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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
INTERACTIVE NETWORK, INC.
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(Name of Issuer)
COMMON STOCK, NO PAR VALUE
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(Title of Class of Securities)
45837P 108
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(CUSIP Number)
MARILYN J. WASSER, ESQ.
VICE PRESIDENT -- LAW AND SECRETARY
AT&T CORP.
295 NORTH MAPLE AVENUE
BASKING RIDGE, N.J. 07920
(908) 221-2000
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(Name, Address and Telephone Number of Person
Authorized
to Receive Notices and Communications)
MARCH 9, 1999
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(Date of Event Which Requires Filing of This Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition that is the subject of this Schedule 13D, and is filing this
schedule because of sections 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check
the following box: [ ].
Page 1 of 14 Pages
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SCHEDULE 13D
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CUSIP NO. 45837P108 Page 2 of 14 Pages
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1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
AT&T CORP.
I.R.S. IDENTIFICATION NO. 13-4924710
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
(b) [ ]
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3 SEC USE ONLY [ ]
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4 SOURCE OF FUNDS
WC; OO
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
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6 CITIZENSHIP OR PLACE ORGANIZATION
NEW YORK
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7 SOLE VOTING POWER
NUMBER OF 4,830,908
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SHARES 8 SHARED VOTING POWER
-0-
BENEFICIALLY -------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
OWNED BY EACH 4,830,908
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REPORTING PERSON 10 SHARED DISPOSITIVE POWER
-0-
WITH
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON*
4,830,908
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [X]
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
15.7%
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14 TYPE OF REPORTING PERSON
CO
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* Excludes 108,696 shares of Issuer Common Stock issuable upon the exercise of
warrants beneficially owned by AT&T (See Item 3 hereof) and shares of Issuer
Common Stock to be issued in exchange for $10,008,216.80 principal amount of
Notes (as defined in Item 3 hereof) of the Issuer beneficially owned by AT&T,
together with $4,706,318.53 of accrued and unpaid interest thereon, pursuant to
the terms of the Settlement Agreement (as defined in Item 6 hereof) (See Item 6
hereof). The consummation of the Settlement Agreement is subject to the entry of
the Final Order (as defined in Item 6 hereof) by the United States Bankruptcy
Court for the Northern District of California (See Item 6 hereof). If the
Settlement Agreement is not consummated, the Notes would remain convertible into
shares of Issuer Common Stock pursuant to the terms of the Note Conversion
Agreement (as defined in Item 3 hereof) and the Note Purchase Agreement (as
defined in Item 3 hereof).
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ITEM 1. SECURITY AND ISSUER.
This Statement on Schedule 13D (this "Schedule 13D") relates to
shares of Common Stock, no par value (the "Common Stock"), of Interactive
Network, Inc., a California corporation (the "Issuer"). The Issuer's principal
executive offices are located at 1161 Old County Road, San Jose, California
94002.
ITEM 2. IDENTITY AND BACKGROUND.
This Schedule 13D is being filed by AT&T Corp., a New York
corporation ("AT&T"). AT&T is among the world's communications leaders,
providing voice, data and video telecommunications services to large and small
businesses, consumers and government entities. AT&T and its subsidiaries furnish
regional, domestic, international, local and Internet communication transmission
services, including cellular telephone and other wireless services, and cable
television services. The principal executive offices of AT&T are located at 32
Avenue of the Americas, New York, New York 10013-2412.
The name, business address, present principal occupation or
employment and citizenship of each director and executive officer of AT&T are
set forth in Schedule I hereto and are incorporated herein by reference.
During the last five years, neither AT&T, nor, to the knowledge of
AT&T, any of the persons listed on Schedule I hereto (i) has been convicted in a
criminal proceeding (excluding traffic violations or similar misdemeanors), or
(ii) has been a party to a civil proceeding of a judicial or administrative body
of competent jurisdiction and as a result of such proceeding was or is subject
to a judgment, decree or final order enjoining future violations of, or
prohibiting or mandating activities subject to, federal or state securities laws
or finding any violation with respect to such laws.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
AT&T succeeded to the beneficial ownership of the shares of Common
Stock and other securities of the Issuer reported herein as a result of the
merger (the "Merger") of Italy Merger Corp., a wholly owned subsidiary of AT&T,
with and into Tele-Communications, Inc. ("TCI"). TCI had previously filed a
Statement on Schedule 13D reporting beneficial ownership of such shares of
Common Stock and other securities of the Issuer, which at that time were
attributed to TCI's TCI Group.
In the Merger, among other things, (i) TCI became a wholly owned
subsidiary of AT&T, (ii) the businesses and assets of TCI's Liberty Media Group
and TCI's TCI Ventures Group were combined and (iii) the holders of TCI's TCI
Group common stock received in exchange for their shares common stock of AT&T
and the holders of TCI's Liberty Media Group common stock and TCI's TCI Ventures
Group common stock received in exchange for their shares a new class of common
stock of AT&T intended to reflect the results of the combined
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Liberty Media Group and TCI Ventures Group. In connection with the Merger,
certain assets were transferred (the "Asset Transfers") from the TCI Ventures
Group to the TCI Group in exchange for $5.461 billion in cash. AT&T provided a
$5.461 billion inter-company loan to TCI to fund the payment in connection with
the Asset Transfers. AT&T obtained the $5.461 billion used to make the
inter-company loan to TCI from its working capital.
The foregoing summary is qualified in its entirety by reference to
the text of the Agreement and Plan of Restructuring and Merger, dated as of June
23, 1998, among AT&T, Italy Merger Corp. and TCI and the description of the
Merger and the related transactions set forth in the AT&T/TCI Proxy
Statement/Prospectus (the "AT&T/TCI Proxy Statement/Prospectus") that forms a
part of the Registration Statement on Form S-4 (File No. 333-70279) of AT&T
filed on January 8, 1999, each of which are filed as Exhibits hereto and are
hereby incorporated by reference herein in their entirety. All capitalized terms
used in the foregoing summary but not defined herein shall have the meanings
given to them in the AT&T/TCI Proxy Statement/Prospectus.
TCI acquired the shares of Common Stock and other securities of
the Issuer reported herein now beneficially owned by AT&T as follows.
Prior to 1993, subsidiaries of TCI purchased Common Stock at
various times in amounts which in the aggregate did not exceed 5% of the Common
Stock then outstanding. These purchases were conducted in privately negotiated
transactions. In a series of broker transactions that occurred in late April
through mid-May of 1993, TCI Development Corporation, a Delaware corporation and
a wholly-owned subsidiary of TCI ("TCID") (as of March 5, 1999, TCI Development,
LLC, a Delaware limited liability company became the successor in interest to
TCID), purchased a total of 581,620 shares of Common Stock, at which time TCI's
beneficial ownership increased to approximately 9.0% of the Common Stock then
outstanding.
In June 1993, the Issuer, David B. Lockton and TCID entered into
an Amended and Restated Stock Purchase Agreement, dated June 4, 1993 (the "TCID
Stock Purchase Agreement"), under which the Issuer agreed to sell and issue an
aggregate of 1,650,000 shares of Common Stock to TCID for an aggregate
consideration of $10,750,000 (or $6.52 per share). The shares sold pursuant to
the TCID Stock Purchase Agreement were subject to adjustment for certain future
dilutive issuances of securities by the Issuer. On June 11, 1993, 1,012,269
shares of Common Stock were issued to TCID in exchange for $6,600,000 in cash
(or $6.52 per share). The TCID Stock Purchase Agreement provided that an
additional 637,731 shares (the "Remaining Shares") would be purchased in
installments in consideration of services to be rendered to the Issuer pursuant
to an agreement (the "Services Agreement") to be negotiated between the parties.
The Services Agreement was intended to set forth the nature of the services to
be rendered, including advertising and marketing of the Issuer's programming,
and the manner of valuation thereof. TCID had the option to purchase any of the
Remaining Shares by paying the purchase price therefor in cash. The Issuer
issued 51,461 of the Remaining Shares for services provided by TCI and 197,000
of the Remaining Shares for cash in the amount of $1,284,000. Additionally,
2,307,708 shares of Common Stock were issued to TCID pursuant to
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anti-dilution provisions. The TCID Stock Purchase Agreement contemplated that,
subject to compliance with applicable securities laws, TCID could sell up to 50%
of the shares of Common Stock purchased by it under the TCID Stock Purchase
Agreement to a major cable system operator.
The summary of the terms of the TCID Stock Purchase Agreement set
forth herein is qualified in its entirety by reference to the text of the TCID
Stock Purchase Agreement, which is attached as an Exhibit hereto and is
incorporated herein by reference in its entirety.
The Issuer, TCID and National Broadcasting Company, Inc. ("NBC")
entered into a Note Conversion Agreement (the "Note Conversion Agreement"),
dated as of April 22, 1994, pursuant to which TCID purchased a $1,250,000
promissory note (the "Convertible Promissory Note") convertible into Common
Stock from time to time at the option of TCID.
The foregoing summary of the terms of the Note Conversion
Agreement is qualified in its entirety by reference to the text of the Note
Conversion Agreement, which is attached as an Exhibit hereto and is incorporated
herein by reference in its entirety.
The Issuer and TCI Programming Holding Company III, a wholly owned
subsidiary of TCI ("TCI Programming"), NBC, Motorola, Inc. ("Motorola"), and
Sprint Corporation ("Sprint") (collectively, the "Note Purchasers") entered into
a Note Purchase Agreement effective as of September 19, 1994, as amended by a
letter agreement dated as of September 23, 1994 (the "Note Purchase Agreement"),
under which the Note Purchasers agreed to purchase Senior Secured Convertible
Notes (the "Senior Convertible Notes") issued by the Issuer in the aggregate
principal amount of $24,012,725.33. TCI purchased an aggregate of $8,758,217 of
Senior Convertible Notes (such Senior Convertible Notes, together with the
Convertible Promissory Note, the "Notes") for $5,966,000 in cash and by
canceling $2,750,000 principal amount of certain notes that had been issued to
TCI by the Issuer.
The Senior Convertible Notes accrue interest at 12% per annum
(payable quarterly in additional debt instruments having the same terms as the
Senior Convertible Notes), are convertible into shares of Common Stock pursuant
to a formula set forth in the Note Purchase Agreement and are secured by a first
priority lien on substantially all of the Issuer's assets. The Senior
Convertible Notes were due and payable on September 21, 1996. In connection with
the purchase and sale of the Senior Convertible Notes, the Issuer issued
warrants to the Note Purchasers (the "Note Purchase Warrants") to purchase until
September 23, 1999 an aggregate of 274,457 shares of Common Stock at a price of
$8.00 per share, subject to adjustment. TCI Programming was issued Note Purchase
Warrants for 108,696 shares of Common Stock.
In connection with the Note Purchase Agreement, the Issuer agreed
to enter into an agreement with TCI, pursuant to which the Issuer would have
issued to TCI warrants to purchase up to 10% of the Issuer's outstanding Common
Stock (the "TCI Promotion Warrants"). The TCI Promotion Warrants were to become
exercisable based on the level of promotion of the interactive nature of sports
programming produced and distributed by certain subsidiaries of TCI.
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The foregoing summary of the terms of the Note Purchase Agreement
is qualified in its entirety by reference to the text of the Note Purchase
Agreement, which is attached as an Exhibit hereto and is incorporated herein by
reference in its entirety.
ITEM 4. PURPOSE OF THE TRANSACTION.
AT&T currently holds its interest in the Issuer for investment
purposes. Except as otherwise set forth herein, neither AT&T nor, to the best of
its knowledge, any of its executive officers, directors or controlling persons
has any current plan or proposal which relates to or would result in: (i) any
acquisition by any person of additional securities of the Issuer, or any
disposition of securities of the Issuer; (ii) any extraordinary corporate
transaction, such as a merger, reorganization or liquidation, involving the
Issuer or any of its subsidiaries; (iii) any sale or transfer of a material
amount of assets of the Issuer or any of its subsidiaries; (iv) any change in
the present board of directors or management of the Issuer, including any plans
or proposals to change the number or term of directors or to fill any existing
vacancies on the board; (v) any material change in the present capitalization or
dividend policy of the Issuer; (vi) any other material change in the Issuer's
business or corporate structure; (vii) any changes in the Issuer's charter,
by-laws, or other instruments corresponding thereto or other actions which may
impede the acquisition of control of the Issuer by any person; (viii) any
delisting from a national securities exchange or any loss of authorization for
quotation in an inter-dealer quotation system of a registered national
securities association of a class of securities of the Issuer; (ix) any
termination of registration pursuant to section 12(g)(4) of the Exchange Act of
a class of equity securities of the Issuer; or (x) any action similar to any of
those enumerated above.
Notwithstanding the foregoing, AT&T may determine to change its
investment intent with respect to the Issuer at any time in the future. In
reaching any conclusion as to its future course of action, AT&T will take into
consideration various factors, such as the Issuer's business and prospects,
other developments concerning the Issuer, other business opportunities available
to AT&T, developments with respect to the business of AT&T, and general economic
and stock market conditions, including, but not limited to, the market price of
the Common Stock of the Issuer. AT&T reserves the right, based on all relevant
factors, to acquire additional shares of the Common Stock of Issuer in the open
market or in privately negotiated transactions, to dispose of all or a portion
of its holdings of shares of the Common Stock of the Issuer, or to change its
intention with respect to any or all of the matters referred to in this Item.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
(a) AT&T presently beneficially owns 4,830,908 shares of Common
Stock, which shares represent 15.7% of the 30,840,441 shares of Common Stock
outstanding as of December 31, 1998. AT&T also beneficially owns $10,008,216.80
in principal amount of Notes. Such Notes, together with $4,706,318.53 of
interest accrued and unpaid thereon, are, pursuant to the terms of the
Settlement Agreement, exchangeable for shares of Common Stock (See Item 6
hereof). If the Settlement Agreement is not consummated, the Notes would remain
convertible into shares of Common Stock pursuant to the terms of the Note
Conversion Agreement and the
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Note Purchase Agreement. In addition, AT&T beneficially owns Note Purchase
Warrants for 108,696 shares of Common Stock. To the knowledge of AT&T, none of
the persons listed on Schedule I hereto beneficially owns any shares of Common
Stock or other securities of the Issuer other than as set forth herein or as
listed on Schedule I hereto.
(b) AT&T has sole power to vote or to direct the voting of the
shares of Common Stock that AT&T beneficially owns and sole power to dispose of,
or to direct the disposition of, such shares of Common Stock.
(c) Except as otherwise set forth herein, neither AT&T nor, to the
knowledge of AT&T, any of the persons listed on Schedule I hereto, has executed
transactions in the Common Stock of the Issuer during the past sixty (60) days.
(d) There is no person that has the right to receive or the power
to direct the receipt of dividends from, or the proceeds from the sale of, the
Common Stock beneficially owned by AT&T.
(e) Not applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH
RESPECT TO SECURITIES OF THE ISSUER.
In August 1995, the Issuer commenced litigation (the "Litigation")
against TCI, TCI Communications, Inc., TCID, TCI Programming, TCI Cablevision of
California, Inc., and Gary S. Howard (collectively, the "TCI Parties"). The
Issuer alleged that the TCI Parties had sought to acquire the Issuer's
intellectual property by obtaining liens on the intellectual property through
the secured loans made by them, refusing to honor purported commitments to make
further loans and then seeking to foreclose on the Issuer's intellectual
property when the Issuer could not sustain its business without additional
funds. The TCI Parties denied vigorously the Issuer's allegations and
counterclaimed to foreclose their liens through the Litigation.
On July 10, 1998, the Issuer and the TCI Parties, NBC, Sprint, and
Motorola (collectively, the "Settling Parties") entered into an agreement (the
"Settlement Agreement") whereby the Issuer agreed to file a petition under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the
Northern District of California (the "Bankruptcy Court"). The filing was made on
September 14, 1998 (the "Petition Date"). Under the terms of the Settlement
Agreement, upon entry by the Bankruptcy Court of a final non-appealable order
(the "Final Order") confirming the Issuer's Plan of Reorganization (the "Plan"),
the Issuer will be paid $10 million (plus accrued interest thereon, which
approximates $325,000 at March 15, 1999) which has been held in escrow since
March 1998. An additional amount of $2.5 million (also held in escrow since
March 1998) will be paid directly to the Issuer's attorneys in respect of the
Issuer's legal fees associated with the Litigation. In addition, security
interests in the Issuer's assets will be released and the Issuer will release
the Settling Parties, and the Settling Parties will release the Issuer and each
other, with respect to all claims relating to or arising out of any matter,
conduct, transaction or activity involving the Issuer and the Settling Parties
up until the date of the Settlement Agreement, including but not limited to such
matters, conduct,
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transactions and/or activities related to the Litigation.
The Plan was filed on December 22, 1998 and the First Amendment to
the Plan was filed on February 18, 1999.
The Settlement Agreement provides that, immediately following the
entry of the Final Order, each of TCI, NBC, Sprint and Motorola (each a
"Holder") and the Issuer will enter into a mutually acceptable exchange
agreement pursuant to which each Holder will exchange all of the notes of the
issuer held by such Holder (and TCI will exchange the Notes) for newly issued
shares of Common Stock (the "Exchange Shares"). The number of Exchange Shares to
be received by each Holder will be equal to (x) the aggregate principal amount
of the notes of the Issuer to be exchanged, together with all interest accrued
and unpaid thereon, divided by (y) an amount up to $5.00 to be determined by the
Issuer's board of directors. The Settlement Agreement further provides that upon
such exchange each Holder and the Issuer will enter into a voting agreement
which will have a term of 4 years (unless earlier terminated pursuant to its
terms). Such voting agreement will provide that the Holder will vote its
Exchange Shares as directed by a committee of three independent persons which
shall make its decisions by majority vote; provided that each Holder will be
able to vote its Exchange Shares in its sole discretion on certain matters,
including matters regarding David B. Lockton, matters regarding the liquidation
or dissolution of the Issuer and matters regarding the sale of the Issuer or the
declaration or payment of dividends or other distributions. Such committee will
initially consist of Bruce Bauer, John Bohrer and Donald Graham, each of whom
currently serves on the Issuer's board of directors.
The foregoing summary of the terms of the Settlement Agreement is
qualified in its entirety by reference to the text of the Settlement Agreement,
which is attached as an Exhibit hereto and is incorporated herein by reference
in its entirety.
Pursuant to the TCID Stock Purchase Agreement, TCID was granted
the right to cause the Issuer to include one person designated by TCID in the
slate of nominees recommended by the Issuer's board of directors or management
for election as a director at each annual meeting of shareholders. Under the
terms of the TCID Stock Purchase Agreement, the Issuer is obligated to use its
best efforts to cause all shares for which the Issuer's management hold proxies
to be voted in favor of the election of such designee.
Pursuant to the TCID Stock Purchase Agreement, the Issuer granted
TCID a right of first refusal, with an expiration date of June 11, 2003, to
purchase up to 25% of certain newly issued securities. TCID was also granted a
right of first refusal to purchase shares of Common Stock held by David B.
Lockton, subject to certain prior rights.
Concurrently with the execution and delivery of the Note Purchase
Agreement, the Issuer, the Note Purchasers and TCID entered into an agreement
(the "Securityholders Agreement") pursuant to which the Issuer agreed that, so
long as each of Motorola and Sprint owned at least 500,000 shares of Common
Stock (assuming conversion of convertible securities and as adjusted for stock
splits and the like), Motorola and Sprint would each have the right to
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designate one representative to the board of directors of the Issuer. The Issuer
agreed to use its best efforts to cause all voting stock for which the Issuer's
management or directors hold proxies to be voted in favor of the election to the
Issuer's board of directors of the persons designated by Motorola and Sprint (as
well as designees of TCID, under the TCID Stock Purchase Agreement, and NBC,
under a separate agreement). In furtherance of the foregoing, if any election of
directors is by cumulative voting, each Note Purchaser and TCID may determine in
its sole discretion whether the number of votes attributable to its shares is in
excess of those needed to elect its designee to the board of directors, and if
there are any such excess votes, such Note Purchaser or TCID may consult with
the other Note Purchasers, TCID and the Issuer and may cast such excess votes in
favor of the other designees in such proportion as such Note Purchaser or TCID
reasonably determined would best serve the purposes of such voting arrangement.
The foregoing summary of the terms of the Securityholders
Agreement is qualified in its entirety by reference to the text of the
Securityholders Agreement, which is attached as an Exhibit hereto and is
incorporated herein by reference in its entirety.
The Issuer, the Note Purchasers and TCID entered into a
Registration Rights Agreement, dated as of September 23, 1994 (the "Registration
Rights Agreement"), pursuant to which the Note Purchasers and TCID are entitled
to require the Issuer to register under the Securities Act of 1933, as amended,
the shares of Common Stock issuable upon conversion of the Senior Convertible
Notes and upon exercise of the Note Purchase Warrants or pursuant to the
anti-dilution provisions of the Note Purchase Agreement or the Certificate of
Determination (the form of which is attached as Exhibit M to the Note Purchase
Agreement), as well as certain shares of Common Stock issued to TCID and NBC
pursuant to pre-existing agreements with the Issuer. Each of the Note
Purchasers, acting alone, could require the Issuer to effect a registration of
shares of Common Stock owned by such Note Purchaser, subject to certain
conditions. The Note Purchasers are also entitled to include such shares of
Common Stock in registrations by the Issuer of shares of Common Stock for its
own account or for other shareholders.
The foregoing summary of the terms of the Registration Rights
Agreement is qualified in its entirety by reference to the text of the
Registration Rights Agreement, which is attached as an Exhibit hereto and is
incorporated herein by reference in its entirety.
Except as set forth in this Schedule 13D, to the knowledge of
AT&T, there are no other contracts, arrangements, understandings or
relationships (legal or otherwise) among the persons named in Item 2 or listed
on Schedule I hereto, and between such persons and any person with respect to
any securities of the Issuer, including but not limited to, transfer or voting
of any of the securities of the Issuer, joint ventures, loan or option
arrangements, puts or calls, guarantees or profits, division of profits or loss,
or the giving or withholding of proxies, or a pledge or contingency the
occurrence of which would give another person voting power over the securities
of the Issuer.
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ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
1. Agreement and Plan of Restructuring and Merger, dated as of June 23,
1998, among AT&T, Italy Merger Corp. and TCI (incorporated by reference
to Appendix A to the AT&T/TCI Proxy Statement/Prospectus that forms a
part of the Registration Statement on Form S-4 of AT&T (File No.
333-70279) filed on January 8, 1999 (the "AT&T Registration
Statement")).
2. AT&T/TCI Proxy Statement/Prospectus (incorporated by reference to the
AT&T Registration Statement).
3. Amended and Restated Stock Purchase Agreement, dated as of June 4, 1993,
among the Issuer, TCID, TCI Communications, Inc. ("TCIC") and David B.
Lockton.
4. Note Purchase Agreement, dated as of September 19, 1994, as amended by a
letter agreement dated as of September 23, 1994, among the Issuer and
the Note Purchasers (incorporated by reference to Exhibit (J) to Item 7
of Amendment No. 1 to Statement on Schedule 13D which was filed by TCI
on September 28, 1994).
5. Securityholders Agreement, dated as of September 19, 1994, among the
Issuer, the Note Purchasers, and TCID (incorporated by reference to
Exhibit (L) to Item 7 of Amendment No. 1 to Statement on Schedule 13D
which was filed by TCI on September 28, 1994).
6. Form of Common Stock Purchase Warrant (incorporated by reference to
Exhibit 10.52 to the Issuer's Report on Form 8-K filed on October 3,
1994).
7. Note Conversion Agreement, dated April 22, 1994, among the Issuer, TCID
and NBC (incorporated by reference to Exhibit (g) to Item 7 of Amendment
No. 4 to Statement on Schedule 13D which was filed by TCIC on May 4,
1994).
8. Registration Rights Agreement, dated as of September 23, 1994, by and
among the Issuer, TCID, TCI Programming, NBC, Motorola, and Sprint
(incorporated by reference to Exhibit 10.53 to the Issuer's Report on
Form 8-K filed on October 3, 1994).
9. Mutual Release and Settlement Agreement, dated as of July 10, 1998,
among the Issuer and TCI, TCIC, TCID, TCI Programming, TCI Cablevision
of California, Inc., Gary S. Howard, Sprint, NBC and Motorola
(incorporated by reference to Exhibit A to the Plan of Reorganization of
the Issuer filed as Exhibit 1.1 to the Issuer's Report on Form 8-K filed
on December 24, 1998).
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SIGNATURES
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
Dated: April 8, 1999
AT&T CORP.
By: /s/ Robert S. Feit
--------------------------
Name: Robert S. Feit
Title: Authorized Signatory
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SCHEDULE I
----------
The name and present principal occupation of each director and
executive officer of AT&T Corp. are set forth below. The business address for
each person listed below is c/o AT&T Corp., 295 North Maple Avenue, Basking
Ridge, New Jersey 07920. All executive officers and directors listed on this
Schedule I are United States citizens.
Name Title
- ---- -----
C. Michael Armstrong Chairman of the Board and Chief Executive Officer
and Director
Kenneth T. Derr Director; Chief Executive Officer of Chevron
Corporation
M. Kathryn Eickhoff Director; President of Eickhoff Economics, Inc.
Walter Y. Elisha Director; Chairman and Chief Executive Officer of
Springs Industries, Inc.
George M. C. Fisher Director; Chairman and Chief Executive Officer of
Eastman Kodak Company
Donald V. Fites Director; Chairman and Chief Executive Officer of
Caterpillar, Inc.
Ralph S. Larsen Director; Chairman and Chief Executive Officer of
Johnson & Johnson
John C. Malone Director; Chairman of the Board, Liberty Media
Corporation
Donald F. McHenry Director; President of IRC Group
Michael I. Sovern Director; President Emeritus and Chancellor Kent
Professor of Law at Columbia University
Sanford I. Weill Director; Chairman and Co-CEO Citigroup Inc.
Thomas H. Wyman Director; Senior Advisor of SBC Warburg, Inc.
John D. Zeglis President and Director
Harold W. Burlingame Executive Vice President-Merger & Joint Venture
Integration
James Cicconi Executive Vice President-Law & Governmental Affairs
and General Counsel
Mirian Graddick Executive Vice President, Human Resources
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Daniel R. Hesse Executive Vice President and President & CEO-AT&T
Wireless Services
Leo J. Hindery, Jr. President and Chief Executive Officer, AT&T
Broadband and Internet Services
Frank Ianna Executive Vice President and President, AT&T
Network Services
Michael G. Keith Executive Vice President and President, AT&T
Business Services
H. Eugene Lockhart Executive Vice President, Chief Marketing Officer
Richard J. Martin Executive Vice President, Public Relations and
Employee Communication
David C. Nagel President, AT&T Labs & Chief Technology Officer
John C. Petrillo Executive Vice President, Corporate Strategy and
Business Development
Richard Roscitt Executive Vice President and President & CEO,
AT&T Solutions
D.H. Schulman Executive Vice President and President, AT&T
Consumer Long Distance and Segment Marketing
Daniel E. Somers Senior Executive Vice President and Chief Financial
Officer
13 of 14
<PAGE>
INDEX OF EXHIBITS
-----------------
1. Agreement and Plan of Restructuring and Merger, dated as of June
23, 1998, among AT&T, Italy Merger Corp. and TCI (incorporated by
reference to Appendix A to the AT&T/TCI Proxy Statement/Prospectus
that forms a part of the Registration Statement on Form S-4 of
AT&T (File No. 333-70279) filed on January 8, 1999 (the "AT&T
Registration Statement")).
2. AT&T/TCI Proxy Statement/Prospectus (incorporated by reference to
the AT&T Registration Statement).
3. Amended and Restated Stock Purchase Agreement, dated as of June 4,
1993, among the Issuer, TCID, TCI Communications, Inc. ("TCIC")
and David B. Lockton.
4. Note Purchase Agreement, dated as of September 19, 1994, as
amended by a letter agreement dated as of September 23, 1994,
among the Issuer and the Note Purchasers (incorporated by
reference to Exhibit (J) to Item 7 of Amendment No. 1 to Statement
on Schedule 13D which was filed by TCI on September 28, 1994).
5. Securityholders Agreement, dated as of September 19, 1994, among
the Issuer, the Note Purchasers, and TCID (incorporated by
reference to Exhibit (L) to Item 7 of Amendment No. 1 to Statement
on Schedule 13D which was filed by TCI on September 28, 1994).
6. Form of Common Stock Purchase Warrant (incorporated by reference
to Exhibit 10.52 to the Issuer's Report on Form 8-K filed on
October 3, 1994).
7. Note Conversion Agreement, dated April 22, 1994, among the Issuer,
TCID and NBC (incorporated by reference to Exhibit (g) to Item 7
of Amendment No. 4 to Statement on Schedule 13D which was filed by
TCIC on May 4, 1994).
8. Registration Rights Agreement, dated as of September 23, 1994, by
and among the Issuer, TCID, TCI Programming, NBC, Motorola, and
Sprint (incorporated by reference to Exhibit 10.53 to the Issuer's
Report on Form 8-K filed on October 3, 1994).
9. Mutual Release and Settlement Agreement, dated as of July 10,
1998, among the Issuer and TCI, TCIC, TCID, TCI Programming, TCI
Cablevision of California, Inc., Gary S. Howard, Sprint, NBC and
Motorola (incorporated by reference to Exhibit A to the Plan of
Reorganization of the Issuer filed as Exhibit 1.1 to the Issuer's
Report on Form 8-K filed on December 24, 1998).
14 of 14
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INTERACTIVE NETWORK, INC.
AMENDED AND RESTATED STOCK PURCHASE AGREEMENT
June 4, 1993
------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
Section 1. Purchase and Sale of Common Stock............................ 1
1.1 Purchase and Sale of Shares.................................. 1
1.2 Payment of Purchase Price.................................... 1
1.3 Services Agreement........................................... 1
Section 2. Closings; Delivery............................................. 2
2.1 Initial Closing................................................ 2
2.2 Delivery....................................................... 2
2.3 Subsequent Closings............................................ 2
2.4 Remaining Shares Issued Upon Exercise of Cash-Out Option....... 3
Section 3. Representations and Warranties of the Company.................. 3
3.1 Organization and Standing; Certificate and Bylaws.............. 3
3.2 Corporate Power; Capacity...................................... 4
3.3 Subsidiaries................................................... 4
3.4 Capitalization................................................. 4
3.5 Authorization.................................................. 5
3.6 Validity of Stock.............................................. 5
3.7 Financial Statements........................................... 5
3.8 Changes........................................................ 6
3.9 Title to Properties and Assets; Liens, etc..................... 7
3.10 Compliance with Other Instruments; None Burdensome, etc........ 7
3.11 Litigation; Permits, Licenses and Franchises................... 8
3.12 Employees...................................................... 8
3.13 Intellectual Property.......................................... 9
3.14 Governmental Consent, etc...................................... 11
3.15 Related-Party Transactions..................................... 11
3.16 Insurance...................................................... 12
3.17 Offering....................................................... 12
3.18 Brokers or Finders; Other Offers............................... 12
3.19 Disclosure..................................................... 12
3.20 Hart-Scott-Rodino Act.......................................... 12
Section 4. Representations and Warranties of TDC.......................... 13
4.1 Investment..................................................... 13
4.2 Access to Data................................................. 13
4.3 Corporate Power; Authorization................................. 13
4.4 Brokers or Finders; Other Offers............................... 14
<PAGE>
TABLE OF CONTENTS (continued)
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Page
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Section 5. Conditions to Initial Closing of TDC........................... 14
5.1 Representations and Warranties Correct......................... 14
5.2 Covenants...................................................... 14
5.3 Compliance Certificate......................................... 14
5.4 Waivers of Right of First Refusal; Consents.................... 14
5.5 Conversion of Bridge Notes..................................... 14
5.6 Letter of Intent............................................... 14
5.7 Opinions of Company's Counsel.................................. 14
5.8 Legal Matters.................................................. 15
Section 6. Conditions to Initial Closing of Company....................... 15
6.1 Representations and Warranties Correct......................... 15
6.2 Waivers of Right of First Refusal.............................. 15
6.3 Conversion of Bridge Notes..................................... 15
6.4 Letter of Intent............................................... 15
Section 7. Conditions to Subsequent Closings.............................. 15
7.1 Conditions of TDC.............................................. 15
7.2 Conditions of the Company...................................... 17
7.3 Failure of Conditions to Subsequent Closing.................... 17
Section 8. Affirmative Covenants of the Company and TDC................... 17
8.1 Board of Directors Representation by TDC....................... 17
8.2 Standstill Provisions.......................................... 18
8.3 Insurance...................................................... 19
8.4 Executive Position............................................. 19
8.5 Confidentiality of Information................................. 19
8.6 Preferred Stock................................................ 20
8.7 Maintenance of Intellectual Property........................... 20
8.8 Hart-Scott-Rodino Act.......................................... 21
Section 9. Registration Rights............................................ 22
Section 10. TDC's Right of First Refusal; Conversion; Anti-Dilution........ 22
10.1 Rights of First Refusal........................................ 22
10.2 Right of First Refusal on Transfers by Lockton................. 23
10.3 Conversion upon Reorganization, Mergers, Consolidations, or Sales
of Assets................................................ 24
10.4 Anti-Dilution................................................. 24
Section 11. Miscellaneous................................................. 25
11.1 Survival...................................................... 25
11.2 Successors and Assigns........................................ 25
11.3 Notices, etc.................................................. 25
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<PAGE>
TABLE OF CONTENTS (continued)
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Page
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11.4 Delays or Omissions........................................... 26
11.5 Expenses...................................................... 26
11.6 Counterparts.................................................. 26
11.7 Severability.................................................. 26
11.8 Titles and Subtitles.......................................... 26
11.9 Entire Agreement; Amendment................................... 26
11.10 Governing Law................................................. 26
11.11 California Corporate Securities Law........................... 27
11.12 Legend on Share Certificates.................................. 27
-iii-
<PAGE>
AMENDED AND RESTATED STOCK PURCHASE
AGREEMENT
This Amended and Restated Stock Purchase Agreement (the
"Agreement") amends and restates in its entirety the Stock Purchase Agreement
made as of June 4, 1993 by and between Interactive Network, Inc., a California
corporation (the "Company") and TCI Development Corporation, Inc., a Delaware
corporation ("TDC"), which is a wholly-owned subsidiary of TeleCommunications,
Inc., a Delaware corporation ("TCI"), and David B. Lockton ("Lockton").
SECTION 1.
PURCHASE AND SALE OF COMMON STOCK
---------------------------------
1.1 PURCHASE AND SALE OF SHARES. Subject to the terms and
conditions hereof, the Company agrees to issue and sell to TDC, and TDC agrees
to purchase from the Company, an aggregate of 1,650,000 shares (as such amount
shall be appropriately adjusted to reflect any adjustment in the Remaining
Shares (as hereinafter defined) as a result of any stock split, reverse split,
stock dividend or other reclassification or recapitalization affecting the
capital stock of the Company, the record date of which shall occur after the
date of this Agreement) (hereinafter, together with the Initial Closing Shares
(as hereinafter defined) and the Remaining Shares, the "Shares") of the Common
Stock, no par value, of the Company (the "Common Stock"), at a purchase price of
Six Dollars and Fifty-two Cents ($6.52) per Share (without interest, but as such
per-Share amount shall be appropriately adjusted with respect to the Remaining
Shares to reflect any stock split, reverse split, stock dividend or other
reclassification or recapitalization affecting the capital stock of the Company,
the record date of which shall occur after the date of this Agreement) (the "Per
Share Purchase Price").
1.2 PAYMENT OF PURCHASE PRICE. The aggregate purchase price for
the Shares shall be $10,750,000, of which $6,600,000 shall be paid in cash (the
"Cash Consideration") at the Initial Closing (as hereinafter defined), and
$4,150,000 shall (subject to the provisions of this Agreement permitting TDC to
pay such amount in cash) be paid through the provision of services to the
Company (the "Services Consideration") pursuant to the provisions of the
Services Agreement (as hereinafter defined).
1.3 SERVICES AGREEMENT. Promptly following the Initial Closing,
the parties will proceed to negotiate the terms and conditions of an agreement
(the "Services Agreement") pursuant to which TDC will provide services (which
services may include, without limitation, advertising, marketing and
distribution of the Company's interactive programming over cable television
systems owned and operated by TCI and its affiliates) to the Company in
satisfaction of the Services Consideration; such Services Agreement will also
provide for the method of valuing the services rendered thereunder for purposes
of determining the amount of Services Consideration provided. The parties agree
to negotiate in good faith regarding the terms and conditions of the Services
Agreement for a period of 120 days following the Initial Closing; provided,
however, that in the event the parties have not executed and delivered such
agreement within such 120-day period, the parties agree to continue to negotiate
in good faith for an addi-
<PAGE>
tional period of 90 days in an effort to reach agreement on a mutually
acceptable Services Agreement; provided, further, that in the event the parties
have not executed the Services Agreement within the foregoing 210-day period,
TDC shall have the option, exercisable by the delivery of written notice thereof
to the Company (the "Exercise Notice"), to purchase the Remaining Shares by
paying to the Company in cash the amount of the Services Consideration less the
fair market value of such services as TCI and its affiliates may have rendered
in good faith to the Company during such period (the "Cash-Out Option").
SECTION 2.
CLOSINGS; DELIVERY
------------------
2.1 INITIAL CLOSING. The purchase and sale of the 1,012,269 Shares
for which the Cash Consideration is being paid (the "Initial Closing Shares")
shall take place at the offices of Graham & James, 525 University Avenue, 14th
Floor, Palo Alto, California 94301, at 10:00 a.m., local time, on June 11, 1993,
or at such other time and place mutually agreed upon by the Company and TDC (the
"Initial Closing Date"). As used herein, the term "Initial Closing" refers to
the closing of the purchase and sale of Initial Closing Shares.
2.2 DELIVERY. At the Initial Closing, the Company will deliver to
TDC a certificate registered in the name of TDC (or such other wholly-owned
subsidiary of TCI as TCI may direct) evidencing the Initial Closing Shares. At
the Initial Closing, TDC will pay the Cash Consideration specified in Section
1.2 hereof, by wire transfer of funds to Interactive Network, Inc., c/o Bank of
America, 530 Lytton Avenue, Palo Alto, California 94301, ABA No. 121000358,
Account No. 01171-11557.
2.3 SUBSEQUENT CLOSINGS. The purchase and sale of the 637,731
Shares for which the Services Consideration is to be paid (as such amount may be
appropriately adjusted to reflect any stock split, reverse split, stock dividend
or other reclassification or recapitalization affecting the capital stock of the
company, the record date of which shall occur after the date of this Agreement)
(the "Remaining Shares") shall take place in installments from time to time, but
not more frequently than once in each fiscal quarter, following the execution
and delivery of the Services Agreement, at such places and dates as the parties
shall mutually agree; provided, however, that in the event the parties do not
agree upon the date for such purchases and sales, such purchases and sales shall
take place on the fifteenth (15th) business day following the end of each fiscal
quarter of the Company. Each such purchase and sale following the Initial
Closing is hereinafter referred to as a "Subsequent Closing," and the date upon
which such Subsequent Closing occurs (or is scheduled to occur) is hereinafter
referred to as a "Subsequent Closing Date." At each Subsequent Closing, the
Company will deliver to TDC a certificate registered in the name of TDC (or such
other wholly-owned subsidiary of TCI as TCI may direct) evidencing that number
of Shares that is equal to the value of the services theretofore rendered by TCI
and its affiliates (pursuant to and as determined in accordance with the
Services Agreement) which are then unpaid, divided by the Per Share Purchase
Price (the Remaining Shares issued at each Subsequent Closing being hereinafter
referred to as the "Subsequent Closing Shares"); provided, however, that the
Company's obligation to issue Subsequent Closing Shares, and TDC's obliga-
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<PAGE>
tion to purchase such Shares and render services in payment therefor, shall
terminate at such time as the aggregate number of Subsequent Closing Shares
issued pursuant to this Section 2.3 is equal to the number of Remaining Shares.
2.4 REMAINING SHARES ISSUED UPON EXERCISE OF CASH-OUT OPTION. In
the event TDC elects to exercise the Cash-Out Option, the Company will issue the
Remaining Shares to TDC by delivering to TDC a certificate registered in the
name of TDC (or such other wholly-owned subsidiary of TCI as TCI may direct)
evidencing the Remaining Shares against receipt of the services Consideration
(as adjusted as provided in Section 1.3) paid in cash by wire transfer of funds
to an account specified by the Company. The consummation of such purchase and
sale shall take place on the fifth (5th) business day following delivery of the
Exercise Notice to the Company. For purposes of this Agreement, the purchase and
sale of the Remaining Shares pursuant to the Cash-Out Option shall be deemed to
be a "Subsequent Closing" and the date such closing takes place shall be deemed
a "Subsequent Closing Date," and the conditions set forth in Section 7 shall be
deemed applicable to the parties' obligations to consummate the purchase and
sale of Remaining Shares pursuant to the Cash-Out Option.
SECTION 3.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
The Company represents and warrants to TDC as follows:
3.1 ORGANIZATION AND STANDING; CERTIFICATE AND BYLAWS. The Company
is a corporation duly incorporated and validly existing under the laws of the
State of California and is in good standing under such laws. The Company has
requisite corporate power and authority to own and operate its properties and
assets, and to carry on the Company Business (as hereinafter defined). For
purposes of this Agreement, the term "Company Business" shall mean the Company's
business as currently conducted and as such business is proposed to be conducted
in the future, as described in the Company's Annual Report on Form 10-K for the
year ended December 31, 1992, as amended by amendments dated April 29, 1993 (a
true and complete composite copy of which has been delivered to TDC) (the Form
10-K, as so amended, is hereinafter referred to as the "Form 10-K"; provided,
however, that unless specifically referenced to the contrary, such term' shall
not be deemed to include any of the documents incorporated by reference or filed
as exhibits thereto), and, with respect to the manner in which the Company's
business is proposed to be conducted, shall be deemed to include such business
as it is to be conducted in connection with the Company's performance under the
terms of the Letter of Intent (as hereinafter defined). The company is qualified
to do business as a foreign corporation in any jurisdiction in which the
activities conducted or the properties owned or leased by the Company would
require such qualification, except where the failure to so qualify would not
have a material adverse effect on the Company. The Company has furnished TDC
with true, correct and complete copies of its Amended and Restated Articles of
Incorporation and Bylaws, and since the date of each version of the foregoing
documents so delivered there have not been any changes or additions to such
Articles of Incorporation or Bylaws.
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<PAGE>
3.2 CORPORATE POWER; CAPACITY. The Company has all requisite legal
and corporate power and authority to execute and deliver this Agreement, to sell
and issue the Shares and to carry out and perform its obligations under the
terms of this Agreement.
3.3 SUBSIDIARIES. The Company has no subsidiaries or affiliated
companies and does not otherwise own or control, directly or indirectly, any
equity or other ownership interest in any corporation, joint venture, limited
partnership, association or other business entity other than as described in the
Form 10-K.
3.4 CAPITALIZATION. The authorized capital stock of the Company as
of the Initial Closing Date will consist of: (i) 30,000,000 shares of Common
Stock, 10,091,451 shares of which will be issued and outstanding; and (ii)
2,000,000 shares of Preferred Stock, none of which will be issued and
outstanding or designated. All such issued and outstanding shares have been duly
authorized and validly issued and are fully paid and nonassessable and have been
issued in compliance with all applicable state and federal laws concerning the
issuance of securities. The Company has reserved for issuance: (i) the Shares to
be issued pursuant to this Agreement; (ii) 2,232,565 shares of Common Stock
(plus any of such shares which may be reacquired by the Company) issuable upon
the exercise of stock options issued or to be issued to employees, consultants
and directors pursuant to stock options or stock purchase plans providing for
the sale of Common Stock to employees, directors, consultants or outside
contractors to the Company, under terms established by the Company's Board of
Directors; (iii) 25,000 shares of Common Stock issuable upon the exercise of a
stock option granted to The Wall Street Group; (iv) 1,506,366 shares of Common
Stock issuable upon the exercise of warrants issued to shareholders or advisors
to the Company; and (v) shares of Common Stock representing twenty-five percent
(25%) of the Company's outstanding equity securities (at the time of exercise)
issuable upon exercise of warrants issued by the Company to the National
Broadcasting Co., Inc. ("NBC"). Except as disclosed in this Section 3.4 and for
the transactions contemplated by this Agreement, there are: (i) no outstanding
warrants, options, rights (including conversion or preemptive rights, except as
set forth in a stock purchase agreement between the Company and Gannett Co.,
Inc. ("Gannett") dated December 2, 1992 (the "Gannett Purchase Agreement"), a
true and complete copy of which has been provided to TDC) or agreements to
subscribe for or purchase any capital stock or other securities from the
Company, except as disclosed in the schedule provided to TDC (the "Schedule of
Exceptions"); (ii) no voting trusts or voting agreements among, or irrevocable
proxies executed by, shareholders of the Company, except for a Shareholders'
Agreement dated December 21, 1987, as amended, among the Company, David B.
Lockton, John D. Lockton and the purchasers of the Company's Series A Preferred
Stock (the "Shareholders' Agreement"), a true and complete copy of which has
been provided to TDC, and the Gannett Purchase Agreement; (iii) no existing
rights of shareholders to require the Company to register any securities of the
Company or to participate with the Company in any registration by the Company of
its securities, except pursuant to (A) a Registration Rights Agreement dated
December 21, 1987, as amended, among the Company and certain purchasers of the
Company's securities (the "Registration Rights Agreement"), a true and complete
copy of which, as amended to date, has been provided to TDC, (B) the Gannett
Purchase Agreement and (C) rights granted to other purchasers of the Company's
Common Stock and holders of warrants to purchase the Company's Common Stock, as
listed on the Schedule of Exceptions; (iv) so far as known to the
-4-
<PAGE>
Company, no agreements among shareholders providing for the purchase or sale of
the Company's capital stock, except for the Shareholders' Agreement, the Gannett
Purchase Agreement and a Stock Purchase Agreement dated December 2, 1992 between
the Company, NBC and Rainbow Programming Holdings, Inc. ("Rainbow"); and (v) the
Company has not taken any action that would result in a stock split, stock
dividend, reverse split, recapitalization or reclassification affecting its
capital stock, the record date for which is to occur prior to the Initial
Closing Date.
3.5 AUTHORIZATION. All corporate action on the part of the
Company, its directors and its shareholders necessary for the authorization,
execution, delivery and performance of this Agreement by the Company, the
authorization, sale, issuance and delivery of the Shares, and the performance of
all of the Company's obligations hereunder and under the Letter of Intent has
been taken. This Agreement and the Letter of Intent, when executed and delivered
by the Company, shall each constitute a valid and binding obligation of the
Company, enforceable in accordance with its terms, except as enforcement may be
limited by laws relating to bankruptcy, insolvency and the relief of debtors,
and rules of law governing specific performance, injunctive relief or other
equitable remedies.
3.6 VALIDITY OF STOCK. The Shares, when issued in compliance with
the provisions of this Agreement, will be validly issued and will be fully paid
and nonassessable. The Shares, when issued in compliance with the provisions of
this Agreement, will have the rights, privileges and preferences as provided in
the Articles of Incorporation. The Shares, when issued in compliance with the
provisions of this Agreement, will be free of any duties or other governmental
charges and will be free of any liens or encumbrances, other than any liens or
encumbrances created by the holder thereof; provided, however, the Shares may be
subject to restrictions on transfer under state and/or federal securities laws
as set forth herein.
3.7 FINANCIAL STATEMENTS. The Company has delivered to TDC its
audited balance sheets as of December 31, 1991 and 1992 and the related
statements of operations, shareholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1992 and for the period from
inception of the Company (November 10, 1986) to December 31, 1992 and its
unaudited balance sheet as of March 31, 1993 and the related statements of
operations and cash flows for the three-month period then ended (the "Financial
Statements"). The Financial Statements are true, complete and correct and have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated, except as may be
indicated in the notes thereto or, in the case of unaudited statements, as
permitted by the rules and regulations of the Securities and Exchange Commission
(the "SEC"). The Financial Statements accurately set out and describe the
financial condition and operating results of the Company as of the dates, and
for the periods, indicated therein (subject, in the case of unaudited
statements, to normal recurring audit adjustments).
The Company has delivered to TDC true and complete copies of all
documents (other than preliminary material) that the Company has filed with the
SEC pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), since January 1, 1993 (hereinafter, excluding the documents incorporated
therein by reference or filed as exhibits
-5-
<PAGE>
thereto, the "Exchange Act Reports") and a copy of its Preliminary Prospectus
dated February 25, 1993 (the "Preliminary Prospectus"). Except as set forth in
the Financial Statements or as disclosed in the Exchange Act Reports, the
Company has no liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to December 31, 1992, and
(ii) obligations under contracts and commitments incurred in the ordinary course
of business and not required under generally accepted accounting principles to
be reflected in the Financial Statements, which, individually or in the
aggregate, are not material to the financial condition or operating results of
the Company. The Company maintains and will continue to maintain a system of
accounting established and administered in accordance with generally accepted
accounting principles.
3.8 CHANGES. Since March 31, 1993, except as disclosed in the
Exchange Act Reports and the Schedule of Exceptions, there has not been:
(a) any change in the assets, liabilities, financial
condition, or operating results of the Company from that reflected in the
Financial Statements, except that the Company has continued to incur operating
losses;
(b) any damage, destruction or loss, whether or not covered
by insurance, adversely affecting the business, properties or financial
condition of the Company (as such business is currently conducted and as it is
proposed to be conducted);
(c) any waiver or compromise by the Company of a valuable
right or of a debt owed to it;
(d) any satisfaction or discharge of any lien, claim, or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and that which is not material to the business, properties or
financial condition of the Company (as such business is currently conducted and
as it is proposed to be conducted);
(e) any material change to a contract or arrangement by which
the Company or any of its assets is bound or subject;
(f) any change in any compensation arrangement or agreement
with any key employee, officer, director or shareholder;
(g) any sale, assignment, license or transfer of any
Intellectual Property (as defined in Section 3.13), except for transactions in
the ordinary course of business which have had no material adverse effect on the
Company's business, or other material intangible assets;
(h) any resignation or termination of employment of any key
officer of the Company;
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<PAGE>
(i) any mortgage, pledge, transfer of a security interest in,
or lien created by, the Company with respect to any of its properties or assets,
except liens for taxes not yet due or payable or liens incurred in the ordinary
course of business;
(j) any loans or guarantees made by the Company to or for the
benefit of its employees, officers, or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business;
(k) any declaration, setting aside, or payment or other
distribution in respect of any of the Company's capital stock, or any direct or
indirect redemption, purchase, or other acquisition of any of such stock by the
Company (other than repurchases of stock of employees and consultants upon the
termination of their employment relationship with the Company); or
(l) any other event or condition of any character that has
adversely affected the business, prospects, properties, operations, assets or
financial condition of the Company.
3.9 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. Except with
respect to Intellectual Property, which is the subject of separate
representations and warranties set forth ill Section 3.13 hereof and except as
set forth in the Exchange Act Reports, the Company has good and marketable title
to its properties and assets, both real and personal, tangible and intangible,
and has good title to all its leasehold interests, in each case subject to no
mortgage, pledge, lien, lease, encumbrance or charge, other than (i) liens of
current taxes not yet due and payable, and (ii) possible minor liens and
encumbrances which do not in any case detract from the value of the property
subject thereto or impair the operations of the Company, and which have not
arisen otherwise than in the ordinary course of business.
3.10 COMPLIANCE WITH OTHER INSTRUMENTS; NONE BURDENSOME, ETC.
(a) The Company is not in violation of any term of its
Amended and Restated Articles of Incorporation or Bylaws and is not in breach of
or in default under, any material provision of any contract, agreement,
instrument, judgment, decree or order to which it is a party or by which it or
its assets are bound or of any provision of any federal or state statute, rule
or regulation applicable to the Company, including, without limitation, all
applicable environmental or occupational health or safety laws. The execution,
delivery and performance of and compliance with this Agreement and the issuance
of the Shares will not (i) violate, in any respect, any material provision of
any law, rule or regulation, order, writ, judgment, injunction, statute, decree,
determination or award having applicability to the Company or any of its
properties or assets, (ii) require any consent, approval or notice under (except
as previously obtained or made) or result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation or acceleration) under any
of the terms, conditions or provisions of any note, bond, mortgage, indenture or
loan or credit agreement, license, or any other agreement or instrument or
obligation to which the Company is a party or by which any of its respective
properties and assets may be bound, or (iii) result in the creation of any
pledge, lien, encumbrance or charge upon any of the properties or as-
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<PAGE>
sets of the Company. No employee of the Company is in violation of any term of
any employment contract, patent disclosure agreement or any other contract or
agreement relating to the right of any such employee to be employed by the
Company because of the nature of the business conducted or to be conducted by
the Company or for any other reason which violation would have a material
adverse impact on the business or properties of the Company, and the continued
employment by the Company of its present employees will not result in any such
violation.
(b) The Company has provided to TDC true and correct copies
of all contracts, agreements, commitments or understandings to which the Company
or any of its employees, consultants, contractors or agents, including David B.
Lockton ("Lockton"), is a party and which either actually or potentially limit
or govern the Company's or any such person's rights to own or use Intellectual
Property (as defined in Section 3.13) on behalf of the Company or to engage in
the activities in which the Company is engaged or proposes to be engaged.
3.11 LITIGATION; PERMITS, LICENSES AND FRANCHISES.
(a) Except as described in the Exchange Act Reports and the
Schedule of Exceptions, there are no actions, suits, proceedings or
investigations pending against Lockton, the Company or their respective
properties, including any unresolved claim for infringement of any patent,
copyright or trademark and any unresolved claim for violation of the trade
secrets of another before any court, arbitration body or governmental agency,
nor, to the Company's knowledge, is there any threat thereof, and there are no
judgments or outstanding orders, injunctions, decrees, stipulations or awards
(whether rendered by a court or administrative agency or by arbitration) against
Lockton, the Company or their respective properties that could reasonably be
expected individually or in the aggregate to have a material adverse impact on
the business or property of the Company.
(b) The Company has all permits, licenses, franchises and
other authorizations necessary to the conduct of the Company Business, except
those the absence of which would not have a material adverse effect on the
Company, and all such permits, licenses, franchises and authorizations are valid
and in full force and effect. To the knowledge of the Company, the Company has
not engaged in any activity that would cause revocation or suspension of any
such material permits, licenses, franchises or authorizations. No action or
proceeding looking to or contemplating the revocation or suspension of any of
such material permits, licenses, franchises or authorizations is pending or, to
the knowledge of the Company, threatened.
3.12 EMPLOYEES.
(a) No employee, consultant or agent of the Company,
including (without limitation) Lockton, is, or will be, based upon the business
and activities taken or proposed to be taken by the Company, in violation of any
term of any employment contract, confidentiality or non-disclosure agreement or
any other contract, agreement, commitment or understanding, including, without
limitation, the contracts, agreements, commitments and understandings described
in Section 3.10 hereof, relating to the relationship of such employee,
con-
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sultant or agent with the Company or any other party which violation would have
a material adverse impact on the business or properties of the Company.
(b) Each employee, consultant or agent of the Company with
access to confidential or proprietary information of the Company has executed a
proprietary information agreement obligating such employee, consultant,
contractor or agent to hold confidential the Company's proprietary information.
(c) There is no strike, labor dispute or union organization
activity pending or threatened between the Company and its employees. None of
the Company's employees belongs to any union or collective bargaining unit.
(d) Except as described in the Exchange Act Reports and the
exhibits filed therewith, the Company is not a party to or bound by any
currently effective employment contract, deferred compensation agreement, bonus
plan, incentive plan, profit sharing plan, retirement agreement, or other
employee compensation agreement.
(e) The Company is not aware that any officer or key employee
intends to terminate employment with the Company.
3.13 INTELLECTUAL PROPERTY.
(a) As set forth in this Agreement, "Intellectual Property"
means all copyrights, copyright registrations, copyright registration
applications, patents, patent registrations, patent registration applications,
trade or service marks, trade or service mark registrations or applications,
trade names, trade name registrations, trade name registration applications,
logo types, processes, inventions, designs, technical data, trade secrets,
know-how and formulae applied for, issued to or owned by Lockton or the Company
or which are licensed and franchised to the Company or Lockton, or in which
either the Company or Lockton has an interest. Exhibit A attached hereto sets
forth a true, complete and correct list and summary description of (i) all
copyrights, copyright registrations, copyright registration applications,
patents, patent applications, trade or service marks, trade or service mark
registration applications, trade names, trade name registrations, and trade name
registration applications applied for, issued to or owned by Lockton or the
Company or which are licensed or franchised to the Company or Lockton, or in
which either the Company or Lockton has an interest, (ii) each license agreement
in respect of Intellectual Property under which Lockton or the Company is either
grantee or licensee, (iii) each license agreement in respect of Intellectual
Property pursuant to which Lockton or the Company has granted or licensed
rights, (iv) each registration with, filing in or issuance by a governmental
agency or authority of the United States, or of any of the states thereof, or of
foreign jurisdictions by the Company or any of its employees (including
Lockton), consultants or agents with respect to each item of Intellectual
Property, and (v) each agreement with a third party who has agreed to assist the
Company or Lockton with the development or exploitation of any of the
Intellectual Property. Other than the agreements listed on Exhibit A, there are
no such agreements that are material to the Company Business.
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<PAGE>
(b) For purposes of this Agreement, the term "Third Party
Intellectual Property" shall mean copyrights, copyright registrations, copyright
registration applications, patents, patent applications, trade or service marks,
trade or service mark applications, trade names, trade name registrations, trade
name registration applications, logo types, processes, inventions, designs,
technical data, trade secrets, know-how and formulae filed, issued to or owned
by any third party. Except as disclosed in the Schedule of Exceptions, the
Company (i) may conduct the Company Business without infringing upon or
otherwise acting adversely to the right or claimed right of any person,
corporation or other entity under or with respect to any Third Party
Intellectual Property, and (ii) is not obligated or under any liability
whatsoever to make any payments by way of royalties, fees or otherwise to any
owner of, licensor of, or other claimant to, any Intellectual Property with
respect to the use thereof or in connection with the conduct of its business or
otherwise except as described in the Exchange Act Reports.
(c) Except as disclosed in the Exchange Act Reports, the
Company owns and/or has the unrestricted right to use all Intellectual Property
required for or incident to the development, manufacture, operation and sale of
all products and services currently sold and proposed to be sold by the Company
or by TDC pursuant to the Letter of Intent, free and clear of any rights, liens
or claims of others, including without limitation, former employers of all
current employees of the Company.
(d) Except as disclosed under "Risk Factors -- Copyright and
Licensing Matters" in the Preliminary Prospectus and in a schedule delivered to
TDC, the Company currently possesses all licenses needed to transact the Company
Business, including but not limited to all necessary licenses under any Third
Party Intellectual Property.
(e) The Company represents that the patents of the Company
are valid and its employees, officers and agents have neither committed nor
omitted any acts that would invalidate the patents or would render the patents
unenforceable.
(f) The Company has taken reasonable security measures to
protect the secrecy, confidentiality and value of the Intellectual Property. The
Company has obtained, from Lockton and all other employees of the Company,
written agreements in a form acceptable to the Board of Directors of the Company
("Proprietary Information Agreements"), under which each such employee is
obligated to disclose and transfer to the Company, without the receipt by such
person of any additional value therefor (other than normal salary or fees for
services), all inventions, developments and discoveries which during the period
of his employment with the Company he makes or conceives of either solely or
jointly with others, that relate to any subject matter with which his work for
the Company may be concerned, or relate to or are connected with the business,
products or projects of the Company, or involve the use of the Company's time,
material or facilities. The Company has obtained Proprietary Information
Agreements from all consultants, contractors and other nonemployee agents who
have rendered services to the Company for which the protection afforded by such
agreements is material to the Company Business. In addition, Lockton and each
employee, consultant, contractor, agent and shareholder of the Company and any
other person and organization with any claim to any Intellectual Property owned
by the Company has transferred to the Company all of such person's title and
interest
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<PAGE>
in and to any such Intellectual Property. At a minimum, Proprietary Information
Agreements shall include obligations of confidentiality, obligations of
assignment of inventions, developments, and discoveries as described above, and
"work for hire" clauses or similar clauses sufficient to insure that the Company
owns the copyrights in any software developed by or for the Company.
(g) Except as disclosed in the Exchange Act Reports, there
are no infringers of the Intellectual Property and neither the Company nor
Lockton has learned of or communicated with any third party considered by the
Company or Lockton actually or possibly to be infringing any of the Intellectual
Property.
(h) All payments, including maintenance fees, and all filings
and registrations (including but not limited to such filings as may be made to
render a trademark registration uncontestable) have been made with respect to
the Intellectual Property so as to maintain the Intellectual Property in full
force and effect and to give the Intellectual Property the strongest available
protection.
3.14 GOVERNMENTAL CONSENT, ETC. No consent, approval, order or
authorization of or qualification, designation, declaration or filing with any
federal, state, local or other relevant governmental authority on the part of
the Company is required in connection with the valid execution and delivery of
this Agreement, or the consummation of any transaction contemplated hereby other
than the issuance of the Shares. Based in part upon the representations of TDC
set forth in Section 4 of this Agreement and except for such filings as may be
required to be made with the SEC, the National Association of Securities
Dealers, Inc. and the California Department of Corporations as described in the
Schedule of Exceptions, no consent, approval, order or authorization of or
qualification, designation, declarations or filing with any federal, state or
other relevant governmental authority on the part of the Company is required in
connection with the offer, sale or issuance of the Shares, except those which
have been obtained or made prior to the Initial Closing.
3.15 RELATED-PARTY TRANSACTIONS. Except as set forth in the
Exchange Act Reports, no employee, officer, or director of the Company or member
of his or her immediate family is indebted to the Company nor is the Company
indebted (or committed to make loans or extend or guarantee credit) to any of
them, except in connection with expenses and advances incurred in the ordinary
course of business. Except as set forth in the Exchange Act Reports, to the
Company's knowledge, none of such persons has any direct or indirect ownership
interest in any firm or corporation with which the Company is affiliated or with
which the Company has a business relationship, or any firm or corporation that
directly competes with the Company, except that employees, officers, or
directors of the Company and members of their immediate families may own stock
(not in excess of 5% of the outstanding shares) in publicly traded companies
that may compete with the Company. Except as set forth in the Exchange Act
Reports, to the Company's knowledge, no officer or director or any member of
their immediate families is, directly or indirectly, interested in any agreement
with the Company.
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3.16 INSURANCE. The Company has in full force and effect insurance
policies, with extended coverage, in amounts customary for companies similarly
situated to protect the assets and properties of the Company and the Company
Business from reasonably anticipated risks of loss, damage and expense and
coverage for liability or claims to third persons or entities arising out of
damage to property or personal injury (including death). The Company has in full
force and effect a patent enforcement policy for payment of litigation expenses
of up to $500,000, with a deductible of $25,000 per claim, as more particularly
described in the Form 10-K (the "Patent Protection Policy"), subject to the
discussion set forth in the Schedule of Exceptions.
3.17 OFFERING. All offers, sales or issuances by the Company of
its capital stock or other securities have been made in full compliance with
federal securities laws and applicable state securities laws. Assuming the
accuracy of TDC's representations set forth in Section 4.1, the offer, sale and
issuance of the Shares to be issued under the terms of this Agreement constitute
transactions exempt from the registration requirements of Section 5 of the
Securities Act of 1933, as amended (the "Securities Act"), and any applicable
registration requirements under state securities laws. Neither the Company nor
anyone acting on its behalf has offered or will offer the Shares or any part
thereof or any similar securities for issuance or sale to, or solicited any
offer to acquire any of the same from anyone, so as to make the issuance and
sale subject to such registration requirements.
3.18 BROKERS OR FINDERS; OTHER OFFERS. Except for a fee payable to
Somerset Capital Management, Inc. ("Somerset") if the transactions contemplated
by this Agreement are consummated, as described in the Schedule of Exceptions,
the Company has not incurred for itself or on behalf of TDC, and will not incur,
directly or indirectly, as a result of any action taken by the Company, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement. The payment of the fee to Somerset is
the sole obligation of the Company.
3.19 DISCLOSURE. The representations and warranties contained in
this Agreement do not, and as of the Closing will not, and the information
contained in the Exchange Act Reports and the statements or certificates
delivered in connection with this Agreement do not (as of the respective dates
at which the information was furnished), contain any untrue statement of a
material fact or omit any material fact necessary to make the statements
contained therein or herein, in light of the circumstances under which they were
made, not misleading. There is no fact known to the Company which materially
adversely affects or in the future may materially adversely affect the business,
operations, prospects, conditions, properties or assets of the Company which has
not been set forth in the Exchange Act Reports or any exhibit filed therewith.
3.20. HART-SCOTT-RODINO ACT. The Company is an ultimate parent
entity, as the term "ultimate parent entity" is defined in 16 C.F.R. section
801.1(a)(3). The Company's last regularly prepared balance sheet indicates that
the Company's total assets were less than $10,000,000 as of that date. The last
regularly prepared annual statement of income and expense for the Company was
with respect to the fiscal year ended December 31, 1992 ("Fiscal 1992"), and
such statement indicates that the Company's sales were less than $10,000,000 for
Fiscal 1992. There are no en-
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tities controlled by the Company (as the term "control" is defined in 16 C.F.R.
section 801.1(b)) whose total assets and annual sales are not consolidated in
the balance sheet and income statement referred to in this Section 3.20.
SECTION 4.
REPRESENTATIONS AND WARRANTIES OF TDC
-------------------------------------
TDC hereby represents and warrants to the Company with respect to
the purchase of the Shares as follows:
4.1 INVESTMENT.
(a) The Shares to be purchased by TDC will be acquired for
TDC's own account, not as a nominee or agent, and not with a view to the sale or
distribution of any part thereof in any transaction that would be in violation
of the Securities Act, without prejudice, however, to any right of TDC to sell
or otherwise dispose of all or any part of such Shares pursuant to a
registration under the Securities Act or an exemption from such registration
available under the Securities Act, and subject, moreover, to the disposition of
TDC's property being at all times within its control and discretion. TDC has no
present intention of selling, granting participation in or otherwise
distributing the Shares, and it is not a party to or bound by any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third party with respect to any of the
Shares; provided, however, that TDC may transfer up to 50% of the Shares to Time
Warner Inc. ("TW") or one of TW's affiliates in a transaction exempt from the
Securities Act, provided that TW or such affiliate makes representations
substantially similar to those set forth in this Section 4.1.
(b) TDC Acknowledges that the offering and sale of the Shares
is intended to be exempt from registration under the Securities Act by virtue of
Section 4(2) thereof. In furtherance thereof, TDC represents and warrants that
it is an "accredited investor" as defined in Rule 501(a) of Regulation D under
the Securities Act, and that it has the requisite knowledge and experience in
financial and business matters to be capable of evaluating the merits and risks
of purchasing the Shares and has the ability to bear the economic risks of its
investment. TDC understands that the Shares may not be sold, transferred or
otherwise disposed of without registration under the Securities Act or an
exemption therefrom.
4.2 ACCESS TO DATA. TDC has had an opportunity to discuss the
Company's business, management and financial affairs with its management.
4.3 CORPORATE POWER; AUTHORIZATION. TDC has all requisite legal
and corporate power and authority to execute and deliver this Agreement and to
carry out and perform its obligations under the terms of this Agreement. This
Agreement, when executed and delivered by TDC, will constitute a valid and
legally binding obligation of TDC, enforceable in accordance with its terms,
except as enforcement may be limited by laws relating to bankruptcy, insolvency
and the relief of debtors, and rules of law governing specific performance,
injunctive relief or other equitable remedies.
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<PAGE>
4.4 BROKERS OR FINDERS; OTHER OFFERS. TDC has not incurred for
itself or on behalf of the Company, and will not incur, directly or indirectly,
as a result of any action taken by TDC, any liability for brokerage or finders'
fees or agents' commissions or any similar charges in connection with this
Agreement.
SECTION 5.
CONDITIONS TO INITIAL CLOSING OF TDC
------------------------------------
TDC's obligation to purchase the Initial Closing Shares at the
Initial Closing is, at the option of TDC, subject to the fulfillment or waiver
of the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations
and warranties made by the Company in Section hereof shall be true and correct
when made, and true and correct on the Initial Closing Date with the same force
and effect as if they had been made at the Initial Closing.
5.2. COVENANTS. All covenants, agreements and conditions contained
in this Agreement to be performed by the company on or prior to the Initial
Closing shall have been performed or complied with in all respects.
5.3 COMPLIANCE CERTIFICATE. The Company shall have delivered to
TDC a certificate of the Company executed by the Chief Executive Officer of the
Company, dated the Initial Closing Date, and certifying to the fulfillment of
the conditions specified in Sections 5.1, 5.2, 5.4 and 5.5 of this Agreement.
5.4 WAIVERS OF RIGHT OF FIRST REFUSAL; CONSENTS. All outstanding
rights of first refusal to purchase any of the Shares to be sold pursuant to
this Agreement shall have been waived and waivers and amendments to certain
agreements between the Company and its existing shareholders (including waivers
of the antidilution rights referred to in Section 3.4 of the Schedule of
Exceptions) shall have been obtained.
5.5 CONVERSION OF BRIDGE NOTES. The Convertible Promissory Notes
dated April 15, 1993, having an aggregate principal amount of $500,000, issued
to NBC, Gannett, Rainbow and Somerset Capital Management, Inc. (the "Bridge
Notes") shall have been converted to Common Stock.
5.6 LETTER OF INTENT. The Company shall have executed and
delivered a letter of intent in substantially the form attached hereto as
Exhibit B (the "Letter of Intent").
5.7 OPINIONS OF COMPANY'S COUNSEL. TDC shall have received (i)
from Graham & James, counsel to the Company, an opinion addressed to TDC, dated
the Closing Date, in form and substance acceptable to TDC and its counsel and
including opinions substantially in the form of the representations and
warranties set forth in Sections 3.1, 3.2, 3.3, 3.5, 3.6, 3.10(b), 3.11, and
3.14 and the first and second sentences of Section 3.17, and (ii) from Flehr,
Hohbach, Test, Albritten & Herbert, patent counsel to the Company, an opinion
addressed to
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<PAGE>
TDC, dated the Initial Closing Date in form and substance acceptable to TDC's
counsel and including opinions substantially in the form of the representations
and warranties set forth in Section 3.13 of this Agreement.
5.8 LEGAL MATTERS. All material matters of a legal nature which
pertain to this Agreement and the transactions contemplated hereby shall have
been reasonably approved by counsel to TDC prior to the Closing.
SECTION 6.
CONDITIONS TO INITIAL CLOSING OF COMPANY
----------------------------------------
The Company's obligation to sell and issue the Initial Closing
Shares is, at the option of the Company, subject to the fulfillment or waiver of
the following conditions:
6.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations
and warranties made by TDC in Section 4 hereof being true and correct when made,
and true and correct on the Initial Closing Date with the same force and effect
as if they had been made at the Initial Closing.
6.2 WAIVERS OF RIGHT OF FIRST REFUSAL. All outstanding rights of
first refusal to purchase any of the Shares to be sold pursuant to this
Agreement shall have been waived.
6.3 CONVERSION OF BRIDGE NOTES. The Bridge Notes shall have been
converted to Common Stock.
6.4 LETTER OF INTENT. TCI or a wholly-owned subsidiary of TCI
shall have executed and delivered the Letter of Intent.
SECTION 7.
CONDITIONS TO SUBSEQUENT CLOSINGS
---------------------------------
7.1 CONDITIONS OF TDC. TDC's obligation to purchase the Subsequent
Closing Shares at any Subsequent Closing is, at the option of TDC, subject to
the fulfillment or waiver of the following conditions:
(a) Representations and Warranties Correct. The
representations and warranties made by the Company in the first, second (except
that, in the event a Subsequent Closing occurs after the date of the filing of
the Company's Annual Report on Form 10-K with respect to any fiscal year
subsequent to the fiscal year ended December 31, 1992, the references herein to
"Form 10-K" shall be deemed to refer to the Company's most recently filed Annual
Report on Form 10-K) and third sentences of Section 3.1, Sections 3.2 and 3.6,
the first sentence of Section 3.10(a), Section 3.14 and the second sentence of
Section 3.17 shall be true and correct when made, and true and correct on the
Subsequent Closing Date.
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<PAGE>
(b) Compliance Certificate. The Company shall have delivered
to TDC a certificate of the Company executed by the Chief Executive Officer of
the Company, dated the Subsequent Closing Date, and certifying to the
fulfillment of the conditions specified in Sections 7.1(a), (c) and (e) of this
Agreement.
(c) Waivers and Consents. The waivers and consents referred
to in Section 5.4 of this Agreement shall be in full force and effect as of the
Subsequent Closing Date with respect to the issuance and sale of the Subsequent
Closing Shares.
(d) Hart-Scott-Rodino. In the event TDC determines that the
filing of an HSR Report (as hereinafter defined) is required pursuant to Section
8.8(a) of this Agreement in respect of the issuance of any Subsequent Closing
Shares, the waiting period with respect to such HSR Report shall have expired or
been terminated without any objection by any person; provided, however, that TDC
shall not be entitled to assert the failure of the condition set forth in this
Section 7.1(d) to be satisfied with respect to any Subsequent Closing in the
event that the Company and TDC shall have agreed upon the issuance of
replacement securities to TDC pursuant to Section 8.8(b) in lieu of such
Subsequent Closing Shares.
(e) Absence of Bankruptcy Events. No Bankruptcy Event shall
have occurred with respect to the Company. For purposes of this Section 7.1(e):
(i) a "Bankruptcy Event" with respect to the Company shall be deemed to have
occurred upon the happening of any of the following:
(A) the appointment of a receiver, trustee or similar
official to administer all or a substantial portion of the Company's assets;
(B) the filing by the Company of a voluntary petition
for relief under any Bankruptcy Law or of a pleading in any court of record
admitting in writing its inability to pay its debts as they become due;
(C) the filing against the Company of an involuntary
petition for relief filed against it in any case or proceeding under any
Bankruptcy Law;
(D) the making by the Company of a general assignment
for the benefit of creditors;
(E) the filing by the Company of any answer admitting
the material allegations of, or its consenting to or defaulting in answering, a
petition for relief filed against it in any case or proceeding under any
Bankruptcy Law; or
(F) the entry of an order, judgment or decree by any
court of competent jurisdiction, granting relief against the Company in any case
or proceeding under any Bankruptcy Law;
(ii) the term "Bankruptcy Code" shall mean the federal Bankruptcy Reform Act of
1978, as amended; and (iii) the term "Bankruptcy Law" shall mean the Bankruptcy
Code and each other
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federal or state law governing or relating to bankruptcy, insolvency,
reorganization or relief of debtors.
7.2 CONDITIONS OF THE COMPANY. The Company's obligation to sell
and issue the Subsequent Closing Shares is, at the option of the Company,
subject to the fulfillment or waiver of the following conditions:
(a) Representations and Warranties Correct. The
representation and warranty made by TDC in Section 4.1 hereof shall be true and
correct when made, and true and correct on the Subsequent Closing Date with
respect to the Subsequent Closing Shares to be purchased.
(b) Waivers and Consents. The waivers and consents referred
to in Section 6.2 of this Agreement shall be in full force and effect on the
Subsequent Closing Date.
7.3 FAILURE OF CONDITIONS TO SUBSEQUENT CLOSING. In the event that
the conditions to any Subsequent Closing are not satisfied or waived in
accordance with this Section 7, the Company agrees that it will pay to TDC in
cash the amount due pursuant to the Services Agreement which was to be paid
through the issuance of Subsequent Closing Shares; such payment shall be made by
wire transfer of funds to an account designated by TDC within thirty (30) days
following the scheduled Subsequent Closing Date. Following such payment, the
Company's obligation pursuant to Section 1.2 to issue any Remaining Shares and
TDC's obligations to purchase such Remaining Shares pursuant to Sections 1.1 and
2.3 shall be terminated as of the date of such payment.
SECTION 8.
AFFIRMATIVE COVENANTS OF THE COMPANY AND TDC
--------------------------------------------
8.1 BOARD OF DIRECTORS REPRESENTATION BY TDC.
(a) So long as TDC (which, for purposes of this Section 8.1,
shall include TDC, TCI and all of their subsidiaries and Affiliates, as defined
in Section 8.2) owns at least 500,000 shares of Common Stock of the Company (as
appropriately adjusted to reflect any stock split, reverse split, stock dividend
or other reclassification or recapitalization affecting the capital stock of the
Company, the record date of which shall occur after the date of this Agreement),
the Company shall include in the slate of nominees recommended by the Company's
Board of Directors or management to shareholders for election as directors at
each annual meeting of shareholders of the Company one (1) person designated by
TDC. The Company shall use its best efforts to cause all shares for which the
Company's management or directors hold proxies or are otherwise entitled to vote
to be voted in favor of the election of such designee. In the event that such
designee shall cease to serve as a director for any reason (including removal
for cause), the Company shall use its best efforts to fill such vacancy with
another designee of TDC.
(b) The designee of TDC shall be entitled to excuse himself,
and the Company may require that he excuse himself, from all deliberations of
the Board of Directors of
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the Company, or discussions of the Board or dissemination of information to
directors of the Company, concerning (i) business relationships between the
Company and competitors of TCI or its affiliates in which TCI or its affiliates
has an actual conflict of interest or a potential conflict of interest that may
foreseeably become an actual conflict of interest or (ii) relationships between
the Company and TCI or its affiliates.
8.2 STANDSTILL PROVISIONS. TDC (which, for purposes of this
Section 8.2, shall include TDC, TCI and all of TDC's and TCI's subsidiaries and
Affiliates, as hereinafter defined) shall not, directly or indirectly, acquire
beneficial ownership of any Voting Stock (as hereinafter defined), any
securities convertible into or exchangeable for Voting Stock, or any other right
to acquire Voting Stock (except by way of stock dividends or other distributions
or offerings made available to holders of any Voting Stock generally) without
the written consent of the Company (following the approval thereof by the
Company's Board of Directors), if the effect of such acquisition would be to
increase the Voting Power (as hereinafter defined) of all Voting Stock then
owned by TDC, together with the Voting Stock that TDC has a right to acquire
(including any Remaining Shares), to more than thirty-three percent (33%) of the
total Voting Power of the Company at the time in effect (the "Percentage
Amount"); provided, however, that:
(a) TDC may acquire Voting Stock without regard to the
foregoing limitation:
(i) if a bona fide offer (other than a nonpublic offer
made during the course of negotiations between the Company and a third party) is
made by another person or group (not affiliated with TDC) to purchase or
exchange for cash or other consideration any Voting Stock which, if successful,
would result in such person or group owning or having the right to acquire
shares of Voting Stock with aggregate Voting Power of more than thirty-three
percent (33%) of the total Voting Power of the Company then in effect and such
offer is not withdrawn or terminated prior to TDC making an offer to acquire
Voting Stock or acquiring Voting Stock in response thereto; provided, however,
that the negative covenants of this Section 8.2 shall resume following the
withdrawal of a tender offer made in accordance with this Section 8.2(a)(i);
(ii) at any time at least ten (10) years following the
date of this Agreement.
(b) TDC will not be (i) prohibited from purchasing any of the
Remaining Shares, (ii) obligated to dispose of Voting Stock, or (iii) deemed to
have breached its covenant in this Section 8.2, if the aggregate percentage of
the total Voting Power of the Company represented by Voting Stock owned by TDC,
or which TDC has a right to acquire, is or would be increased to an amount in
excess of the Percentage Amount as a result of a recapitalization of the Company
or a repurchase of securities by the Company or any other action taken by the
Company or its affiliates.
(c) In the event that TDC shall have purchased or otherwise
acquired (including, for this purpose, the Remaining Shares TDC has the right to
acquire) any shares of Voting Stock in a transaction permitted by Section
8.2(a)(i) prior to the resumption of the nega-
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<PAGE>
tive covenants of this Section 8.2 or as a result of Section 8.2(b), the
percentage set forth in the first paragraph of this Section 8.2 shall be
increased to the percentage of Voting Stock owned by TDC after such purchase or
acquisition.
As used in this Agreement, (i) the term "Voting Stock" means the
Common Stock and any other securities (including Preferred Stock) issued by the
Company having the ordinary power to vote in the election of directors of the
Company (other than securities having such power only upon the happening of a
contingency), (ii) the term "Voting Power" of any Voting Stock means the number
of votes such Voting Stock is entitled to cast: for the election of directors of
the Company at any meeting of shareholders of the Company (other than votes that
may be cast only upon the happening of a contingency), (iii) the term "Control"
as to any person means possession, directly or indirectly, of the power to
direct or cause the direction of management and policies of such person (whether
through ownership of securities, partnership interests or other ownership
interests, by contract, or otherwise, and (iv) the term "Affiliate", when used
with respect to TDC or TCI, means any other person that directly, or indirectly
through one or more intermediaries, is Controlled by TDC or TCI. For purposes of
this Agreement, TDC shall not be deemed to have beneficial ownership of any
Voting Stock held by a pension plan or other employee benefit program of TDC if
TDC does not have the power to control the investment decisions of such plan or
program.
8.3 INSURANCE. From and after the Initial Closing, the Company
shall maintain such usual and customary insurance coverages as are appropriate
to protect the assets and properties of the Company from reasonably anticipated
risks of loss, damage and expense and coverage for liability or claims to third
persons or entities arising out of damage to property or personal injury
(including death), as determined by the Chief Executive Officer, in consultation
with the Board of Directors of the Company. The Company shall also maintain or,
if necessary, use its best efforts to replace with a similar policy, the Patent
Protection Policy if a replacement policy is available on reasonable terms.
8.4 EXECUTIVE POSITION. Lockton shall remain employed by the
Company, in accordance with the terms and conditions of the employment agreement
between Lockton and the Company dated January 1, 1991, or in accordance with
such other terms as may be duly approved from time to time by the Board of
Directors of the Company.
8.5 CONFIDENTIALITY OF INFORMATION.
(a) Whether or not the transactions contemplated by this
Agreement are consummated, the Company and TDC agree to retain as confidential
any and all information, designated by the disclosing party as confidential,
obtained by each of them during the course of their discussions, investigations
and negotiations, and neither party shall disclose such information to others,
except (i) with the prior written consent of the other party hereto, (ii) to the
extent necessary to comply with law or the valid order of a court of competent
jurisdiction, in which event the party making such disclosure shall so notify
the other party hereto as promptly as possible (and, if possible, prior to
making such disclosure) and shall seek confidential treatment of such
information, (iii) disclosures to an affiliate of, or professional advisor to,
such party in con-
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nection with the performance by such party of its obligations hereunder;
provided, however, that such party shall be liable for any breach of such
affiliate or advisor of any provision of this Section 7.5(a) by such advisor or
consultant. Information shall not be considered confidential, and a party's
obligation to hold such information confidential shall terminate, to the extent
such information is already known to the disclosing party at the time of
receipt, as evidenced by written records made prior to such receipt, or to the
extent such information becomes publicly available through no fault of the
disclosing party.
(b) If the transactions contemplated by this Agreement are
consummated, the Company may from time to time disclose to TDC or its designee
on the Board of Directors of the Company pursuant to this Agreement, certain
information which the Company designates as confidential (such as financial and
technical information and business plans). Unless required by law or valid order
by a court of competent jurisdiction, or unless such information is already
known to TDC at the time of receipt, as evidenced by written records made prior
to such receipt, or to the extent such information becomes publicly available
through no fault of TDC, TDC shall not disclose such information to third
parties until the earliest of (i) the date upon which such information becomes
public knowledge through no fault of TDC or (ii) the date upon which the Company
discloses such information to a third party on an unrestricted basis, except
that TDC may disclose such information to an affiliate or professional advisor
in connection with TDC's performance of its obligations hereunder and under the
Letter of Intent, provided that TDC shall be liable for any breach by such
affiliate or advisor of any provision of this Section 8.5(b). TDC further
acknowledges and understands that any information so obtained (whether or not of
a proprietary nature) may be considered "inside" non-public information.
8.6 PREFERRED STOCK. So long as TDC (which, for purposes of this
Section 8.6, shall include TDC, TCI and all of their subsidiaries and
Affiliates) owns at least 500,000 shares of Common Stock of the Company (as
appropriately adjusted to reflect any stock split, reverse split, stock dividend
or other reclassification or recapitalization affecting the capital stock of the
Company, the record date of which shall occur after the date of this Agreement),
until the termination of the period specified in Section 10.4, the Company
hereby agrees that it will not issue any shares of preferred stock, including
the 2,000,000 shares currently authorized as set forth in Section 3.4 of this
Agreement, or any other capital stock with rights or preferences that are not
pari passu with the Common Stock if two of the following shareholders of the
Company (TDC, Gannett Co., Inc., National Broadcasting Company, Inc., Rainbow
Programming Holdings, Inc., Interactive Partners and Paul Kagan) shall have
objected to such issuance.
8.7 MAINTENANCE OF INTELLECTUAL PROPERTY. The Company shall
continue (i) paying maintenance fees and making required filings, (ii) to
protect the Intellectual Property from liens and claims and (iii) to obtain
patents and file trademark and copyright registrations where reasonably
necessary to strengthen or enforce or add material value (including such filings
as may render a registration incontestable) to the Intellectual Property.
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8.8 HART-SCOTT-RODINO ACT.
(a) If TDC reasonably believes that its acquisition of any
Remaining Shares at any Subsequent Closing, its acquisition of shares of Common
Stock or other securities pursuant to Section 10 or pursuant to the Distribution
Agreement, or any sale to TW in accordance with Section 4.1(a), would be subject
to the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules and
regulations thereunder (the "HSR Act and Rules"), the Company and TDC (if so
required) will promptly comply with any applicable requirements under the HSR
Act and Rules relating to filing and furnishing of information (the "HSR
Report") to the Federal Trade Commission (the "FTC") and the Antitrust Division
of the Department of Justice, such actions to include, without limitation, (i)
filing the HSR Report and taking all other action required by the HSR Act and
Rules, (ii) coordinating with respect to the filing of the HSR Reports of TDC
(if so required) and the Company (and exchanging non-proprietary portions of
drafts thereof), so as to present all required HSR Reports to the FTC and the
Department of Justice at the time selected by TDC (if so required), and to avoid
substantial errors or inconsistencies among such HSR Reports in the description
of the transaction, (iii) complying with any additional request for documents or
information made by the FTC or the Department of Justice or by any court and
assisting the other parties to so comply, and (iv) causing all persons which are
part of the same "person" (as defined for purposes of the HSR Act and Rules) as
the Company to cooperate and assist in such filing and compliance. Each party
shall bear and pay any costs or expenses that it incurs in complying with this
Section 8.8, and the acquiring party shall pay all of any fee payable to the FTC
or the Department of Justice in connection with filing of an HSR Report pursuant
to this Section 8.8 and the HSR Act and Rules.
(b) In the event TDC's acquisition of securities of the
Company referred to in subsection (a) requires the filing of an HSR Report, then
(i) any time period within which TDC is required to notify any person as to its
intent to acquire any such securities shall be extended, and any scheduled
Subsequent Closing shall be delayed, in each case up to a maximum of 45 days, to
enable TDC and the Company to file their respective HSR Reports and for the
applicable waiting period under the HSR Act and Rules to expire without
objection by any person and (ii) if (x) the waiting period has not so expired
prior to the conclusion of such period of extension and the applicable period
within which TDC is required to notify such person, (y) the waiting period has
not so expired prior to the scheduled Subsequent Closing Date, as extended
pursuant to clause (i) of this Section 8.8, or (z) TDC determines, in the
exercise of its reasonable judgment, to withdraw the HSR Report, then the
Company shall use its best efforts to effectuate the intent of this Section 8.8,
Section 10 or the Distribution Agreement by granting to TDC (A) the right to
acquire non-voting Preferred Stock of the Company that is convertible into the
New Securities (as defined in Section 10) or the other securities to be
acquired, on substantially the same terms as such securities which were to be so
acquired, (B) granting to TDC an option, warrant or other right to acquire the
New Securities or the other securities to be acquired and/or (C) depositing such
securities to be acquired into an escrow or other arrangement reasonably
acceptable to the parties pending expiration of such waiting period; provided,
however, that in the event the HSR Report has been filed with respect to the
issuance of any Remaining Shares, the provisions of this Section 8.8 shall not
restrict TDC's right to demand a cash payment for the services rendered in
accordance with Section 7.3. Any such securities, including options, warrants or
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other rights to acquire the New Securities or other securities to be acquired,
would be freely transferable by TDC, subject to compliance with applicable
securities laws. TDC and the Company shall cooperate in good faith to determine
a mutually agreeable method for effecting the acquisition of securities as
described above.
SECTION 9.
REGISTRATION RIGHTS
-------------------
The Registration Rights Agreement dated December 21, 1987, as
amended, between the Company and the other parties thereto shall be amended by
the Fifth Amendment to Registration Rights Agreement in the form attached hereto
as Exhibit C to enable the Shares sold and issued pursuant to this Agreement to
be included in any registration conducted pursuant to such agreement.
SECTION 10.
TDC'S RIGHT OF FIRST REFUSAL;
-----------------------------
CONVERSION; ANTI-DILUTION
-------------------------
10.1 RIGHTS OF FIRST REFUSAL. The Company hereby grants to TDC the
right of first refusal to purchase up to twenty-five percent (25%) of New
Securities (as defined in this Section 10.1) which the Company may, from time to
time, propose to sell and issue during the ten (10) year period beginning on the
Initial Closing Date, provided that, notwithstanding any provision contained in
this Section 10.1, TCI and its Affiliates shall not, immediately following such
sale, be in violation of Section 8.2 herein.
(a) Except as set forth below, "New Securities" shall mean
any shares of capital stock of the Company, including Common Stock and Preferred
Stock, whether now authorized or not, and rights, options or warrants to
purchase said shares of Common Stock or Preferred Stock, and securities of any
type whatsoever that are or may become convertible into said shares of Common
Stock or Preferred Stock. Notwithstanding the foregoing, "New Securities" does
not include (i) the Shares purchased under this Agreement; (ii) stock issued
pursuant to any warrants, options or rights issued and outstanding on the
Closing Date and disclosed in Section 3.4; (iii) up to 2,353,795 shares of
Common Stock authorized for issuance to employees and prospective employees
pursuant to any plan or pattern of employee equity participation, or to
consultants, advisors and other persons with whom the Company deals in the
course of operating its business, duly authorized by the Company's Board of
Directors, (iv) stock issued in connection with any stock split, stock dividend
or recapitalization by the Company, and (v) stock issued in connection with any
merger with, or acquisition of all or substantially all of the assets of, or a
controlling interest in, any corporation or other entity. For purposes of this
Section 10 only, the definition of "New Securities" shall not include options
and warrants granted to employees, consultants or other parties with contracts
with the Company, which options and warrants are granted in consideration for
services rendered to the Company and approved by the Board of Directors of the
Company.
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<PAGE>
(b) In the event the Company proposes to undertake an
issuance of New Securities, it shall give TDC written notice of its intention,
describing the type of New Securities, and the price and terms upon which the
Company proposes to issue the same. TDC shall have fifteen (15) days from the
date of receipt of any such notice to agree to purchase any or all of such New
Securities, for the price and upon the terms specified in the notice, which
shall be the same price and terms on which the Company proposes to issue the
same, by giving written notice to the Company and stating therein the quantity
of New Securities to be purchased. If the Company proposes to issue New
Securities for non-cash consideration, the value of such non-cash consideration
shall be determined in the manner specified in Section 10.4(c).
(c) In the event TDC fails to exercise the right of first
refusal within said fifteen (15) day period, the Company shall have sixty (60)
days thereafter to sell or enter into an agreement (pursuant to which the sale
of New Securities covered thereby shall be closed, if at all, within sixty (60)
days from the date of such agreement) to sell the New Securities not elected to
be purchased by TDC at a price and upon terms no more favorable to the
purchasers of such securities than specified in the Company's notice. In the
event the Company has not sold the New Securities or entered into an agreement
to sell the New Securities within such sixty (60) day period (or sold and issued
New securities in accordance with the foregoing within sixty (60) days from the
date of such agreement), the Company shall not thereafter issue or sell any New
Securities without first offering such securities to TDC in the manner provided
above.
10.2 RIGHT OF FIRST REFUSAL ON TRANSFERS BY LOCKTON.
(a) Subject to the prior right of Gannett Co., Inc.
("Gannett"), National Broadcasting Company, Inc. ("NBC") and Rainbow Programming
Holdings, Inc. ("Rainbow") to purchase Common Stock of the Company owned by
Lockton which Lockton may, from time to time, propose to sell (the "Lockton
Stock"), Lockton hereby grants to TDC the right to purchase all or any part of
the Lockton Stock in accordance with the procedures set forth in paragraphs (b)
and (c) below, provided that, notwithstanding any provision of this Section
10.2, TCI and its Affiliates shall not, immediately following such sale, be in
violation of Section 8.2 above.
(b) In the event Lockton proposes to sell any Lockton Stock,
he shall, in addition to any notice required to be given to Gannett, NBC and
Rainbow, give the Company and TDC written notice of his intention, describing
the price and terms upon which he proposes to sell the same. TDC shall have
twenty (20) days from the date of receipt of any such notice to agree to
purchase such Lockton Stock, for the price and upon the terms specified in the
notice, by giving written notice to the Company and Lockton stating therein the
quantity of Lockton Stock to be purchased; provided, however, that TDC shall
have no right to purchase any Lockton Stock except to the extent Gannett, NBC
and Rainbow shall not have exercised their rights to purchase all of the Lockton
Stock offered. TDC shall have the right to purchase all or any part of the
Lockton Stock which is not purchased by Gannett, NBC or Rainbow. The Company
shall give TDC written notice of any failure of Gannett, NBC and Rainbow to
purchase all of the Lockton Stock offered no later than 11:59 p.m. on the
fifteenth (15th) day after the date of the Company's receipt of notice of
Lockton's intent to sell any Lockton Stock.
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<PAGE>
(c) In the event TDC fails to exercise the right of first
refusal within said twenty (20) day period, Lockton shall have fifty-five (55)
days thereafter to sell or enter into an agreement (pursuant to which the sale
of Lockton Stock covered thereby shall be closed, if at all, within sixty (60)
days from the date of said agreement) to sell the Lockton stock not elected to
be purchased by TDC at the price and upon the terms no more favorable to TDC of
such securities than specified in Lockton's notice. In the event Lockton has not
sold the Lockton Stock or entered into an agreement to sell the Lockton Stock
within said fifty-five (55) days from the date of said agreement, Lockton shall
not thereafter issue or sell any Lockton Stock without first offering such
securities to TDC in the manner provided above.
10.3 CONVERSION UPON REORGANIZATION, MERGERS, CONSOLIDATIONS, OR
SALES OF ASSETS. If at any time or from time to time there shall be a capital
reorganization of the Common Stock of the Company or a merger or consolidation
of the Company with or into another corporation, or the sale of all or
substantially all of the Company's properties and assets to any other person,
then, as a part of such reorganization, merger, consolidation, or sale,
provision shall be made so that all holders of the Common Stock shall thereafter
be entitled to receive the same proportionate number of shares of stock or other
securities or property of the Company, or of the successor corporation resulting
from such merger or consolidation or sale, to which any other holder of Common
Stock, including Lockton or any other affiliate of the Company would have been
entitled on such capital reorganization, merger, consolidation, or sale.
10.4 ANTI-DILUTION.
(a) As set forth in this Section 10.4, "New Securities" shall
mean any shares of capital stock of the Company, including Common Stock and
Preferred Stock, whether now authorized or not, and rights, options or warrants
to purchase said shares of Common Stock or Preferred Stock, and securities of
any type whatsoever that are or may become convertible into said shares of
Common Stock or Preferred Stock. Notwithstanding the foregoing, "New Securities"
does not include (i) the Shares purchased under this Agreement, (ii) stock
issued pursuant to any warrants, options or rights issued and outstanding on the
Closing Date and disclosed in Section 3.4, (iii) up to 2,353,795 shares of
Common Stock authorized for issuance to employees and prospective employees
pursuant to any plan or pattern of employee equity participation, or to
consultants, advisors and other persons with whom the Company deals in the
course of operating its business, duly authorized by the Company's Board of
Directors, (iv) stock issued in connection with any stock split, stock dividend
or recapitalization by the Company, and (v) stock issued in connection with any
merger with, or acquisition of all or substantially all of the assets of, or a
controlling interest in, any corporation or other entity. For purposes of this
Section 10 only, the definition of "New Securities" shall not include options
and warrants granted to employees, consultants and other parties with contracts
with the Company, which options and warrants are granted in consideration for
services rendered to the Company and approved by the Board of Directors.
(b) If at any time prior to the earlier of (i) December 1,
1995 or (ii) the date upon which the Company has raised an aggregate of
$60,000,000 through the sale of debt or equity securities or through
non-recurring payments for license or similar rights to use the Com-
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<PAGE>
pany's Intellectual Property by unaffiliated third parties which are in lieu of
capital raising alternatives, the Company shall issue or sell any New Securities
for a consideration per share less than the Per Share Purchase Price, then and
in each case the Company shall issue to TDC, without payment therefor, such
number of shares of Common Stock of the Company as are equal to the difference
between the number of Shares purchased by TDC hereunder (including any Remaining
Shares) (adjusted for stock splits, stock dividends or recapitalizations) and
the quotient of (A) the aggregate of the Cash Consideration and the Services
Consideration divided by (B) the consideration per share at which the New
Securities are issued.
(c) For the purpose of making the adjustments described above
and in Section 10.1(b), the consideration received by the Company for any issue
or sale of securities shall:
(i) to the extent it consists of cash, be computed at
the net amount of cash received by the Company after deduction of any
underwriting or similar commissions, concessions, or compensation paid or
allowed by the Company in connection with such issue or sale;
(ii) to the extent it consists of property other than
cash, be computed at the fair value of that property as determined in good faith
by the Board of Directors of the Company; and
(iii) if shares of Common Stock, convertible securities,
or rights or options to purchase either shares of Common Stock or convertible
securities are issued or sold together with other stock or securities or other
assets of the company for a consideration that covers both, be computed as the
portion of the consideration so received that may be reasonably determined in
good faith by the Board to be allocable to such shares of Common Stock,
convertible securities or rights or options.
SECTION 11.
MISCELLANEOUS
-------------
11.1 SURVIVAL. The representations, warranties, covenants and
agreements made herein by the Company shall survive any investigation made by
TDC and shall survive the Initial Closing, and the representations and
warranties referenced in Section 7.1(a) shall be deemed to be re-made as of each
Subsequent Closing Date and shall survive such Subsequent Closing Date.
11.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
11.3 NOTICES, ETC. All notices and other communications required
or permitted hereunder shall be in writing and shall be sufficiently given when
delivered personally or sent by confirmed facsimile or two (2) business days
after being sent by overnight mail, postage paid,
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<PAGE>
addressed (a), if to the Company, to Interactive Network, Inc., 1991 Landings
Drive, Mountain View, California 94043, attention President, and (b) if to TDC,
at 5619 DTC Parkway, Terrace Tower II, Englewood, Colorado 80111-3000,
Attention: Gary S. Howard, or at such other address as TDC shall have furnished
to the Company by 10 days notice in writing.
11.4 DELAYS OR OMISSIONS. Except as expressly provided herein, no
delay or omission to exercise any right, power or remedy accruing to any holder
of any Shares, upon any breach or default of the Company under this Agreement,
shall impair any such right, power or remedy of such holder nor shall it be
construed to be a waiver of any such breach or default, or an acquiescence
therein, or in any similar breach or default thereafter occurring; nor shall any
waiver of any single breach or default be deemed a waiver of any other breach or
default theretofore or thereafter occurring. Any waiver, permit, consent or
approval of any kind or character on the part of any holder of any breach or
default under this Agreement, or waiver on the part of any holder of any
provisions or conditions of this Agreement, must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
holder, shall be cumulative and not alternative.
11.5 EXPENSES. Each of the Company and TDC shall bear its own
expenses incurred on its behalf with respect to this Agreement and the
transactions contemplated hereby.
11.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
11.7 SEVERABILITY. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided, however, that no such severability
shall be effective if it materially changes the economic benefits of this
Agreement to the Company or TDC.
11.8 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.
11.9 ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the
full and entire understanding and agreement between the parties with regard to
the subjects hereof, and no party shall be liable or bound to any other party in
any manner by any warranties, representations or covenants except as
specifically set forth herein or therein. Except as expressly provided herein,
neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought.
11.10 GOVERNING LAW. This Agreement shall be governed by and
construed in all respects in accordance with the laws of the State of California
without reference to its principles of conflicts of laws.
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<PAGE>
11.11 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE
SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, AND THE ISSUANCE OF
SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION
THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES
IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE
CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE
EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS
SO EXEMPT.
11.12 LEGEND ON SHARE CERTIFICATES. Each certificate for the
Shares (and any other securities issued in respect of the Shares) shall be
stamped or otherwise imprinted with a legend in substantially the following
form:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED. IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT, THESE SECURITIES MAY NOT BE
OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THE
HOLDER SHALL HAVE FIRST FURNISHED THE COMPANY WITH INFORMATION AS
TO THE PROPOSED DISPOSITION AND, IF REASONABLY REQUESTED BY THE
COMPANY, OBTAINED AN OPINION OF COUNSEL THAT SUCH DISPOSITION MAY
BE MADE WITHOUT REGISTRATION OF THE SECURITIES UNDER SUCH ACT."
The legend shall be removed by the Company upon delivery to it of
an opinion of counsel in form and substance satisfactory to the Company that a
registration statement under the Securities Act is at the time in effect with
respect to the legended security or that such security can be freely transferred
without such registration statement being in effect.
(Remainder of page intentionally left blank)
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The foregoing agreement is hereby executed as of the date first
above written.
INTERACTIVE NETWORK, INC.
By: /s/ David B. Lockton
----------------------------
Title: President
----------------------------
TCI DEVELOPMENT CORPORATION, INC.
By: /s/
----------------------------
Title:
----------------------------
/s/ David B. Lockton
--------------------------------
DAVID B. LOCKTON
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EXHIBIT A
---------
Attached hereto as Appendix I are excerpts from the Company's
Annual Report on Form 10-K, as amended, for the fiscal year ended December 31,
1992, filed with the Securities and Exchange Commission. Attached hereto as
Appendix II is an excerpt from the Company's Prospectus dated November 6, 1991.
Attached hereto as Appendix III is Section 7.6 of the Gannett Purchase
Agreement. The excerpts contained in the foregoing Appendices describe all
material agreements with respect to the Company's Intellectual Property. As of
the date hereof, the provisions excerpted in Appendix III have not resulted in
any definitive agreements between the Company and Gannett.
In addition, attached hereto as Appendix IV is a list of the
Company's patents and its trademark and service mark registrations and
applications.
<PAGE>
APPENDIX I
----------
LICENSING AGREEMENTS
The Company has entered into licensing agreements with various
companies, including certain related parties. See "Item 13. Certain
Relationships and Certain Transactions." The Company has entered into the
licensing agreements described below with unrelated parties.
Major League Baseball. In February 1992 the Company entered into
an agreement with Major League Baseball Properties, Inc. ("MLB") pursuant to
which the Company was granted the non-exclusive right to use the trademarks and
service marks of the Major League Baseball Clubs (the "Clubs") in connection
with the Company's interactive baseball game entitled "In The Dugout." The
Company agreed to pay a royalty to MLB based upon revenues derived from "In The
Dugout" during the term of the agreement. The Company is also obligated at its
own expense to obtain product liability insurance naming MLB, the Clubs, the
American and National Leagues of Professional Baseball Clubs and their
respective agents as additional insureds. The agreement expires in December
1993, and may be renewed by the mutual agreement of the Company and MLB.
National Football League Properties, Inc. In June 1990, the
Company entered into an agreement with National Football League Properties, Inc.
("NFLP"), pursuant to which the Company was granted a nonexclusive right to use
the trademarks and service marks of the NFL in connection with interactive games
and contests. Under the agreement the Company agreed to utilize the data feed
for the QB1 game produced by and licensed from NTN, which is based upon
predicting plays before the snap of the ball. The Company also agreed to pay a
fee to NFLP based upon revenues derived from the Company's games which are based
on NFL contests during the term of the agreement. The Company is also obligated
to pay all costs associated with its programming and to obtain product liability
insurance naming the NFL, its member clubs, NFLP and their respective agents as
additional insureds. The agreement expired on March 31, 1993, although it was
subject to renewal for an additional two-year period by the mutual agreement of
the Company and NFLP. There have been discussions between the Company and NFLP
concerning the possible extension of the agreement, although there can be no
assurance that the agreement will be extended.
NTN Communications, Inc. In June 1990, the Company entered into an
agreement with NTN under which NTN granted to the Company a non-exclusive
license to use NTN's QB1 game for the broadcast of interactive football contests
under the Company's agreement with the NFLP. The term of the license from NTN is
coextensive with the agreement with NFLP and is limited to intended use in the
home. Under the agreement with NTN, the Company is required to pay royalties to
NTN based on the play of QBI by the Company's subscribers. This agreement
expired on March 31, 1993 and the Company does not intend to seek its renewal.
The Company developed and tested its own interactive football game in 1990 which
it expects to reintroduce for the 1993 football season. See "Item 3. Legal
Proceedings" for a discussion of litigation between the Company and NTN.
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<PAGE>
NBC
In December 1987, the Company and NBC entered into a Joint
Development Agreement, as amended, providing for their joint cooperation in
developing the Company's patent for commercial use. The agreement also provides
that if NBC decides to broadcast a program that makes use of the Company's
interactive technology, NBC will use its reasonable best efforts to provide, or
to have others provide, within the program, an indication to viewers of the
interactive nature of the program, with such efforts to depend on the basis on
which such program is made available for broadcast by NBC. The Company and NBC
also entered into a warrant agreement, pursuant to which the Company issued
three warrants to NBC (the "NBC Warrants") which, if certain conditions are
satisfied, would enable NBC to purchase 5%, 10% and 10%, respectively, of the
Company's outstanding Common Stock on the date of exercise, at a purchase price
to be selected by NBC of either $5.00 per share, $7.00 per share or $9.50 per
share, respectively, or 75% of the then current fair market value of the
Company's Common Stock (all of which prices are subject to adjustment). The
warrants expire four years, five years and six years, respectively, from the
date on which the first NBC Warrant becomes exercisable. The exercise of all of
the NBC Warrants would enable NBC to acquire up to approximately 25% of the
Company's outstanding stock. The fixed exercise price for such warrants shall be
adjusted in the event that the Company issues Common Stock or other securities
at a price less than the fixed exercise price for the NBC Warrants.
The NBC Warrants will become exercisable if NBC airs a program or
programs making use of the Company's interactive technology for certain
specified periods after (i) a program broadcast or licensed for broadcast by NBC
that makes use of the Company's interactive technology is made available to NBC,
after the Company meets certain conditions, (ii) the Company is offering its
system in five television markets (as defined by standard industry practice),
and (iii) the Company is able to supply its Control Unit in sufficient
quantities to meet projected demand. In the event that the conditions to the
exercise of the NBC Warrants are satisfied, the Company will be subject to
recognition of expense relating to the difference between the exercise price of
the NBC Warrants and the fair market value of the Company's Common Stock at the
time of exercise.
SINGATRONICS LIMITED
In March 1991, the Company entered into an agreement with
Singatronics pursuant to which the Company granted to Singatronics an exclusive
license to use and apply certain of the Company's know-how to establish, develop
and promote an interactive television system in Singapore, Hong Kong, Taiwan and
certain other specified countries in the Far East. Singatronics will pay
specified royalties to the Company based on Singatronics' gross profits deriving
from the commercial exploitation of the Company's system in each country in
which the system is introduced. The initial term of the exclusive license to
Singatronics is 36 months, which period may be extended for up to an additional
eight years and six months depending upon the number of countries in which
Singatronics offers or enters into binding commitments to establish the system
during the initial term. Upon the termination or expiration of any exclusive
license granted under the agreement, Singatronics will be entitled to use the
know-how to com-
-1-
<PAGE>
mercially exploit the system and to manufacture products incorporating such
technology under a perpetual, nonexclusive license in any country in which it
had held an exclusive license, provided that Singatronics will be obligated to
continue making royalty payments at the rate that is applicable immediately
prior to the expiration of such license for so long as the Company's know-how
remains secret and substantial. The agreement also permits Singatronics to
continue to use any of its improvements to the know-how that are severable from
such know-how after the expiration of its exclusive licenses. In the latter
event, Singatronics shall grant the Company a non-exclusive, royalty-free
license to use all such improvements during the term of the agreement.
In March 1991, the Company also entered into an agreement with
Singatronics, which expires in March 1994, pursuant to which Singatronics
manufactures and supplies the Company's Control Unit on an exclusive basis. In
September 1992, the Company issued to Singatronics a promissory note in the
principal amount of $1,075,000 in payment of the purchase price for products
scheduled for delivery by Singatronics from September 1992 through December
1992. The payment of the note was secured by a security interest in
substantially all of the Company's assets, including its basic patent. The note
and security agreement were terminated in December 1992 upon the closing of the
sale of Common Stock to Gannett and other investors described above.
RAINBOW PROGRAMMING HOLDINGS, INC.
In July 1989, the Company entered into an agreement with Rainbow,
pursuant to which it agreed to license certain interactive programming rights to
Rainbow. Rainbow agreed to endeavor to obtain interactive contest rights to
National Hockey League ("NHL") games broadcast in the United States and to
license such rights to the company in exchange for the payment of specified
royalties. The term of the license for NHL games coincides with any license
secured by Rainbow from the NHL. In return for the development and promotion of
interactive programming other than NHL interactive programming, the Company will
pay royalties on such programming at specified rates. Subsequently, Rainbow and
the Company agreed to a similar arrangement for interactive contest rights for
regional broadcasts of NHL hockey games. In addition, the Company has agreed to
sell its Control Units to Rainbow at cost, and to pay a percentage of the gross
profits (gross sales less telephone, packet and royalties) relating to units
leased or sold by Rainbow within the 24-month period commencing when the Company
introduces its service in any particular market. Under the terms of the
agreement, the Company also granted to Rainbow a perpetual license to a
free-standing trivia game to be developed by the Company in accordance with
Rainbow's specifications and to be promoted and broadcast at Rainbow's
discretion.
TRANSACTIONS WITH OTHER PARTIES
In December 1986, the Company entered into a Sale of Patent
Agreement with David B. Lockton, pursuant to which Mr. Lockton sold his rights
in and to United States Patent No. 4,592,546 (the "Patent") to the Company in
exchange for the Company's promissory note (the "Promissory Note") in the
principal amount of $2 million, which does not bear interest. As a condition of
the sale of securities to outside investors in December 1987, Mr. Lockton agreed
-2-
<PAGE>
to provide that the principal amount of the Promissory Note would be repaid in
eight annual installments of $250,000, contingent upon and commencing on the
date when the Company has achieved positive cash flow from operations of at
least $75,000 per quarter during two consecutive quarters, provided that the
Company's payments to Mr. Lockton under the Promissory Note shall not exceed the
amount of its positive cash flow.
-3-
<PAGE>
APPENDIX II
-----------
A.C. Nielsen Company. In July 1989, the Company entered into an
agreement with A.C. Nielsen Company ("Nielsen"), pursuant to which the Company
granted to Nielsen a first right of refusal with respect to any "market research
use" of the Company's system or data generated therefrom. In the event Nielsen
does not exercise its first right of refusal and the Company subsequently enters
into a relationship with a third party to exploit its technology, Nielsen will
have the right to obtain a non-exclusive license to use the Company's system and
any data generated therefrom which am derived from the relationship with such
third party for a reasonable royalty, which license will become perpetual in the
event that Nielsen uses the system or is diligently pursuing such use during the
first three years of such license. The agreement also grants Nielsen exclusive
rights with respect to any "market research use" involving the Company's system
or the data generated therefrom in which the Company may seek to engage, or to
make a counterproposal to the Company regarding such use, as to which the
Company must negotiate in good faith. The agreement further gives Nielsen
exclusive rights with respect to ideas which Nielsen may have for "market
research use" of the system and the data generated therefrom, and the right to
obtain a non-exclusive, royalty-free, perpetual license to pursue implementation
of the system for "market research use" if the Company should fail to pursue
commercial use of the system for certain periods of time specified in the
agreement. This agreement will remain in effect for so long as Nielsen remains
the owns of any of the capital stock of the Company. The Company believes that
the agreement with Nielsen may lead to opportunities for using the Company's
system and technology in connection with market research activities.
<PAGE>
APPENDIX III
------------
7.6 BUSINESS VENTURES.
(a) The Company intends to develop and market through
affiliated entities to be formed real-time electronic news services on a
national basis in partnership with entities which will have been awarded
licenses from the Federal Communications Commission ("FCC') to broadcast in the
interactive video data service ("IVDS") spectrum. The Company agrees to
coordinate with Purchaser in the development of these opportunities and to
provide Purchaser with a right of first refusal to participate exclusively in
partnership or joint venture with the Company in the exploitation of these
opportunities.
(b) The Company intends to enter into a joint venture
arrangement with Purchaser which will utilize the Company's technology for the
purpose of offering real-time services to subscribers, such as results of
sporting events, league tournaments and standings, archival sports information,
scouting reports and similar information.
(c) The Company will use its best efforts to assist each of
Purchaser's 81 daily newspaper entities in each of their respective metropolitan
or rural service areas as the IVDS licenses are awarded through lotteries
throughout the nation.
(d) The terms and conditions of the ventures specified in
subsections 7.6(a) and (b) above will be subject to negotiation and joint
agreement by the Company, Purchaser and other parties to such ventures.
<PAGE>
In September 1992, the Company entered into a know-how license
agreement with Interactive Network Limited ("INL"), a U.K. corporation in which
William Andrewes is a director and officer, pursuant to which, in exchange for
the payment of specified royalties, the Company granted to INL an exclusive
license to use and apply certain of the Company's know-how to establish, develop
and promote in the United Kingdom and other specified European countries an
interactive television system. This agreement replaced a similar agreement
between the Company and Granada Group plc. Pursuant to the agreement, INL shall
pay the Company a separate royalty for each country in which it launches the
system, which royalty shall be calculated as a percentage of gross profits
derived by INL in connection with its commercial exploitation of the Company's
system. The initial term of the exclusive license is for a period of 18 months
after the NBC Warrants first becomes exercisable, which period may be extended
for up to an additional seven years depending upon the number of countries in
which INL offers or enters into binding commitments to establish the system
during the initial term. Upon the termination or expiration of any exclusive
license granted under the agreement, INL will be entitled to use the Company's
know-how to commercially exploit the system and to manufacture products
incorporating such technology under a perpetual, non-exclusive license in any
country in which it had held an exclusive license, subject to INL's continued
royalty payments. The agreement also permits INL to continue to use any of its
improvements to the know-how that are severable from such know-how after the
expiration of its exclusive licenses.
<PAGE>
APPENDIX IV
-----------
INTERACTIVE NETWORK UNITED STATES PATENTS
-----------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Patent No. Issued Inventors Title File
- ---------- ------ --------- -----
4,592,546 06/03/86 Fascenda/Lockton GAME OF SKILL A-40310
PLAYABLE BY REMOTE
PARTICIPANTS IN CONJUNC-
TION WITH A LIVE EVENT
5,013,038 05/07/91 Luxemburg/ METHOD OF EVALUATING A-50641
(Foreign filed EPC) Brown DATA RELATING TO A COM-
MON SUBJECT
5,083,800 01/28/92 Lockton GAME OF SKILL OR A-47990
(Foreign filed - CHANCE PLAYABLE BY
Canada, Japan, EPC) SEVERAL PARTICIPANTS
REMOTE FROM EACH OTHER
IN CONJUNCTION WITH A
COMMON EVENT
5,120,076 06/09/92 Luxemburg/ METHOD OF EVALUATING A-50641-2
Brown DATA RELATING TO A
COMMON SUBJECT
CANADIAN PATENT
- ---------------
1,274,903 10/02/90 Fascenda/ GAME OF SKILL PLAYABLE FA-40310
Lockton BY REMOTE PARTICIPANTS IN
CONJUNCTION WITH A LIVE
EVENT
</TABLE>
<PAGE>
UNITED STATES TRADEMARK REGISTRATIONS AND APPLICATIONS
------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Mark Regis. No. Issued File
- ---- ---------- ------ ----
"N" Stylized
(Service Mark) 1,661,112 10/15/91 TA-50486
"N" Stylized (Trademark) 1,662,302 10/09/91 TA-50486-1
IN FACT 1,677,760 03/03/92 TA-50486-2
IN A WORD 1,699,224 07/07/92 TA-50486-3
MAZE RUNNER 1,690,317 06/02/92 TA-50486-4
IN THE DUGOUT 1,724,712 10/13/92 TA-50486-6
SQUARE DEAL 1,685,451 05/05/92 TA-50466-8
YOUR OPINION 1,710,191 08/25/92 TA-50486-9
COUNTS
"N" INTERACTIVE
NETWORK 1,749,950 02/02/93 TA-50486-10
APPLICATIONS
------------
Mark Ser. No. Filed File
- ---- -------- ----- ----
PUBLIC OPINION 74/146,021 03/11/91 TA-50486-7
DOUBLE DIE 74/339,570 12/14/92 TA-50486-11
</TABLE>
