three (3) years if, in the reasonable business judgment of Landlord, the amount
of public liability and property damage insurance coverage maintained by Tenant
is at that time not adequate, Tenant shall increase the insurance coverage to an
amount which is determined to be adequate by Landlord in the exercise of
reasonable business judgment.
6.2.3 BLANKET POLICY. Nothing in this paragraph 6.2 shall
prevent Tenant from obtaining insurance of the kind and in the amounts
provided for under this paragraph under a blanket insurance policy covering
other properties as well as the Leased Premises; provided, however, that any
such policy of blanket insurance (i) shall specify the amounts of the total
insurance allocated to the Leased Premises, which amounts shall not be less
than the amounts required by paragraphs 6.2.1(a) through 6.2.1(c) hereof, and
(ii) such amounts so specified shall be sufficient to prevent any one of the
insureds from becoming a co-insurer within the terms of the applicable policy,
and (iii) shall, as to the Leased Premises, otherwise comply as to endorsements
and coverage with the provisions of the paragraph.
6.2.4 ACCEPTABLE INSURANCE. Tenant's insurance shall be
with a Best's Insurance Reports A+ rated company (or A rated if Class XIII or
larger). Landlord and Landlord's mortgagee, if any, shall be named as
"additional insureds" under Tenant's general liability insurance for claims and
resulting from the acts, errors or omissions of Tenant or its employees (except
as to the insurance required by paragraph 6.2.1(b) above), and such Tenant's
insurance shall be primary and noncontributing with Landlord's insurance, and
shall further comply with the provisions of paragraph 10.2 of this Lease.
Tenant's insurance policies shall contain endorsements requiring thirty (30)
days' notice to Landlord and Landlord's mortgagee, if any, prior to any
cancellation, lapse or non-renewal or any reduction in amount of coverage.
6.2.5 EVIDENCE OF INSURANCE. Tenant shall deliver to
Landlord, as a condition precedent to its taking occupancy of the Leased
Premises, a certificate or certificates evidencing such insurance.
6.2.6 INSURANCE OBTAINED BY LANDLORD. Landlord shall at
all times during the Lease Term maintain in effect a policy or policies of
insurance covering the Building including Tenant's Leasehold Improvements, but
not the Tenant's trade fixtures, merchandise, inventory, or other items used in
the Tenant's trade of eighty percent (80%) of full replacement cost (exclusive
of the cost of excavations, foundations and footings) from time to time during
the Lease Term providing protection against any peril generally included within
the classification "Fire and Extended Coverage" (or at Lessor's option, other
special broad form coverages), together with insurance against sprinkler leakage
and vandalism and malicious mischief. Landlord's obligation to carry the
insurance provided for herein may be brought within the coverage of a so-called
blanket policy or policies of insurance carried and
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maintained by Landlord, provided that the coverage afforded will not be reduced
or diminished by reason of the use of such blanket policy of insurance.
6.3 REPAIRS. Subject to the obligation of Landlord to provide
Project Services as set forth in paragraph 5.1 above, Tenant, at its sole
expense, shall maintain the interior of the Leased Premises in a neat, clean and
sanitary condition. If Tenant fails to maintain or keep the Leased Premises in
good repair and such failure continues for ten (10) business days after receipt
of written notice from Landlord, or if such failure results in a nuisance or
health or safety risk, Landlord may perform any such required maintenance and
repairs and the cost thereof shall be payable by Tenant as Rent within ten (10)
business days of receipt of an invoice from Landlord. Tenant shall also pay to
Landlord the costs of any repair to the Leased Premises, Building or Project
necessitated by any act or neglect of Tenant. Tenant waives the provisions of
any statutes or laws permitting repairs by a tenant at the expense of a landlord
or termination of a lease by reason of the condition of the Leased Premises.
6.4 ASSIGNMENT AND SUBLETTING.
6.4.1 LANDLORD'S CONSENT REQUIRED. Tenant shall not
assign, mortgage, pledge or encumber this Lease, or permit all or any part of
the Leased Premises to be subleased to another, without the prior written
consent of Landlord, which consent shall not be unreasonably withheld or
delayed. Any transfer of this Lease by merger, consolidation, reorganization or
liquidation of Tenant, or by, operation of law, or change in the ownership of or
power to vote the majority of the outstanding voting stock of a corporate
Tenant, or by change in ownership of a controlling partnership interest in a
partnership Tenant, shall constitute an assignment for purposes of this
paragraph. [SUBJECT TO PARAGRAPH 5 OF SCHEDULE 9 ATTACHED HERETO.]
6.4.2 BASIS FOR WITHHOLDING CONSENT REGARDING ASSIGNMENT
OR SUBLEASE. Landlord agrees that it will not unreasonably withhold its consent
to Tenant's assigning this Lease or subletting the Leased Premises. Tenant
hereby agrees that Landlord shall be deemed to be reasonable in withholding its
consent if (a) for the first four (4) years of the Lease Term the proposed
assignment or sublease is for a rental rate less than of the then current rental
rate and terms being offered by Landlord in the Building for space comparable to
the Leased Premises; or (b) the first four (4) years of the Lease Term, the
proposed assignment or sublease is to any party who is then a tenant of the
Building if Landlord has comparable area available at that time; or (c) the
proposed sublease or assignment results in two (2) or more tenants in the Leased
Premises; or (d) there exists an Event of Default (as defined in paragraph 11.1
below) at the time of request for consent or on the effective date of such
subletting or assigning; or (e) the proposed subtenant or assignee is, in
Landlord's good faith judgment, incompatible with other tenants in the Building,
or seeks to use any portion of the Leased Premises for a use not consistent with
other uses in the Building, or is financially incapable of assuming the
obligations of this Lease; or (f) Landlord's lender for the Project shall object
to such proposed assignment and/or subletting. Tenant shall submit to Landlord
the name of a proposed assignee or subtenant, the terms of the proposed
assignment or subletting, the nature of the proposed subtenant's or assignee's
business, and such information as to the assignee's or subtenant's financial
responsibility and general reputation as Landlord may reasonably require.
Landlord may also consider the amount of square feet of the Leased Premises
proposed to be subleased and the number of employees the subtenant anticipates
will utilize the subleased premises. Tenant shall pay Landlord, as additional
rent hereunder, Landlord's reasonable costs incurred in reviewing any such
request, including fees and costs of Landlord's attorneys and accountants.
[SUBJECT TO PARAGRAPH 5 OF SCHEDULE 9 ATTACHED HERETO.]
6.4.3 NO RELEASE OF OBLIGATIONS. No subletting or
assignment, even with the consent of Landlord, shall relieve Tenant of its
primary obligation to pay the Rent and to perform all of the other obligations
to be performed by Tenant hereunder. The acceptance of Rent by Landlord from any
other person shall not be deemed to be a waiver by Landlord of any provision of
this Lease or to be a consent to any assignment, subletting or other transfer.
Consent to one (1) assignment, subletting or other transfer shall not be deemed
to constitute consent to any subsequent assignment, subletting or other
transfer.
6.4.4 [INTENTIONALLY OMITTED.]
6.4.5 PROCEEDS OF SUBLEASE OR ASSIGNMENT. Fifty percent
(50%) of any proceeds (net of any costs incurred by Tenant in subletting to
subtenant) in excess of Base Rent and Tenant's Pro Rata Share of Excess
Operating Costs which is received by Tenant pursuant to an assignment or
subletting consented to by Landlord shall be remitted to Landlord as extra Rent
within ten (10) days of receipt by Tenant net of any costs Tenant incurs in
subletting space. For purposes of this paragraph, all money or value in whatever
form received by Tenant from or on account of any party as consideration for an
assignment or subletting shall be deemed to be proceeds received by Tenant
pursuant to an assignment or subletting.
6.5 ESTOPPEL CERTIFICATE. From time to time and within ten
(10) days after request by Landlord, Tenant shall execute and deliver a
certificate to any proposed lender or purchaser, or to Landlord, certifying,
with any appropriate exceptions, (a) that this Lease is in full force and effect
without modification except as noted, (b) the amount, if any, of prepaid Rent
and Security Deposit paid by Tenant to Landlord (and not returned to Tenant),
(c) the nature and kind of concessions, rental or otherwise, if any, which
Tenant has received or is entitled to receive, (d) that Landlord has performed
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all of its obligations due to be performed under this Lease and that there are
no defenses, counterclaims, deductions or offsets outstanding or other excuses
for Tenant's performance under this Lease as of such date, and (e) any other
fact reasonably requested by Landlord or such lender, proposed lender or
purchaser. Should Tenant fail to deliver such estoppel certificate within such
ten (10) day period, then (i) the truth of the statements in the document
submitted to Tenant for execution shall be conclusively presumed, and (ii)
Landlord shall have the right, at its option, to immediately declare an Event of
Default and pursue all remedies provided under paragraph 11.2 below.
6.6 BROKERAGE COMMISSIONS. Each of Tenant and Landlord
represents to the other that no brokers or agents, other than CB Commercial,
acting as agent for Landlord, and Oberndorf Properties, Ltd. acting as agent for
Tenant, were instrumental in procuring or negotiating or consummating this
Lease, and each party agrees to defend and indemnify the other party against any
loss, expense or liability incurred by the other party as a result of a claim by
any other broker or finder claiming representation of the indemnifying party in
connection with this Lease or its negotiation.
6.7 REGULATIONS. Except for pre-existing violations, Tenant
shall, at Tenant's sole expense, comply with all Regulations now in force or
which may hereafter be in force relating to the Leased Premises and the use of
the Leased Premises, and Tenant shall secure any permits therefor; provided,
however, that as to any capital improvements required by a cause other than
Tenant's specific use of the Leased Premises, Tenant shall pay the amortized
cost of such improvements, with the cost to be amortized over the reasonable
useful life of the improvements. Tenant acknowledges that Landlord has made no
representations or warranties in connection with the physical condition of the
Leased Premises or Tenant's use of the same upon which Tenant has relied
directly or indirectly for any purpose, except as may be set forth herein.
Tenant shall not commit waste, interfere with any other tenants in the Building,
overload the floors, elevators, or structure of the Building, subject the Leased
Premises to any use which would damage the Leased Premises or raise or violate
any insurance coverage required by this Lease or take any action that would
impair parking or alter parking spaces.
6.8 HAZARDOUS MATERIALS REGULATIONS. Tenant and Landlord shall
strictly comply with all statutes, laws, codes, ordinances, rules, regulations
and precautions now or hereafter mandated or advised by any federal, state,
local or other governmental agency with respect to the use, generation, storage,
or disposal of hazardous, toxic, or radioactive materials (collectively referred
to as "Hazardous Materials"). Landlord shall have the right, but not the
obligation, at all reasonable times to inspect the Leased Premises and to
conduct tests and investigations to determine whether Tenant is in compliance
with the foregoing provisions. As used herein, Hazardous Materials shall
include, but not be limited to, those substances defined as "hazardous
substances or pollutant or contaminant," "hazardous materials," "hazardous
wastes," "toxic substances," "regulated substances," or other similar
designations in the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, 42 U.S.C. Section 6901, et seq.; the
Resources Conservation and Recovery Act, 42 U.S.C. Section 1801, et seq.; the
Toxic Substances Control Act, 15 U.S.C. Section 2601, et seq.; paragraph 9001 of
the Solid Waste Disposal Act, as amended by paragraph 601 of the Hazardous and
Solid Waste Amendments of 1984; and any other federal, state or local
governmental statutes, laws, ordinances, and codes, including any and all rules,
and regulations, and precautions promulgated thereunder (collectively,
"Environmental Laws"). Except as permitted by paragraph 6.1.3, Tenant shall not
cause, or allow anyone else under the control of Tenant to cause, any Hazardous
Material to be used, generated, stored, discharged, released or disposed of on
or about the Leased Premises, Project, or Building, including all common areas,
without the prior written consent of Landlord, which consent may be withheld or
revoked at any time, in the sole discretion of Landlord. Tenant's
indemnification of Landlord pursuant to paragraph 10.1, hereof, shall extend to
all liability, including all foreseeable and unforeseeable consequential damages
and all fines, penalties, assessments or charges that may be assessed for the
disposal, discharge or release of Hazardous Materials at, on or in the Leased
Premises, directly or indirectly arising out of the use, generation, storage,
transportation, or disposal of Hazardous Materials by Tenant or anyone under
Tenant's control. Neither the written consent by Landlord to the use,
generation, storage, or disposal of Hazardous Materials nor the strict
compliance by Tenant with all statutes, laws, ordinances, rules, codes,
regulations, and precautions pertaining to Hazardous Materials shall excuse
Tenant from Tenant's obligation to indemnification pursuant to this subsection.
Tenant shall not be responsible for any Hazardous Materials on the Leased
Premises as of the Commencement Date or introduced by Landlord or other third
parties not under Tenant's control. [SUBJECT TO PARAGRAPH 9 OF SCHEDULE 9
ATTACHED HERETO.]
7. LANDLORD'S RESERVED RIGHTS.
7.1 ADDITIONAL RIGHTS RESERVED TO LANDLORD. Without notice
and without liability to Tenant, or without effecting an eviction or disturbance
of Tenant's use or possession, Landlord shall have the right to (a) grant
utility easements or other easements in, or replat, subdivide, annex to or
disconnect from governmental and quasi-governmental jurisdiction or make other
changes in the legal status of the Land underlying the Premises, the Building or
the Project as Landlord shall deem appropriate in its sole discretion; provided
such changes do not substantially interfere with Tenant's use of the Leased
Premises for the Permitted Purpose; (b) enter the Leased Premises at reasonable
times, and at any time in the event of an emergency, to inspect, alter or
repair the Leased Premises or the Building and to perform any acts related to
the safety, protection, reletting, sale or improvement of the Leased Premises or
the Building; (c) add to or take away from the Project (including the
construction of additional improvements on the Project) any improvement or
portion thereof, in which
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event Total Rentable Square Footage of the Building and Tenant's Pro Rata Share
shall be adjusted accordingly if affected by such changes but the Total
Rentable Square Feet shall not be reduced below one hundred ten thousand
(110,000) Rentable Square Feet; (d) install and maintain signs on and in the
Building and the Project; and (e) make such Regulations as, in the sole judgment
of Landlord, may be needed from time to time for the safety of the tenants,
the care and cleanliness of the Leased Premises, the Building and the Project
and the preservation of good order therein. Notwithstanding the foregoing,
however, such changes shall (i) be performed so as to not materially interfere
with Tenant's use of the Leased Premises; and (ii) provide for reasonable,
temporary alternative access, parking or services to the extent interruption
thereof results from such changes.
7.2 [INTENTIONALLY OMITTED.]
8. CASUALTY AND UNTENANTABILITY.
8.1 TERMINATION BY LANDLORD OR TENANT. If the Building is made
substantially untenantable, or if Tenant's use and occupancy of the Leased
Premises are substantially interfered with, due to damage to the Common Areas of
the Building, or to the Leased Premises as a result of fire or other casualty,
the damage shall be promptly repaired by and at the expense of Landlord unless
this Lease is terminated as provided below. Until such repairs and restoration
are completed, Rent shall be subject to abatement in accordance with paragraph
8.4 hereof. Landlord shall notify Tenant (the "Casualty Notice") within
forty-five (45) days of its discovery of such casualty as to whether or not the
damage can be repaired within one hundred eighty (180) days after the occurrence
of such damage, and if not, such longer period that may be required. The
Casualty Notice shall be accompanied by a certification by a licensed architect
having significant experience in the design and construction of office buildings
in the Denver Metropolitan Area, confirming the estimate of the period required
to repair or restore the damage. If the Casualty Notice indicates that such
repair and restoration will require in excess of one hundred eighty (180) days
so that Tenant's use and occupancy of the Leased Premises shall be substantially
interfered with longer than one hundred eighty (180) days after the occurrence
of such casualty, then Landlord or Tenant by notice to the other party hereto
within sixty (60) days after the occurrence of such casualty, may terminate this
Lease.
8.2 REPAIR AND RESTORATION. If the Casualty Notice indicates
that such repair and restoration can be repaired within one hundred eighty
(180) days, or if it indicates that such repair and restoration will require in
excess of one hundred eighty (180) days, and neither Landlord nor Tenant shall
have exercised its right to terminate this Lease pursuant to paragraph 8.1.
hereof, Landlord shall promptly commence and diligently pursue the repair and
restoration of such damage within the period indicated in the Casualty Notice.
If Landlord shall fail to complete such repair and restoration within such
period of time, as extended by force majeure or delays caused by Tenant, then
Tenant may terminate this Lease by giving thirty (30) days prior notice to
Landlord of such election as of the end of the period provided for such repair
and restoration in the Casualty Notice.
8.3 RESTORATION OF LEASED PREMISES. If the Leased Premises are
made partially or wholly untenantable by fire or other casualty and this Lease
is not terminated as provided in paragraph 8.1 hereof, Landlord shall restore
the Leased Premises to the condition immediately prior to such casualty;
provided that Tenant shall be responsible for replacing and restoring Tenant's
trade fixtures, equipment and personal property.
8.4 RENT; PRORATIONS. In the event of termination of this
Lease pursuant to this paragraph 8, Rent shall be prorated on a per diem basis
and paid to the date of the casualty, unless the Leased Premises shall be
tenantable, in which case Rent shall be payable to the date of the Lease
termination and if only partly tenantable, Tenant shall receive abatement to the
extent that portion is untenantable. If the Leased Premises are wholly
untenantable and this Lease is not terminated, Rent shall abate on a per diem
basis from the date of the casualty until the Leased Premises are ready for
occupancy by Tenant. If part of the Leased Premises are untenantable as a result
of a casualty, or interruption or limitation of Project Services under the
direct control of Landlord as set forth in Paragraph 5.2 of this Lease, Rent
shall be prorated on a per diem basis and partially abated on an equitable basis
to the extent that the Leased Premises is usable by Tenant, until the damaged
part is ready for Tenant's occupancy or the Project Service is restored.
Notwithstanding the foregoing, if any damage was proximately caused by an act
or omission of Tenant, its employees, agents, contractors, licensees or
invitees, then, in such event, Tenant agrees that Rent shall not abate or be
diminished during the term of this Lease.
9. CONDEMNATION.
9.1 RENT ABATEMENT. If all or any part of the Leased Premises
shall be taken under power of eminent domain or sold under imminent threat to
any public authority or private entity having such power, this Lease shall
terminate as to the part of the Leased Premises so taken or sold, effective as
of the date possession is required to be delivered to such authority. In such
event Base Rent and Tenant's Pro Rata Share of Excess Operating Costs shall
abate in the ratio that the portion of Tenant's Square Footage taken or sold
bears to Tenant's Square Footage.
9.2 LEASE TERMINATION. If a partial taking or sale of the
Leased Premises, the Building or the Project (a) substantially reduces the
Tenant's Square Footage, resulting in an inability
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of Tenant to use the Leased Premises for the Permitted Purpose, or (b) renders
the Building or the Project commercially inviable to Landlord, in Landlord's
sole opinion, either Tenant in the case of (a), or Landlord in the case of (b),
may terminate this Lease by notice to the other party within thirty (30) days
after the terminating party receives written notice of the portion to be taken
or sold. Such termination shall be effective one hundred eighty (180) days
after notice thereof, or when the portion is taken or sold, whichever is sooner.
All condemnation awards and similar payments shall be paid and belong to
Landlord, except for any amounts awarded or paid specifically to Tenant by the
acquiring agency for removal and reinstallation of Tenant's trade fixtures and
personal property, Tenant's moving costs or Tenant's goodwill.
10. INDEMNITY, SUBROGATION AND WAIVER.
10.1 INDEMNITY. Tenant agrees to defend, indemnify and save
harmless Landlord against and from any and all claims, demands, actions,
damages, liability and expense in connection with or for loss of or damage to
property or injury or death to any person from any cause whatsoever while in,
upon or about the Leased Premises, or from any such claim, demand or the like
arising from or out of any occurrence in, upon or at the Leased Premises, by or
on behalf of any person, firm or corporation arising from Tenant's use of the
Leased Premises or the conduct of its business or from any activity, work, or
thing done, permitted or suffered by Tenant, in or about the Leased Premises,
and Tenant shall further defend, indemnify and save Landlord harmless against
and from any and all claims arising from any Event of Default (defined in
paragraph 11.1 below), or arising from any act or negligence of Tenant, or any
of its agents, contractors, servants, employees or licensees, and from and
against all costs, attorneys' fees, expenses and liabilities incurred in or
arising from any such claim or action or proceeding brought thereon; and in case
any action or proceeding is brought against Landlord by reason of any such
claim, Tenant upon notice from Landlord covenants to resist or defend at
Tenant's expense such action or proceeding by counsel reasonably satisfactory to
Landlord. Tenant, as a material part of the consideration to Landlord, hereby
assumes all risk of damage to property in, upon or about the Leased Premises,
the Building or the Project from any source and to whomever belonging, and
Tenant hereby waives all claims in respect thereof against Landlord, except to
the extent such damage is caused by Landlord's gross negligence or willful
misconduct. The foregoing waiver shall inure only to the benefit of Landlord and
its agents, and the exception to such waiver for Landlord's gross negligence or
willful misconduct shall inure only to the benefit of Tenant and its agents and
to no other party.
10.2 WAIVER OF SUBROGATION. Tenant and Landlord release each
other and waive any right of recovery against each other for any claims for loss
or damage to any person, property or the Leased Premises, which occurs on or
about the Leased Premises, the Building or the Project, whether due to the
negligence of either party, their agents, employees, officers, contractors,
licensees, invitees or otherwise, if such loss or damage is insured against
under the insurance policy carried by the releasing party and in force at the
time of such loss or damage, and to the extent of the proceeds received from
such policy. Tenant and Landlord agree that all policies of insurance obtained
by either of them in connection with the Leased Premises shall contain
appropriate waiver of subrogation clauses. The provisions of this paragraph 10.2
shall survive the expiration or termination of this Lease with respect to any
claims or liability arising from events occurring prior to such expiration.
10.3 LIMITATION OF LANDLORD'S LIABILITY. The obligations of
Landlord under this Lease do not constitute personal obligations of the
individual managers, members, partners, shareholders, directors, officers,
employees, or agents of Landlord, and Tenant shall look solely to Landlord's
interest in the Building (including any rents payable to Landlord) and to no
other assets of Landlord, for satisfaction of any liability in respect of this
Lease. Tenant will not seek recourse against the individual managers, members,
partners, shareholders, directors, officers, employees or agents of Landlord or
any of their personal assets for such satisfaction. Notwithstanding any other
provisions contained herein, Landlord shall not be liable to Tenant, its
contractors, agents or employees for any consequential or punitive damages or
damages for loss of profits.
11. TENANT'S DEFAULT AND LANDLORD'S REMEDIES.
11.1 TENANT'S DEFAULT. It shall be an "Event of Default" if
Tenant shall (a) fail to pay when due any (i) monthly installment of Base Rent
or of Tenant's Pro Rate Share of Excess Operating Costs, (ii) or any other Rent,
and such failure shall continue for ten (10) days after written notice thereof
by Landlord to Tenant; (b) violate or fail to perform any of the other
conditions, covenants or agreements herein made by Tenant, and such violation or
failure shall continue for thirty (30) days after written notice thereof to
Tenant by Landlord except that if within the thirty (30) day period Tenant
commences and thereafter proceeds diligently to remedy the violation or failure,
Tenant shall not be in default hereunder if Tenant has fully and completely
remedied such violation or failure on or before the date which is sixty (60)
days from the effective date of such notice from Landlord to Tenant of such
violation or failure; (c) make a general assignment for the benefit of its
creditors or file a petition for bankruptcy or other reorganization,
liquidation, dissolution or similar relief; (d) have a proceeding filed against
Tenant seeking any relief mentioned in (c) above which is not discharged within
sixty (60) days thereafter; (e) have a trustee, receiver or liquidator appointed
for Tenant or a substantial part of its property; (f) abandon or vacate the
Leased Premises for more than six (6) consecutive months; or (g) default under
any other space lease within the Building or Project.
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11.2 REMEDIES ON DEFAULT. Landlord shall have the following
remedies if Tenant commits an Event of Default. These remedies are not
exclusive; they are cumulative in addition to any remedies now or later allowed
by law or in equity.
11.2.1 CONTINUE LEASE. Landlord may continue this Lease in
full force and effect. In such case, the Lease will continue in effect so long
as Landlord does not terminate Tenant's right to possession, and Landlord shall
have the right to collect Rent when due. During the period such Event of Default
continues, Landlord can enter the Leased Premises and relet them, or any part of
them, to third parties for Tenant's account. Tenant shall be liable immediately
to Landlord for all costs Landlord incurs in reletting the Leased Premises
including, without limitation, broker's commissions, expenses of remodeling the
Leased Premises required by the reletting, and like costs. Reletting can be for
a period shorter or longer than the remaining term of this Lease. Tenant shall
pay to Landlord the Rent due under this Lease on the date the Rent is due, less
the Rent Landlord receives from any reletting. No act by Landlord allowed by
this paragraph shall terminate this Lease unless Landlord notifies Tenant that
Landlord elects to terminate this Lease.
11.2.2 TERMINATE LEASE. Landlord can terminate Tenant's
right to possession of the Leased Premises at any time. No act by Landlord other
than giving notice to Tenant shall terminate this Lease. Acts of maintenance,
efforts to relet the Leased Premises or the appointment of a receiver on
Landlord's initiative to protect Landlord's interest under this Lease shall not
constitute a termination of Tenant's right to possession. On termination,
Landlord has the right to recover from Tenant:
(a) The worth, at the time of the award, of the
unpaid Rent that had been earned at the time of termination of this Lease;
(b) The worth, at the time of the award, of the
amount by which the unpaid Rent that would have been earned after the date of
termination of this Lease until the time of the award exceeds the amount of the
loss of Rent that Tenant proves could have been reasonably avoided;
(c) The worth, at the time of the award, of the
amount by which the unpaid Rent for the balance of the term after the time of
the award exceeds the amount of the loss of Rent that Tenant proves could have
been reasonably avoided;
(d) Any other amount, and court costs, necessary to
compensate Landlord for all detriment proximately caused by such Event of
Default, including, without limitation, any unamortized brokerage commissions
attributable to this Lease, or any unamortized costs of tenant improvements as
set forth on Schedule 5 attached hereto.
"The worth, at the time of the award," as used in
paragraph 11.2.2(a) and 11.2.2(b) is to be computed by allowing interest at the
maximum rate allowed by applicable usury law at that time, or if there is no
such maximum, at eighteen percent (18%) per annum. "The worth, at the time of
the award," as referred to in paragraph 11.2.2(c) is to be computed by
discounting the amount at the discount rate of the Federal Reserve Bank of
Kansas City, Missouri, at the time of the award, plus one percent (1%).
11.2.3 RECEIVER. Landlord shall have the right to have a
receiver appointed to collect Rent. Neither the filing of a petition for the
appointment of a receiver nor the appointment itself shall constitute an
election by Landlord to terminate this Lease.
11.2.4 COST OF RE-LETTING PREMISES. Upon the occurrence of
an Event of Default and Landlord's reentering of the Premises, Tenant agrees to
pay to Landlord, as an additional item of damages, the reasonable cost of
repairs, alterations, redecorating, lease commissions and Landlord's other
expenses incurred in reletting the Leased Premises to a new tenant.
11.2.5 WAIVER. Tenant hereby waives any right of
redemption or relief from forfeiture under any present or future law, if Tenant
is evicted or Landlord takes possession of the Leased Premises by reason of the
occurrence of any Event of Default hereunder.
12. TERMINATION.
12.1 SURRENDER OF LEASED PREMISES. On expiration of this
Lease, if no Event of Default exists, Tenant shall surrender the Leased Premises
in the same condition as when the Lease Term commenced, ordinary wear and tear
and damage by unavoidable casualty excepted. Except for furnishings, trade
fixtures and other personal property installed at Tenant's expense, all
alterations, additions or improvements, whether temporary or permanent in
character, made in or upon the Leased Premises, either by Landlord or Tenant,
shall be Landlord's property and at the expiration or earlier termination of the
Lease or any renewal term shall remain on the Leased Premises without
compensation to Tenant; provided that, if Landlord requests in writing, Tenant
shall, at its expense and without delay, remove any alterations, additions or
improvements, that are not defined as Landlord's property made to the Leased
Premises by Tenant and designated by Landlord to be removed, and repair any
damage to the Leased Premises or the Building or the Project caused by such
removal. If Tenant
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fails to repair the Leased Premises, Landlord may complete such repairs and
Tenant shall reimburse Landlord for such repair and restoration. If Tenant fails
to remove such property as required under this Lease, Landlord may dispose of
such property in its sole discretion without any liability to Tenant, and
further may charge the cost of any such disposition to Tenant.
12.2 HOLDOVER TENANCY. If Tenant shall hold over after the
Lease Expiration Date or at the end of any Renewal Term, Tenant shall be deemed,
at Landlord's option, to occupy the Leased Premises as a Tenant from month to
month. During such tenancy, Tenant agrees to pay Landlord, monthly in advance,
an amount equal to one hundred fifty percent (150%) of all Rent which would
become due (based on Base Rent and Tenant's Pro Rata Share of Excess Operating
Costs payable for the last month of the Lease Term or Renewal Term as
applicable, together with all other amounts payable by Tenant to Landlord under
this Lease), and to be bound by all of the terms, covenants and conditions
herein specified. If Landlord relets the Leased Premises or any portion thereof
to a new tenant and the term of such new lease commences during the period for
which Tenant holds over, Landlord shall be entitled to recover from Tenant all
costs and expenses, reasonable attorneys' fees, post-judgment collection costs,
damages (including any reasonable relocation costs or other damages occasioned
to such new tenant and asserted against Landlord) and loss of profits incurred
by Landlord as a result of Tenant's failure to deliver possession of the Leased
Premises to Landlord when required under this Lease, together with any other
remedies provided to Landlord hereunder.
13. MISCELLANEOUS.
13.1 QUIET ENJOYMENT. Subject to the rights of Landlord to
enter into the Leased Premises as provided in paragraph 7.1 hereof, if and so
long as Tenant pays all Rent and timely keeps and performs each and every term,
covenant end condition herein contained on the part of Tenant to be kept and
performed, Tenant shall quietly enjoy the Leased Premises without hindrance or
disturbance by Landlord.
13.2 ACCORD AND SATISFACTION. No receipt and retention by
Landlord of any payment tendered by Tenant in connection with this Lease shall
constitute an accord and satisfaction, or a compromise or other settlement,
notwithstanding any accompanying statement, instruction or other assertion to
the contrary unless Landlord expressly agrees to an accord and satisfaction, or
a compromise or other settlement, in a separate writing duly executed by
Landlord. Landlord will be entitled to treat any such payments as being
received on account of any item or items of Rent, interest, expense or damage
due in connection herewith, in such amounts and in such order as Landlord may
determine at its sole option.
13.3 SEVERABILITY. The parties intend this Lease to be
legally valid and enforceable in accordance with all of its terms to the fullest
extent permitted by law. If any term hereof shall be stricken from this Lease to
the extent unenforceable, the same shall be as if it never had been contained
herein. Such invalidity or unenforceability shall not extend to any other term
of this Lease, and the remaining terms hereof shall continue in effect to the
fullest extent permitted by law, the same as if such stricken term never had
been contained herein.
13.4 SUBORDINATION AND ATTORNMENT. This Lease and Tenant's
rights hereunder are hereby made expressly subordinate to the lien of any
mortgage or deed of trust and to the lien of any ground lease, together with any
conditions, renewals, extensions or replacements thereof ("Superior
Instruments"), now or hereafter placed, charged or enforced against any interest
of Landlord in this Lease, in the leasehold estate thereby created or in the
Leased Premises or the Building or the Project, together with any improvements
included therein. If requested in writing by Landlord or any mortgagee,
beneficiary or ground lessor of Landlord, Tenant agrees to execute a
subordination agreement required to confirm the effect of the provisions of this
paragraph; provided such party acquires and accepts the Leased Premises subject
to this Lease and that, so long as Tenant is not in default under this Lease,
the rights of Tenant hereunder shall not be disturbed by reason of the terms of
any such Superior Instrument. If Tenant fails to execute and deliver any such
documents or instruments within ten (10) business days following request
therefor by Landlord, Landlord may treat such failure as an Event of Default.
In the event of any transfer in lieu of foreclosure or
termination of a lease in which Landlord is lessee or the foreclosure of any
Superior Instrument, or sale of the Property pursuant to any Superior
Instrument, Tenant shall attorn to, and recognize as "landlord" hereunder, such
purchaser, transferee or lessor and recognize such party as landlord under this
Lease. The agreement of Tenant to attorn contained in the immediately preceding
sentence shall survive any such foreclosure sale, termination of Landlord's
interest, or transfer.
13.5 APPLICABLE LAW/CONSTRUCTION. This Lease shall be
construed according to the laws of the State of Colorado and the provisions
hereof shall be construed in accordance with their fair meaning. Each of the
parties has agreed to the use of the particular language hereof (and in all
attached Schedules), and any questions of doubtful interpretation shall not be
resolved solely by any rule or interpretation providing for interpretation
against the party who causes the uncertainty to exist or against the draftsman.
The subject captions have been inserted for convenience only and shall not be
used to alter or interpret the content of this Lease.
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<PAGE> 15
13.6 BINDING EFFECT. The covenants, conditions, warranties and
agreements contained in this Lease shall be binding upon and inure to the
benefit of the parties and their respective heirs, successors and permitted
assigns, and shall survive the termination of this Lease, except as otherwise
provided in this Lease.
13.7 TIME. Time is of the essence of this Lease.
13.8 ENTIRE AGREEMENT. This Lease and the Schedules attached
set forth all the covenants, promises, agreements, representations, conditions,
statements and understandings between Landlord and Tenant concerning the Leased
Premises, the Building and the Project, and there are no representations, either
oral or written between the parties other than those in this Lease. This Lease
shall not be amended or modified except in a writing signed by both parties.
Failure to exercise any right in one or more instance shall not be construed as
a waiver of the right to strict performance or as an amendment to or
modification of this Lease.
13.9 NOTICES. All notices, consents end approvals pursuant to
this Lease shall be in writing and shall be effective on the earlier to occur of
actual receipt or if mailed, three (3) days after posting at a United States
Post Office, when mailed by certified mail or overnight mail, delivered (a) to
Landlord or Tenant at the address designated in paragraph 1.1 with a copy to the
Managing Agent, or (b) to such other address as may hereafter be designated by
either party by written notice.
13.10 FORCE MAJEURE. Except as otherwise provided in this
Lease, the obligations of Tenant to pay Rent and perform all of the terms,
covenants and conditions on the part of Tenant to be performed hereunder shall
in no way be affected, impaired or excused because Landlord, due to Unavoidable
Delay (as defined below), (a) is unable to fulfill any of its obligations under
this Lease, or (b) is delayed in providing any service, equipment or fixtures
expressly or impliedly to be provided, or (c) is unable to make or is delayed in
making any repairs, replacements, additions, alterations or decorations.
Landlord shall in each instance exercise reasonable diligence to effect
performance when and as soon as possible. Landlord, however, shall not be
obligated to pay overtime labor rates. Tenant shall be excused from its
obligations hereunder (except the obligation to pay Rent) if, due to Unavoidable
Delay, it cannot perform such obligation.
"Unavoidable delay" shall mean any and all delay beyond the
reasonable control of the party claiming the benefit of this paragraph,
including without limitation, delays caused by the other party; governmental
restrictions, regulations, controls, preemptions or delays; orders of civil,
military or naval authorities; strikes, labor disputes, lock-outs, shortages of
labor or materials or reasonable substitutes therefor; Acts of God; fire,
earthquake, floods, explosions or other casualties; extreme weather conditions
or other actions of the elements; enemy action, civil commotion, riot or
insurrection.
13.11 ATTORNEYS' FEES; PREJUDGMENT INTEREST. If the services
of an attorney are required by any party to secure the performance hereof or
otherwise upon the breach or default of another party to this Lease, or if any
judicial remedy or arbitration is necessary to enforce or interpret any
provision of this Lease, the prevailing party shall be entitled to reasonable
attorneys' fees, costs, expert witnesses fees, post-judgment collection costs,
and other expenses, in addition to any other relief to which such party may be
entitled. Any award of damages following judicial remedy or arbitration as a
result of the breach of this Lease or any of its provisions shall include an
award of prejudgment interest from the date of the breach or default at the
maximum amount of interest allowed by law.
13.12 AUTHORITY. Tenant warrants and represents that it has
full authority to enter, into this Lease; that this Lease constitutes a binding
obligation on behalf of Tenant, and that the individual signing on behalf of
Tenant is duly authorized to bind Tenant hereto.
13.13 HAZARDOUS MATERIALS.
13.13.1 LANDLORD'S REPRESENTATIONS AND WARRANTIES.
Landlord hereby warrants and represents to Tenant that Landlord has no
knowledge of the presence within the Leased Premises, the Building, or the
Project, of any asbestos, polychlorinated biphenyls or other Hazardous
Materials.
13.13.2 NOTICE. In the event that Tenant discovers or
is informed that a Hazardous Material exists in the Leased Premises, in the
Building, or any part or parts thereof or in the Project, it shall immediately
notify the Landlord in writing of such discovery or information.
13.14 PARTIES' APPROVALS. Except as otherwise herein expressly
provided, whenever consent or approval of either party is required, that party
shall not unreasonably withhold or delay such consent or approval.
13.15 MORTGAGEE PROTECTION. Landlord shall not be deemed to
be in default under this Lease unless (a) Tenant has given notice by registered
or certified mail to any beneficiary of a deed of trust or mortgage covering
the Premises whose address shall have been furnished to Tenant, and (b) Tenant
offers such beneficiary or mortgagee a reasonable opportunity (or such other
period as may be agreed to by Tenant and such beneficiary or mortgagee) to cure
the default, including time to obtain
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possession of the Premises by power of sale or of judicial foreclosure, if such
should prove necessary to effect a cure.
13.16 FINANCIAL STATEMENTS. Tenant acknowledges that, prior to
its execution of this Lease, it has delivered to Landlord current financial
statements of Tenant, and hereby represents and warrants that such financial
statements are true and correct in all material respects.
13.17 MODIFICATION FOR LENDER. If, in connection with
obtaining construction, interim or permanent financing for the Building, any
lender of Landlord shall request reasonable modifications in this Lease as a
condition to such financing, Tenant will not unreasonably withhold, delay or
defer its consent thereto, provided that such modifications do not increase the
obligations of Tenant hereunder or materially adversely affect the leasehold
interest hereby created or Tenant's rights hereunder.
13.18 RECORDING. Neither Landlord nor Tenant shall record this
Lease or any memorandum thereof.
SUBMISSION OF THIS INSTRUMENT FOR EXAMINATION OR SIGNATURE BY
TENANT DOES NOT CONSTITUTE A RESERVATION OF OR OPTION FOR LEASE, AND IT IS NOT
EFFECTIVE AS A LEASE OR OTHERWISE UNTIL EXECUTION AND DELIVERY BY BOTH LANDLORD
AND TENANT.
This Lease is executed as of this 1st day of June, 1998.
LANDLORD:
HIGH POINTE I DEVELOPMENT GROUP LLC, TENANT:
A COLORADO LIMITED LIABILITY COMPANY HALLMARK ENTERTAINMENT NETWORK INC.,
A DELAWARE CORPORATION
BY: LANKFORD & ASSOCIATES, INC., A
COLORADO CORPORATION
(MANAGING MANAGER)
BY: /s/ GEORGE V. STEIN 06/01/98
--------------------------------
GEORGE V. STEIN
ITS: PRESIDENT
BY: /s/ ROBERT V. LANKFORD
-----------------------------
ROBERT V. LANKFORD, PRESIDENT THE UNDERSIGNED HALLMARK ENTERTAINMENT,
INC., A DELAWARE CORPORATION, HEREBY
CONFIRMS, APPROVES AND AGREES TO THE
PROVISIONS OF PARAGRAPH 12 OF
SCHEDULE 9 ATTACHED TO THIS LEASE THIS
1ST DAY OF JUNE, 1988.
HALLMARK ENTERTAINMENT, INC., A
DELAWARE CORPORATION
BY: /s/ WILLIAM J. ALIBER
--------------------------------
NAME:
ITS: VICE PRESIDENT
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SCHEDULE 9
ADDENDUM TO LEASE
This Addendum to Lease (this "Addendum") is made this 1st day of June,
1998, between High Pointe I Development Group LLC, a Colorado limited liability
company ("Landlord") and Hallmark Entertainment, Inc. ("Tenant"), who are
parties to that certain Lease of even date to which this Addendum is attached as
Schedule 9 and incorporated therein by reference (the "Lease"). In the event of
any conflict or inconsistency between any other portions of the Lease and this
Addendum, the terms and conditions of this Addendum shall control. Capitalized
terms shall have the meaning set forth either in the Lease or as defined in this
Addendum.
Landlord and Tenant hereby agree that the Lease is hereby amended and
modified in the following particulars only:
1. OPTION TO EXPAND LEASED PREMISES. Landlord hereby grants to Tenant the
following option to expand the Leased Premises on the following terms and
conditions:
a. Provided Tenant is not in default under the terms and conditions of
this Lease Tenant shall have the option to expand into and lease the third floor
of the Building, consisting of 24,434 Rentable Square Feet ("Expansion Area"),
by giving notice to Landlord of Tenant's election to lease the Expansion Area on
or before November 10, 1998 (the "Expansion Option"), in the form set forth as
Exhibit 9-A attached hereto and incorporated herein by reference.
b. If Tenant timely exercises the Expansion Option in accordance with
this paragraph 1, Tenant's use and occupancy of such Expansion Area shall be on
and subject to the Rent and all other terms, covenants and conditions provided
in this Lease, and the Expansion Area shall be incorporated into the Leased
Premises, subject to the following:
i. The Expansion Area shall be deemed to be incorporated into the
Leased Premises on the date which is one (1) business day after
Substantial Completion of the Expansion Area has been achieved pursuant
to Schedule 5 attached hereto, which shall be the earlier of on or
before January 1, 1999, or fifty (50) days after Tenant exercises the
Expansion Option if notice of such exercise is delivered prior to
November 10, 1998.
ii. The Lease Expiration Date shall be amended to a date one
hundred twenty (120) months after the Expansion Area is deemed to be
incorporated into the Leased Premises.
iii. Landlord and Tenant shall execute an amendment to this Lease
setting forth the revisions to this Lease to reflect the additions of
the Expansion Area to the Leased Premises and the resulting changes
required to the definitions of the Leased Premises, Tenant's Square
Footage, Lease Expiration Date, Base Rent and Tenant's Pro Rata Share
as set forth in paragraph 1 of the Lease.
iv. In the event Tenant fails to elect to exercise the Expansion
Option provided for in this paragraph, the Expansion Area shall be
subject to the Continuing Right of First Refusal set forth in paragraph
2 of this Addendum.
2. CONTINUING RIGHT OF FIRST REFUSAL TO LEASE SPACE. Provided the Tenant
is not in default under any terms and conditions of the Lease, Tenant shall have
the following continuing right of first refusal to lease space within the
Building (the "Continuing Right of First Refusal"):
a. In the event that Landlord desires to enter into a lease with a
third party for space within the Building which is available for lease,
Landlord shall deliver notice to Tenant of any bona fide third party offer
which Landlord intends to accept (the "Third Party Offer"), setting forth the
terms of the Third Party Offer and the identity of the third party. Within ten
(10) days following the notice of any Third Party Offer, Tenant shall have the
right to accept the same by giving notice to Landlord within such period. Within
thirty (30) days following Tenant's acceptance, Landlord and Tenant shall enter
into an amendment of this Lease incorporating the terms of the Third Party
Offer. In the event Tenant either rejects the Third Party Offer or fails to
notify Landlord of its acceptance of the same within said ten (10) day period,
Landlord shall thereafter have the right for a period of one hundred twenty
(120) days thereafter, with respect to the subject space, to accept the Third
Party Offer, or a separate third party offer which is not more than five percent
(5%) more favorable to such third party (on a net effective) than the Third
Party Offer. In the event Landlord wishes to accept within said one hundred
twenty (120) day period a separate third party offer which, on a net effective
basis, is more than five percent (5%) more favorable than the Third Party Offer,
then Landlord shall again be required to comply with the requirements of this
paragraph 2. However, this Continuing Right of First Refusal shall continue to
apply to any space which may become available for lease following the expiration
of the term of any lease, or extension thereof by any third party tenant in the
Building. Notwithstanding the foregoing to the contrary, the balance of the
unoccupied Rentable Square Feet of space on the second floor of the Building is
subject to a right of first refusal to Aetna Life Insurance
9.1
<PAGE> 18
Company pursuant to a lease between Landlord and Aetna Life Insurance Company
("Aetna") (the "Aetna Right of First Refusal"). Tenant acknowledges and agrees
that the Continuing Right of First Refusal granted herein shall be subject to
the Aetna Right of First Refusal with respect to the second floor of the
Building. However, if Landlord receives a Third Party Offer pertaining to the
space on the second floor of the Building which is subject to the Aetna Right of
First Refusal, Landlord will give notice of such Third Party Offer to Tenant and
Tenant shall have the right to match such Third Party Offer or make a better
offer for such space by giving notice of such election setting forth in detail
the terms of such offer within three (3) business days following the notice of
any Third Party Offer. Landlord shall submit Tenant's offer to Aetna pursuant to
the Aetna Right of First Refusal, if Tenant's offer is equal to or better than
the Third Party Offer, in the reasonable determination of Landlord. If Aetna
fails to exercise the Aetna Right of First Refusal, Tenant and Landlord shall
enter into a lease incorporating Tenant's offer within ten (10) days after
notice from Landlord of such failure.
b. If Tenant has occupied at least sixty percent (60%) of the Total
Rentable Square Feet of the Building by on or before January 1, 2000, and at
least five (5) years shall remain on the Lease Term of this Lease, then Tenant
shall have the right to elect to modify the Third Party Offer to make the
proposed lease termination date under the Third Party Offer co-terminus with the
Lease Expiration Date under this Lease (the "Co-Terminus Election"). Tenant
shall give notice of its desire to exercise the Co-Terminus Election at the time
it gives notice to Landlord of its acceptance of the Third Party Offer.
c. In the event Tenant shall give notice of the Co-Terminus Election, to
the extent the adjustment of the term of the Third Party Offer changes the
economic benefit of the Third Party Offer, the Rent and Landlord's Share of the
cost of Leasehold Improvements under the Third Party Offer shall be adjusted so
that such Rent and Landlord's Share of the cost of Leasehold Improvements shall
be substantially comparable to the Third Party Offer (on a net effective basis).
3. RIGHT OF FIRST REFUSAL TO PURCHASE. Provided that Tenant is not in
default under any terms and conditions of the Lease, Tenant shall have the
following right of first refusal to purchase the Project (the "Right of First
Refusal to Purchase"):
In the event Landlord desires to enter into a contract with a third
party for the sale of the Project, Landlord shall deliver notice to Tenant of
any bona fide third party offer which Landlord intends to accept (the "Purchase
Offer"), setting forth the terms of the Purchase Offer and the identity of the
third party. Within ten (10) days following the notice of any Purchase Offer,
Tenant shall have the right to accept the same by giving notice to Landlord
within such period. Within thirty (30) days following Tenant's acceptance,
Landlord and Tenant shall enter into an agreement incorporating the terms of the
Purchase Offer. In the event Tenant either rejects the Purchase Offer or fails
to notify Landlord of its acceptance of the same within said ten (10) day
period, Landlord shall thereafter have the right for a period of one (1) year,
to accept the Purchase Offer, or a separate offer from a bona fide third party
which is not more than five percent (5%) more favorable to such third party (on
a net effective basis) than the Purchase Offer. In the event Landlord wishes to
accept within said one (1) year period a separate third party offer, which on a
net effective basis, is more than five percent (5%) more favorable than the
Purchase Offer, Landlord shall again be required to comply with the requirements
of this paragraph 3. In the event Tenant either rejects the Third Party Offer or
fails to notify Landlord of its acceptance of the same within the above ten (10)
day period, Tenant's right of first refusal hereunder shall terminate and be of
no further force and effect after one (1) year thereafter. The Right of First
Refusal to Purchase shall not apply to any lender in connection with a
foreclosure, deed-in-lieu of foreclosure, or any sale of the Project by such
lender.
4. OPERATING COSTS ADJUSTMENT LIMITATION. Notwithstanding the provisions of
paragraphs 3.4.2 and 3.4.3 of the Lease, Tenant's obligation to pay that portion
of Excess Operating Costs, exclusive of real estate taxes and assessments,
insurance and utilities, shall not exceed five percent (5%) of such costs for
the prior calendar year. No such limitation shall apply to real estate taxes,
insurance and utilities.
5. ASSIGNMENT AND SUBLETTING. Notwithstanding the provisions of paragraph
6.4 of the Lease to the contrary, provided Tenant is not in default under the
terms and conditions of this Lease, Tenant shall have the right during the term
of this Lease or any extension hereof to assign this Lease or sublet the Leased
Premises to Hallmark Entertainment, Inc., a Delaware corporation, or to another
subsidiary or affiliate of Tenant, subject to the following:
a. Tenant shall give Landlord thirty (30) days prior notice of such
intended assignment or subletting, together with information concerning the
identity of such assignee or subtenant and such other information required to be
delivered pursuant to paragraph 6.4 of the Lease.
b. Such assignment or subletting shall be evidenced by a form of
agreement reasonably acceptable to Landlord, pursuant to which such assignee or
subtenant shall assume and agree to perform the obligations of Tenant under the
Lease, together with Tenant's express acknowledgement and confirmation to
Landlord that Tenant shall remain in all respects primarily liable for the
complete and timely performance of Tenant's obligations under the terms and
conditions of this Lease.
9.2
<PAGE> 19
6. BASE RENT ADJUSTMENT FOR ADDITIONAL LEASEHOLD IMPROVEMENTS. In addition
to the allowance of Twenty-Three Dollars ($23.00) per rentable square foot of
Tenant Square Footage for Base Tenant Improvements set forth in paragraph 1.1 of
Schedule 5 of the Lease, up to Six Dollars ($6.00) per rentable square foot of
Tenant's Square Footage of Tenant's Share of the Leasehold Improvements may be
paid by Tenant through an adjustment of the Base Rent to be payable pursuant to
paragraphs 1.1.7 of the Lease (the "Base Rent Adjustment"). The Base Rent
Adjustment shall be determined as the amount of such additional cost per
rentable square foot, amortized at ten percent (10%) per annum over the initial
one hundred twenty (120) month term of the Lease. Such Base Rent Adjustment
shall be established based upon the amount of Six Dollars ($6.00) per rentable
square foot unless Tenant shall give notice to Landlord on or before five (5)
days after Landlord has delivered a notice to Tenant that Landlord is ready to
commence construction of the Leasehold Improvements of Tenant's election not to
enter into the Base Rent Adjustment provided for herein, or to do so at a lesser
amount set forth in such notice. On or before the Lease Commencement Date,
Landlord and Tenant shell execute an amendment to this Lease, in form reasonably
acceptable to Landlord, setting forth the adjusted Base Rent under the Lease
pursuant to paragraph 1.1.7 of the Lease.
7. SIGNAGE. Tenant shall have the exclusive right during the Lease, as
extended for the period of any Renewal Option exercised by Tenant pursuant to
paragraph 11 of this Addendum, to install at its sole cost and expense a sign
bearing the name, tradename and/or logo of Tenant on the exterior surface of the
Building ("Tenant's Sign"), subject to the following:
a. The dimensions, design, materials, and colors comprising the Tenant
Sign, shall be subject to the prior approval of Landlord which approval shall
not be unreasonably withheld.
b. The Tenant Sign shall be subject to any and all required approvals
and permits under applicable governmental regulations, covenants and design
guidelines (the "Sign Approvals"). It shall be the responsibility of Tenant, at
Tenant's expense, to prepare and submit any and all applications for the Sign
Approvals. Tenant shall provide copies of any such documents or applications
pertaining to the Sign Approvals to Landlord for Landlord's review and approval
prior to submission to any applicable authority having jurisdiction over the
Project. Landlord shall have five (5) business days from receipt of such
documents or application in which to review and give notice to Tenant of
Landlord's approval or disapproval of such document or application. Any failure
of Landlord to give notice to Tenant within such period shall be deemed to be an
approval of such document or application. Any notice of disapproval from Tenant
to Landlord shall set forth Landlord's reasons for its disapproval in reasonable
detail. Landlord shall cooperate reasonably with Tenant in connection with
Tenant's pursuit of the Sign Approvals.
c. Landlord shall install, or permit Tenant to install, using a
contractor approved by Landlord, the Tenant's sign. Tenant shall make all
required conduit or cable connections between Tenant's sign and the Building
Electrical Services, subject to (i) Tenant's payment of reasonable costs for
such services, and (ii) approval of such connections by Landlord, which approval
shall not be unreasonably withheld. Such work may be performed by Landlord, or
by a contractor of Tenant approved by Landlord.
d. Tenant shall be responsible for maintaining Tenant's sign in a clean
operable condition through a contractor approved by Landlord, which approval
shall not be unreasonably withheld. Tenant shall save Landlord harmless from any
claims, liability or expenses resulting from the erection, maintenance,
existence or removal of Tenant's sign, provided that any such loss, cost or
damage are not due, to the gross negligence or willful misconduct of Landlord,
its agents, employees or contractors.
e. At the conclusion of the Lease Term, or any extension thereof arising
from the Renewal Option, Tenant shall remove Tenant's sign, repair and restore
any damage or wear to the Building relating therefrom, and surrender and restore
the Building to Landlord in substantially as good condition as when Tenant's
sign is installed, except for loss or damages resulting from casualty,
condemnation, Act of God, or ordinary wear and tear.
f. The liability insurance to be carried by Tenant pursuant to the
provisions of this Lease shall include coverage for the Tenant's sign and for
Tenant's activities pertaining to the Tenant's sign.
8. ANTENNA(E) INSTALLATION. Subject to the following provisions of this
paragraph 8, Landlord grants to Tenant the right, in common with Landlord and
other tenants, to install, operate, and maintain, at Tenant's expense and risk,
up to three (3) lawfully permitted antenna(e), satellite dish(es) and associated
equipment (the "Antenna(e) Equipment"), at the location on the Building roof
designated for such use reasonably acceptable to Landlord; or, if the Building
roof is inadequate for any reason to afford a sufficient area for a direct line
of sight transmission for satellite dish antenna(e), Landlord shall make up to
six hundred (600) square feet of space available on the highest level of the
parking structure for the Project or on the Land at the south side of such
parking structure for such purpose (collectively, the "Antenna(e) Premises"):
9.3
<PAGE> 20
a. Tenant shall submit to Landlord for its approval, a full set of
engineering plans and specifications for the proposed Antenna(e) Equipment
installation.
b. Tenant shall make all required conduit or cable connections between
Tenant's equipment in the Premises and the Antenna(e) Equipment utilizing
Building electrical services, subject to (i) Tenant's payment of reasonable
costs for such services, and (ii) approval of such connections by Landlord.
c. Any Antenna(e) Equipment installed by Tenant shall be erected so as
not to interfere with the operation of any previously erected antenna(e) and in
a location and manner that will minimize interference with additional antenna(e)
to be erected by Landlord or other tenants in the future, and Landlord shall not
erect or permit the erection of any antenna(e) so as to materially interfere
with the operation of the Antenna(e) Equipment previously erected by Tenant;
d. Tenant, its authorized employees, agents and contractors shall, at
all reasonable times, have the right to enter or leave the Antenna(e) Premises,
subject to Building Rules and Regulations, and Landlord agrees that it will not
give unauthorized persons access to Tenant's Antenna(e) Premises or Antenna(e)
Equipment;
e. Tenant shall obtain all necessary municipal, state and federal
permits and authorizations and any approvals required by applicable covenants,
required to install, maintain and operate the Antenna(e) Equipment and pay any
charges levied by government agencies which are the sole result of Tenant having
the Antenna(e) Equipment. Landlord agrees to fully cooperate with Tenant in
obtaining all such permits and authorizations, at no cost or expense to
Landlord;
f. Tenant shall maintain the Antenna(e) Equipment and Antenna(e)
Premises in a good state of repair and to save Landlord harmless from any
claims, liability or expenses resulting from the erection, maintenance,
existence or removal of the Antenna(e) Equipment, provided that such loss, costs
or damages are not due, to the gross negligence or willful misconduct of
Landlord, its agents, employees or contractors;
g. At the conclusion of the Term, Tenant shall remove the Antenna(e)
Equipment and surrender and restore the Antenna(e) Premises to Landlord in
substantially as good condition as when entered, except for loss or damages
resulting from casualty, condemnation, act of God or ordinary wear and tear;
h. The liability insurance to be carried by Tenant pursuant to the
provisions of this Lease shall include coverage for Tenant's activities on the
Antenna(e) Premises;
i. In the event the land adjacent to the Project, described as Lot 2,
Greenwood Plaza South Filing No. 4, is developed with a building and other
improvements which interfere with the line-of-sight transmission or reception of
an antenna (including a satellite dish antenna), Landlord will reimburse Tenant
for Tenant's actual out-of-pocket expense incurred in relocating any such
antenna to another location within the Antenna(e) Premises, if such a location
is available. Such reimbursement shall constitute full satisfaction of any and
all claims, losses or damages Tenant may suffer from such interference;
j. Landlord makes no warranty and shall bear no responsibility, except
as expressly set forth herein, with respect to the operability of the Antenna(e)
Equipment, the non-existence of interference or other problems with respect to
the reception or transmission of signals, and/or the availability of the
permits, authorizations and approvals which may be required for the
installation, maintenance and operation of the Antenna(e) Equipment.
9. EMERGENCY GENERATOR. Subject to the following provisions of this
paragraph 9, Landlord grants to Tenant the right in common with Landlord and
other tenants to install, operate and maintain, at Tenant's expense and risk, up
to two (2) emergency generators and related equipment for the generation of
electricity ("Generator Equipment") at the location of the existing concrete
generator pad indicated on the Site Plan depicted in Schedule 1 of the Lease, or
at such other location on the Land as may be designated and acceptable to
Landlord. If the existing generator pad is not adequate to afford sufficient
area for a second generator, Landlord shall designate an area of Land for the
expansion of the existing generator pad or the construction of an additional
generator pad and shall install it at Landlord's expense subject to the
availability of the Approvals defined in paragraph 9.e hereof (collectively,
the "Generator Pad Premises"):
a. Tenant shall submit to Landlord for its approval, a full set of
engineering plans and specifications for the proposed Generator Equipment
installation.
b. Tenant shall make all required conduit or cable connection between
Tenant's equipment in the premises and the Generator Equipment utilizing
Building electrical services, subject to:
i. Tenant's payment of reasonable costs for such services; and
9.4
<PAGE> 21
ii. Approval of such connections by Landlord, which approval shall
not be unreasonably withheld.
c. The Generator Equipment installed by Tenant shall be installed so
as not to interfere with the operation of any previously installed generator
equipment.
d. Tenant, its authorized employees, agents, and contractors shall, at
all reasonable times, have the right to enter or leave the Generator Pad
Premises, subject to Building rules and regulations.
e. Tenant shall obtain all necessary municipal, state and federal
permits and authorizations and any approvals required by applicable covenants
(collectively, "Approvals"), required to install, maintain and operate the
Generator Equipment, and pay any charges which are levied by any government
agencies which are the sole result of Tenant having the Generator Equipment.
Landlord agrees to fully cooperate with Tenant in obtaining all such permits and
authorizations at no cost or expense to Landlord, except Landlord shall be
responsible for applying for any Approvals for an expansion or addition of the
Generator Pad Premises to accommodate the Generator Equipment.
f. Tenant shall maintain the Generator Equipment and the Generator Pad
Premises in a good state of repair and save Landlord harmless from any claims,
liability or expenses resulting from the installation, maintenance, operation or
removal of the Generator Equipment, provided that such loss, cost or damages are
not due to the gross negligence or willful misconduct of Landlord, its agents,
employees or contractors.
g. Notwithstanding the provisions of paragraph 6.8 and Schedule 2 of
the Lease, Tenant shall have the right to store such fuel at the Generator Pad
Premises as may be required for the reasonable operation of the Generator
Equipment, provided that such storage and utilization of such fuel shall at all
times be in compliance with all Environmental Laws, any other governmental
regulations pertaining thereto, or commercially reasonable rules and regulations
which may be promulgated by Landlord.
h. At the termination of this Lease, Tenant shall remove the Generator
Equipment and surrender and restore the Generator Pad Premises to Landlord in
substantially as good conditions as when entered, except for loss or damages
resulting from casualty, condemnation, Acts of God, or ordinary wear and tear.
i. The liability insurance to be carried by Tenant pursuant to the
provisions of this Lease shall include coverage for Tenant's activities on the
Generator Pad Premises.
j. Landlord makes no warranty and shall bear no responsibility, except
as especially set forth herein, with respect to the operability of the Generator
Equipment, and/or the availability of the Approvals which may be required for
the installation, maintenance and operation of the Generator Pad Premises and
the Generator Equipment.
10. REFURBISHMENT ALLOWANCE. At any time after the end of Year Five of the
Lease and prior to the end of Year Six of the Lease, Landlord shall reimburse
Tenant for up to Five Dollars ($5.00) per rentable square foot of Tenant Square
Footage for actual costs incurred by Tenant for reasonable remodeling,
refurbishment and replacement of Leasehold Improvements within the Leased
Premises, subject to Landlord's prior approval pursuant to paragraph 6.1.4 of
the Lease. Landlord shall pay such reimbursement to Tenant on or before thirty
(30) days after Tenant shall deliver to Landlord evidence of such costs incurred
in the form of paid invoices or other similar information.
11. OPTION TO RENEW.
a. Provided that Tenant is not in default under the terms and
conditions of this Lease at the time the option may be exercised, Landlord
grants to Tenant the option (the "Renewal Option") to renew this Lease with
respect to all of the Leased Premises for two (2) additional periods of five (5)
years each (individually the "First Renewal Period" and "Second Renewal Period"
and collectively, the "Renewal Periods"). The Renewal Option may be exercised by
Tenant by delivering notice to Landlord of Tenant's election at least two
hundred fifty-five (255) days prior to the expiration date of the initial term
of the Lease, with respect to the First Renewal Option and for a like period of
time prior to the expiration date of the Second Renewal Period if the Renewal
Option is exercised for the First Renewal Period.
b. The renewal rental rate for the Leased Premises for the Renewal
Periods shall be equal to ninety-five percent (95%) of the "Market Rental Rate"
as hereinafter defined (also sometimes referred to herein as the "Renewal Rental
Rate"). The Market Rental Rate shall mean the annual amount per rentable square
foot that a willing tenant would pay and a willing landlord would accept in an
arm's length, bona fide negotiation (based upon comparable lease transactions
for comparable space made with other tenants in the Building during the prior
three (3) month period exclusive of any sublease transactions, or, if no
comparable lease transactions occur in the Building during the prior three (3)
month period, for comparable lease transactions made in comparable buildings in
the Southeast Denver, Colorado area, exclusive of any sublease transactions,
without any additional
9.5
<PAGE> 22
inducements (including, without limitation, any tenant improvement allowance or
improvements constructed at the Landlord's expense), but taking into account any
free rent or similar inducements given in any such transaction, for a lease of
the premises, on the same terms and conditions for the specified period of time.
In determining the market rental in any comparable lease transactions, the value
of tenant improvements provided by the Landlord in such transaction in either
the form of a tenant improvement allowance or construction of improvements at
Landlord's expense as well as other Landlord inducements, shall be substantiated
and netted out in determining such Market Rental Rate. Parking rental rates
chargeable pursuant to Schedule 7 of the Lease shall be the rates then being
offered to members of the public or other tenants for long term parking in the
Project parking facility. Notwithstanding anything to the contrary contained in
this Lease, the Renewal Rental Rate for the Leased Premises and for the parking
provided pursuant to Schedule 8 of the Lease shall not be less than the Base
Rent payable under this Lease during the initial term hereof.
c. If Tenant elects to exercise the Renewal Option, within fifteen (15)
days after Tenant delivers its notice of exercise, Landlord shall give notice to
Tenant of Landlord's determination of Market Rental Rate for the Leased Premises
and for parking provided pursuant to Schedule 8 of the Lease. Tenant shall have
fifteen (15) days thereafter in which to either accept Landlord's determination
of Market Rental Rate or to object thereto by giving notice of such acceptance
or rejection within such fifteen (15) day period. Tenant's failure to give such
notice shall be deemed to be an acceptance of Landlord's determination of Market
Rental Rate. By giving notice of an objection, Tenant shall be deemed to have
elected to submit the determination of Market Rental Rate to arbitration, if
Landlord and Tenant fail to agree upon the Rental Rate within thirty (30) days
after Tenant's original notice of its intent to exercise the Renewal Option, in
which case the following procedure shall be utilized:
i. The parties, within ten (10) days after the end of such thirty
(30) day period, shall each appoint a qualified commercial real estate
broker, or certified commercial real estate appraiser, with a minimum
of ten (10) years experience in the applicable market. The two
individuals so appointed shall be requested to select a third qualified
broker or appraiser within ten (10) days after their appointment. If
such individuals cannot agree upon a third broker or appraiser, either
Landlord or Tenant may elect to have the third broker or appraiser
appointed by the President of the Colorado Chapter of the Association
for Commercial Real Estate, or its successor organization. Each party
shall be responsible for the compensation, if any, of the broker or
appraiser appointed by it and for one-half (1/2) of the compensation,
if any, of the third broker or appraiser. As soon as reasonably
possible after their appointment, and in any event, within thirty (30)
days thereafter, the two (2) individuals selected by Landlord and
Tenant shall each make a separate determination of the Market Rental
Rate and shall deliver a written report of their determination
(including reasonable details supporting such determination) to
Landlord and Tenant. If the higher of the two (2) Market Rental Rate
determinations is equal to or less than one hundred and five percent
(105%) of the lower determination, then the average of the two (2)
determinations shall be used as Market Rental Rate and shall be binding
on Landlord and Tenant. If the higher determination is more than one
hundred five percent (105%) of the lower determination, then as soon as
reasonably possible thereafter, the third individual shall determine
which of the two (2) brokers determinations of Market Rental Rate most
closely approximates the initial Market Rental Rate, and the
determination so selected shall be used as the Market Rental Rate and
shall be binding on both Landlord and Tenant. Landlord and Tenant
shall, separately and collectively in good faith, use all reasonable
diligence to ensure that all three (3) determinations are completed in
good faith within forty (40) days after appointment of the first broker
or appraiser to be appointed.
ii. If the determination of the Market Rental Rate is not completed
prior to the date it is to become effective, this Lease shall
nevertheless continue in full force and effect until such determination
is made, the Base Rent for such period and such space shall be payable
at the rate stipulated by Landlord as the Market Rental Rate. Upon
final determination of the Market Rental Rate, the payment of the
Market Rental Rate shall commence on the first day of the month
following the date of such determination, and Tenant shall pay to
Landlord, or Landlord shall refund to Tenant, within thirty (30) days
thereafter, the amount of any underpayment or overpayment of Base Rent,
as the case may be, during the interim period.
12. TRIAD LEASE. Hallmark Entertainment, Inc. ("Hallmark"), an affiliate of
Tenant is currently obligated as tenant under those certain leases between
Hallmark, as tenant, and [ILLEGIBLE] Real Estate Limited Partnership, as
landlord as more particularly set forth on Exhibit 9-B attached hereto and
incorporated herein by reference pertaining to approximately seventeen thousand
five hundred fifty-seven (17,557) rentable square feet of office space and two
hundred sixty-one (261) rentable square feet of warehouse space (collectively,
the "Triad Lease"). Subject to the truth and accuracy of the representations and
warranties of Tenant and Hallmark with respect to the Triad Lease hereinafter
set forth, and the performance of the covenants by Tenant and Hallmark relating
to the Triad Lease, and provided Tenant is not in default under any of the terms
and conditions of this Lease, Landlord shall reimburse Hallmark on a monthly
basis, on or before the twentieth (20th) day of each month commencing with the
first full month following the Lease Commencement Date, the actual amount paid
by Hallmark for the preceding month for its rental obligation under the Triad
Lease, until Hallmark is relieved of such payment obligation through the earlier
of the termination, assignment or sublease of the Triad Lease. If Tenant shall
not have completely vacated the premises covered by the Triad Lease as of the
Lease Commencement Date, Landlord's obligation to reimburse Hallmark hereunder
shall be
9.6
<PAGE> 23
prorated equitably on the basis of the amount of rentable square feet of space
actually vacated and unused by Tenant during the period for which such
reimbursement is to be made.
a. As an inducement to Landlord to agree to reimburse Hallmark for its
obligations under the Triad Lease as herein provided, Tenant and Hallmark hereby
represent and warrant to Landlord the following:
i. A true and complete copy of the Triad Lease, and any amendments
or modification thereto have been delivered to Landlord.
ii. The Triad Lease is in full force and effect, without
modification except as set forth in duly executed amendments to the
Triad Lease, all of which have been delivered to Landlord.
iii. There is no prepaid rent and no security deposit which has been
paid by Tenant or Hallmark, except as set forth in the Triad Lease, and
no such amounts have been returned to Tenant.
iv. Hallmark has performed all of its obligations due to be
performed under the Triad Lease and there are no defenses,
counterclaims, deductions or offsets outstanding or other claims of any
kind or nature by the Landlord under the Triad Lease as of the date
hereof and the landlord under the Triad Lease has performed all of its
obligations due to be performed under said Lease, and Hallmark has no
defenses, no counterclaims, deductions or offsets outstanding or other
excuses for Tenant's performance under the Triad Lease.
b. Tenant and Hallmark hereby authorize Landlord and its duly
authorized agents and brokers to commence marketing the premises covered by the
Triad Lease to prospective assignees or subtenants, and to communicate with the
Landlord under the Triad Lease regarding the mitigation of Landlord's
liabilities through assignment, subletting, lease buyout or other alternatives
that may be proposed by Landlord.
c. Notwithstanding the obligations set forth in paragraph 2 hereof, of
Tenant and Hallmark to cooperate with Landlord in connection with the Triad
Lease, such covenant of cooperation shall be subject to the following:
i. Landlord shall keep Tenant reasonably informed concerning
indications of interest received from third parties pertaining to the
premises under the Triad Lease.
ii. Tenant shall have the right to have its designated
representative or agent attend any meeting to be conducted by Landlord,
or its duly authorized representative or broker with a third party
interested in occupying any portion of the premises under the Triad
Lease.
iii. Any communication from Landlord, or its duly authorized agent
or broker, with any third party expressing an interest in occupying any
portion of the Premises under the Triad Lease, shall be non-binding in
nature unless approved and consented to in writing by Tenant.
d. Tenant and Hallmark shall cooperate with Landlord in all reasonable
respects to assist Landlord in its effort to mitigate Landlord's costs relating
to the Triad Lease to be incurred pursuant to this paragraph. Such cooperation
by Tenant and Hallmark shall include, but shall not be limited to, the
following:
i. Tenant and Hallmark shall execute any documents reasonably
requested by Landlord authorizing Landlord and its duly authorized
agents and brokers to market the premises covered by the Triad Lease to
prospective assignees or subtenants.
ii. Tenant and Hallmark shall execute such other documents as may
reasonably be requested by Landlord including, without limitation,
notices which may be required under the Triad Lease concerning
operating matters, lease renewals and the like, subject to Tenant's and
Hallmark's right to not sign anything that, in their reasonable
opinions, would violate the Triad Lease, or would increase Tenant's
potential liability under the Triad Lease, or would increase Hallmark's
potential liability under the Triad Lease.
iii. Upon Landlord's request, Tenant and Hallmark shall participate
in negotiations with the landlord under the Triad Lease and third
parties to facility any commercially reasonable transaction desired by
Landlord to reduce or eliminate Hallmark's obligation under the Triad
Lease and Landlord's obligation under this paragraph 12.
iv. Tenant and Hallmark shall not execute any instruments or enter
into any agreements pertaining to the Triad Lease without the prior
consent of Landlord not to be unreasonably withheld, or except as may
be necessary to protect Hallmark's legal status and may be required
under the Triad Lease.
9.7
<PAGE> 24
v. Tenant and Hallmark shall promptly deliver to Landlord any
notice delivered pursuant to the Triad Lease, or any correspondence
received by Tenant pertaining to the Triad Lease.
vi. Tenant and Hallmark shall afford Landlord, its agents and
brokers, reasonable access to all portions of the premises covered by
the Triad Lease during reasonable business hours, upon reasonable prior
notice, for the purpose of obtaining information concerning the floor
plan and Leasehold improvements comprising such premises, and for the
purpose of showing such premises, or portions thereof, to third parties
expressing an interest in occupying the premises covered by the Triad
Lease.
vii. Tenant and Hallmark shall immediately deliver, if not
previously delivered to Landlord, any floor plans pertaining to the
Triad Lease, specifications concerning any special Tenant improvements
or equipment included within the premises of the Triad Lease, and any
other documents or instruments reasonably related to the Triad Lease
which would materially relate to or affect the Landlord's ability to
mitigate its liabilities pertaining to the Triad Lease.
13. MOVING ALLOWANCE. On or before ten (10) days after the Lease
Commencement Date, Landlord shall pay to Tenant as an additional allowance to
cover costs incurred by Tenant in moving to the Leased Premises a moving
allowance of One Dollar and Twenty-Five Cents ($1.25) per rentable square foot
of Tenant's Square Footage.
14. APPROVAL OF BOARD OF DIRECTORS OF TENANT. The terms and conditions of
this Lease are subject to the prior approval of the Board of Directors of
Tenant. By execution of this Lease, Tenant represents and warrants to Landlord
that Tenant is fully authorized to enter into and execute and perform the terms
and conditions of this Lease; that the officer indicated as executing the Lease
is duly authorized and fully empowered to execute this Lease, and that the
execution by such officer has been duly authorized by the Board of Directors of
Tenant and such Lease is a binding obligation of Tenant.
LANDLORD: TENANT:
HIGH POINTE I DEVELOPMENT GROUP LLC, HALLMARK ENTERTAINMENT NETWORK,
A COLORADO LIMITED LIABILITY COMPANY INC., A DELAWARE CORPORATION
BY: LANKFORD & ASSOCIATES, INC., A
COLORADO CORPORATION
(MANAGING MANAGER)
BY: /S/ GEORGE V. STEIN
-----------------------------------
BY: /S/ ROBERT V. LANKFORD GEORGE V. STEIN
-------------------------------- ITS: PRESIDENT
ROBERT V. LANKFORD, PRESIDENT
THE UNDERSIGNED, HALLMARK
ENTERTAINMENT, INC., A DELAWARE
CORPORATION, HEREBY CONFIRMS, APPROVES
AND AGREES TO THE PROVISIONS OF
PARAGRAPH 12 OF THIS SCHEDULE 9 OF THE
LEASE THIS 1ST DAY OF JUNE, 1998.
HALLMARK ENTERTAINMENT, INC., A
DELAWARE CORPORATION
BY: /S/ WILLIAM J. ALIBER
-----------------------------------
NAME:
ITS: VICE PRESIDENT
9.8
<PAGE> 25
EXHIBIT 9A TO SCHEDULE 9
NOTICE OF EXERCISE OF EXPANSION OPTION
MEMORANDUM
TO: HIGH POINTE I DEVELOPMENT GROUP LLC, A COLORADO LIMITED LIABILITY COMPANY
FROM: HALLMARK ENTERTAINMENT, INC.
RE: NOTICE OF EXERCISE OF EXPANSION OPTION
- --------------------------------------------------------------------------------
PURSUANT TO PARAGRAPH 1 OF SCHEDULE 9 OF THAT CERTAIN LEASE BY AND BETWEEN
HIGH POINTE I DEVELOPMENT GROUP LLC, AS "LANDLORD" AND HALLMARK, INC., AS
"TENANT," EXECUTED JUNE 1, 1998 PERTAINING TO CERTAIN LEASED PREMISES WITHIN THE
PROJECT GENERALLY REFERRED TO AS HIGH POINTE AT GREENWOOD I (THE "LEASE"),
NOTICE IS HEREBY GIVEN THAT TENANT HEREBY ELECTS TO EXERCISE THE EXPANSION
OPTION IN ACCORDANCE WITH THE LEASE.
EXECUTED THIS 1ST DAY OF JUNE 1998.
TENANT:
HALLMARK ENTERTAINMENT NETWORK, INC.
BY: /S/ GEORGE V. STEIN
-------------------------------------
GEORGE V. STEIN
ITS: PRESIDENT
9A.1
<PAGE> 1
EXHIBIT 10.21
FIRST AMENDMENT TO LEASE
This First Amendment to Lease ("First Amendment") is made this 23rd day of
March 1999, by and between High Pointe Development Group, LLC., a Colorado
limited liability company ("Landlord") and Hallmark Entertainment Network, Inc.,
a Delaware corporation ("Tenant").
RECITALS
WHEREAS, Landlord entered into that certain Lease dated June 1, 1998 (the
"Lease") pertaining to certain Leased Premises described as Suites 400 and 500
in the office building located at 6430 South Fiddlers Green Circle, Englewood,
Colorado (the "Building"), which Leased Premises, as constructed, has 48,868
Rentable Square Feet; and
WHEREAS, Tenant desires to lease and occupy certain additional space on the
first floor of the Building for an equipment room for installation and operation
of Tenants uninterrupted power supply equipment ("the UPS Equipment Room"); and
WHEREAS, Landlord and Tenant desire to enter into this First Amendment to
set forth the terms and conditions pursuant to which the Lease shall be amended
to add the space comprising the UPS Equipment Room within the definition of
Leased Premises, as well as such other terms and conditions pertaining to the
rent, construction, maintenance and operation of the UPS Equipment Space.
NOW, THEREFORE, in consideration of the foregoing Recitals and the mutual
engagements of the parties hereinafter set forth, it is agreed as follows:
1. LEASED PREMISES. Section 1.1.1 of the Lease is hereby amended to add
that certain space located on the first floor of the Building consisting of
approximately four hundred and fifty-eight (458) Rentable Square Feet to
comprise the UPS Equipment Room, the approximate location of which is indicated
on the cross-hatched area set forth on the floor plan of the first floor of the
Building attached as Exhibit A hereto and incorporated herein by this reference.
2. TENANT'S SQUARE FOOTAGE. Section 1.1.4 of the Lease is hereby amended to
add the following at the end of such section: In addition to the foregoing,
Tenant's Square Footage shall also mean the square footage comprising the UPS
Equipment Room situated on the first floor of the building consisting of
approximately four hundred and fifty-eight (458) Rentable Square Feet,
reflecting an estimated Add On Factor of the first floor of the Building of
fourteen and seventy-nine one hundredths percent (14.79%), as calculated by
Landlord's representative using the method for determining Rentable Square Feet
as set forth in the "Methods for Measuring Floor Area In Office Buildings"
published by the Building Owners and Managers Association International,
copyright 1996 (the "BOMA Method"). Upon "substantial completion" of the UPS
Equipment Room, Rentable Square Feet shall be recalculated by Landlord's
representative using the BOMA Method. If that recalculation discloses a
different Rentable Square Feet or Add On Factor for the UPS Equipment Room than
are shown in this paragraph, then the Tenant's Square Feet, Base Rent and
Tenant's Pro Rata Share shall be adjusted accordingly.
3. LEASE COMMENCEMENT DATE. Section 1.1.5 is hereby amended to provide that
the Lease Commencement Date for the UPS Equipment Room shall mean the date of
execution of this First Amendment, and Lease Expiration Date shall mean the
Lease Expiration Date set forth in the Lease.
4. BASE RENT. Section 1.1.7 is hereby amended to provide that Base Rent
shall be increased by the amount equal to the Tenant's Square Footage of the UPS
Equipment Room multiplied by the Annual Base Rent as set forth and adjusted on
Schedule 7 of the Lease.
5. TENANT'S PRO RATA SHARE. Section 1.1.8 is hereby amended to provide that
Tenant's Pro Rata Share set forth in Section 1.1.7 of the Lease shall remain as
approximately forty-one per cent (41%), subject to adjustment pursuant to the
Lease and this First Amendment.
6. WORK LETTER AGREEMENT. The provision of the Work Letter Agreement set
forth in Schedule 5 of the Lease applicable to the construction of the Technical
Space Tenant Improvements, as defined in the Work Letter Agreement, shall govern
the construction of the UPS Equipment Room to the extent not inconsistent with
this First Amendment. However, the Construction Schedule for the UPS Equipment
Room is set forth on Exhibit B attached hereto and Final Costs shall include the
cost of designing and constructing the demising walls, such other Base Building
Improvements necessary to construct the UPS Equipment Room and a separate
electrical meter for such Space.
7. LEGAL EFFECT. The legal effect of this First Amendment is intended to be
limited to the details relating to the inclusion of the UPS Equipment Room by
expanding the definition of the Leased Premises under the Lease and amending the
operative terms and conditions of the Lease
<PAGE> 2
which apply to the construction, occupancy, use, rent and other obligations
pertaining thereto. Capitalized term shall have the meanings set forth herein or
in the Lease. To the extent the Terms and Conditions of the Lease are
inconsistent with this First Amendment as they pertain to the UPS Equipment
Room, the terms and conditions of this First Amendment shall apply. In all other
respects, the terms and conditions of this Lease, except as amended by this
First Amendment, are and shall remain in full force and effect, and the terms
and conditions of the Lease are hereby incorporated by this reference.
LANDLORD: TENANT:
HIGH POINTE I DEVELOPMENT GROUP LLC, HALLMARK ENTERTAINMENT NETWORK,
a Colorado limited liability company INC., a Delaware corporation
By: LANKFORD & ASSOCIATES, INC., a
Colorado corporation By /s/ RUSSEL H. GIVENS, JR.
(Managing Manager) ---------------------------------
Russel H. Givens, Jr.
Executive Vice President and Chief
By /s/ ROBERT V. LANKFORD Operating Officer
---------------------------------
Robert V. Lankford, President
CONSENT
THE ABOVE FIRST AMENDMENT TO LEASE IS HEREBY APPROVED THIS 23RD DAY OF
MARCH 1999 BY THE UNDERSIGNED AS GUARANTOR OF THE ABOVE DESCRIBED LEASE.
HALLMARK ENTERTAINMENT, INC.,
A DELAWARE CORPORATION
BY: /S/ JUDITH WHITTAKER
-------------------------------------
NAME:
ITS: VICE PRESIDENT
-2-
<PAGE> 1
EXHIBIT 10.22
SECOND AMENDMENT TO LEASE
This Second Amendment to Lease ("Second Amendment") is made this 17th day
of August, 1999, by and between High Pointe I Development Group, LLC, a Colorado
limited liability company ("Landlord") and Hallmark Entertainment Networks,
Inc., a Delaware corporation ("Tenant").
RECITALS
WHEREAS, Landlord and Tenant entered into that certain Lease dated June 1,
1998 (the "Lease") pertaining to certain Leased Premises in the Building
described as Suites 400 and 500; and
WHEREAS, Landlord and Tenant entered into that certain First Amendment to
Lease undated, except for Consent dated March 25, 1999 (the "First Amendment"),
pertaining to the addition of the UPS Equipment Room to the Leased Premises, as
more particularly described in the First Amendment to the Lease; and
WHEREAS, Landlord and Tenant desire to correct certain terms and conditions
of the Lease pertaining to the Permitted Purpose regarding the use of the Leased
Premises, the number of Rentable Square Feet comprising the Leased Premises, the
Base Rent, and Tenant's Pro Rata Share; and
WHEREAS, Landlord and Tenant further desire to amend the terms and
conditions of the Lease pertaining to the manner in which the Technical Space
Tenant Improvements and certain related improvements are to be constructed.
NOW, THEREFORE, in consideration of the foregoing Recitals and the mutual
engagements of the parties hereto, it is agreed as follows:
1. PERMITTED PURPOSE. Paragraph 1.1.11 of the Lease is hereby amended in
its entirety to read as follows:
Permitted Purpose means that Tenant may use the Leased Premises for
general office use and any lawful purpose incidental thereto, and may
use the area of Suite 400 comprising the Technical Space Tenant
Improvements as a television broadcast center and any lawful purposes
incidental thereto.
2. TENANT'S SQUARE FOOTAGE. Paragraph 1.1.4 of the Lease is hereby amended
to provide that Tenant's Square Footage for the Leased Premises, as amended by
the First Amendment, is hereby amended to approximately fifty thousand three
hundred ten (50,310) Rentable Square Feet (including the four hundred
fifty-eight (458) Rentable Square Feet in the UPS Equipment Room on the First
Floor of the Building). Schedule 1 of the Lease is also amended to reflect the
new amount of Rentable Square Feet, new generator site, and new common areas on
all floors.
3. BASE RENT. Paragraph 1.1.7 of the Lease is hereby amended to provide
that the Base Rent shall be as set forth in paragraph 1 of EXHIBIT A attached
hereto and incorporated herein by this reference. An "Adjustment Date" is the
date on which Base Rent shall be adjusted as provided in EXHIBIT A of this
Second Amendment. In addition, Tenant hereby elects to increase the Base Rent,
as provided in paragraph 6 of the Addendum to Lease set forth in Schedule 9 of
the Lease in order to pay Six Dollars ($6.00) per rentable square foot of
Tenant's Square Footage of Tenant's Share of the Leasehold Improvements (the
"Base Rent Adjustment"). Therefore, the Base Rent payable under the Lease, as
adjusted by the Base Rent Adjustment shall be as set forth in paragraph 2 of
EXHIBIT A attached hereto, to be effective October 1, 1999 as set forth in
EXHIBIT A.
4. TENANT'S PRO RATA SHARE. Paragraph 1.1.8 of the Lease is hereby amended
to provide that Tenant's Pro Rata Share shall be approximately forty-one and
92/100 percent (41.92%), subject to adjustment pursuant to the Lease.
5. TECHNICAL SPACE TENANT IMPROVEMENTS. Tenant shall have the right to
have the Technical Space Tenant Improvements constructed by a contractor other
than Lankford & Associates, Inc. under the supervision of Tenant's construction
manager, Aspen Engineering and Construction Management Services, Inc. ("Aspen").
If Tenant shall elect not to construct the Technical Space Tenant Improvements
this paragraph shall be inapplicable to the construction of any other
improvements in place thereof, and the original Work Letter Agreement of the
Lease shall govern. The construction of the Technical Space Tenant Improvements
by Tenant shall be subject to the following additional terms and conditions:
a. Tenant shall cause the Technical Space Tenant Improvements to be
designed and constructed in compliance with all of the terms and conditions of
the Lease, including, without limitation, paragraphs 6.1.5 and 6.1.6 of the
Lease. Lankford & Associates, Inc. shall act as the
<PAGE> 2
authorized agent and representative of Landlord in connection with the granting
of all approvals required to be given by Landlord of the Technical Space Tenant
Improvements on behalf of Landlord. Gary Eikenhorst shall act as the designated
representative of Lankford & Associates, Inc., and any agent or representative
as may be designated, assigned and referenced by written notice to Landlord from
Tenant shall act as the designated representative of Tenant.
b. Tenant shall be responsible for, and shall pay when due, whether
incurred before, on, or after the effective date of this Second Amendment, any
fees or other compensation payable to Aspen, the contractors, suppliers, and
consultants providing services and materials relating to the design and
construction of the Technical Space Tenant Improvements. Landlord hereby
assigns to Tenant end Tenant hereby assumes and agrees to be responsible for and
pay all fees (including any and all amounts which have been billed to Landlord
or Lankford & Associates, Inc. but as of the effective date of this Second
Amendment are unpaid in the amount of Eighteen Thousand Four Hundred Ninety-Five
Dollars and Sixteen Cents ($18,495.16) (including Permit Fees reimbursement
amount)), and as set forth in the full and complete statement of all costs
associated in transferring the work attached hereto as EXHIBIT B and
incorporated herein by this reference, arising from: (1) the architectural
design services contract dated January 25, 1999, as amended by letter dated
April 12, 1999, between Landlord's Architect and Lankford & Associates, Inc.
pertaining to the design of the Technical Space Tenant Improvements, copies of
which are attached hereto as EXHIBIT C and incorporated herein by this
reference, and (2) the purchase order evidenced by a Quotation from Golesh Door
& Trim, Inc. dated April 19, 1999, and Invoice dated July 27, 1999, copies of
which are attached hereto as EXHIBIT D and incorporated herein by this
reference, for twenty-four (24) wooden doors for use in connection with
construction of the Technical Space Tenant Improvements (collectively, the
"Contracts"). In addition, Landlord hereby assigns to Tenant and Tenant hereby
assumes all rights and obligations under any and all permits, including without
limitation fire and building permits, arising out of, related to, or issued for
construction or installation of the Technical Space Tenant Improvements, whether
currently issued to Landlord, Lankford & Associates, Inc., or otherwise (the
"Permits"). Tenant shall indemnify, defend and hold harmless Landlord and
Lankford & Associates, Inc. from and against any and all claims, loss or damage,
including attorneys fees and expenses of Landlord or Lankford & Associates,
Inc., arising out of or related to the Contracts or the Permits from and after
the date hereof, and Tenant shall reimburse Landlord and Lankford & Associates,
Inc. for any costs of any Permits already issued, copies of which are attached
hereto as EXHIBIT E.
c. In consideration of the change in the scope of work to be performed
by Landlord in connection with the design and construction of the Technical
Space Tenant Improvements, the amount of the available Landlord's Share (which
includes the Six Dollars ($6.00) per rentable square foot elected by Tenant
pursuant to paragraph 3 hereof) to be paid by Landlord for the cost of the
design and construction of the Technical Space Tenant Improvements shall be
reduced by Sixty-Two Thousand Five Hundred Dollars ($62,500.00). The amount of
available Landlord's share as of January 30, 1999, was Four Hundred Thirty-Two
Thousand One Hundred Eighty-Four Dollars ($432,184.00). Such amount was reduced
by Sixty-Nine Thousand Six Hundred Seven Dollars and Ninety-Nine Cents
(69,607.99) for payments made subsequent to January 30, 1999, to Landlord's
Architect and related to the Technical Space Tenant Improvements. Therefore, the
available amount of Landlord's Share, as reduced by the dollar amounts
specified above, is Three Hundred Thousand Seventy-Six Dollars and One Cent
($300,076.01) as of the effective date of this Second Amendment.
d. Tenant shall be entitled to receive payment of Landlord's Share in
accordance with the following terms and conditions:
i. Tenant shall submit a written application no more frequently than
once each calendar month to the Landlord for payment of Landlord's Share
specifying by name and amount the parties to whom Tenant is currently obligated
for labor and materials in place and directly related to the construction of the
Technical Space Tenant Improvements accompanied by such schedules, affidavits,
leases, waivers, statements, invoices, bills, and other documents as Landlord
may reasonably request ("Application for Landlord's Share").
ii. An Application for Landlord's Share shall be accompanied by:
(1) A direct construction cost breakdown and request for partial
payment in the form of the Application and Certificate for Payment (AIA
Document G702 and G703), currently dated and executed by the general
contractor and architect.
(2) Such other invoices, receipts, bills, bills of sale, and
statements as may be reasonably required by the Landlord to substantiate
the amount requested and the appropriateness of the Application for
Landlord's Share;
(3) Unconditional waivers of liens from each contractor and
subcontractor who has done work or furnished materials for construction
of the Technical
-2-
<PAGE> 3
Space Tenant Improvements effective through the date of the immediately
preceding payment on account of an Application for Landlord's Share in form
satisfactory to Landlord;
(4) A waiver of lien from any general contractor for all work,
materials and services covered by the currently requested Application for
Landlord's Share conditioned only upon payment of the Application for
Landlord's Share in a form satisfactory to Landlord;
(5) Evidence that any required inspections and approvals by any
governmental authority or other political subdivision, agency, or
instrumentality exercising jurisdiction over the Project have been
satisfactorily completed or granted as the case may be.
iii. Under no circumstances shall Landlord be required to make
payment of an item on an Application for Landlord's Share if Landlord believes
that: the work has not been completed; the work has not been completed in a
workmanlike manner; the work has not been completed in accordance with the
Construction Documents as submitted to and approved by Landlord; Landlord's
Lender (currently U.S. Bank National Association) withholds approvals necessary
for Landlord to make payments on an Application for Landlord's Share; or any of
the terms, conditions or approvals required under the Lease and the schedules
thereto, the First Amendment or this Second Amendment have not been complied
with.
iv. At Landlord's discretion, Landlord may withhold ten percent (10%)
of the amounts requested on an Application for Landlord's Share. Upon one
hundred percent (100%) completion of the Technical Space Tenant Improvements,
Tenant may request that Landlord make payments on amounts previously withheld.
v. The proceeds of any payment on an Application for Landlord's Share
shall be disbursed by Landlord to Tenant, on or before the last day of the
second full month following the date of receipt by the Landlord of the
Application for Landlord's Share, directly to Tenant by depositing such proceeds
as directed by the Tenant; provided, however, that such proceeds may be
disbursed at Landlord's option directly to the third parties or jointly to
Tenant and such third parties identified in the Application for Landlord's Share
entitled to receive such funds.
vi. Once Landlord has paid Landlord's Share on account of payments on
Applications for Landlord's Share or otherwise, Landlord shall not be required
to make any further payments on an Application for Landlord's Share or any
portion thereof as the case may be.
vii. No payment made on account of an Application for Landlord's
Share shall constitute a waiver of any condition precedent to the obligation of
Landlord to make any further payment on such Application for Landlord's Share or
preclude Landlord from thereafter declaring the failure of Tenant to satisfy
such condition precedent to be a default if such failure is not timely cured
after written notice and demand for the performance of such condition precedent
is delivered by Landlord to Tenant, nor shall any express or implied waiver on a
particular Application for Landlord's Share constitute a waiver of any condition
precedent to payment on account of any future Application for Landlord's Share.
viii. Tenant shall have the right to review, and shall cooperate
fully with Landlord in meeting, any request made by Landlord's Lender, as it
applies to submission of documents for reimbursement of Tenant Improvement
Costs, which constitute conditions precedent to Landlord's ability to make
payments on account of an Application for Landlord's Share.
e. Tenant shall, at Tenant's expense, maintain or cause, in the case of
any contractors or subcontractors, to be maintained in force and effect on the
Project at all times during the construction of the Technical Space Tenant
Improvements: all-risk builder's risk insurance in an amount equal to one
hundred percent (100%) of the replacement cost of the Technical Space Tenant
Improvements, providing all risk coverage on the Technical Space Tenant
Improvements and materials stored on the property and elsewhere and including
the perils of collapse, water damage, business interruption, boiler/machinery
coverage, permission to occupy, interest costs and other risks typically insured
under such type of policy; and commercial, general liability insurance for
Tenant and Tenant's contractors and subcontractors including blanket contractual
liability, products and completed operations, personal injury (including
employees), independent contractors, explosion, collapse, and other risks
typically insured under such type of policy.
f. The demising wall and door creating the UPS Equipment Room on the
first floor of the Building shall be constructed by Landlord. Tenant shall be
responsible for the design, construction and installation of the Interior of the
UPS Equipment Room as part of the Technical Space Tenant Improvements.
-3-
<PAGE> 4
6. ANTENNAE INSTALLATION. Paragraph 8 of the Addendum to Lease set forth as
Schedule 9 of the Lease is hereby amended to provide that Landlord shall be
responsible for taking all reasonable steps necessary to apply for the approval
of the architectural control committee having jurisdiction over the Project for
the location and design of the Antennae Equipment to be installed by Tenant in
accordance with such paragraph 8, at no additional cost to Tenant.
7. EMERGENCY GENERATOR. Paragraph 9 of the Addendum to Lease set forth as
Schedule 9 of the Lease is hereby amended as follows. The Generator Equipment
desired to be utilized by Tenant cannot reasonably be accommodated within the
Generator Pad Premises originally contemplated by the terms and conditions of
paragraph 9 of the Addendum to Lease. Therefore, subject to the availability of
the Approvals defined in paragraph 9.e of the Addendum to Lease, Landlord
shall make available to Tenant an alternative location for a generator pad on
the second level of the parking structure of the Project in the location more
particularly set forth on the floor plan of the parking structure attached
hereto as EXHIBIT F and incorporated herein by this reference (the "Alternative
Generator Pad Premises"). Landlord shall be responsible for applying for all
necessary Approvals for, and for the design and construction of the Alternative
Generator Pad Premises, including the construction of any alterations to the
Project parking structure that may be necessary or desirable to maintain the
structural integrity of such structure and to satisfy any reasonable
requirements imposed by applicable covenants governing the Project. All such
work to be performed by Landlord shall be performed in accordance with the Work
Letter Agreement, at the sole cost and expense of Tenant; provided, however,
Landlord shall be responsible for taking all reasonable steps necessary to apply
for the approval of the architectural control committee having jurisdiction over
the Project for the location and design of the Alternative Generator Pad
Premises at no additional cost to Tenant. The remainder of such paragraph 9
shall remain in full force and effect.
8. NO CLAIMS. Landlord and Tenant hereby acknowledge and agree that all
matters relating to the design and construction of the Building, and Base Tenant
Improvements within the Building and the Leased Premises are consistent and
comply with all applicable permits and codes governing the construction and
operation of the Building and the Leased Premises and such improvements are
completed and acceptable to both such parties.
9. CONTINUING RIGHT OF FIRST REFUSAL. Tenant acknowledges that Landlord
desires and intends to enter into one or more leases for space located on the
third floor of the Building, which is currently subject to a Continuing Right of
First Refusal held by Tenant as set forth in paragraph 2 of the Addendum to
Lease set forth as Schedule 9 of the Lease. Tenant hereby waives and releases
its Continuing Right of First Refusal as it applies to the third floor of the
Building for a period of eighteen (18) months from end after the date of this
Second Amendment.
10. LEGAL FEES. Upon execution of this Second Amendment, Tenant has
delivered to Landlord the sum of One Thousand Dollars ($1,000.00) as a
reimbursement of a portion of the legal fees incurred by Landlord in connection
with the preparation of this Second Amendment.
11. LEGAL EFFECT. Capitalized terms shall have the meanings set forth
herein or in the Lease and the First Amendment. To the extent the terms and
conditions of the Lease and the First Amendment are inconsistent with this
Second Amendment, the terms and conditions of this Second Amendment shall apply.
In all other respects, the terms and conditions of the Lease and the First
Amendment, except as amended by this Second Amendment, are and shall remain in
full force and effect, and the terms and conditions of the Lease and the First
Amendment are hereby incorporated by this reference.
LANDLORD: TENANT:
HIGH POINTE I DEVELOPMENT GROUP LLC, HALLMARK ENTERTAINMENT NETWORKS,
a Colorado limited liability company INC., a Delaware corporation
By: LANKFORD & ASSOCIATES, INC.,
a Colorado corporation By /s/ RUSSEL H. GIVENS, JR.
(Managing Manager) ---------------------------------
Russel H. Givens, Jr.
Executive Vice President and Chief
By /s/ ROBERT V. LANKFORD Operating Officer
---------------------------------
Robert V. Lankford, President
-4-
<PAGE> 5
CONSENT OF GUARANTOR
The above Second Amendment to Lease is hereby approved this 19th day of
August, 1999 by the undersigned as Guarantor of the above described Lease.
HALLMARK ENTERTAINMENT, INC.,
a Delaware Corporation
By: /s/ JUDITH WHITTAKER
-------------------------------------
Name:
Its: Vice President
-5-
<PAGE> 1
EXHIBIT 10.23
GUARANTY OF LEASE OBLIGATIONS
THIS GUARANTY OF LEASE OBLIGATIONS (this "Guaranty") is made effective as
of the 1st day of June, 1998, by Hallmark Entertainment, Inc., a
Delaware corporation ("Guarantor") for the benefit of High Pointe I Development
Group LLC, a Colorado limited liability company ("Landlord").
RECITALS
A. Guarantor is the majority shareholder of Hallmark Entertainment Network,
Inc., a Delaware corporation ("Tenant").
B. Tenant desires to enter into a lease with Landlord for certain Lease
Premises more particularly described in that certain Lease between Tenant and
Landlord of even date pertaining to the Building located at 6430 South Fiddler's
Green Circle, Englewood, Colorado which is a part of the Project consisting of
the land, building and parking structure and parking areas at such location
known as High Pointe at Greenwood I (the "Lease").
C. In order to induce Landlord to enter into the Lease with Tenant, which
Landlord is unwilling to do without the further assurance that Guarantor shall
be primarily liable for the performance of each and every one of the Obligations
of Tenant under the Lease, Guarantor has agreed to guaranty such obligations of
Tenant to Landlord.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing Recitals, the premises
contained herein and in the Lease, and for other good and valuable
consideration, including, without limitation, the direct interest and advantage
of Guarantor in the benefits to be received by Tenant under the Lease,
Guarantor hereby covenants and agrees with Landlord for the benefit of Landlord
as follows:
1. GUARANTY. Subject to the terms and provisions hereof, Guarantor hereby
absolutely, irrevocably and unconditionally guarantees to Landlord full and
timely performance of all the covenants, agreements and obligations to be
performed by Tenant under the Lease including, but not limited to, Tenant's
obligation to pay the Rent payable under the Lease (the "Obligations").
2. TERM. The term of this Guaranty shall commence on the date hereof and
shall continue until such time as has occurred the complete and final
performance of the Obligations.
3. SEPARATE OBLIGATIONS. The Obligations of Guarantor under this Guaranty
are independent of the obligations of Tenant, and a separate action or actions
may be brought and prosecuted against Guarantor whether or not any action is
brought against Tenant or Tenant is joined in any such action or actions. Any
part payment or performance by Tenant or other circumstance which operates to
toll any statute of limitations as to Tenant shall operate to toll the statute
of limitations as to Guarantor. At the option of Landlord, Guarantor may be
joined in any action or proceeding commenced by Landlord against Tenant in
connection with or based upon the Lease or any security therefor. Recovery may
be had against Guarantor in such action or proceeding without any requirement
that Landlord first assert, prosecute or exhaust any remedy or claim against
Tenant. Without limiting the foregoing, Guarantor acknowledges that repeated and
successive demands may be made and payments or performance made hereunder in
response to such demands as and when, from time to time, Tenant may default in
performance under the Lease. Notwithstanding any such payments or performance
hereunder, this Guaranty shall remain in full force and effect and shall apply
to any and all subsequent defaults by Tenant in performance under the Lease.
4. RIGHTS AND REMEDIES. Landlord may, at its election, exercise any right
or remedy it may have against Tenant or any security now or hereafter held by
Landlord, without affecting or impairing in any way the liability of Guarantor
hereunder, except to extent the Obligations may thereby be paid or satisfied.
Guarantor waives any defense arising out of the
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absence, impairment or loss of any right of reimbursement or subrogation or
other right or remedy of Guarantor against Tenant or any security, whether
resulting from any election by Landlord or otherwise. Guarantor waives any
defense arising by reason of any disability of Tenant or by reason of the
insolvency or bankruptcy of Tenant as more fully described in paragraph 5 below.
Guarantor waives any set-off, defense or counterclaim which Tenant or Guarantor
may have or claim to have against Landlord, with the exception of those
set-offs, defenses or counterclaims which Tenant may have under the Lease.
Until all Obligations have been paid and performed in full, Guarantor shall not
have any right of subrogation and Guarantor waives any right to enforce any
remedy which Landlord now has or may hereafter have against Tenant. Guarantor
waives all rights and any other benefit of or right to participate in any
security now or hereafter held by Landlord. Guarantor waives all presentment,
notices of nonperformance, protests, notices of protest, notices of dishonor,
notices of default, notices of acceptance of this Guaranty and diligence.
5. INSOLVENCY. In the event that Tenant becomes insolvent or is adjudicated
bankrupt or files a petition for reorganization, arrangement, composition or
similar relief under any present or future provision of the Federal Bankruptcy
Code, or if such petition is filed against Tenant, and in any such proceeding
any or all of the Obligations are terminated, rejected, abrogated or modified,
Guarantor agrees that Guarantor's liability under this Guaranty shall not
thereby be modified or diminished, and such liability shall continue in full
force and effect as if no such action or proceeding had occurred. This Guaranty
shall continue to be effective or be reinstated, as the case may be, if any
payment or performance by Tenant or Guarantor must be returned by Landlord upon
the insolvency, bankruptcy or reorganization of Tenant or any Guarantor, or
otherwise, as though such payment had not been made.
6. RENEWAL AND EXTENSION. Guarantor authorizes Landlord, without notice to,
demand of, or consent from Guarantor, and without affecting the liability of
Guarantor to Landlord under this Guaranty, from time to time to amend or modify
any provision of the Lease or extend or renew the term thereof or otherwise
change the provisions of the Lease to take and hold security for the
Obligations and exchange, enforce, waive, surrender, modify, change, renew,
continue, compromise or release in whole or in part any such security to apply
such security and direct the order or manner of sale thereof as Landlord in its
sole discretion may determine, to release or substitute, in whole or in part,
Tenant or Guarantor, to consent to any assignment by Tenant and to settle or
compromise any of the Obligations, shall be and remain bound under this Guaranty
notwithstanding Landlord's taking any of the foregoing actions.
7. DUTY TO KEEP INFORMED. Guarantor assumes the responsibility for being
and keeping itself informed of the financial condition of Tenant and of all
other circumstances bearing upon the risk of Tenant's nonperformance under the
Lease which diligent inquiry would reveal and agrees that Landlord has no duty
to advise the Guarantor of such information known to Landlord regarding such
conditions or circumstances.
8. ASSIGNMENT. Guarantor shall not assign its rights or delegate its
obligations or any part of either thereof hereunder voluntarily or by operation
of law without in each case obtaining Landlord's prior written consent, and any
purported assignment or delegation without such consent shall be null and void.
Consent by Landlord to any such assignment or delegation shall not relieve
Guarantor or any of the obligations or liabilities hereunder unless the consent
so states. No such consent shall constitute consent to any other or subsequent
such assignment or delegation. Landlord may assign or delegate all or any part
of its rights and duties hereunder, without notice to any Guarantor, upon
assignment by Landlord of its rights under the Lease, and any such transferee of
Landlord shall have the same rights as Landlord under the terms of this Guaranty
as if such transferee were named herein in addition to or in the place of
Landlord. This Guaranty shall be binding against the undersigned and each and
all of their legal representatives, successors and assigns.
9. ATTORNEYS' FEES. Guarantor agrees to pay all attorney's fees, costs, and
expenses (including both prejudgment and post judgment) which may be incurred
by Landlord in the enforcement of this Guaranty.
10. ENFORCEABILITY. If any provision of this Guaranty is held to be invalid
or unenforceable, the validity or enforceability of the other provisions hereof
shall not be affected.
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11. GOVERNING LAW. This Guaranty shall be governed by and construed in
accordance with the laws of the State of Colorado excluding any choice of law
rules which would direct the application of the laws of another jurisdiction.
12. NOTICES. Any notices or other communication shall be in writing and
shall be deemed to have been duly given or made (a) upon delivery if hand
delivered; (b) one (1) day after delivery to any overnight courier service, fee
paid; or (c) three (3) days after deposit with the United States Postal Service
as registered or certified mail, postage prepaid, return receipt requested and
in each case addressed as follows:
Landlord: High Pointe I Development Group LLC
c/o Lankford & Associates, Inc.
4275 Executive Square, Suite 328
La Jolla, California 92037
Attn: Mr. Robert V. Lankford
Guarantor (duplicate Hallmark Entertainment, Inc.
originals to): 1325 Avenue of the Americas, Suite 2100
New York, New York 10019,
Attn: Chief Financial Officer
and
Hallmark Entertainment, Inc.
2405 Grand Avenue, Suite 200
Kansas City, Missouri 64108
Attn: Corporate Real Estate Director
with a copy to: Hallmark Entertainment Network, Inc.
Suite 400
6430 South Fiddlers Green Circle
Englewood, Colorado 80111
13. FINANCIAL STATEMENTS. Guarantor acknowledges that prior to its
execution of this Guaranty, it has delivered to Landlord current financial
statements of Guarantor dated as of December 31, 1997, as audited by Arthur
Andersen LLP and set forth in its Report dated January 17, 1998, and Guarantor
hereby represents and warrants that such financial statements are true and
correct in all material respects, and that there are no events or circumstances
that have occurred subsequent to the date of such financial statements which
would have a material adverse effect on the financial condition of Guarantor.
14. HEADINGS. The headings hereof are for convenience only and are not
intended to affect the meaning or interpretation of this Guaranty.
IN WITNESS WHEREOF, the Guarantor has executed this Guaranty the 1st day of
June, 1998, to be effective as of the date first above written.
HALLMARK ENTERTAINMENT, INC., a
Delaware corporation
By: /s/ WILLIAM J. ALIBER
-------------------------------
Name:
Its: Vice President
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EXHIBIT 10.24
EMPLOYMENT AGREEMENT
Agreement, made this 1st day of March, 1999, between Hallmark Entertainment
Networks, Inc., a Delaware corporation with offices at 1325 Avenue of the
Americas, New York, New York 10019-3800, or its permitted assigns ("Employer"),
and David Evans, 1464 Lindacrest Drive, Beverly Hills, California 90210
("Employee").
W I T N E S S E T H:
WHEREAS, Employer desires to retain the services of Employee and Employee
desires to be employed by Employer upon the terms and conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the covenants herein contained, the
parties hereto agree as follows:
1. Employment and Duties.
(a) Effective March 1, 1999 (the "Effective Date"), Employer hereby employs
Employee and Employee hereby agrees to serve as President and Chief Executive
Officer reporting to the Board of Directors of Employer. Employee agrees to
perform such services consistent with Employee's position as shall, from time to
time, be assigned to Employee, including but not limited to development of
existing and new channels which Employer owns or in which Employer invests.
Employee shall use Employee's best efforts to promote the interests of Employer
and shall devote Employee's full business time, energy and skill exclusively
to the business and affairs of Employer during the "Term" (as "Term" is defined
in Paragraph 2 below). So long as it does not interfere with Employee's
performance of his duties hereunder, Employee will be permitted to continue
consulting work with TCI and its affiliates.
(b) Employee's primary duties shall be to act as the chief executive
officer and operating head of Employer responsible for administering the
approved annual budget and directing the overall development of Employer's
business subject to the guidance of the Board of Directors. Employee will be
responsible for such television programs and other audiovisual properties
(collectively, the "Properties" and individually, a "Property") as are assigned
to him. Employer shall use its reasonable best efforts during the Term to
procure Employee's appointment as non-executive Chairman of Odyssey Holdings,
LLC, in which Employer has an investment.
<PAGE> 2
(c) Employer and its owners may be incorporating subsidiary production or
distribution companies for the development or distribution of individual
Properties. Employer shall have the right to loan or make available, without
additional compensation to Employee, Employee's services as an officer or
director to any such subsidiary, provided, that his duties as an officer of any
such subsidiary shall be consistent with his duties hereunder. Employee further
agrees that all the terms of this Employment Agreement shall be applicable to
Employee's services for each such subsidiary.
2. Term of Employment. The term of Employee's employment ("Term") with
Employer shall commence on the Effective Date and shall end on the day before
the third anniversary of the Effective Date in 2002, unless terminated earlier
as is provided in Paragraph 8 of this Agreement or extended by mutual agreement
of the parties.
3. Compensation.
(a) Salary. As compensation for Employee's services hereunder, Employer
shall pay to Employee a salary at the annual rate of $675,000 per year from the
Effective Date through the end of the Term. Such salary shall be paid biweekly,
in arrears.
(b) Bonuses.
(i) Performance Bonus. As of the day before each anniversary of the
Effective Date through the end of the Term, Employee shall be entitled to a
performance bonus of up to 50% of his then annual rate of salary if
Employer has achieved 20% growth over the immediately preceding
twelve-month period in net revenues to its fully or partially owned
channels, as reasonably determined by Employer. If Employer does not
achieve 20% growth in such net revenues, then Employee shall receive a pro
rata portion of such 50% bonus based on the growth that does occur,
provided that no bonus shall be due if there is no growth in net revenues.
An example of how such performance bonus might be calculated is attached as
Schedule 1 hereto. Such bonus shall be due within thirty days after it is
earned. Subject to the provisions of Paragraph 8, Employer shall guarantee
to Employee a full performance bonus for the twelve months ending the day
before the first anniversary of the Term. As used herein, "net revenues"
shall be determined according to Employer's normal accounting practices,
consistently applied throughout the Term in accordance with generally
accepted accounting principles, and shall include the
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consolidated net revenues of Employer and its subsidiaries, after
intercompany eliminations, with revenues of partially owned subsidiaries
being included in proportion to Employer's interest in same. If during the
Term, Employer sells or otherwise disposes of an operation, or acquires
part or all of an operation or increases its interest in a partially owned
operation, and as a result net revenues are reduced or increased, equitable
adjustment (as mutually agreed by Employer and Employee) shall be made in
the prior year's base for purposes of determining Employee's performance
bonus.
(ii) Discretionary Bonus. Employee may be paid such additional bonus
and at such times as Employer in its sole discretion determines.
(c) Withholding. All payments of salary shall be made in appropriate
installments to conform with the regular payroll dates for salaried personnel of
Employer. Employer shall be entitled to deduct from each payment of compensation
to Employee such items as federal, state and local income taxes, FICA, and such
other deductions as may be required by law.
(d) Expenses. During the Term, Employer shall pay or reimburse Employee on
an accountable basis for all reasonable and necessary out-of-pocket expenses for
entertainment, first-class travel and hotel accommodations, meals and other
expenditures incurred by Employee in connection with Employee's services to
Employer in accordance with Employer's expense account policies for its senior
executive personnel.
(e) Fringe Benefits. During the Term, Employee shall be entitled to receive
the following fringe benefits: (i) four weeks paid vacation, (ii) participation
in a Share Appreciation Rights ("SAR") Plan in the form attached as Exhibit A,
and (iii) any other fringe benefits, on terms that are or may become available
generally to senior executives of Employer or to any executive of Employer more
senior to Employee, whichever is more favorable to Employee. To the extent
permitted by any fringe benefit plan, all waiting periods applicable to Employee
shall be waived, and if it cannot be waived, Employer shall reimburse Employee
for COBRA and similar payments he may reasonably incur during such waiting
period.
Employee will be granted two million SARs, as of the Effective Date, in the
Share Appreciation Rights Plan, subject to approval of Employer's Board of
Directors.
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(f) SAR Plan Special Rule. Notwithstanding the provisos in the first
sentence of paragraph 4 of the SAR Plan, the limits on distributions shall not
apply to Employee if during the first three years of the Term and one year
thereafter, a "Market Event" occurs. A "Market Event" shall mean (i) a public
offering of equity securities of Employer commenced during the Term and
completed no later than one year after the Term or (ii) a sale of all of the
outstanding stock of Employer or the sale of all or substantially all of the
assets of Employer to an unrelated third party completed no later than one year
after the Term. Furthermore, the Board of Directors of Employer may waive such
limitations in its sole discretion.
4. Place of Employment; Personal Assistant. During the Term, Employee shall
be required to perform Employee's duties at the Los Angeles office of Employer,
and Employee shall undertake all reasonable travel required by Employer in
connection with the performance of Employee's duties hereunder. Employee's
current personal assistant will be employed by Employer as Employee's personal
assistant at the same compensation which such assistant received from Employee's
prior employer.
5. Confidentiality; Intellectual Property; Name and Likeness.
(a) Employee agrees that Employee will not during the Term or thereafter
divulge to anyone (other than Employer (and its principal owners, executives,
representatives and employees who need to know such information) or any persons
designated by Employer) any knowledge or information of any type whatsoever
designated or treated as confidential by Employer relating to the business of
Employer or any of its subsidiaries or affiliates, including, without
limitation, all types of trade secrets, business strategies, marketing and
distribution plans as well as concrete proposals, plans, scripts, treatments
and formats described in subparagraph (b) below. Employee further agrees that
Employee will not disclose, publish or make use of any such knowledge or
information of a confidential nature (other than in the performance of
Employee's duties hereunder) without the prior written consent of Employer. This
provision does not apply to information which becomes available publicly without
the fault of Employee or information which Employee discloses in confidence to
his own privileged representatives or is required to disclose in legal
proceedings, provided Employee gives advance notice to the
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President of Employer and an opportunity to Employer to resist such disclosure
in legal proceedings.
(b) During the Term, Employee will disclose to Employer all concrete
proposals, plans, scripts, treatments, and formats invented or developed by
Employee during the term which relate directly or indirectly to the business of
Employer or any of its subsidiaries or affiliates including, without limitation,
any proposals and plans which may be copyrightable, trademarkable, patentable or
otherwise exploitable. Employee agrees that all such proposals, plans, scripts,
treatments, and formats are and will be the property of Employer. Employee
further agrees, at Employer's request, to do whatever is necessary or desirable
to secure for the Employer the rights to said proposals, plans, scripts,
treatments, and formats, whether by copyright, trademark, patent or otherwise
and to assign, transfer and convey the rights thereto to Employer at Employer's
expense.
(c) Employer shall have the right in perpetuity to use Employee's name
reasonably in connection with credits for Properties for which Employee performs
any services.
6. Employee's Representations. Employee represents and warrants that:
(a) Employee has the right to enter into this Agreement and is not subject
to any contract, commitment, agreement, arrangement or restriction of any kind
which would prevent Employee from performing Employee's duties and obligations
hereunder;
(b) To the best of Employee's knowledge, Employee is not subject to any
undisclosed medical condition which might have a material effect on Employee's
ability to perform satisfactorily Employee's services hereunder.
7. Non-Competition; No Raid.
(a) During the Term, and except as permitted under Paragraph 1(a),
Employee shall not engage directly or indirectly, whether as an employee,
independent contractor, consultant, partner, shareholder or otherwise, in a
business or other endeavor which interferes with any of his duties or
obligations hereunder or which is directly competitive with the business of the
Employer or its subsidiaries, including but not limited to the production,
distribution or any other exploitation of audiovisual television material (the
"Other Business").
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(b) Employee further agrees that during the Term and for a period of one
year thereafter, Employee will not employ or knowingly attempt to employ or
assist anyone else to employ any person who is, at the date of termination of
Employee's employment, working as an officer, policymaker or in high-level
creative development or distribution (including without limitation executive
employees) for or rendering substantially full-time services as such to
Employer.
8. Termination.
(a) This Agreement may be terminated and the Term ended on five business
days written notice for any one of the following reasons (except (i) in which
case termination shall occur on the date of death):
(i) The death of Employee;
(ii) By Employer, on the physical or mental disability of Employee to
such an extent that Employee is unable to render services to Employer for a
period exceeding an aggregate of ninety business days during any
twelve-month period of the Term. For purposes of counting the aggregate of
ninety business days, days properly designated by Employee as vacation days
shall not be counted;
(iii) By Employer, for "cause," which for purposes of this Agreement
shall be defined as:
(A) the illegal use of a controlled substance, or the immoderate
use of alcohol which adversely and materially or frequently affects
Employee's performance of Employee's services under this Agreement;
(B) Employee's conviction of any act which constitutes a felony
under federal, state or local laws or the law of any foreign country;
(C) Employee's persistent failure after written notice to
perform, or Employee's persistent refusal to perform after written
notice, Employee's duties and responsibilities pursuant to this
Agreement; or
(D) Employee's dishonesty in non-trivial financial dealings with
or on behalf of Employer, its subsidiaries, affiliates and parent
corporation or in connection with performance of his duties hereunder.
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(iv) By Employee, for "good reason" which phrase shall mean: (a) a
material breach by Employer of any of its material obligations to Employee
hereunder which Employer has failed to cure within ten business days after
written notice from Employee specifying such breach; or (b) a public
offering of equity securities is completed, if at the time of such
offering, such entity is the owner, directly or indirectly, of a
controlling interest in Employer, provided that this clause (b) shall not
apply to any public offering of equity securities by Employer or any
subsidiary of Employer.
(b) Employer shall also have the right to terminate Employee prior to the
expiration of the Term in addition to pursuant to Paragraph 8(a) above by
providing Employee with not less than thirty (30) days advance notice in
writing. In the event of a termination pursuant to this Paragraph 8(b), the
Employer shall pay to the Employee within thirty (30) days after such notice of
termination the remaining amounts described in Paragraph 3 above for the balance
of the Term (or if less than one hundred eighty (180) days are left in the Term
at the expiration of such thirty (30) days), for one hundred eighty (180) days
as if there had been no termination of this Agreement, discounted to the date of
payment at the Alternate Base Rate (as such term is defined in an October 16,
1998 Credit Agreement, as amended, between Hallmark Entertainment, Inc. and
Chase Manhattan Bank) on the date payment is made pursuant to this Paragraph
8(b), and except for any annual bonus and payments under the SAR Plan which
Employee is due hereunder (which shall be paid when due), Employer shall have
no further obligations to Employee hereunder. If Employer terminates Employee
under this Paragraph 8(b), Paragraph 7(a) shall not apply from the date of
termination.
(c) In the event that Employer terminates this Agreement due to any of the
reasons set forth in Paragraphs 8(a)(i) and 8(a)(iii)(A)-(D) above, Employee
shall be paid Employee's salary through the later of the expiration of the five
(5) business days period referred to in Paragraph 8(a) or the end of the month
in which the termination event occurs after which Employer's obligation to pay
salary to Employee shall terminate. Should Employer terminate this Agreement due
to Employee's disability as defined above in Paragraph 8(a)(ii), Employee shall
continue to receive six months of salary. After making the payments provided for
in this subparagraph (c), Employer shall have no further obligations to
Employee.
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(d) If Employee validly terminates this Agreement for good reason, Employer
shall pay to Employee within thirty (30) days after such notice of termination
the remaining amounts described in Paragraph 3 above for the balance of the
Term, discounted to the date of payment at the Alternate Base Rate on the date
payment is made pursuant to this Paragraph 8(d) and except for any annual bonus
and payments under the SAR Plan which Employee is due hereunder, Employer shall
have no further obligations to Employee hereunder. If Employee terminates this
Agreement under this Paragraph 8(d), Paragraph 7(a) shall not apply from the
date of termination.
(e) Upon termination of this Agreement, Employee shall promptly return all
of Employer's property to Employer.
(f) Upon termination of Employee's employment for any reason, Employee
shall tender Employee's resignation from the Board of Directors of any of
Employer's subsidiaries or affiliates on which Employee is serving, and Employer
shall accept such resignation forthwith.
9. Breach; Remedies. Both parties recognize that the services to be
rendered under this Agreement by Employee are special, unique and extraordinary
in character, and that in the event of the breach by Employee of the terms and
conditions of this Agreement, Employer shall be entitled, inter alia, if it so
elects, to institute and prosecute proceedings in any court of competent
jurisdiction, either in law or in equity, to obtain damages for any breach of
this Agreement, and to seek to enforce the specific performance thereof by
Employee, and/or to seek to enjoin Employee from performing services for any
other person, firm or corporation. The parties further stipulate that the law of
New York shall apply to any dispute or action regarding this agreement and
Employee agrees to submit to the jurisdiction of any court of competent
jurisdiction in New York in any such action and agrees to waive all objections
to such jurisdiction, including (but not limited to) any objections based upon
lack of personal jurisdiction or venue or forum non conveniens.
10. Assignment. This Agreement is a personal contract and, except as
specifically set forth herein, the rights, interests and obligations of Employee
herein may not be sold, transferred, assigned, pledged or hypothecated, although
she may assign or use as security payments due hereunder from Employer. The
rights and obligations of Employer hereunder shall bind in their
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entirety the successors and assigns of Employer, although Employer shall remain
fully liable hereunder. As used in this Agreement, the term "successor" shall
include any person, firm, corporation or other business entity which at the
time, whether by merger, purchase or otherwise, acquires all or substantially
all of the assets or business of Employer.
11. Amendment; Captions. This Agreement contains the entire agreement
between the parties. It may not be changed orally, but only by agreement in
writing signed by the party against whom enforcement of any waiver, change,
modification or discharge is sought. Paragraph headings are for convenience of
reference only and shall not be considered a part of this Agreement. If any
clause in this Agreement is found to be unenforceable, illegal or contrary to
public policy, the parties agree that this Agreement shall remain in full force
and effect except for such clause.
12. Prior Agreements. This Agreement supersedes and terminates all prior
agreements between the parties relating to the subject matter herein addressed,
and sets out the full agreement between the parties concerning its subject
matter.
13. Notices. Any notices or other communications required or permitted
hereunder shall be in writing and shall be deemed effective when delivered in
person or, if mailed, by registered or certified mail, return receipt requested,
in which case the notice shall be deemed effective on the date of deposit in the
mails, postage prepaid, addressed to Employee at Employee's address first
written above and, in the case of Employer, addressed to its President with a
copy to General Counsel, Hallmark Cards, Incorporated, 2501 McGee Trafficway,
Kansas City, Missouri 64108. Either party may change the address to which
notices are to be addressed by notice in writing given to the other in
accordance with the terms hereof.
14. Periods of Time. Whenever in this Agreement there is a period of time
specified for the giving of notices or the taking of action, the period shall be
calculated excluding the day on which the giver sends notice and excluding the
day on which action to be taken is actually taken.
15. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, and all of which, taken
together, shall constitute one instrument.
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IN WITNESS WHEREOF, Employer has by its appropriate officer signed this
Agreement and Employee has signed this Agreement as of the day and year first
above written.
HALLMARK ENTERTAINMENT NETWORKS, INC.
By: /s/ ROBERT A. HALMI, JR.
----------------------------------
Title: PRESIDENT
-------------------------------
EMPLOYEE
/s/ DAVID EVANS
-------------------------------------
David Evans
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<PAGE> 1
EXHIBIT 10.25
EMPLOYMENT AGREEMENT
Agreement, made this 27th day of July, 1998, between Hallmark Entertainment
Network, Inc., a Delaware corporation with offices at 1325 Avenue of the
Americas, New York, New York 10019 or its permitted assigns ("Employer"), and
Russ Givens, _____________________________ ("Employee").
WITNESSETH:
WHEREAS, Employer desires to retain the services of Employee and Employee
desires to be employed by Employer upon the terms and conditions hereinafter
set forth;
NOW, THEREFORE, in consideration of the covenants herein contained, the
parties hereto agree as follows:
1. Employment and Duties. (a) Effective July 27, 1998 (the "Effective
Date"), Employer hereby employs Employee and Employee hereby agrees to serve as
Executive Vice President, Chief Operating Officer of Employer reporting to the
President of Employer. Employee agrees to perform such services consistent with
Employee's position as shall, from time to time, be assigned to Employee.
Employee shall use Employee's best efforts to promote the interests of Employer
and shall devote Employee's full business time, energy and skill exclusively to
the business and affairs of Employer during the "Term" (as "Term" is defined in
Paragraph 2 below).
(b) Employee's primary duties shall concern all operations of Employer's
business concerning television programs and other audiovisual properties
(collectively, the "Properties" and individually, a "Property") as are assigned
to him.
(c) During the course of Employee's employment hereunder, Employer may be
incorporating subsidiary production companies for the development of individual
Properties. Employer shall have the right to loan or make available, without
additional compensation to Employee, Employee's services as an officer or
director of any such subsidiary to Hallmark Cards, Incorporated ("Hallmark") or
its subsidiaries or to perform services for any Property owned or controlled by
Hallmark or any such subsidiary, provided, that his duties as an officer
<PAGE> 2
of any such subsidiary shall be consistent with his duties hereunder. Employee
further agrees that all the terms of this Employment Agreement shall be
applicable to Employee's services for Hallmark and each such subsidiary.
2. Term of Employment. The term of Employee's employment ("Term") with
Employer shall commence on the Effective Date and shall end on July 30, 2000
unless terminated earlier as is provided in Paragraph 8 of this Agreement or
extended by mutual agreement of the parties. Employer shall have the option to
extend the Term until July 30, 2001 by giving written notice to Employee at
least 45 days prior to the end of the initial term.
3. Compensation.
(a) Salary. As compensation for Employee's services hereunder, Employer
shall pay to Employee a salary at the rate of $287,500 per year. Such salary
shall be paid biweekly, in arrears.
(b) Bonuses. Employee will be paid such bonus as Employer in its
discretion determines, provided that Employer shall pay Employee an annual
bonus of no less than 20% of his annual salary rate.
(c) Withholding. All payments of salary shall be made in appropriate
installments to conform with the regular payroll dates for salaried personnel
of Employer. Employer shall be entitled to deduct from each payment of
compensation to Employee such items as federal, state and local income taxes,
FICA, unemployment insurance and disability contributions, and such other
deductions as may be required by law.
(d) Expenses. During the Term, Employer shall pay or reimburse Employee on
an accountable basis for all reasonable and necessary out-of-pocket expenses
for entertainment, travel, meals, hotel accommodations and other expenditures
incurred by Employee in connection with Employee's services to Employer in
accordance with Employer's expense account policies for its executive personnel
or with the approval of the President.
(e) Fringe Benefits. During the Term, Employee shall be entitled to
receive the following fringe benefits: (i) 4 weeks paid vacation, annually,
(ii) group medical, dental, life and disability insurance, (iii) an allowance
of $950 per month for automobile, and (iv) any other fringe benefits, including
any phantom shares plan, on terms that are or may become available generally to
senior
2
<PAGE> 3
executive of Employer. Employee's level of participation in any phantom
shares or other incentive plan will be subject to Employer's discretion.
(f) Relocation. Employer will pay reasonable relocation expenses for
Employee and his family from the U.K. to the Denver area, in accordance with
Employer's standard relocation policies. If Employee does not have permanent
housing or have not received shipment of household goods in the Denver area
upon the Effective Date, Employer shall pay for temporary living expenses for a
period not to exceed one month and for an amount not exceed $15,000.
4. Place of Employment. During the Term, Employee shall be required to
perform Employee's duties at the principal office of Employer set forth above,
or at such other principal locations in Denver, Colorado metropolitan area as
Employer may reasonably designate, and Employee shall undertake all reasonable
travel required by Employer in connection with the performance of Employee's
duties hereunder.
5. Confidentiality; Intellectual Property; Name and Likeness.
(a) Employee agrees that Employee will not during the Term or thereafter
divulge to anyone (other than Employer (and its executives, representatives and
employees who need to know such information) or any persons designated by
Employer) any knowledge or information of any type whatsoever designated or
treated as confidential by Employer relating to the business of Employer or any
of its subsidiaries or affiliates, including, without limitation, all types of
trade secrets, business strategies, marketing and distribution plans as well as
concrete proposals, plans, scripts, treatments and formats described in
subparagraph (b) below. Employee further agrees that Employee will not
disclose, publish or make use of any such knowledge or information of a
confidential nature (other than in the performance of Employee's duties
hereunder) without the prior written consent of Employer. This provision does
not apply to information which becomes available publicly without the fault of
Employee or information which Employee discloses in confidence to her own
privileged representatives or is required to disclose in legal proceedings,
provided Employee gives advice notice to the President of Employer and an
opportunity to Employer to resist such disclosure in legal proceedings.
(b) During the Term, Employee will disclose to Employer all concrete
proposals, plans, scripts, treatments, and formats invented or developed by
Employee during the term which
3
<PAGE> 4
relate directly or indirectly to the business of Employer or any of its
subsidiaries or affiliates including, without limitation, any proposals and
plans which may be copyrightable, trademarkable, patentable or otherwise
exploitable. Employee agrees that all such proposals, plans, scripts,
treatments, and formants are and will be the property of Employer. Employee
further agrees, at Employer's request, to do whatever is necessary or desirable
to secure for the Employer the rights to said proposals, plans, scripts,
treatments, and formats, whether by copyright, trademark, patent or otherwise
and to assign, transfer and convey the rights thereto to Employer at Employer's
expense.
(c) Employer shall have the right in perpetuity to use Employee's name
reasonably in connection with credits for Properties for which Employee
performs any services.
6. Employee's Representations. Employee represents and warrants that:
(a) Employee has the right to enter into this Agreement and is not
subject to any contract, commitment, agreement, arrangement or restriction of
any kind which would prevent Employee from performing Employee's duties and
obligations hereunder;
(b) To the best of Employee's knowledge, Employee is not subject to any
undisclosed medical condition which might have a material effect on Employee's
ability to perform satisfactorily Employee's services hereunder.
7. Non-Competition: No Raid.
(a) During the Term, Employee shall not engage directly or indirectly,
whether as an employee, independent contractor, consultant, partner, shareholder
or otherwise, in a business or other endeavor which interferes with any of his
duties or obligations hereunder or which is directly competitive with the
business of the Employer or its subsidiaries, including but not limited to the
production, distribution or any other exploitation of audiovisual television
material (the "Other Business").
(b) Employee further agrees that during the Term and for a period of one
year thereafter, Employee will not employ or knowingly attempt to employ or
assist anyone else to employ any person who is, at the date of termination of
Employee's employment, working as an officer, policymaker or in high-level
creative development or distribution (including without
4
<PAGE> 5
limitation executive employees) for or rendering substantially full-time
services as such to Employer.
8. Termination.
(a) This Agreement may be terminated and the Term ended on five
business days' written notice for any one of the following reasons (except (i)
in which case termination shall occur on the date of death):
(i) The death of Employee;
(ii) The physical or mental disability of Employee to such
an extent that Employee is unable to render services to Employer for a period
exceeding an aggregate of 30 business days during any twelve month period of the
Term. For purposes of counting the aggregate of 30 business days, days properly
designated by Employee as vacation days shall not be counted;
(iii) For "cause," which for purposes of this Agreement shall
be defined as:
(A) the use of drugs and/or alcohol which interfere
materially with Employee's performance of Employee's services under this
Agreement;
(B) Employee's conviction of any act which constitutes a
felony under federal, state or local laws or the law of any foreign country;
(C) Employee's persistent failure after written notice to
perform, or Employee's persistent refusal to perform after written notice,
Employee's duties and responsibilities pursuant to this Agreement; or
(D) Employee's dishonesty in non-trivial financial dealings
with or on behalf of Employer, its subsidiaries, affiliates and parent
corporation or in conjunction with performance of her duties hereunder.
(b) Employer shall also have the right to terminate Employee prior to
the expiration of the Term in addition to pursuant to Paragraph 8(a) above by
providing Employee with not less than thirty (30) days' advance notice in
writing. In the event of a termination pursuant to this Paragraph 8(b): (i) the
Employer shall pay to the Employee within thirty (30) days after such notice of
termination the remaining amounts described in Paragraph 3(a) above for the
balance of the Term (or if less than one hundred eighty (180) days are left in
the Term at the expiration of such (30) days, for one hundred eighty (180) days
as if there had been no termination of this
5
<PAGE> 6
Agreement, discounted to the date of payment at the Adjusted Base Rate (as
such term is defined in an August, 1990 Credit Agreement as amended between
Employer and Chemical Bank) on the date payment is made pursuant to this
Paragraph 8(b), and except for any pro-rated annual bonus which Employee
is due hereunder, Employer shall have no further obligations to Employee
hereunder. If Employer terminates Employee under this Paragraph 8(b),
Paragraph 7(a) shall not apply from the date of termination.
(c) In the event that Employer terminates this Agreement due to any
of the reasons set forth in Paragraphs 8(a)(i) and 8(a)(iii)(A)-(D) above,
Employee shall be paid Employee's salary through the later of the
expiration of the five (5) business days period referred to in Paragraph
8(a) or the end of the month in which the termination event occurs after
which Employer's obligation to pay salary to Employee shall terminate.
Should Employer terminate this Agreement due to Employee's disability as
defined above in Paragraph 8(a)(ii), Employee shall continue to receive
six months of salary. After making the payments provided for in this
sub-paragraph (c), Employer shall have no further obligations to Employee
except as required in Employer-sponsored Benefit Program [Illegible].
(d) Upon termination of this Agreement, Employee shall promptly
return all of Employer's property to Employer.
(e) Upon termination of Employee's employment for any reason,
Employee shall tender Employee's resignation from the Board of Directors
of any of Employer's subsidiaries or affiliates on which Employee is
serving, and Employer shall accept such resignation forthwith.
9. Breach; Remedies. Both parties recognize that the services to be
rendered under this Agreement by Employee are special, unique and
extraordinary in character, and that in the event of the breach by
Employee of the terms and conditions of this Agreement, Employer shall be
entitled, inter alia, if it so elects, to institute and prosecute
proceedings in any court of competent jurisdiction, either in law or in
equity, to obtain damages for any breach of this Agreement, and to seek to
enforce the specific performance thereof by Employee, and/or to seek to
enjoin Employee from performing services for any other person, firm or
corporation. The parties further stipulate that the law of New York shall
apply to any dispute or action regarding this agreement and Employee
agrees to submit to the jurisdiction of any court of competent
jurisdiction in New York in any such action and agrees to waive all
objections to such jurisdiction, including (but not
6
<PAGE> 7
limited to) any objections based upon lack of personal jurisdiction or venue or
forum non conveniens.
10. Assignment. This Agreement is a personal contract and, except as
specifically set forth herein, the rights, interests and obligations of Employee
herein may not be sold, transferred, assigned, pledged or hypothecated, although
he may assign or use as security payments due hereunder from Employer. The
rights and obligations of Employer hereunder shall bind in their entirety the
successors and assigns of Employer, although Employer shall remain fully liable
hereunder. As used in this Agreement, the term "successor" shall include any
person, firm, corporation or other business entity which at the time, whether by
merger, purchase or otherwise, acquires all or substantially all of the assets
or business of Employer.
11. Amendment; Captions. This Agreement contains the entire agreement
between the parties. It may not be changed orally, but only by agreement in
writing signed by the party against whom enforcement of any waiver, change,
modification or discharge is sought. Paragraph headings are for convenience of
reference only and shall not be considered a part of this Agreement. If any
clause in this Agreement is found to be unenforceable, illegal or contrary to
public policy, the parties agree that this Agreement shall remain in full force
and effect except for such clause.
12 Prior Agreements. This Agreement supersedes and terminates all prior
agreements between the parties relating to the subject matter herein addressed,
and sets out the full agreement between the parties concerning its subject
matter.
13. Notices. Any notices or other communications required or permitted
hereunder shall be in writing and shall be deemed effective when delivered in
person or, if mailed, by registered or certified mail, return receipt
requested, in which case the notice shall be deemed effective on the date of
deposit in the mails, postage prepaid, addressed to Employee at Employee's
address first written above and, in the case of Employer, addressed to its
President with a copy to General Counsel, Hallmark Cards, Incorporated, 2501
McGee Trafficway, Kansas City, Missouri 64108. Either party may change the
address to which notices are to be addressed by notice in writing given to the
other in accordance with the terms hereof.
7
<PAGE> 8
14. Periods of Time. Whenever in this Agreement there is a period of time
specified for the giving of notices or the taking of action, the period shall
be calculated excluding the day on which the giver sends notice and excluding
the day on which action to be taken is actually taken.
15. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, and all of which, taken
together, shall constitute one instrument.
IN WITNESS WHEREOF, Employer has by its appropriate officer signed this
Agreement and Employee has signed this Agreement as of the day and year first
above written.
Hallmark Entertainment Network, Inc.
By /s/ GEORGE V. STEIN
----------------------------------
Title President & CEO
-------------------------------
EMPLOYEE:
/s/ RUSS GIVENS
------------------------------------
Russ Givens
8
<PAGE> 9
AMENDMENT TO
EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement, dated as of July 1, 1999 between
Hallmark Entertainment Networks ("Employer") and Russ Givens ("Employee") (this
"Amendment") amends that certain Employment Agreement dated as of July 27, 1998
between Employer and Employee (the "Agreement").
1. Section 2 of the Agreement is amended to provide that the Term shall
end on June 30, 2002 unless terminated earlier as provided in
Paragraph 8 of the Agreement or extended by mutual agreement of the
parties.
2. Section 3(a) of the Agreement is amended to provide that for the
twelve month period commencing on July 1, 1999, Employer shall pay to
Employee a salary at the rate of $387,500 per annum. Commencing on
July 1, 2000 and annually thereafter during the Term, Employee's
salary shall be increased over the salary in effect during the prior
twelve month period by the greater of (i) seven per cent (7%) or (ii)
the increase, if any, of the Consumer Price Index calculated by the
Department of Labor for the region including the greater Denver
metropolitan area (the "CPI") as of July 1 of the relevant year as
compared to the CPI as of July 1 of the prior year.
3. Section 3(b) is amended to provide that Employee's bonus for the
twelve month period ending December 31, 1999 will be not less than
thirty percent (30%) of his salary for such twelve month period (i.e.
$116,250). Bonuses for subsequent years of the Term are not guaranteed
and will be determined in accordance with Employer's bonus program
then in effect for senior executives, provided that Employee's bonus
for each such year shall be not less that twenty percent (20%) of his
annual salary for such year.
4. Employee will be granted three hundred thousand (300,000) SARs, as of
July 1, 1999, in the Share Appreciation Rights Plan, subject to the
approval of Employer's Board of Directors. A copy of such plan is
attached as Exhibit A.
5. Except as amended by this Amendment, the Agreement remains in full
force and effect and is hereby reaffirmed by Employee and Employer.
<PAGE> 10
IN WITNESS WHEREOF, Employer has by its appropriate officer signed the
Agreement and Employee has signed this Agreement as of the day and year first
above written.
HALLMARK ENTERTAINMENT
NETWORKS
By: /s/ DAVID J. EVANS
--------------------
Its: PRESIDENT & CEO
--------------------
EMPLOYEE:
RUSSEL H. GIVENS JR.
/s/ RUSS GIVENS
------------------------
RUSS GIVENS
-2-
<PAGE> 1
EXHIBIT 10.26
EMPLOYMENT AGREEMENT
Agreement, made this 23 day of June, 1998, between Hallmark Entertainment
Network, Inc., a Delaware corporation with offices at 1325 Avenue of the
Americas, New York, New York 10019 or its permitted assigns ("Employer"), and
Andy Brilliant, 17 Kenilworth Lane, Rye, NY 10580 ("Employee").
W I T N E S S E T H:
WHEREAS, Employer desires to retain the services of Employee and Employee
desires to be employed by Employer upon the terms and conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the covenants herein contained, the
parties hereto agree as follows:
1. Employment and Duties. (a) Effective June 23, 1998 (the "Effective
Date"), Employer hereby employs Employee and Employee hereby agrees to serve as
Executive Vice President, Sales and Marketing of Employer reporting to the
President of Employer. Employee agrees to perform such services consistent with
Employee's position. Employee shall use Employee's best efforts to promote the
interests of Employer and shall devote Employee's full business time, energy and
skill exclusively to the business and affairs of Employer during the "Term" (as
"Term" is defined in Paragraph 2 below).
(b) Employee's primary duties shall concern the supervision of Employer's
worldwide efforts in affiliate sales, marketing and advertising sales for
Employer's future and current networks concerning television programs and other
audiovisual properties (collectively, the "Properties" and individually, a
"Property") as are assigned to him.
(c) During the course of Employee's employment hereunder, Employer may be
incorporating, subsidiary production companies for the development of individual
Properties. Employer shall have the right to loan or make available, without
additional compensation to Employee, Employee's services as an officer or
director of any such subsidiary to Hallmark Cards, Incorporated ("Hallmark") or
its subsidiaries or to perform services for any Property owned or controlled by
Hallmark or any such subsidiary, provided, that his duties as an officer of any
such subsidiary shall be consistent with his duties hereunder. Employee further
agrees that
<PAGE> 2
all the terms of this Employment Agreement shall be applicable to Employee's
services for Hallmark and each such subsidiary.
(d) As a condition to Employer being bound hereunder, Employee shall pass a
drug test to Employer's satisfaction, by a testing service chosen by Employer.
2. Term of Employment. The term of Employee's employment ("Term") with
Employer shall commence on the Effective Date and shall end on June 30, 2000
unless terminated earlier as is provided in Paragraph 8 of this Agreement or
extended by mutual agreement of the parties.
3. Compensation.
(a) Salary. As compensation for Employee's services hereunder, Employer
shall pay to Employee a salary at the rate of $250,000 per year. Such salary
shall be paid biweekly, in arrears. At the end of the first year of the Term,
Employer will conduct a performance review of Employee's performance and make
such upward adjustment in salary as Employer deems appropriate.
(b) Bonuses. At the end of each calendar year, during the Term, Employee
will be paid such bonus as Employer in its discretion determines, provided that
Employer shall pay Employee an annual bonus of no less than 20% of his then
annual salary rate for such year. Bonus payments shall be made no later than 30
days after end of calendar year end.
(c) Withholding. All payments of salary shall be made in appropriate
installments to conform with the regular payroll dates for salaried personnel of
Employer. Employer shall be entitled to deduct from each payment of compensation
to Employee such items as federal, state and local income taxes, FICA,
unemployment insurance and disability contributions, and such other deductions
as may be required by law.
(d) Expenses. During the Term, Employer shall pay or reimburse Employee on
an accountable basis for all reasonable and necessary out-of-pocket expenses for
entertainment, travel, meals, hotel accommodations and other expenditures
incurred by Employee in connection with Employee's services to Employer in
accordance with Employer's expense account policies for its executive personnel
or with the approval of the President.
(e) Fringe Benefits. During the Term, Employee shall be entitled to receive
the following fringe benefits: (i) an allowance of $950 per month for an
automobile, (ii) group
2
<PAGE> 3
medical, dental, life and disability insurance, and (iii) any other fringe
benefits, including paid vacation and any phantom shares plan, on terms that
are or may become available generally to senior executives of Employer.
Employee's level of participation in any phantom shares or other incentive plan
will be subject to Employer's discretion, but at a level consistent with other
executives in senior management positions.
(f) Relocation. Employer will pay reasonable relocation expenses for
Employee and his family from the New York area to the Denver area, in accordance
with Employer's standard relocation policies. If Employee does not have
permanent housing in the Denver area upon the Effective Date, Employer shall pay
for temporary housing for a period not to exceed three months and an amount not
to exceed $15,000.
(g) Signing Bonus. Within 60 days of the Effective Date, Employer shall pay
Employee $75,000 subject to any withholding under Section 3(c).
4. Place of Employment. During the Term, Employee shall be required to
perform Employee's duties at the principal office of Employer set forth above,
or at such other principal locations in the Denver, Colorado metropolitan area
as Employer may reasonably designate, and Employee shall undertake all
reasonable travel required by Employer in connection with the performance of
Employee's duties hereunder.
5. Confidentiality; Intellectual Property; Name and Likeness.
(a) Employee agrees that Employee will not during the Term or thereafter
divulge to anyone (other than Employer (and its executives, representatives and
employees who need to know such information) or any persons designated by
Employer) any knowledge or information of any type whatsoever designated or
treated as confidential by Employer relating to the business of Employer or any
of its subsidiaries or affiliates, including, without limitation, all types of
trade secrets, business strategies, marketing and distribution plans as well as
concrete proposals, plans, scripts, treatments and formats described in
subparagraph (b) below. Employee further agrees that Employee will not disclose,
publish or make use of any such knowledge or information of a confidential
nature (other than in the performance of Employee's duties hereunder) without
the prior written consent of Employer. This provision does not apply to
information which becomes available publicly without the fault of Employee or
information which Employee discloses in confidence to her own privileged
representatives or is required to disclose in legal proceedings,
3
<PAGE> 4
provided Employee gives advance notice to the President of Employer and an
opportunity to Employer to resist such disclosure in legal proceedings.
(b) During the Term, Employee will disclose to Employer all concrete
proposals, plans, scripts, treatments, and formats invented or developed by
Employee during the term which relate directly or indirectly to the business of
Employer or any of its subsidiaries or affiliates including, without limitation,
any proposals and plans which may be copyrightable, trademarkable, patentable
or otherwise exploitable. Employee agrees that all such proposals, plans,
scripts, treatments, and formats are and will be the property of Employer.
Employee further agrees, at Employer's request, to do whatever is necessary or
desirable to secure for the Employer the rights to said proposals, plans,
scripts, treatments, and formats, whether by copyright, trademark, patent or
otherwise and to assign, transfer and convey the rights thereto to Employer at
Employer's expense.
(c) Employer shall have the right in perpetuity to use Employee's name
reasonably in connection with credits for Properties for which Employee performs
any services.
6. Employee's Representations. Employee represents and warrants that:
(a) Employee has the right to enter into this Agreement and is not subject
to any contract, commitment, agreement, arrangement or restriction of any kind
which would prevent Employee from performing Employee's duties and obligations
hereunder;
(b) To the best of Employee's knowledge, Employee is not subject to any
undisclosed medical condition which might have a material effect on Employee's
ability to perform satisfactorily Employee's services hereunder.
7. Non-Competition; No Raid.
(a) During the Term, Employee shall not engage directly or indirectly,
whether as an employee, independent contractor, consultant, partner, shareholder
or otherwise, in a business or other endeavor which interferes with any of his
duties or obligations hereunder or which is directly competitive with the
business of the Employer or its subsidiaries, including but not limited to the
production, distribution or any other exploitation of audiovisual television
material (the "Other Business").
(b) Employee further agrees that during the Term and for a period of one
year thereafter, Employee will not employ or knowingly attempt to employ or
assist anyone else to
4
<PAGE> 5
employ any person who is, at the date of termination of Employee's employment,
working as an officer, policymaker or in high-level creative development or
distribution (including without limitation executive employees) for or
rendering substantially full-time services as such to Employer.
8. Termination.
(a) This Agreement may be terminated and the Term ended on five
business days' written notice for any one of the following reasons (except (i)
in which case termination shall occur on the date of death):
(i) The death of Employee;
(ii) The physical or mental disability of Employee to such
an extent that Employee is unable to render services to Employer for a period
exceeding an aggregate of 30 business days during any twelve month period of the
Term. For purposes of counting the aggregate of 30 business days, days properly
designated by Employee as vacation days shall not be counted;
(iii) For "cause," which for purposes of this Agreement
shall be defined as:
(A) the use of drugs and/or alcohol which interfere
materially with Employee's performance of Employee's services under this
Agreement;
(B) Employee's conviction of any act which constitutes a
felony under federal, state or local laws or the law of any foreign country;
(C) Employee's persistent failure after written notice to
perform, or Employee's persistent refusal to perform after written notice,
Employee's duties and responsibilities pursuant to this Agreement; or
(D) Employee's dishonesty in non-trivial financial
dealings with or on behalf of Employer, its subsidiaries, affiliates and parent
corporation or in connection with performance of his duties hereunder.
(b) Employer shall also have the right to terminate Employee prior
to the expiration of the Term in addition to pursuant to Paragraph 8(a) above by
providing Employee with not less than thirty (30) days' advance notice in
writing. In the event of a termination pursuant to this Paragraph 8(b): (i) the
Employer shall pay to the Employee within thirty (30) days after such notice of
termination the remaining amounts described in Paragraph 3(a) above for balance
of the Term, and except for any pro-rated annual bonus which Employee is due
hereunder, Employer
5
<PAGE> 6
shall have no further obligations to Employee hereunder. If Employer terminates
Employee under this Paragraph 8(b), Paragraph 7(a) shall not apply from the
date of termination.
(c) In the event that Employer terminates this Agreement due to any of the
reasons set forth in Paragraphs 8(a)(i) and 8(a)(iii)(A)-(D) above, Employee
shall be paid Employee's salary through the later of the expiration of the five
(5) business days period referred to in Paragraph 8(a) or the end of the month
in which the termination event occurs after which Employer's obligation to pay
salary to Employee shall terminate. Should Employer terminate this Agreement due
to Employee's disability as defined above in Paragraph 8(a)(ii), Employee shall
receive the amounts set forth in Paragraph 8(b) as if the termination had
occurred under Paragraph 8(b). After making the payments provided for in this
sub-paragraph (c), Employer shall have no further obligations to Employee.
(d) Upon termination of this Agreement, Employee shall promptly return all
of Employer's property to Employer.
(e) Upon termination of Employee's employment for any reason, Employee
shall tender Employee's resignation from the Board of Directors of any of
Employer's subsidiaries or affiliates on which Employee is serving, and Employer
shall accept such resignation forthwith.
(f) If this Agreement is terminated for any reason other than "cause",
Employer shall pay for reasonable relocation expenses to move Employee and/or
his family back to the New York area, in accordance with Employer's standard
relocation policy.
9. Breach; Remedies. Both parties recognize that the services to be
rendered under this Agreement by Employee are special, unique and extraordinary
in character, and that in the event of the breach by Employee of the terms and
conditions of this Agreement, Employer shall be entitled, inter alia, if it so
elects, to institute and prosecute proceedings in any court of competent
jurisdiction, either in law or in equity, to obtain damages for any breach of
this Agreement, and to seek to enforce the specific performance thereof by
Employee, and/or to seek to enjoin Employee from performing services for any
other person, firm or corporation. The parties further stipulate that the law
of New York shall apply to any dispute or action regarding this agreement.
10. Assignment. This Agreement is a personal contract and, except as
specifically set forth herein, the rights, interests and obligations of
Employee herein may not be sold, transferred, assigned, pledged or
hypothecated, although he may assign or use as security payments due
6
<PAGE> 7
hereunder from Employer. The rights and obligations of Employer hereunder shall
bind in their entirety the successors and assigns of Employer, although Employer
shall remain fully liable hereunder. As used in this Agreement, the term
"successor" shall include any person, firm, corporation or other business entity
which at the time, whether by merger, purchase or otherwise, acquires all or
substantially all of the assets or business of Employer.
11. Amendment; Captions. This Agreement contains the entire agreement
between the parties. It may not be changed orally, but only by agreement in
writing signed by the party against whom enforcement of any waiver, change,
modification or discharge is sought. Paragraph headings are for convenience of
reference only and shall not be considered a part of this Agreement. If any
clause in this Agreement is found to be unenforceable, illegal or contrary to
public policy, the parties agree that this Agreement shall remain in full force
and effect except for such clause.
12. Prior Agreements. This Agreement supersedes and terminates all prior
agreements between the parties relating to the subject matter herein addressed,
and sets out the full agreement between the parties concerning its subject
matter.
13. Notices. Any notices or other communications required or permitted
hereunder shall be in writing and shall be deemed effective when delivered in
person or, if mailed, by registered or certified mail, return receipt requested,
in which case the notice shall be deemed effective on the date of deposit in the
mails, postage prepaid, addressed to Employee at Employee's address first
written above and, in the case of Employer, addressed to its President with a
copy to General Counsel, Hallmark Cards, Incorporated, 2501 McGee Trafficway,
Kansas City, Missouri 64108. Either party may change the address to which
notices are to be addressed by notice in writing given to the other in
accordance with the terms hereof
14. Periods of Time. Whenever in this Agreement there is a period of time
specified for the giving of notices or the taking of action, the period shall be
calculated excluding the day on which the giver sends notice and excluding the
day on which action to be taken is actually taken.
15. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, and all of which, taken
together, shall constitute one instrument.
7
<PAGE> 8
IN WITNESS WHEREOF, Employer has by its appropriate officer signed this
Agreement and Employee has signed this Agreement as of the day and year first
above written.
Hallmark Entertainment Network, Inc.
By /s/ GEORGE V. STEIN
----------------------------------
Title President & CEO
--------------------------------
EMPLOYEE:
/s/ ANDY BRILLIANT
-------------------------------------
Andy Brilliant
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<PAGE> 9
AMENDMENT TO
EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement, dated as of July 1, 1999
between Hallmark Entertainment Networks ("Employer") and Andy Brilliant
("Employee") (this "Amendment") amends that certain Employment Agreement dated
as of June 23, 1998 between Employer and Employee (the "Agreement").
1. Section 2 of the Agreement is amended to provide that the Term shall
end on June 30, 2002 unless terminated earlier as provided in
Paragraph 8 of the Agreement or extended by mutual agreement of the
parties.
2. Section 3(a) of the Agreement is amended to provide that for the
twelve month period commencing on July 1, 1999, Employer shall pay to
Employee a salary at the rate of $350,000 per annum. Commencing on
July 1, 2000 and annually thereafter during the Term, Employee's
salary shall be increased over the salary in effect during the prior
twelve month period by the greater of (i) seven per cent (7%) or
(ii) the increase, if any, of the Consumer Price Index calculated by
the Department of Labor for the region including the greater Denver
metropolitan area (the "CPI") as of July 1 of the relevant year as
compared to the CPI as of July 1 of the prior year.
3. Section 3(b) is amended to provide the Employee's bonus for the
twelve month period ending December 31, 1999 will be not less than
thirty percent (30%) of his salary for such twelve month period (i.e.
$90,000). Bonuses for subsequent years of the Term will be determined
in accordance with Employer's bonus program then in effect for senior
executives, provide that Employee's bonus for each such year shall be
not less than twenty percent (20%) of his annual salary for such year.
4. Employee will be granted three hundred thousand (300,000) SARs, as of
July 1, 1999, in the Share Appreciation Rights Plan, subject to the
approval of Employer's Board of Directors. A copy of such plan is
attached as Exhibit A.
5. Except as amended by this Amendment, the Agreement remains in full
force and effect and is hereby reaffirmed by Employee and Employer.
<PAGE> 10
IN WITNESS WHEREOF, Employer has by its appropriate officer signed the
Agreement and Employee has signed this Agreement as of the day and year first
above written.
HALLMARK ENTERTAINMENT
NETWORKS
By: /s/ DAVID J. EVANS
--------------------
Its: PRESIDENT & CEO
-------------------
EMPLOYEE:
/s/ ANDY BRILLIANT
----------------------
ANDY BRILLIANT
-2-
<PAGE> 1
EXHIBIT 10.27
EMPLOYMENT AGREEMENT
Agreement, made this 28th day of November, 1998, between Hallmark
Entertainment Networks, Inc., a Delaware corporation with offices at 1325 Avenue
of the Americas, New York, New York 10019 or its permitted assigns ("Employer"),
and Jeffrey J. Johnson, P.O. Box 368, Atkinson, New Hampshire 03811
("Employee").
WITNESSETH:
WHEREAS, Employer desires to retain the services of Employee and Employee
desires to be employed by Employer upon the terms and conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the covenants herein contained, the
parties hereto agree as follows:
1. Employment and Duties.
(a) Effective November 28, 1998 (the "Effective Date"), Employer hereby
employs Employee and Employee hereby agrees to serve as Vice President and
Managing Director-HEN Asia Pacific of Employer, reporting to the Executive Vice
President, Sales and Marketing. Employee agrees to perform such services
consistent with Employee's position. Employee shall use Employee's best efforts
to promote the interests of Employer and shall devote Employee's full business
time, energy and skill exclusively to the business and affairs of Employer
during the "Term" (as "Term" is defined in Paragraph 2 below).
(b) Employee's primary duties shall concern the supervision of Employer's
Asian area efforts in affiliate sales and marketing concerning television
programs and other audiovisual properties (collectively, the "Properties" and
individually, a "Property") as are assigned to him.
(c) During the course of Employee's employment hereunder, Employer may be
incorporating subsidiary companies for the development and marketing of
individual Properties. Employer shall have the right to loan or make available,
without additional compensation to Employee, Employee's services as an officer
or director of any such subsidiary to Hallmark Cards, Incorporated ("Hallmark")
or its subsidiaries or to perform services for any Property owned or controlled
by Hallmark or any such subsidiary, provided, that his duties as an officer of
any such subsidiary shall be consistent with his duties hereunder. Employee
further agrees
<PAGE> 2
that all the terms of this Employment Agreement shall be applicable to
Employee's services for Hallmark and each such subsidiary.
(d) As a condition to Employer being bound hereunder, Employee shall pass a
drug test to Employer's satisfaction, by a testing service chosen by Employer.
2. Term of Employment. The term of Employee's employment ("Term") with
Employer shall commence on the Effective Date and shall end on November 30,
2000, unless terminated earlier as is provided in Paragraph 8 of this Agreement
or extended by mutual agreement of the parties.
3. Compensation.
(a) Salary. As compensation for Employee's services hereunder, Employer
shall pay to Employee a salary at the rate of U.S. $200,000 per year. Such
salary shall be paid biweekly, in arrears. At the end of the first year of the
Term, Employer will conduct a performance review of Employee's performance and
make such upward adjustment in salary as Employer deems appropriate.
(b) Bonuses. At the end of each calendar year Employee will be paid such
bonus as Employer in its discretion determines, depending on Employee's and
Employer's business performance. Bonus payments shall be made no later than
thirty days after the end of each calendar year. Employee will not be entitled
to a bonus after year-end 1998. Employee will be eligible for a bonus at the end
of the calendar year in which the Term ends.
(c) Withholding. All payments of salary shall be made in appropriate
installments to conform with the regular payroll dates for salaried personnel of
Employer. Employer shall be entitled to deduct from each payment of compensation
to Employee such items as federal, state and local income taxes, FICA,
unemployment insurance and disability contributions, and such other deductions
as may be required by law.
(d) Expenses. During the Term, Employer shall pay or reimburse Employee on
an accountable basis for all reasonable and necessary out-of-pocket expenses for
entertainment, travel, meals, hotel accommodations and other expenditures
incurred by Employee in connection with Employee's services to Employer in
accordance with Employer's expense account policies for its executive personnel
or with the approval of the President.
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<PAGE> 3
(e) Fringe Benefits. During the Term, Employee shall be entitled to receive
the following fringe benefits: (i) paid vacation according to Employer's
standard policy for senior executives, (ii) group medical, dental, life and
disability insurance, and any Employer-sponsored 401(k) plan (subject to any
required waiting period), and (iii) any other fringe benefits, including any
phantom shares plan, on terms that are or may become available generally to
senior executives of Employer. Employee's level of participation in any phantom
shares or other incentive plan will be subject to Employer's discretion, but at
a level consistent with other executives in similar senior management positions.
(f) Cost of Living Adjustment; Tax Equalization. As long as Employee is
based in Singapore, Employer will provide Employee with such tax assistance, tax
equalization and cost of living adjustments as are provided by Hallmark Cards,
Incorporated pursuant to its standard expatriate policies and guidelines, as
amended from time to time. The amount of any payments under this Paragraph 3(f)
paid to or for Employee shall not exceed U.S. $110,000 in any year. The parties
understand that, if it is more tax efficient, Employer will directly lease
Employee's home and/or car for Employee, provided that any lease payments made
hereunder by Employer will count against the U.S. $110,000 cap. The $110,000
amount or cap in this Paragraph 3(f) is based on the United States/Singapore
currency exchange as of the Effective Date and shall be adjusted as such
exchange rates vary during the Term.
(g) Relocation Costs. Employer will reimburse Employee for the costs of
relocating Employee and his family (if any) from Sydney to Singapore, such costs
not to exceed $25,000. After expiration or termination of this Agreement and if
Employee relocates to Sydney or the United States within six months thereafter,
Employer will reimburse Employee for his relocation costs, such costs not to
exceed $25,000 except if the Agreement is terminated under Paragraph
8(a)(iii)(A, B or D).
(h) Deposits. Employer will advance Employee up to $27,000 for any
refundable deposits which Employee must make for his housing, children's
schooling and car. Upon the earlier of expiration or other termination of this
Agreement or upon refund to Employee of any such deposits, Employee will
promptly refund any such advances to Employer; those advances which are returned
to the Employee rather than direct to the Employer.
4. Place of Employment. During the Term, Employee shall be required to
perform Employee's duties in such reasonable office space provided by Employer
in Singapore, and
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<PAGE> 4
Employee shall undertake all reasonable travel required by Employer in
connection with the performance of Employee's duties hereunder.
5. Confidentiality; Intellectual Property; Name and Likeness.
(a) Employee agrees that Employee will not during the Term or thereafter
divulge to anyone (other than Employer (and its executives, representatives and
employees who need to know such information) or any persons designated by
Employer) any knowledge or information of any type whatsoever designated or
treated as confidential by Employer relating to the business of Employer or any
of its subsidiaries or affiliates, including, without limitation, all types of
trade secrets, business strategies, marketing and distribution plans as well as
concrete proposals, plans, scripts, treatments and formats described in
subparagraph (b) below. Employee further agrees that Employee will not disclose,
publish or make use of any such knowledge or information of a confidential
nature (other than in the performance of Employee's duties hereunder) without
the prior written consent of Employer. This provision does not apply to
information which becomes available publicly without the fault of Employee or
information which Employee discloses in confidence to her own privileged
representatives or is required to disclose in legal proceedings, provided
Employee gives advance notice to the President of Employer and an opportunity to
Employer to resist such disclosure in legal proceedings.
(b) During the Term, Employee will disclose to Employer all concrete
proposals, plans, scripts, treatments, and formats invented or developed by
Employee during the term which relate directly or indirectly to the business of
Employer or any of its subsidiaries or affiliates including, without limitation,
any proposals and plans which may be copyrightable, trademarkable, patentable or
otherwise exploitable. Employee agrees that all such proposals, plans, scripts,
treatments, and formats are and will be the property of Employer. Employee
further agrees, at Employer's request, to do whatever is necessary or desirable
to secure for the Employer the rights to said proposals, plans, scripts,
treatments, and formats, whether by copyright, trademark, patent or otherwise
and to assign, transfer and convey the rights thereto to Employer at Employer's
expense.
(c) Employer shall have the right in perpetuity to use Employee's name
reasonably in connection with credits for Properties for which Employee performs
any services.
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<PAGE> 5
6. Employee's Representations. Employee represents and warrants that:
(a) Employee has the right to enter into this Agreement and is not subject
to any contract, commitment, agreement, arrangement or restriction of any kind
which would prevent Employee from performing Employee's duties and obligations
hereunder;
(b) To the best of Employee's knowledge, Employee is not subject to any
undisclosed medical condition which might have a material effect on Employee's
ability to perform satisfactorily Employee's services hereunder.
7. Non-Competition; No Raid.
(a) During the Term, Employee shall not engage directly or indirectly,
whether as an employee, independent contractor, consultant, partner, shareholder
or otherwise, in a business or other endeavor which interferes with any of his
duties or obligations hereunder or which is directly competitive with the
business of the Employer or its subsidiaries, including but not limited to the
production, distribution or any other exploitation of audiovisual television
material (the "Other Business").
(b) Employee further agrees that during the Term and for a period of one
year thereafter, Employee will not employ or knowingly attempt to employ or
assist anyone else to employ any person who is, at the date of termination of
Employee's employment, working as an officer, policymaker or in high-level
creative development or distribution (including without limitation executive
employees) for or rendering substantially full-time services as such to
Employer.
8. Termination.
(a) This Agreement may be terminated and the Term ended on five business
days written notice for any one of the following reasons (except (i) in which
case termination shall occur on the date of death):
(i) The death of Employee;
(ii) The physical or mental disability of Employee to such an extent
that Employee is unable to render services to Employer for a period
exceeding an aggregate of thirty business days during any twelve-month
period of the Term. For purposes of counting the aggregate of thirty
business days, days properly designated by Employee as vacation days shall
not be counted;
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<PAGE> 6
(iii) For "cause," which for purposes of this Agreement shall be
defined as:
(A) the use of drugs and/or alcohol which interfere materially
with Employee's performance of Employee's services under this
Agreement;
(B) Employee's conviction of any act which constitutes a felony
under federal, state or local laws or the law of any foreign country;
(C) Employee's persistent refusal to perform after ten days
written notice, Employee's duties and responsibilities pursuant to
this Agreement;
(D) Employee's dishonesty in non-trivial financial dealings with
or on behalf of Employer, its subsidiaries. affiliates and parent
corporation or in connection with performance of his duties hereunder;
or
(E) Employee's voluntary resignation (except under Paragraph
8(b)).
(b) Employer shall also have the right to terminate Employee prior to the
expiration of the Term in addition to pursuant to Paragraph 8(a) above by
providing Employee with not less than thirty (30) days advance notice in
writing. In the event of a termination pursuant to this Paragraph 8(b) or any
other termination not described in Paragraph 8(a): (i) the Employer shall pay to
the Employee within thirty (30) days after such notice of termination the
remaining amounts described in Paragraph 3(a) above for the balance of the Term
(discounted to the date of payment at the Alternate Base Rate, as defined in the
Credit Agreement between Employer's parent company and the Chase Manhattan Bank,
et al.), and Employer shall have no further obligations to Employee hereunder
except as stated herein. If Employer terminates Employee under this Paragraph
8(b), Paragraph 7(a) shall apply for the remainder of the Term.
(c) In the event that Employer terminates this Agreement due to any of the
reasons set forth in Paragraphs 8(a)(i) and 8(a)(iii)(A)-(D) above, Employee
shall be paid Employee's salary through the later of the expiration of the five
(5) business days period referred to in Paragraph 8(a) or the end of the month
in which the termination event occurs after which Employer's obligation to pay
salary to Employee shall terminate. Should Employer terminate this Agreement due
to Employee's disability as defined above in Paragraph 8(a)(ii), Employee shall
receive the amounts set forth in Paragraph 8(b) as if the termination had
occurred under Paragraph 8(b). After making the payments provided for in this
sub-paragraph (c), Employer shall have no further obligations to Employee,
except for Paragraph 3(g).
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<PAGE> 7
(d) Upon termination of this Agreement, Employee shall promptly return
all of Employer's property to Employer.
(e) Upon termination of Employee's employment for any reason, Employee
shall tender Employee's resignation from the Board of Directors of any of
Employer's subsidiaries or affiliates on which Employee is serving, and Employer
shall accept such resignation forthwith.
9. Breach; Remedies. Both parties recognize that the services and benefits
to be rendered under this Agreement by each party are special, unique and
extraordinary in character, and that in the event of the breach by a party of
the terms and conditions of this Agreement, the other party be entitled, inter
alia, if it so elects, to institute and prosecute proceeding in any court of
competent jurisdiction, either in law or in equity, to obtain damages for any
breach of this Agreement, and to seek to enforce the specific performance
thereof by the other party. In the case of a breach by Employee, Employer may
seek to enjoin Employee from performing services for any other person, firm or
corporation. The parties further stipulate that the law of New York shall apply
to any dispute or action regarding this agreement.
10. Assignment. This Agreement is a personal contract and, except as
specifically set forth herein, the rights, interests and obligations of Employee
herein may not be sold, transferred, assigned, pledged or hypothecated, although
he may assign or use as security payments due hereunder from Employer. The
rights and obligations of Employer hereunder shall bind in their entirety the
successors and assigns of Employer, although Employer shall remain fully liable
hereunder. As used in this Agreement, the term "successor" shall include any
person, firm, corporation or other business entity which at the time, whether by
merger, purchase or otherwise, acquires all or substantially all of the assets
or business of Employer.
11. Amendment; Captions. This Agreement contains the entire agreement
between the parties. It may not be changed orally, but only by agreement in
writing signed by the party against whom enforcement of any waiver, change,
modification or discharge is sought. Paragraph headings are for convenience of
reference only and shall not be considered a part of this Agreement. If any
clause in this Agreement is found to be unenforceable, illegal or contrary to
public policy, the parties agree that this Agreement shall remain in full force
and effect except for such clause.
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<PAGE> 8
12. Prior Agreements. This Agreement supersedes and terminates all prior
agreements between the parties relating to the subject matter herein addressed,
and sets out the full agreement between the parties concerning its subject
matter.
13. Notices. Any notices or other communications required or permitted
hereunder shall be in writing and shall be deemed effective when delivered in
person or, if mailed, by registered or certified mail, return receipt
requested, in which case the notice shall be deemed effective on the date of
deposit in the mails, postage prepaid, addressed to Employee at Employee's
address first written above and, in the case of Employer, addressed to its
President with a copy to General Counsel, Hallmark Cards, Incorporated, 2501
McGee Trafficway, Kansas City, Missouri 64108. Either party may change the
address to which notices are to be addressed by notice in writing given to the
other in accordance with the terms hereof.
14. Periods of Time. Whenever in this Agreement there is a period of time
specified for the giving of notices or the taking of action, the period shall be
calculated excluding the day on which the giver sends notice and excluding the
day on which action to be taken is actually taken.
15. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, and all of which, taken
together, shall constitute one instrument,
IN WITNESS WHEREOF, Employer has by its appropriate officer signed this
Agreement and Employee has signed this Agreement as of the day and year first
above written.
HALLMARK ENTERTAINMENT NETWORKS, INC.
By: /s/ ANDREW P. BRILLIANT
-------------------------------------------
Title: EXECUTIVE VICE PRESIDENT,
SALES AND MARKETING
----------------------------------------
EMPLOYEE:
/s/ JEFFREY J. JOHNSON
-------------------------------------------
Jeffrey J. Johnson
8
<PAGE> 1
EXHIBIT 10.28
EMPLOYMENT AGREEMENT
Agreement, made this lst day of January, 1999, between Hallmark
Entertainment Networks (UK) Limited, a U.K. corporation with offices at 3/5
Bateman Street, London W1V 5TT England or its permitted assigns
("Employer"), and Mark N. Grenside, 17 Wilton Row, London SW1X 7NR England
("Employee").
WITNESSETH:
WHEREAS, Employer desires to retain the services of Employee and
Employee desires to be employed by Employer upon the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the covenants herein contained,
the parties hereto agree as follows:
1. Employment and Duties. (a) Effective January 1, 1999 (the
"Effective Date"), Employer hereby employs Employee and Employee hereby
agrees to serve as Senior Vice President, Managing Director
Sales-Europe/Middle East/Africa of Employer reporting to the Executive Vice
President Sales and Marketing of Employer's parent company or other person
designated by Employer. Employee agrees to perform such services consistent
with Employee's position. Employee shall use Employee's best efforts to
promote the interests of Employer and shall devote Employee's full business
time, energy and skill exclusively to the business and affairs of Employer
during the "Term" (as "Term" is defined in Paragraph 2 below).
(b) Employee's primary duties shall concern the supervision of
Employer's Europe/Middle East/Africa efforts in affiliate sales, marketing
and advertising sales for Employer's future and current networks concerning
television programs and other audiovisual properties (collectively, the
"Properties" and individually, a "Property") as are assigned to him.
(c) During the course of Employee's employment hereunder, Employer may
be incorporating subsidiary distribution companies for the distribution of
Properties. Employer shall have the right to loan or make available,
without additional compensation to Employee, Employee's services as an
officer or director of any such subsidiary to Hallmark Cards, Incorporated
("Hallmark") or its subsidiaries or to perform services for any Property
owned or controlled by
1
<PAGE> 2
Hallmark or any such subsidiary, provided, that his duties as an officer of
any such subsidiary shall be consistent with his duties hereunder. Employee
further agrees that all the terms of this Employment Agreement shall be
applicable to Employee's services for Hallmark and each such subsidiary.
2. Term of Employment. The term of Employee's employment ("Term") with
Employer shall commence on the Effective Date and shall end on December 31,
2000 unless terminated earlier as is provided in Paragraph 8 of this
Agreement or extended by mutual agreement of the parties.
3. Compensation.
(a) Salary. As compensation for Employee's services hereunder,
Employer shall pay to Employee a salary at the rate of $250,000 per year.
Such salary shall be paid biweekly, in arrears. At the end of the first
year of the Term, Employer will conduct a performance review of Employee's
performance and make such upward adjustment in salary as Employer deems
appropriate. The parties contemplate a 10% increase for the second year of
the Term.
(b) Bonuses. At the end of each calendar year, during the Term,
Employee will be paid a bonus of up to 25% of his base salary based 70% on
Employee's parent company, Hallmark Entertainment Networks, Inc.
("Company") achieving its goals and 30% on Employee achieving his personal
objectives. The objectives for 1999 are set out in Exhibit A attached
hereto, together with a calculation of Employee's bonus based on current
1999 forecasts. Employee shall have the opportunity to earn an additional
5% bonus based on achieving certain defined tasks; for 1999, these tasks
are shown under "Additional Performance" on Exhibit A. Employer will set
the Company and personal objectives and defined tasks for 2000 and will
timely inform Employee of those objectives and tasks. Bonus payments shall
be made no later than 30 days after end of calendar year end.
(c) Withholding. All payments of salary shall be made in appropriate
installments to conform with the regular payroll dates for salaried
personnel of Employer. Employer shall be entitled to deduct from each
payment of compensation to Employee taxes and such items as may be required
by law.
(d) Expenses. During the Term, Employer shall pay or reimburse
Employee on an accountable basis for all reasonable and necessary
out-of-pocket expenses for entertainment, travel, meals, hotel
accommodations and other expenditures incurred by Employee in connection
with
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<PAGE> 3
Employee's services to Employer in accordance with Employer's expense
account policies for its executive personnel or with the approval of the
President.
(e) Fringe Benefits. During the Term, Employee shall be entitled to
receive any other fringe benefits, including paid vacation and any phantom
shares or equity plan, on terms that are or may become available generally
to senior executives of Employer of Employee's level. Employee's level of
participation in any phantom shares or other incentive plan will be subject
to Employer's discretion, but at a level consistent with other executives
of Employee's level.
4. Place of Employment. During the Term, Employee shall be required to
perform Employee's duties at the principal office of Employer set forth
above, or at such other principal locations in the London metropolitan area
as Employer may reasonably designate, and Employee shall undertake all
reasonable travel required by Employer in connection with the performance
of Employee's duties hereunder.
5. Confidentiality; Intellectual Property; Name and Likeness.
(a) Employee agrees that Employee will not during the Term or
thereafter divulge to anyone (other than Employer (and its executives,
representatives and employees who need to know such information) or any
persons designated by Employer) any knowledge or information of any type
whatsoever designated or treated as confidential by Employer relating to
the business of Employer or any of its subsidiaries or affiliates,
including, without limitation, all types of trade secrets, business
strategies, marketing and distribution plans as well as concrete proposals,
plans, scripts, treatments and formats described in subparagraph (b)
below. Employee further agrees that Employee will not disclose, publish or
make use of any such knowledge or information of a confidential nature
(other than in the performance of Employee's duties hereunder) without the
prior written consent of Employer. This provision does not apply to
information which becomes available publicly without the fault of Employee
or information which Employee discloses in confidence to her own privileged
representatives or is required to disclose in legal proceedings, provided
Employee gives advance notice to the President of Employer and an
opportunity to Employer to resist such disclosure in legal proceedings.
(b) During the Term, Employee will disclose to Employer all concrete
proposals, plans, scripts, treatments, and formats invented or developed by
Employee during the term which relate directly or indirectly to the
business of Employer or any of its subsidiaries or affiliates including,
without limitation, any proposals and plans which may be copyrightable,
trademarkable, patentable
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<PAGE> 4
or otherwise exploitable. Employee agrees that all such proposals, plans,
scripts, treatments, and formats are and will be the property of Employer.
Employee further agrees, at Employer's request, to do whatever is necessary
or desirable to secure for the Employer the rights to said proposals,
plans, scripts, treatments, and formats, whether by copyright, trademark,
patent or otherwise and to assign, transfer and convey the rights thereto
to Employer at Employer's expense.
(c) Employer shall have the right in perpetuity to use Employee's name
reasonably in connection with credits for Properties for which Employee
performs any services.
6. Employee's Representations. Employee represents and warrants that:
(a) Employee has the right to enter into this Agreement and is not
subject to any contract, commitment, agreement, arrangement or restriction
of any kind which would prevent Employee from performing Employee's duties
and obligations hereunder;
(b) To the best of Employee's knowledge, Employee is not subject to
any undisclosed medical condition which might have a material effect on
Employee's ability to perform satisfactorily Employee's services hereunder.
7. Non-Competition; No Raid.
(a) During the Term, Employee shall not engage directly or indirectly,
whether as an employee, independent contractor, consultant, partner,
shareholder or otherwise, in a business or other endeavor which interferes
with any of his duties or obligations hereunder or which is directly
competitive with the business of the Employer or its subsidiaries,
including but not limited to the production, distribution or any other
exploitation of audiovisual television material (the "Other Business").
(b) Employee further agrees that during the Term and for a period of
one year thereafter, Employee will not employ or knowingly attempt to
employ or assist anyone else to employ any person who is, at the date of
termination of Employee's employment, working as an officer, policymaker or
in high-level creative development or distribution (including without
limitation executive employees) for or rendering substantially full-time
services as such to Employer.
(c) 8. Termination.
(d) This Agreement may be terminated and the Term ended on five
business days' written notice for any one of the following reasons (except
(i) in which case termination shall occur on the date of death):
(i) The death of Employee;
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(ii) The physical or mental disability of Employee to such an
extent that Employee is unable to render services to Employer for a
period exceeding an aggregate of 30 business days during any twelve
month period of the Term. For purposes of counting the aggregate of 30
business days, days properly designated by Employee as vacation days
shall not be counted;
(iii) For "cause," which for purposes of this Agreement shall be
defined as:
(A) the use of drugs and/or alcohol which interfere
materially with Employee's performance of Employee's services under
this Agreement;
(B) Employee's conviction of any act which constitutes a
felony under U.S. laws or the law of any foreign country;
(C) Employee's persistent failure after written notice to
perform, or Employee's persistent refusal to perform after written
notice, Employee's duties and responsibilities pursuant to this
Agreement; or
(D) Employee's dishonesty in non-trivial financial dealings
with or on behalf of Employer, its subsidiaries, affiliates and parent
corporation or in connection with performance of his duties hereunder.
(a) Employer shall also have the right to terminate Employee prior to
the expiration of the Term in addition to pursuant to Paragraph 8(a) above
by providing Employee with not less than thirty (30) days' advance notice
in writing. In the event of a termination pursuant to this Paragraph 8(b):
(i) the Employer shall pay to the Employee within thirty (30) days after
such notice of termination the remaining amounts described in Paragraph
3(a) above for the balance of the Term, and except for any pro-rated annual
bonus which Employee is due hereunder, Employer shall have no further
obligations to Employee hereunder. If Employer terminates Employee under
this Paragraph 8(b), Paragraph 7(a) shall not apply from the date of
termination.
(b) In the event that Employer terminates this Agreement due to any of
the reasons set forth in Paragraphs 8(a)(i) and 8(a)(iii)(A)-(D) above,
Employee shall be paid Employee's salary through the later of the
expiration of the five (5) business days period referred to in Paragraph
8(a) or the end of the month in which the termination event occurs after
which Employer's obligation to pay salary to Employee shall terminate.
Should Employer terminate this Agreement due to Employee's disability as
defined above in Paragraph 8(a)(ii), Employee shall receive the amounts set
forth in Paragraph 8(b) as if the termination had occurred under Paragraph
8(b). After making
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the payments provided for in this sub-paragraph (c), Employer shall have no
further obligations to Employee.
(c) Upon termination of this Agreement, Employee shall promptly return
all of Employer's property to Employer.
(d) Upon termination of Employee's employment for any reason, Employee
shall tender Employee's resignation from the Board of Directors of any of
Employer's subsidiaries or affiliates on which Employee is serving, and
Employer shall accept such resignation forthwith.
9. Breach; Remedies. Both parties recognize that the services to be
rendered under this Agreement by Employee are special, unique and
extraordinary in character, and that in the event of the breach by Employee
of the terms and conditions of this Agreement, Employer shall be entitled,
inter alia, if it so elects, to institute and prosecute proceedings in any
court of competent jurisdiction, either in law or in equity, to obtain
damages for any breach of this Agreement, and to seek to enforce the
specific performance thereof by Employee, and/or to seek to enjoin Employee
from performing services for any other person, firm or corporation. The
parties further stipulate that the law of New York shall apply to any
dispute or action regarding this agreement.
10. Assignment. This Agreement is a personal contract and, except as
specifically set forth herein, the rights, interests and obligations of
Employee herein may not be sold, transferred, assigned, pledged or
hypothecated, although he may assign or use as security payments due
hereunder from Employer. The rights and obligations of Employer hereunder
shall bind in their entirety the successors and assigns of Employer,
although Employer shall remain fully liable hereunder. As used in this
Agreement, the term "successor" shall include any person, firm, corporation
or other business entity which at the time, whether by merger, purchase or
otherwise, acquires all or substantially all of the assets or business of
Employer.
11. Amendment; Captions. This Agreement contains the entire agreement
between the parties. It may not be changed orally, but only by agreement in
writing signed by the party against whom enforcement of any waiver, change,
modification or discharge is sought. Paragraph headings are for convenience
of reference only and shall not be considered a part of this Agreement. If
any clause in this Agreement is found to be unenforceable, illegal or
contrary to public policy, the parties agree that this Agreement shall
remain in full force and effect except for such clause.
6
<PAGE> 7
12. Prior Agreements. This Agreement supersedes and terminates all
prior agreements between the parties relating to the subject matter herein
addressed, and sets out the full agreement between the parties concerning
its subject matter.
13. Notices. Any notices or other communications required or permitted
hereunder shall be in writing and shall be deemed effective when delivered
in person or, if mailed, by registered or certified mail, return receipt
requested, in which case the notice shall be deemed effective on the date
of deposit in the mails, postage prepaid, addressed to Employee at
Employee's address first written above and, in the case of Employer,
addressed to its President with a copy to General Counsel, Hallmark Cards,
Incorporated, 2501 McGee Trafficway, Kansas City, Missouri 64108. Either
party may change the address to which notices are to be addressed by notice
in writing given to the other in accordance with the terms hereof.
14. Periods of Time. Whenever in this Agreement there is a period of
time specified for the giving of notices or the taking of action, the
period shall be calculated excluding the day on which the giver sends
notice and excluding the day on which action to be taken is actually taken.
15. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, and all of which, taken
together, shall constitute one instrument.
IN WITNESS WHEREOF, Employer has by its appropriate officer signed
this Agreement and Employee has signed this Agreement as of the day and
year first above written.
Hallmark Entertainment Networks (UK) Limited
By: /s/ ANDREW P. BRILLIANT
---------------------------------------
Title: EVP
---------------------------------------
EMPLOYEE:
/s/ MARK N. GRENSIDE
----------------------------------------------
Mark N. Grenside
7
<PAGE> 1
EXHIBIT 10.29
[HALLMARK ENTERTAINMENT LETTERHEAD]
January 28, 1999
George Stein
1640 Layton Drive
Cherry Hills, Colorado 80110
Dear George:
This will confirm our agreement regarding your separation from Hallmark
Entertainment Networks, Inc. ("HEN" or "the Company") effective January 31,
1999, with your duties to end on that date.
In connection with your separation, HEN agrees to do the following:
1. To pay you your full pay (less appropriate payroll deductions) through
January 31, 1999.
2. To continue your current HEN health insurance and benefits and life
insurance through January 31, 1999.
3. Provided you have first returned a copy of this signed agreement to HEN,
to pay you the following lump sum amounts (less appropriate payroll deductions)
within 15 business days after the designated dates: $2.0 million - January 31,
2000; $1.0 million - January 31, 2001; and $1.0 million - January 31, 2002.
4. Provided you have first returned a copy of this signed agreement to HEN,
in addition to the payments provided for in paragraph 3 above, to pay you $2.0
million dollars within 15 business days after January 31, 2001 in the event HEN
or any successor company completes an IPO prior to January 31, 2001. In the
event HEN or any successor company completes an IPO after January 31, 2001 but
prior to January 31, 2002, in addition to the payments provided for in paragraph
3 above, HEN will pay you $1.0 million within 15 business days after January 31,
2002.
5. To pay for your COBRA medical and dental continuation coverage, for you
and your eligible dependents through December 31, 1999, provided you have first
returned a copy of this signed agreement to HEN. COBRA payments shall continue
only as long as you or your dependents are eligible for COBRA continuation
coverage. After December 31, 1999, COBRA coverage is available at your expense,
so long as you and your dependents meet all eligibility requirements under
<PAGE> 2
George Stein
January 28, 1999
Page 2
COBRA. HEN further agrees to pay the premium for the current company paid term
life insurance carried for HEN employees through December 31, 1999.
6. To pay you within 15 working days after January 31, 1999, an amount
equal to the number of vacation days you have accrued but not used for 1999
(less appropriate payroll deductions), as compensation for all accrued vacation
time that may be due to you now or in the future.
7. Provided you have first returned a copy of this signed agreement to
HEN, to pay you within 15 business days after January 31, 1999, or the date you
return this signed agreement to Hallmark, whichever is later, a lump sum amount
of Three Hundred Sixty-Six Thousand Six Hundred Sixty-Seven Dollars
($366,667.00) (less appropriate payroll deductions) within 15 business days
after January 31, 1999, or the date you return this signed agreement to
Hallmark, whichever is later, in lieu of continuing your salary payments
through December 31, 1999.
8. Provided you have first returned a copy of this signed agreement to
HEN, to pay you within 15 business days after January 31, 1999, or the date you
return this signed agreement to Hallmark, whichever is later, a lump sum amount
of Thirty Three Thousand Two Hundred Fifty Dollars ($33,250.00) (less
appropriate payroll deductions) in lieu of receiving a car allowance through
December 31, 2001.
9. Provided you have first returned a copy of this signed agreement to
HEN, to pay you within 15 business days after January 31, 1999, or the date you
return this signed agreement to Hallmark, whichever is later, a lump sum amount
of Forty Thousand Dollars ($40,000.00) (less appropriate payroll deductions) in
lieu of the ten percent bonus issued to HEN employees for 1998.
10. Provided you have first returned a copy of this signed agreement to
HEN, to pay you within 15 business days after January 31, 1999, or the date you
return this signed agreement to Hallmark, whichever is later, a lump sum amount
of Thirty Thousand Dollars ($30,000.00) (less appropriate payroll deductions) in
lieu of receiving outplacement services paid by HEN.
11. Provided you have first returned a copy of this signed agreement to
HEN, to allow you to retain the computer, printer, fax, and laptop which you
currently use at the office.
12. To pay you a lump sum amount of Thirty Thousand Dollars
($30,000.00) (less appropriate payroll deductions) to assist with the FICA
expenses associated with the deferred payments under paragraph 3 above.
<PAGE> 3
George Stein
January 28, 1999
Page 3
In return for the above payments and benefits, you agree to do the
following:
A. To sign and return a copy of this letter. You have 21 days from
the date you receive this letter in which to consult an attorney and
consider whether you want to accept and sign this agreement. The agreement
will become effective seven (7) days after you sign it, and you have the
right to revoke the agreement during that seven (7) day period. You agree
that any changes to this Agreement, whether material or immaterial, will
not restart the running of the 21-day period.
B. To release and forever discharge Hallmark Entertainment
Networks, Inc. and its parent companies, subsidiaries, affiliates, joint
venturers and their respective officers, agents, directors, employees and
all other persons, firms, and corporations whomsoever, of and from all
liability, actions, claims (including any rights and claims under the Age
Discrimination in Employment Act and any other employment discrimination
claims), demands, damages, costs and expenses, which you may now or
hereafter have on account of, arising out of, or in connection with all
transactions between you and the parties herein released through the date
this agreement is executed, including, but not limited to, your employment
and the termination thereof.
C. To make no disclosure or use whatsoever of any trade secret or
confidential information of any type which heretofore has been designated
or treated as confidential by the Company or any of its parent,
subsidiary, joint venturer or affiliated companies ("the Companies")
relating to the business of the Companies, including without limitation,
all types of trade secrets, business strategies, marketing and
distribution plans and financial information. This provision does not
apply to information which becomes or is available publicly through no
fault of your own.
D. To not retain any business records or documents relating to any
activity of the Company or any of its parent, subsidiary, joint venturer
or affiliated companies, and to return and not retain any business
records, documents and property belonging to the company or its parent,
subsidiary, joint venturer and affiliated companies, except as provided in
this agreement.
E. To not publicize or disclose or cause, permit or authorize the
publication or disclosure of the terms of this agreement or the
negotiations leading to this agreement, except in confidence to your
spouse, to your attorney or financial advisor you have retained to assist
you in preparation of your tax returns or other financial or legal matters,
provided that before disclosing anything regarding the terms of the
agreement you first inform such persons of the confidentiality of this
agreement and obtain their agreement to maintain the confidentiality of the
agreement.
F. To cooperate with the Company and its parent, subsidiary, joint
venturer and affiliated companies in the defense of any legal matter
involving any other employee of these companies or involving any other
matter that arose during your employment, provided that the Company will
reimburse you for your reasonable travel and out-of-pocket expenses
incurred in providing such cooperation and assistance.
<PAGE> 4
George Stein
January 28, 1999
Page 4
G. That you are owed no additional compensation in connection with the
termination of your employment, and that neither HEN nor and its parent
companies, subsidiaries, affiliates, joint venturers will have any obligation to
provide you at any time in the future any payments, other than those provided
for in this agreement.
H. That for the period through January 31, 2001, you will not attempt to
recruit any employee working for or rendering substantial services to HEN, HEI,
the Kermit Channel, or the Odyssey Channel, including without limitation, all
executive and managerial employees of these companies. If you hire, directly or
indirectly, any such employee, you will forfeit Two Hundred Fifty Thousand
Dollars ($250,000.00) per employee from the payments to be made under paragraphs
3 and 4 above.
I. To be responsible for payment of any personal taxes due from me
associated with the value of any compensation, benefits or items provided
pursuant to this agreement.
The parties agree:
(i). To submit any dispute concerning this Agreement or Stein's employment
and termination of employment to binding arbitration in Colorado before an
arbitrator agreed upon by the parties or failing to agree, as selected by the
American Arbitration Association. Any such arbitration shall be pursuant to the
American Arbitration Association rules.
(ii). No waiver, modification, or amendment of any term, condition or
provision of this Agreement shall be valid or have any force or affect unless
made in writing and signed by the parties.
(iii). This Agreement supersedes and terminates all prior agreements,
including but not limited to any oral agreements between you and HEN or its
parent companies, subsidiaries, affiliates, joint ventures and sets out the full
agreement between the parties concerning its subject matter.
(iv). This Agreement shall be governed by and construed under the laws of
the State of Colorado.
(v). This agreement may be executed on separate counterparts, each of which
is deemed to be an original and all of which taken together constitute one and
the same agreement. The executed copies may be sent by telecopier to the other
parties and will be considered executed as of the day of the telecopied
signature. The original signature pages should be sent by mail to each party so
they will have a fully executed original agreement.
(vi). Hallmark Entertainment, Inc. guarantees the payments provided for
under the terms of this agreement in the event that (a) HEN is unable to perform
its obligations under this
<PAGE> 5
George Stein
January 28, 1999
Page 5
Agreement; or (b) any successor in interest to, or the assign of HEN is unable
to perform the obligations of HEN under this Agreement.
Please acknowledge your acceptance of this agreement by signing and
returning triplicate originals of this letter.
Very truly yours,
HALLMARK ENTERTAINMENT NETWORKS, INC.
By /s/ PETER VON GAL
----------------------------------
PETER VON GAL
HALLMARK ENTERTAINMENT, INC.
By /s/ PETER VON GAL
----------------------------------
PETER VON GAL
Agreed to this 28th day of January, 1999.
/s/ GEORGE STEIN
------------------------------------
GEORGE STEIN
<PAGE> 1
EXHIBIT 10.30
PROMISSORY NOTE
Amount: $20,000,000 Date: November 19, 1999
Wilmington, Delaware
SECTION 1. PROMISE TO PAY.
SECTION 1.1 For value received, Crown Media, Inc., a Delaware
corporation (hereafter called "Maker"), hereby promises to pay on
demand to the order of HC Crown Corporation, a Delaware corporation
("Payee"), at such place as Payee may, from time to time specify in
writing, the principal amount outstanding under this Note together
with all accrued interest.
SECTION 1.2 The extension of funds under this Note is subject to the
sole discretion of Payee and the principal and interest amount
outstanding under this Note shall not exceed Twenty Million Dollars
($20,000,000).
SECTION 2. INTEREST.
During the term of this Note, interest on the outstanding balance
hereunder shall accrue and be payable at 130% of the short-term
Applicable Federal Rate ("AFR"). This rate will be adjusted monthly
based on the rate appearing in the CCH Federal Tax Weekly periodical.
Interest will be compounded on an annual basis.
SECTION 3. REPAYMENT.
SECTION 3.1 Subject to Maker's right of prepayment as set forth
herein, the obligation evidenced by this Note shall be repaid on the
basis of interest only installments. Such payments shall accrue as of
the end of each calendar quarter occurring during the term hereof and
shall be paid on or before forty-five (45) days after the end of each
such calendar quarter. Maker shall pay to Payee a single principal
payment (together with all accrued and unpaid interest) as of the
Maturity Date.
SECTION 3.2 Maker shall have the privilege, without premium or
penalty, at any time and from time to time, to prepay this Note in
whole or in part.
SECTION 3.3 In the event Maker fails to pay any sum under the term
hereof within fifteen (15) days after the same becomes due, a late
charge of five percent (5%) per month of the amount past due shall,
along with the past due amount, be due and payable to Payee.
SECTION 4. RESPECTING INTEREST.
In the event the interest provisions of this Note shall result,
because of (a) the reduction of principal, or (b) any other reason
related or unrelated to such interest provisions at any time during
the life of the loan or any combination of (a) and (b), in an
effective rate of interest which, for any period of time, exceeds the
limits of the usury or any other law applicable to the loan evidenced
hereby, all sums in excess of those lawfully collectible as interest
for the period in question shall, without further agreement or notice
between or by any party hereto, be applied to principal immediately
upon receipt of such monies by Payee with the same force and effect
as though Maker had specifically designated such extra sums to be so
applied to principal and Payee had agreed to accept such extra
payment(s) as a premium-free prepayment.
1
<PAGE> 2
SECTION 5. INFORMATION.
Maker shall deliver to Payee not later than 15 days after written
request:
(i) A balance sheet of Maker as of the end of the most recently
ended fiscal year together with the consolidated statements
of income corresponding to the same; and
(ii) A balance sheet of Maker as of the end of the most recently
ended fiscal quarter (together with the consolidated
statements of income corresponding to such period), and, if
Payee so requests, each such statement shall be certified by
the chief financial officer or the chief accounting officer
of Maker as to fairness of presentation, generally accepted
accounting principles and consistency (subject only to
normal year-end adjustments).
SECTION 6. EVENTS OF DEFAULT.
Each of the following shall constitute an event of default hereunder
(an "Event of Default"):
(i) The failure of Maker to make any payment of interest
hereunder when the same is due and payable or to pay the
principal balance in the lump sum or balloon payment when
the same is due and payable, and such failure to pay
continued for a period of ten (10) days or more after
written notice thereof from Payee;
(ii) The failure of Maker to provide timely financial information
or certification as required by Section 5 if such failure
continues for a period of thirty (30) days or more after
such information or certification is due and Payee has made
a written demand upon Maker for the same; or
(iii) A determination by Payee from time to time that a
substantial or materially adverse change in the financial
condition of Maker has occurred, whereupon default may be
declared immediately without notice or opportunity to cure
by Maker.
SECTION 7. REMEDIES.
Upon the occurrence of an Event of Default and at any time thereafter
during the continuance of such Event of Default hereunder, Payee shall have the
right to declare the entire unpaid amount of principal and interest hereunder
immediately due and payable in full without presentation, demand or protest,
each of which is hereby waived by Maker.
SECTION 8. WAIVERS.
SECTION 8.1 The failure by Payee to exercise any right or remedy
available hereunder in the Event of Default shall in no event be
construed as a waiver or release of the same. Likewise, Payee shall,
by any act or omission or commission, be deemed to waive any right
hereunder unless such waiver is evidenced in writing and signed by
Payee, and then only to the extent specifically set forth in such
writing. Moreover, a waiver with respect to any one event shall not
be construed as continuing or as a bar to or waiver of Payee's rights
or remedies with respect to any subsequent event.
2
<PAGE> 3
Section 8.2 Maker expressly waives presentment for payment, notice of
dishonor, protest, notice of protest, diligence of collection, and
each other notice of any kind, and hereby consents to any number of
renewals or extensions of time for payment hereof, which renewals and
extensions shall not affect the liability of Maker.
Section 8.3 Maker hereby waives and releases all errors, defects and
imperfections in any proceeding instituted by Payee under the terms
hereof as well as all benefits that might accrue to Maker by virtue
of any present or future laws exempting any property, real, personal
or mixed, or any part of the proceeds arising from any sale of such
property, from attachment, levy or sale under execution, or providing
for any stay of execution, exemption from civil process, or
extention of time for payment; and Maker agrees that any real estate
that may be levied upon pursuant to a judgment obtained by virtue
hereof, or any writ of execution issued thereon, may be sold upon any
such writ in whole or in part or in any other manner desired by
Payee.
SECTION 9. NOTICES.
Each notice required to be given to any party hereunder shall be in
writing and shall be deemed to have been sufficiently given for all
purposes when sent by certified or registered mail, return receipt
requested, to the party at its respective address as follows:
MAKER: Crown Media, Inc.
6430 S. Fiddlers Green Circle
Englewood, Colorado 80111
Attn: Mike Conger
PAYEE: HC Crown Corporation
103 Foulk Road, Suite 214
Wilmington, DE 19803
Attn: David C. Eppes, Vice President and Controller
SECTION 10. ASSIGNABILITY.
Section 10.1 This Agreement shall be binding upon and inure to the
benefit of Maker and Payee and their respective successors and
assigns; provided, however, that this Agreement, or any portion
thereof, may not be assigned by Maker without the written consent of
Payee, which consent shall not be unreasonably withheld.
Section 10.2 In order to accomplish the intent and purpose of Section
10.1, the terms "Maker" and "Payee" shall include, as applicable,
each respective successor and assign of each.
SECTION 11. MODIFICATIONS.
This Note may be modified only by means of an agreement in writing
signed by Maker and Payee.
SECTION 12. GOVERNING LAW.
This Note shall be governed by and construed according to the laws of
the State of Delaware without regard to the conflict of laws provisions thereof.
3
<PAGE> 4
SECTION 13. HEADINGS.
The heading preceding the text of each Section hereof is inserted
solely for convenience of reference and shall not constitute a part of this
Note, nor shall the same affect the meaning, construction of effect hereof.
SECTION 14. SEVERABILITY.
If any provision of this Note or the application thereof is declared
by a court of competent jurisdiction to be invalid or unenforceable, the
remaining provision hereof shall be unaffected and remain valid and enforceable
to the fullest extent permitted by law.
[SIGNATURE ONLY TO FOLLOW]
IN WITNESS WHEREOF, the undersigned officer of Maker has executed
this Note as of the day and year first above written intending such act to be
the act and deed of Maker and thereby legally binding Maker to the terms hereof.
CROWN MEDIA, INC.
By: /s/ WILLIAM J. ALIBER
---------------------
Name: William J. Aliber
---------------------
Title: CFO
--------------------
4
<PAGE> 1
EXHIBIT 10.31
PROMISSORY NOTE
Amount: $10,000,000 Date: February 23, 2000
Wilmington, Delaware
Section 1. PROMISE TO PAY.
SECTION 1.1 For value received, Crown Media, Inc., a Delaware
corporation (hereafter called "Maker"), hereby promises to pay on
demand to the order of HC Crown Corporation, a Delaware
corporation ("Payee"), at such place as Payee may, from time to
time specify in writing, the principal amount outstanding under
this Note together with all accrued interest.
SECTION 1.2 The extension of funds under this Note is subject
to the sole discretion of Payee and the principal and interest
amount outstanding under this Note shall not exceed Ten Million
Dollars ($10,000,000).
SECTION 2. INTEREST.
During the term of this Note, interest on the outstanding balance
hereunder shall accrue and be payable at 130% of the short-term
Applicable Federal Rate ("AFR"). This rate will be adjusted
monthly based on the rate appearing in the CCH Federal Tax Weekly
periodical. Interest will be compounded on an annual basis.
SECTION 3. REPAYMENT.
SECTION 3.1 Subject to Maker's right of prepayment as set
forth herein, the obligation evidenced by this Note shall be
repaid on the basis of interest only installments. Such payments
shall accrue as of the end of each calendar quarter occurring
during the term hereof and shall be paid on or before forty-five
(45) days after the end of each such calendar quarter. Maker
shall pay to Payee a single principal payment (together with all
accrued and unpaid interest) as of the Maturity Date.
SECTION 3.2 Maker shall have the privilege, without premium or
penalty, at any time and from time to time, to prepay this Note
in whole or in part.
SECTION 3.3 In the event Maker fails to pay any sum under the
term hereof within fifteen (15) days after the same becomes due,
a late charge of five percent (5%) per month of the amount past
due shall, along with the past due amount, be due and payable to
Payee.
SECTION 4. RESPECTING INTEREST.
In the event the interest provisions of this Note shall result,
because of (a) the reduction of principal, or (b) any other
reason related or unrelated to such interest provisions at any
time during the life of the loan or any combination of (a) and
(b), in an effective rate of interest which, for any period of
time, exceeds the limits of the usury or any other law applicable
to the loan evidenced hereby, all sums in excess of those
lawfully collectible as interest for the period in question
shall, without further agreement or notice between or by any
party hereto, be applied to principal immediately upon receipt of
such monies by Payee with the same force and effect as though
Maker had specifically designated such extra sums to be so
applied to principal and Payee had agreed to accept such extra
payment(s) as a premium-free prepayment.
1
<PAGE> 2
SECTION 5. INFORMATION.
Maker shall deliver to Payee not later than 15 days after written
request:
(i) A balance sheet of Maker as of the end of most recently ended
fiscal year together with the consolidated statements of income
corresponding to the same; and
(ii) A balance sheet of Maker as of the end of the most recently
ended fiscal quarter (together with the consolidated statements of
income corresponding to such period), and, if Payee so requests, each
such statement shall be certified by the chief financial officer or
the chief accounting officer of Maker as to fairness of presentation,
generally accepted accounting principles and consistency (subject
only to normal year-end adjustments).
SECTION 6. EVENTS OF DEFAULT.
Each of the following shall constitute an event of default hereunder
(an "Event of Default"):
(i) The failure of Maker to make any payment of interest hereunder
when the same is due and payable or to pay the principal balance in
the lump sum or balloon payment when the same is due and payable, and
such failure to pay continued for a period of ten (10) days or more
after written notice thereof from Payee;
(ii) The failure of Maker to provide timely financial information or
certification as required by Section 5 if such failure continues for
a period of thirty (30) days or more after such information or
certification is due and Payee has made a written demand upon Maker
for the same; or
(iii) A determination by Payee from time to time that a substantial
or materially adverse change in the financial condition of Maker has
occurred, whereupon default may be declared immediately without
notice or opportunity to cure by Maker.
SECTION 7. REMEDIES.
Upon the occurrence of an Event of Default and at any time thereafter
during the continuance of such Event of Default hereunder. Payee
shall have the right to declare the entire unpaid amount of principal
and interest hereunder immediately due and payable in full without
presentation, demand or protest, each of which is hereby waived by
Maker.
SECTION 8. WAIVERS.
Section 8.1 The failure by Payee to exercise any right or remedy
available hereunder in the Event of Default shall in no event be
construed as a waiver or release of the same. Likewise, Payee shall,
by any act or omission or commission, be deemed to waive any right
hereunder unless such waiver is evidenced in writing and signed by
Payee, and then only to the extent specifically set forth in such
writing. Moreover, a waiver with respect to any one event shall not
be construed as continuing or as a bar to or waiver of Payee's rights
or remedies with respect to any subsequent event.
2
<PAGE> 3
SECTION 8.2 Maker expressly waives presentment for payment, notice
of dishonor, protest, notice of protest, diligence of collection,
and each other notice of any kind, and hereby consents to any number
of renewals or extensions of time for payment hereof, which renewals
and extensions shall not affect the liability of Maker.
SECTION 8.3 Maker hereby waives and releases all errors, defects and
imperfections in any proceeding instituted by Payee under the terms
hereof as well as all benefits that might accrue to Maker by virtue
of any present or future laws exempting any property, real,
personal or mixed, or any part of the proceeds arising from any
sale of such property, from attachment, levy or sale under
execution, or providing for any stay of execution, exemption from
civil process, or extension of time for payment; and Maker agrees
that any real estate that may be levied upon pursuant to a judgment
obtained by virtue hereof, or any writ of execution issued thereon,
may be sold upon any such writ in whole or in part or in any other
manner desired by Payee.
SECTION 9. NOTICES.
Each notice required to be given to any party hereunder shall be in
writing and shall be deemed to have been sufficiently given for all
purposes when sent by certified or registered mail, return receipt
requested, to the party at its respective address as follows:
Maker: Crown Media, Inc.
6430 S. Fiddlers Green Circle
Englewood, Colorado 80111
Attn: Mike Conger
Payee: HC Crown Corporation
103 Foulk Road, Suite 214
Wilmington, DE 19803
Attn: David C. Eppes,
Vice President and Controller
SECTION 10. ASSIGNABILITY.
SECTION 10.1 This Agreement shall be binding upon and inure to the
benefit of Maker and Payee and their respective successors and
assigns; provided, however, that this Agreement, or any portion
thereof, may not be assigned by Maker without the written consent of
Payee, which consent shall not be unreasonably withheld.
SECTION 10.2 In order to accomplish the intent and purpose of
Section 10.1, the terms "Maker" and "Payee" shall include, as
applicable, each respective successor and assign of each.
SECTION 11. MODIFICATIONS.
This Note may be modified only by means of an agreement in writing
signed by Maker and Payee.
SECTION 12. GOVERNING LAW.
This Note shall be governed by and construed according to the laws
of the State of Delaware without regard to the conflict of laws provisions
thereof.
3
<PAGE> 4
Section 13. HEADINGS.
The heading preceding the text of each Section hereof is inserted
solely for convenience of reference and shall not constitute a part of this
Note, nor shall the same affect the meaning, construction of effect hereof.
Section 14. SEVERABILITY.
If any provision of this Note or the application thereof is declared
by a court of competent jurisdiction to be invalid or unenforceable, the
remaining provision hereof shall be unaffected and remain valid and enforceable
to the fullest extent permitted by law.
[SIGNATURE ONLY TO FOLLOW]
IN WITNESS WHEREOF, the undersigned officer of Maker has executed
this Note as of the day and year first above written intending such act to be
the act and deed of Maker and thereby legally binding Maker to the terms hereof.
CROWN MEDIA, INC.
By /s/ WILLIAM J. ALIBER
----------------------------
Name: William J. Aliber
-------------------------
Title: CFO
------------------------
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm), with respect to the financial statements of
Crown Media, Inc. and its subsidiaries, included in or made part of this
Amendment No. 1 to Registration Statement.
/s/ ARTHUR ANDERSEN LLP
Denver, Colorado
March 9, 2000
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EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm), with respect to the financial statements of
Odyssey Holdings, L.L.C. and its subsidiaries, included in or made part of this
Amendment No. 1 to Registration Statement.
/s/ ARTHUR ANDERSEN LLP
Los Angeles, California
March 9, 2000
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EXHIBIT 99.3
CONSENT OF DONALD J. HALL, JR.
The undersigned hereby consents to the inclusion of his name in the
Prospectus constituting a part of this Registration Statement on Form S-1 as a
person to become a director of Crown Media Holdings, Inc. upon consummation of
its initial public offering of Class A common stock, par value $.01 per share.
Signature: /s/ Donald J. Hall, Jr.
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Donald J. Hall, Jr.
Dated: March 9, 2000
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EXHIBIT 99.4
CONSENT OF DAVID B. KOFF
The undersigned hereby consents to the inclusion of his name in the
Prospectus constituting a part of this Registration Statement on Form S-1 as a
person to become a director of Crown Media Holdings, Inc. upon consummation of
its initial public offering of Class A common stock, par value $.01 per share.
Signature: /s/ David B. Koff
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David B. Koff
Dated: March 9, 2000
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EXHIBIT 99.5
CONSENT OF JOHN P. MASCOTTE
The undersigned hereby consents to the inclusion of his name in the
Prospectus constituting a part of this Registration Statement on Form S-1 as a
person to become a director of Crown Media Holdings, Inc. upon consummation of
its initial public offering of Class A common stock, par value $.01 per share.
Signature: /s/ John P. Mascotte
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John P. Mascotte
Dated: March 9, 2000
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EXHIBIT 99.6
CONSENT OF WILLIAM M. HABER
The undersigned hereby consents to the inclusion of his name in the
Prospectus constituting a part of this Registration Statement on Form S-1 as a
person to become a director of Crown Media Holdings, Inc. upon consummation of
its initial public offering of Class A common stock, par value $.01 per share.
Signature: /s/ William M. Haber
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William M. Haber
Dated: March 9, 2000
